One of the lasting effects of the 2008 financial crisis was the belief that the distribution of economic power had radically shifted. China rising, West fading, yadda, yadda, yadda. A minor key in this argument has been the notion that a new and important measure of economic power is the size of a country's official reserves. This has led to the occasional panicked article that "China is buying gold!!" or "Russia is hoarding gold!!" or "Germany is moving gold!!" as a first step towards pushing the dollar out as the world's reserve currency.
Which is just so much horses**t.
Here are three facts to remember whenever you read any story about a BRIC economy hoarding gold:
1) Buying gold would have been extremely savvy in 2008. Now it's just silly. The price of gold peaked at over $1900 in September 2011 -- and despite massive amounts of quantitative easing and numerous reports about central bank hoarding, it's fallen by $300 since and trending downward.
2) The BRIC economies did not have a lot of gold to begin with. As Bloomberg notes, "Russia’s total cache of about 958 tons is only the eighth largest [in the world]."
1. The United States (8,134 tons)
2. Germany (3,391 tons)
3. The International Monetary Fund (2,814 tons)
4. Italy (2,451 tons)
5. France (2,435 tons)
So, to sum up: To believe that gold holdings really matter in the global political economy, you have to be willing to assert that Italy is a great power in global finance. I, for one, am not going there.
Over at the Guardian, Ed Pilkington notes a rather curious silence from a powerful American interest group:
The National Rifle Association is so tied up fighting new gun restrictions in the wake of the Newtown shooting that it has failed so far to mount its expected lobbying blitz against a new international arms control control treaty.
With just a few weeks to go until the world's first Arms Trade Treaty (ATT) is put to a final vote at a UN conference in New York campaigners have voiced surprise at the NRA's relative silence on the issue. Until the Newtown tragedy, in which 20 young children died in their classrooms on 14 December, the UN's attempt to contain the loosely regulated international trade in weapons had been one of the gun lobby's biggest targets....
[A]head of the final ATT conference, which opens on 18 March, the NRA has been notable by its absence. Though the organisation continues to vow that it will do all in its power to prevent the arms trade coming into effect – arguing that it is a "ticking time-bomb" and "the most serious threat to American gun owners in decades" – it has not been applying the same strong-arm tactics as it did in 2012.
So what's up? Pilkington suggests that the NRA is so distracted fighting against domestic gun control measures that it's taken its eye off the ball of this treaty -- particlarly since, according to the American Bar Association, there's nothing in the ATT to infringe on Second Amendment rights.
That might be true, but let me suggest an alternative hypothesis based on LaPierre's own rhetoric. The standard NRA defense against gun control has been concern about a Leviathan stripping citizens of their right to bear arms. Based on LaPierre's recent Daily Caller essay, however, I think they've switched arguments. The concern is no longer about creeping totalitarianism; it's creeping anarchy:
Hurricanes. Tornadoes. Riots. Terrorists. Gangs. Lone criminals. These are perils we are sure to face—not just maybe. It’s not paranoia to buy a gun. It’s survival. It’s responsible behavior, and it’s time we encourage law-abiding Americans to do just that....
Responsible Americans realize that the world as we know it has changed. We, the American people, clearly see the daunting forces we will undoubtedly face: terrorists, crime, drug gangs, the possibility of Euro-style debt riots, civil unrest or natural disaster.
Gun owners are not buying firearms because they anticipate a confrontation with the government. Rather, we anticipate confrontations where the government isn’t there—or simply doesn’t show up in time.
To preserve the inalienable, individual human right to keep and bear arms—to withstand the siege that is coming—the NRA is building a four-year communications and resistance movement (emphasis added).
They say "communications and resistance movement," I say "doomsday preppers."
