Since I was a young boy studying global political economy armed with little but an Economist subscription and a smile, I've noticed that, at some point, every country and their neighbor tries to do something to create their own Silicon Valley. Whether it's Great Britain, China, France, Brazil, or even North Korea, it seems as though every country in the world is trying to hit upon the right policy formula to create their own hub of high-tech innovation and entrepreneurship.
tax avoidance value-added created by Silicon Valley, this is no surprise. At the same time, all of this is the IPE equivalent of Gretchen Weiner's efforts to coin urban slang in Mean Girls:
I don't mean this in a "HA HA HA, you stupid non-Americans!!" way. I'm pretty sure that the conditions that created the actual Silicon Valley had more to do with serendipity, fortuna, and happy accidents than any conscious set of policies (though see here for my deeper thoughts on this subject).
Which brings me to Russia's efforts to grow its own version of Silicon Valley. It launched Skolkovo Innovation Hub, a pet project of Russian President Dmitri Medvedev, and then paid MIT a boatload of money ($300 million) to set up a school and design a curriculum to attract Russia's best and brightest. High-profile western firms like Cisco have gotten involved. In all, the Russian government has thrown an estimated $4.2 billion at this project.
So how's it going? Well, Courtney Weaver and Charles Clover have a Skolkovo update over at the Financial Times. Here's how it starts:
Just over a month ago, Tony Blair and Colin Powell were sitting in Moscow’s towering World Trade Centre, helping Kremlin officials brainstorm how they could attract more investment to Russia. A few storeys above them, employees of Skolkovo, the government’s flagship high-tech project, received a few visitors of their own.
At 9.30am on April 18, more than a dozen agents of Russia’s domestic security agency stormed Skolkovo’s office, confiscating mobile phones and removing reams of paper.
Skolkovo was meant to be Russia’s answer to Silicon Valley – a Kremlin-sponsored technopark with research centres for the world’s leading science and technology companies. But over the past few months it has found itself caught in the crossfire of Russian politics, causing those involved to question the project’s future....
People close to Skolkovo, including [Kremlin "gray cardinal" Vladislav] Surkov, have suggested that the volume of charges and their highly public airing are signs that the investigations are not part of an anti-corruption drive but are politically motivated. The crackdown comes amid a power struggle within the government between more liberal ministers led by Dmitry Medvedev, the prime minister and former president, and hardliners who are pushing back against the pet programmes of Mr Medvedev’s presidency, the most visible one being Skolkovo.
So, a few things:
1) Here's a thought: if you are trying to woo high-tech foreign direct investment and your go-to guys are Tony Blair and Colin Powell, then you can pretty much forget trying to clone Silicon Valley. Only Russian politicians could envision the following script playing out:
SILICON VALLEY MOGUL: Set up a major investment in Russia? Yeah, they've got the human capital, but the downside risk is massive. It's government by diktat, and Putin blows hot and cold with foreign investment. There are too many ways we can lose our lunch.
EXECUTIVE ASSISTANT: Pardon me, but I have Colin Powell on the line. He says he'd like to talk to you about investing in Russia.
SILICON VALLEY MOGUL: Did you say Colin Powell???!!! Hold my calls for the next hour. It's not every day you get to hear the business musings of a man who has limited business experience and hasn't been in office for close to nine years!!!
2) Correct me if I'm wrong, but any time Putin and Medvedev have a policy disagreement or turf war, Putin wins. Why, if you're negotiating some kind of Russian venture, would you ever feel secure with any arrangement with Medvedev?
3) Wait, scratch #2 -- even if you cut a deal with Putin's men, would you ever feel secure about it? As I said at the outset, it's hard enough trying to incubate an innovation hub in the best of circumstances. Trying to do so with a government that doesn't understand the words "credible commitment" makes it damn near impossible.
Am I missing anything?
Yesterday the New York Times announced a brand new conference called The Next New World. The URL gives the game away, however -- it's the Friedman Forum. The précis:
Pulitzer Prize–winning New York Times columnist Thomas L. Friedman hosts this timely forum, bringing together chief executive officers, tech pioneers, government officials, influential decision-makers and scholars to discuss the new world economy, opportunities and challenges. We will explore the complex dynamics of new-world infrastructure, especially the transformative electronic, digital and mobile environment. Attendees can expect invaluable insights into strategies for success in today’s new world order.
If you act before May 10, you can get the discounted rate of $995.00 to attend!
Why should you shell out that kind of cabbage to go to such a confab? Well, there's the speaker list of course, but even better, the Friedman Forum has a "Why Attend?" page that will answer this very question. The good parts version:
The New York Times Next New World Forum is an invitation-only, highly interactive forum that explains:
How this Next New World is changing your job, your workplace, and your competition...