I'm hardly the only one to notice this kind of doomsday prepper rhetoric from LaPierre. What's interesting is that the NRA's allies in Congress are talking the same way. Gail Collins offers up the following Lindsey Graham quote:
The senator from South Carolina wanted to know what people were supposed to do with a lousy two-shell shotgun “in an environment where the law and order has broken down, whether it’s a hurricane, national disaster, earthquake, terrorist attack, cyberattack where the power goes down and the dam’s broken and chemicals have been released into the air and law enforcement is really not able to respond and people take advantage of that lawless environment.”
Do you think Graham spends a lot of time watching old episodes of “Doomsday Preppers?” Does he worry about zombies? That definitely would require a lot of firepower (emphasis added).
I don't know if Graham worries about zombies, but I've given this matter some thought, and I do wonder if there's a fusion of various apocalyptic fears going on in some political quarters.
To get back to the Arms Trade Treaty, since Newtown the NRA appears to have shifted tactics in its arguments about the necessity to bear arms. But the fear of state collapse is a very different logic from a fear of an overpowering state. If you believe that governments will simply crumble at the first sign of a threat, then you're not gonna bother lobbying against some silly international treaty. It's not like the ATT will make a difference when the s**t hits the fan. Rather, groups like the NRA should be more concerned with declining gun ownership rates in the United States.
In the argot of international relations theory, a leader or organization that finds itself trapped by its political rhetoric is suffering from "blowback." In an irony of ironies, I wonder if the NRA's shift in rhetoric has hamstrung its lobbying efforts on the Arms Trade Treaty.
The passing of Hugo Chavez has prompted the usual 21st century cycle of news coverage and commentary that follows the death of a polarizing figure: the breaking news on Twitter, followed by the news obits, followed by the hosannahs from supporters, followed by denunciations of the figure, followed by official statements, followed by mealy-mouthed op-eds, followed by hysterical, unhinged criticism of standard diplomatic language.
Now that the first news cycle has passed, we can get to the more interesting question of assessing Venezuela's future. There was always a fundamental irony to Hugo Chavez's foreign policy. Despite his best efforts to chart a course at odds with the United States, he could never escape a fundamental geopolitical fact of life: Venezuela's economic engine was based on exporting a kind of oil that could pretty much only be refined in the United States.
So, with Chavez's passing, it would seem like a no-brainer for his successor to tamp down hostility with the United States. After all, Chavez's "Bolivarian" foreign policy was rather expensive -- energy subsidies to Cuba alone were equal to U.S. foreign aid to Israel, for example. With U.S. oil multinationals looking hopefully at Venezuela and Caracas in desperate need of foreign investment, could Chavez's successor re-align foreign relations closer to the U.S.A.?
I'm not betting on it, however, for one simple reason: Venezuela might be the most primed country in the world for anti-American conspiracy theories.
International relations theory doesn't talk a lot about conspiracy thinking, but I've read up a bit on it, and I'd say post-Chavez Venezuela is the perfect breeding ground. Indeed, the day of Chavez's death his vice president/anointed successor was already accusing the United States of giving Chavez his cancer.
Besides that, here's a recipe for creating a political climate that is just itching to believe any wild-ass theory involving a malevolent United States:
1) Pick a country that possesses very high levels of national self-regard.
2) Make sure that the country's economic performance fails to match expectations.
3) Create political institutions within the country that are semi-authoritarian or authoritarian.
4) Select a nation with a past history of U.S. interventions in the domestic body politic.
5) Have the United States play a minor supporting role in a recent coup attempt.
8) Finally, create a political transition in which the new leader is desperate to appropriate any popular tropes used by the previous leader.
Venezuela is the perfect breeding ground for populist, anti-American conspiracy theories. And once a conspiratorial, anti-American culture is fomented, it sets like concrete. Only genuine political reform in Venezuela will cure it, and I don't expect that anytime soon.
Oh, and by the way: Those commentators anticipating a post-Castro shift by Cuba toward the U.S., should run through the checklist above veeeery carefully.
Am I missing anything?
A little more than two years ago I wrote a blog post entitled "The End of Power?" After riffing on the subject for a spell, I closed with:
So... we live in a world in which more actors have vetoes over systemic change but no actor has the ability to truly compel change. This leads to lots of talk about "G-zero worlds" and so forth.
Just to be provocative, however, I wonder if what's truly changed is the extinction of compellence power as we know it. The primary, ne plus ultra tools of compellence require a willingness to kill, jail, or starve a lot of people. Recent flare-ups like Iran in 2009 and Egypt right now suggest that such actions are possible at the domestic level but pretty damn costly; even authoritarian countries flinch at using brute force on a domestic population. Cross-border efforts are even more expensive in terms of both material and reputational costs.
This isn't the end of power, but it might be the end of one particular dimension of power. I'm not entirely convinced that this supposition is true and am willing/eager to hear counterarguments. That said, I still hereby claim The End of Power as my title, so everyone else just back off, OK?
Well, so much for my claim. Former FP head honcho Moisés Naim has a new book out called... The End of Power: From Boardrooms to Battlefields and Churches to States, Why Being In Charge Isn't What It Used to Be. His argument:
Power is shifting -- from large, stable armies to loose bands of insurgents, from corporate leviathans to nimble start-ups, and from presidential palaces to public squares. But power is also changing, becoming harder to use and easier to lose. As a result, argues award-winning columnist and former Foreign Policy editor Moisés Naím, all leaders have less power than their predecessors, and the potential for upheaval is unprecedented. In The End of Power, Naím illuminates the struggle between once-dominant megaplayers and the new micropowers challenging them in every field of human endeavor. The antiestablishment drive of micropowers can topple tyrants, dislodge monopolies, and open remarkable new opportunities, but it can also lead to chaos and paralysis. Drawing on provocative, original research and a lifetime of experience in global affairs, Naím explains how the end of power is reconfiguring our world.
The originality of the argument -- along with the subtitle -- saves Moisés from some serious legal retribution!! Well, that and he asked me to moderate a panel on the topic with him and Fareed Zakaria at the Council on Foreign Relations. Here's the video. Enjoy!
Your humble blogger gave a talk at the "Sex, Tech and Rock & Roll" TEDx event at Binghamton University last month. My talk was entitled "Metaphor of the Living Dead" and was in part prompted by my prior work on zombies, as well as this blog post from last December.
Here's the TED talk:
I look forward to The Onion trying to satirize that talk.
As longtime blog readers are aware, I'm working on a book-length project arguing that global economic governance has done a surprisingly good job of things in the post-2008 world. Not perfect, mind you, but "good enough" global governance.
Now, the interesting thing about making such a counterintuitive argument is the number of opportunities one comes across of the conventional wisdom asserting itself -- the idea that the system is crumbling, we're in a Brave New World of uncertainty, no one is in charge, yadda yadda yadda. You, my dear reader, must wonder how I react when I see such assertions. Well, pretty much like Cliff Poncier but with shorter hair:
No, seriously, I like seeing good arguments pushing against my position -- it's a way for me to see whether my argument holds up.
Which brings me to Naazneen Barma, Ely Ratner and Steve Weber's new essay in The National Interest, entitled "The Mythical Liberal Order." The title is pretty clear -- as is their argument:
Instead of a gradual trend toward global problem solving punctuated by isolated failures, we have seen over the last several years essentially the opposite: stunningly few instances of international cooperation on significant issues. Global governance is in a serious drought—palpable across the full range of crucial, mounting international challenges that include nuclear proliferation, climate change, international development and the global financial crisis.
Where exactly is the liberal world order that so many Western observers talk about? Today we have an international political landscape that is neither orderly nor liberal.
It wasn’t supposed to be this way. In the envisaged liberal world order, the “rise of the rest” should have been a boost to global governance. A rebalancing of power and influence should have made international politics more democratic and multilateral action more legitimate, while bringing additional resources to bear. Economic integration and security-community enlargement should have started to envelop key players as the system built on itself through network effects—by making the benefits of joining the order (and the costs of opposing it) just a little bit greater for each new decision. Instead, the world has no meaningful deal on climate change; no progress on a decade-old global-trade round and no inclination toward a new one; no coherent response to major security issues around North Korea, Iran and the South China Sea; and no significant coordinated effort to capitalize on what is possibly the best opportunity in a generation for liberal progress—the Arab Spring.