How cyberattacks and monetary crises are the new national security threats—threats to global businesses as well as nations....
How brands are threatened as never before by new players, and why C-Suite executives are both more constrained and less likely to last....
How robotics and other cutting-edge technologies can increase productivity but also disrupt your office and workforce....
How everything from climate change to fallen infrastructure is threatening global supply chains and how the rise of a new global middle class is disrupting American global dominance—while creating new markets.
After reading this, as well as CUNY's announcement that former CENTCOM commander/CIA Director David Petraeus will lead a seminar on the United States and the global economic crisis, I had two reactions.
1) At what point does one decide, "Why, yes, I should lecture people on the New New Things in the Global Economy! And charge at least a thousand dollars for the privilege"?
This is a serious question. I get asked this a lot at various talks, and I'm always befuddled by the query. I mean, if I had the actual answer, I wouldn't be so low in the international relations speaker ecosystem.
2) Forget Davos, Aspen or TED -- the Friedman Forum suggests a whole new vista of conferences branded around the idiosyncracies of individual thought leaders. Friedman better nail this down fast, because the coming competition will be fierce. In the spirit of... er... alliteration and Robert Ludlum titles, let me predict some other possible confabs on the horizon:
A) The Gross Gaggle. Organized by PIMCO's Bill Gross, this would be a collection of the world's most florid investment letter-writers in the world, warning about risk and uncertainty.
The Big Finale: Gross doing a spoken-word version of his latest newsletter with Dave Brubeck's "Take Five" playing in the background.
B) The Slaughter Seminar. The new president of the New America Foundation will lead a highly interdisciplinary gathering to focus on the myriad ways that the 21st century is upending our static 20th century mindsets. Topics will include the role of social networks, social media networks, online networks, gendered networks, and networked networks.
The Big Finale: A three-hour break in the middle of the day for participants to bond with their families.
C) The Dowd Doohickey. Join the Red Priestess as she explains how leadership is supposed to be done in the 21st century. After the ritual flaying of a political scientist to appease the Social Science Gods, Dowd will explain exactly how politicians used to Get Things Gone back in the day.
The Big Finale: Dowd and Aaron Sorkin will re-enact some of the classic Josh Lyman-Donna Moss scenes from The West Wing.
D) The Taleb Teach-In. Just how fragile is your financial position in this time of massive geopolitical and geoeconomic uncertainty? The author of The Black Swan and Antifragile will unleash his crystal ball and stare deeply into your portfolio to see if you're really and truly prepared for a volatile century.
The Big Finale: Taleb unleashes an army of zombies into the auditorium to sort out the resilient from the posers.
E) The Morozov Mish-Mash. Everything is sh*t -- your beliefs, your ideas, your likes, your dislikes, and particularly your values. If you dare attend, Morozov will explain why Everything You Hope for is a Chimera.
The Big Finale. Morozov will glare out at the audience, grumble, "you all suck," drop the mic, and walk off stage.
[And what about your confab?!--ed. I'll let the commenters decide the contents of... the Drezner Deliberations!]
So, after reading up on the Cyprus deal from the Financial Times, the Economist, and Quartz, I think I have a pretty good idea of what happened. Tyler Cowen isn't happy with the deal, and I can see why, but I don't think that means the deal won't stabilize things for a spell. My four quick takes:
1) I've been pretty insistent that the most surprising thing about the aftermath to the 2008 financial crisis is how much global policy norms haven't changed. By and large the major economies are still rhetorically and substantively committed to trade liberalization, foreign direct investment, and a constrained role for the state in the private sector. The one exception? Capital controls. The earth has moved here, and the fact that this deal will require fair amounts of financial repression and cross-border controls is just the latest sign of this fact.
From a normative perspective, I can't say I'm too broken up about this. It's not that I'm a huge fan of capital controls or anything. In the various policy trilemmas or unholy trinities that Dani Rodrik and others talk about, however, it strikes me that unfettered capital mobility is the policy preference with the least upside. And Cyprus does seem to be the fifth iteration of the lesson that countries that live by large unregulated offshore finance will die by large unregulated offshore finance.
2) If the FT's Peter Siegel and Joshua Chaffin are correct, then the political backlash in Cyprus from this deal won't be that great:
In Nicosia, political leaders generally greeted the deal as painful but necessary.
The city streets were quiet and peaceful, with most businesses closed for a public holiday.
Even before the agreement was clinched, most Cypriots had come to grips with the fact that the offshore financial business sector that has powered the economy since the Turkish invasion in 1974 would be but a shell of its recent self.