It’s not particularly controversial to observe that global governance has gone missing. What matters is why. The standard view is that we’re seeing an international liberal order under siege, with emerging and established powers caught in a contest for the future of the global system that is blocking progress on global governance. That mental map identifies the central challenge of American foreign policy in the twenty-first century as figuring out how the United States and its allies can best integrate rising powers like China into the prevailing order while bolstering and reinforcing its foundations.
But this narrative and mental map are wrong. The liberal order can’t be under siege in any meaningful way (or prepped to integrate rising powers) because it never attained the breadth or depth required to elicit that kind of agenda. The liberal order is today still largely an aspiration, not a description of how states actually behave or how global governance actually works. The rise of a configuration of states that six years ago we called a “World Without the West” is not so much challenging a prevailing order as it is exposing the inherent frailty of the existing framework.
I encourage you to read the whole thing. I have two reactions to it. The first is thast I wholeheartedly endorse one point that they are making. The notion that the liberal wprld order was perfectly functioning prior to 2008 is one of the biggest sources of misperception about the global political economy. As Barma, Ratner and Weber point out, this was at best a partial order even prior to 2008. This matters: a misplaced nostalgia for prior eras of global governance is one reason that so many commentators think that the system is f**ked right now. Once you realize that the post-1945 liberal order was partial, riddled with exceptions, and also prone to crisis, suddenly the present day doesn't look so bad in comparison.
Now, that said, I think Barma, Ratner and Weber get some big things wrong. This is a blog post, so I'll focus on one point in particular -- the claim that liberal ideas are faltering in today's world:
Ask yourself this: Have developing countries felt and manifested over time the increasing magnetic pull of the liberal world order? A number of vulnerable developing and post-Communist transitional countries adopted a “Washington Consensus” package of liberal economic policies—freer trade, marketization and privatization of state assets—in the 1980s and 1990s. But these adjustments mostly arrived under the shadow of coercive power. They generally placed the burden of adjustment disproportionately on the most disempowered members of society. And, with few exceptions, they left developing countries more, not less, vulnerable to global economic volatility. The structural-adjustment policies imposed in the midst of the Latin American debt crisis and the region’s subsequent “lost decade” of the 1980s bear witness to each of these shortcomings, as do the failed voucher-privatization program and consequent asset stripping and oligarchic wealth concentration experienced by Russians in the 1990s.
If these were the gains that were supposed to emerge from a liberal world order, it’s no surprise that liberalism came to have a tarnished brand in much of the developing world. The perception that economic neoliberalism fails to deliver on its trickle-down growth pledge is strong and deep. In contrast, state capitalism and resource nationalism—vulnerable to a different set of contradictions, of course—have for the moment delivered tangible gains for many emerging powers and look like promising alternative development paths. Episodic signs of pushback against some of the excesses of that model, such as anti-Chinese protests in Angola or Zambia, should not be confused with a yearning for a return to liberal prescriptions. And comparative economic performance in the wake of the global financial crisis has done nothing to burnish liberalism’s economic image, certainly not in the minds of those who saw the U.S. investment banking–led model of capital allocation as attractive, and not in the minds of those who held a vision of EU-style, social-welfare capitalism as the next evolutionary stage of liberalism.
Yes, this explains why the publics in the developing world have rejected economic globalization as an economic strategy -- oh, wait, I'm sorry, they haven't done that, nor have their governments. If anything, the commitment to a liberal economic order has held up remarkable well since 2008. As for the appeal of the "Beijing Consensus" or the "China Model," I'll outsource this refutation to Yang Yao, Scott Kennedy, and Matt Ferchen.