And as the Economist explains, the current Cypriot reaction is based on the fact that the new deal is a damn sight better for them than the previous deal:
On March 16th Cyprus’s president, Nicos Anastasiades, desperate to protect Cyprus’s status as an offshore banking model for Russians, had decided to save the two biggest banks and thus to spread the pain thinly. He would have applied a hefty tax to all depositors: 9.9% for those too big to be covered by the EU-mandated €100,000 deposit guarantee, and 6.75% for the smaller depositors.
But after a week of brinkmanship—including protests by Cypriots, the extended closure of banks to avoid the outrush of money, a failed attempt by Cyprus to throw itself at Russia’s feet, an ultimatum by the European Central Bank and an eleventh-hour threat by Cyprus to leave the euro zone—a different decision was made: to apply the pain much more intensely, but on a smaller number of large depositors.
Which leads me to....
3) So much for Russia as a counterweight to the European Union. Cyprus tried to realign itself closer to Moscow, but it didn't take. Furthermore, the new deal really puts the screws on the large deposits of Russian investors that have parked their money in Nicosia. As Felix Salmon explains:
In the Europe vs Russia poker game, the Europeans have played the most aggressive move they can, essentially forcing Russian depositors to contribute maximally to the bailout against their will. If this is how the game ends, it’s an unambiguous loss for Russia, and a win for the EU.
The Financial Times makes a similar point:
One Moscow businessman blamed the harsher haircut on the Kremlin, which he accused of failing to protect Russia’s interests, “thereby allowing the Germans to bully Cyprus and thousands of Russian depositors”.
“As soon as the EU saw that Russia was not going to protect its citizens, the confiscation of Russian money in Cyprus was pushed by the EU. All that was necessary for Russia to do was to provide €2.5bn secured by Cyprus’s nationalised assets,” he said.
With Xi Jinping's visit to Moscow, there's been a lot of chatter about "rise of BRICS" and "Russia turns East" and "SCARY!! SCARY!!" Bear in mind, reading all of this, that Moscow couldn't budge the ostensibly enervated EU from its position on the EU member with the closest ties to Russia.
[Can't Russia just mess with the Europeans on energy?--ed. Um... no. Sure, they could try to do that, but the long-run implications of that move for Russian exports ain't good. To paraphrase an old Woody Allen joke, Russia might find its economic relationship with the European Union to be totally frustrating and irrational and crazy and absurd... but Russia needs the eggs.]
4) What I said about Cyrprus last week still seems to hold for this week. So I guess this means Cyprus now falls under the "good enough" global governance category, with the caveat that this involves eurozone officials, so "good enough" here is defined down to mean "managed not to wreck the rest of the global financial system."
Am I missing anything?
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?
Like other wonks, I watched last night's State of the Union address with a mixture of curiosity and whiskey. As I noted a few days ago, each State of the Union address contains some statements that history will judge rather harshly. Initially that was my focus in listening to last night's speech. That was quickly supplanted by a more interesting undercurrent to Obama's text, however.
Foreign policy wonks like Fred Kaplan have argued that there wasn't much foreign policy content in the speech. That's true only if one has a rather narrow definition of foreign policy. What was striking to me was Obama's global justifications for a lot of his economic policy. Throughout his speech, he used the specter of foreign economic threats to prod Congress into action. Consider the following:
Every day, we should ask ourselves three questions as a nation: How do we attract more jobs to our shores? How do we equip our people with the skills needed to do those jobs?....
After shedding jobs for more than 10 years, our manufacturers have added about 500,000 jobs over the past three. Caterpillar is bringing jobs back from Japan. Ford is bringing jobs back from Mexico. After locating plants in other countries like China, Intel is opening its most advanced plant right here at home. And this year, Apple will start making Macs in America again.There are things we can do, right now, to accelerate this trend....
After years of talking about it, we are finally poised to control our own energy future. We produce more oil at home than we have in 15 years....
Four years ago, other countries dominated the clean energy market and the jobs that came with it. We’ve begun to change that. Last year, wind energy added nearly half of all new power capacity in America. So let’s generate even more. Solar energy gets cheaper by the year – so let’s drive costs down even further. As long as countries like China keep going all-in on clean energy, so must we.....
America’s energy sector is just one part of an aging infrastructure badly in need of repair. Ask any CEO where they’d rather locate and hire: a country with deteriorating roads and bridges, or one with high-speed rail and internet; high-tech schools and self-healing power grids. The CEO of Siemens America – a company that brought hundreds of new jobs to North Carolina – has said that if we upgrade our infrastructure, they’ll bring even more jobs....