The fundamental disagreement between these authors and myself is revealed in this paragraph:
Global governistas will protest that the response to the global financial crisis proves that international economic cooperation is more robust than we acknowledge. In this view, multilateral financial institutions passed the stress test and prevented the world from descending into the economic chaos of beggar-thy-neighbor trade policies and retaliatory currency arbitrage and capital controls. The swift recovery of global trade and capital flows is often cited as proof of the relative success of economic cooperation. The problem with this thesis is that very real fears about how the system could collapse, including the worry that states would retreat behind a mercantilist shell, are no different from what they were a hundred years ago. It’s not especially indicative of liberal progress to be having the same conversation about global economic governance that the world was having at the end of the gold-standard era and the onset of the Great Depression. Global economic governance may have helped to prevent a repeat downward spiral into self-defeating behaviors, but surely in a world order focused on liberal progress the objectives of global economic governance should have moved on by now.
My response to this is two-fold: first, given the crisis-prone nature of global capitalism, preventing and repairing catastrophes should be a pretty timeless function of global economic governance. Second, there is no way that one can objectively compare the world order of the 1930s -- or 1940s or 1970s, for that matter -- and not conclude that massive amounts of liberal progress have not been made. The world is far more free politically and economically now than at any point in history. That suggests a surprisingly robust liberal world order.
Or, in other words, all this negative energy about global economic governance just makes my argument stronger, man.
What do you think?
What with all the horses**t about "currency wars" floating around over the past few months, the occasional reader might be tricked into thinking that protectionist sentiments are at a new high. After all, with a weak global economy, one would expect enthusiasm about trade to be about as vibrant as the Doha round -- i.e., deader than a doornail. As someone with a betting interest in the United States enacting an ambitious foreign economic policy agenda, you'd think I'd be pretty depressed right about now.
Ha -- wrong!! In actuality, public sentiment on trade is pretty robust. And as Bruce Stokes notes, public sentiment for a transatlantic trade deal is pretty positive:
[C]ontrary to the widespread assumption that protectionist sentiments are rising in the wake of the Great Recession, 58 percent of Americans say they support increased trade with the EU. The same feeling exists across the Atlantic. Three-quarters of the Italians, nearly two-thirds of the British (65 percent) and more than half of the French (58 percent) and Germans (57 percent) believe in deepening trade and investment ties between the European Union and the United States; 63 percent of Americans agree, according to a 2007 German Marshall Fund survey.
There is also strong support for one of the thorniest challenges that lie ahead: harmonization or mutual recognition of national regulations on goods and services, everything from food standards to insurance. Overwhelmingly Italians (87 percent), British (84 percent), French (82 percent), Americans (76 percent) and Germans (71 percent) support such efforts, according to the Marshall Fund survey.
That's just trade between two developed economies, however. Surely, in a slack economy, Americans are more wary of trade in general, right?
Wrong again!! Gallup has the surprising polling results here:
Americans' views on foreign trade have become much more positive this year, departing from their more skeptical position of the last several years. Americans are now about as positive toward foreign trade as they were during the better economic times of the 1990s and early 2000s.
That means the Obama administration is likely operating in an environment more supportive of U.S. trade deals with other countries than has been the case in the recent past. The Obama administration is currently exploring an ambitious free-trade deal between the United States and the European Union, and continues to work toward a trade agreement with Australia and other Pacific nations.
Here's the key graph:
Now, first of all, astute readers might argue that this disproves my oft-repeated claim that the American people are stone cold mercantilists. To which I say, look at the question that's being asked -- exports good, imports bad. The mercantilism is baked into the polling question!! Essentially, what this poll reveals is enthusiasm for exports, not trade more generally.
That said, a closer look at the poll also suggests something even more promising. It would appear that public enthusiasm about trade exports is a leading indicator for rational expectations of U.S. economic growth. The only other positive jump like this came just as the 1990s economic boom really kicked into gear. Even more intriguingly, Americans got much more pessimistic about trade prior to the 2008 finanmcial crisis. And, indeed, even Gallup points out that U.S. economic confidence is at a post-crisis high right now, sequester or no sequester.
We're now in the realm of pure speculation, but another source of American optimism on trade comes from some of the underlying positive trends I talked about a year ago. U.S. consumers are almost done with their necessary deleveraging; the U.S. manufacturing sector continues its small boomlet; and projections about U.S. energy production have become even more optimistic.
These are all intrinsically good trends, but the spillover effect on American attitudes towards trade is particularly promising. The spike in public enthusiasm from last yeear is politically significant. At a minimum, it suggests that president Obama won't face gale-force headwinds in trying to negotitae trade deals. Which means I could win my bet with Shadow Government's Phil Levy. Which is the only thing that matters.
Let's face it, Americans do not understand the current state of either macroeconomic policy or foreign policy terribly well. According to Bloomberg, only six percent of Americans know that the federal budget deficit is actually shrinking. According to Gallup, just a bare majority of Americans believe that the United States military remains "number one in the world militarily." In a world of these kind of epic media fails, where significant numbers of GOP legislators seem "more concerned about 2% inflation than 8% employment," it's important to to have recognized experts try to clear the air.
Nobel Prize-winning economist and unusually-pithy-writer-for-an-economist Robert Solow has an op-ed in today's New York Times to offer a primer on the implications of U.S. debt. Here, in brief, are the "six facts about the debt that many Americans may not be aware of," in Solow's words. Let me number them here:
1) Roughly half of outstanding debt owed to the public, now $11.7 trillion, is owned by foreigners. This part of the debt is a direct burden on ourselves and future generations....
2) The Treasury owes dollars, America’s own currency (unlike Greece or Italy, whose debt is denominated in euros)...
3) One way to effectively repudiate our debt is to encourage inflation...
4) Treasury bonds owned by Americans are different from debt owed to foreigners. Debt owed to American households, businesses and banks is not a direct burden on the future....
5) The real burden of domestically owned Treasury debt is that it soaks up savings that might go into useful private investment.
6) But in bad times like now, Treasury bonds are not squeezing finance for investment out of the market. On the contrary, debt-financed government spending adds to the demand for privately produced goods and services, and the bonds provide a home for the excess savings. When employment returns to normal, we can return to debt reduction.
Some foreign pollicy experts think that Solow is being too sunny. Take Council on Foreign Relations president Richard Haass:
With respect, I think Solow is actually being too pesssimistic, and Haass is being way too pessimistic.
The problem is that, contra Solow, I suspect Americans are keenly aware of his points 1-5. The United States owes a lot of money to China, but I'd wager that any poll of U.S. citizens would reveal that the public thinks we owe even more to China than we actually do. Similarly, much of the policy rhetoric coming from Washington focuses on fears of incipient inflation that have yet to pan out.
It's Solow's last point that is the one Americans need to hear more: in an era of slack demand, bulging coporate cash coffers, and recovering personal savings rates, it's actually pretty stupid to have U.S. government spending and employment contract so quickly. I fear, however, that excessive concern about Solow's first, third, fourth and fifth points will swamp out the rest of his op-ed.
As for Haass, I'm not exactly sure what "rising rates" he's talking about, as just about any chart you can throw up shows historically low borrowing rates for the United States government. Indeed, the U.S. Treasury is exploiting this fact by locking in U.S. long-term debt at these rates. As for foreign governments pressuring the United States, the fear of foreign financial statecraft has been somewhat hyped by the foreign policy community. And by "somewhat hyped," I mean "wildly, massively overblown."
The bias in foreign policy circles and DC punditry is to bemoan staggering levels of U.S. debt. This bias does percolate down into the perceptions of ordinary Americans, which leads to wild misperceptions about the actual state of the U.S. economy and U.S. economic power. I'd like to see a lot more op-eds by Solow et al. that puncture these myths more effectively.
Am I missing anything?
Daniel W. Drezner is professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University.