Let’s also make sure that a high school diploma puts our kids on a path to a good job. Right now, countries like Germany focus on graduating their high school students with the equivalent of a technical degree from one of our community colleges, so that they’re ready for a job....
In each of these passages, Obama was using comparative language to contrast the United States with other countries -- or, as he would put it, other magnets for jobs. The explicit thesis is that unless the United States makes the necessary investments, scarce jobs will leave American shores.
Obama has used this kind of rhetoric on the campaign trail and in previous SOTUs. It reveals a somewhat mercantiilist worldview, one in which jobs and economic growth have a zero-sum, relative gains quality to it.
[So, what, Dan? Most Americans see the world through a mercantilist lens as well. Will this kind of rhetoric matter?--ed.] I'm honestly not sure. Here's the foreign economic policy component of the SOTU:
Even as we protect our people, we should remember that today’s world presents not only dangers, but opportunities. To boost American exports, support American jobs, and level the playing field in the growing markets of Asia, we intend to complete negotiations on a Trans-Pacific Partnership. And tonight, I am announcing that we will launch talks on a comprehensive Transatlantic Trade and Investment Partnership with the European Union – because trade that is free and fair across the Atlantic supports millions of good-paying American jobs.
Now on the one hand, announcing the formal start of negotiations with the EU on a trade deal augurs well for my prediction last year about foreign economic policy playing a big role in Obama's second term. On the other hand, viewing trade through a mercantilist lens will make tough negotiations even tougher ... which means I might owe Phil Levy an expensive DC dinner.
In a speech in which traditional security threats seemed very much on the wane in terms of actual threat as well as political salience, it would be a cruel twist of fate to ratchet up ill-conceived foreign economic threats as a substitute.
About six months ago, when the world's major central banks all started pursuing aggressive strategies of quantitative easing, I blogged that, "the international bitching and moaning about QE3 seems much less than the 'currency war' rhetoric that QE2 triggered."
With Japan's decision to unleash the monetary taps, the "currency war" meme has cropped up again, but in an odd way. To be honest, I'm reading a lot more essays that smack down the "currency war" claim than are making it. For recent and salient smackdowns, see Felix Salmon, Mario Draghi, Gavyn Davies, Philipp Hildebrand, Matthew Yglesias, and Paola Subacchi.
So this raises an awkward question -- who is claiming that there's a currency war and why? Is there a lobby that's agitating for an end to certain policies and using the guise of a "currency war" to try to make it happen? Who are these shadowy groups?
As near as I can determine, there are three interest groups with the motivated interest in doing this:
1) The Bundesbank. One can think of the eurozone crisis as one long, inexorable weakening of the Bundesbank's grip on European monetary policy. Bundesbank president Jens Weidemann set off the latest round of currency war puffery in a speech in which he bemoaned the "increased politicisation of exchange rates" and warned that central bank indepenence was eroding. Now I'm not a German-speaker, but it's possible that when Weidemann says central bank independence is "eroding" he means, "I don't have a veto over eurozone monetary policy like I used to and Draghi won't return my calls."
2) The bond funds. Bondholders aren't big fans of inflating currencies, which is the designed effect of this collective round of quantitative easing. Or, to put it more pithily, it's not a currency war unless someone at PIMCO is hyping it!! In this case, Mohammed El-Erian:
[T]here is a lot of scholarship demonstrating why such beggar-thy-neighbor approaches result in bad collective outcomes. Indeed, multilateral agreements are in place to minimize this risk, including at the International Monetary Fund and the World Trade Organization.
Yet, when push comes to shove, country after country is being dragged into abetting a potentially harmful outcome for the global economy as a whole. Worse, this process has not yet registered seriously on the multilateral policy agenda.
El-Erian needs to read the Financial Times a bit more often. The problem isn't that this isn't on the "multilateral policy agenda" -- it's that these global governance structures are less stressed about it than El-Erian:
The world’s largest developed nations reaffirmed their commitment not to target exchange rates in a statement on Tuesday aimed at addressing concerns over a fresh round of global currency wars.
In a move widely seen as an attempt to defuse tensions over recent rapid moves in the currency market, the Group of Seven countries -- comprising the US, the UK, France, Germany, Italy, Canada, and Japan -- said they would “consult closely” on any action in foreign exchange markets.
"We reaffirm that our fiscal and monetary policies have been and will remain oriented towards meeting our respective domestic objectives using domestic instruments, and that we will not target exchange rates,” the ministers and governors said.
This doesn't sound like the G-7 is all that troubled -- or, to put it more bluntly, not as troubled as El-Erian wants them to be.
3) The developing world. While the G-7 seems pretty copacetic with the combined quantitative easing, the G-20 is another matter.
The words “currency wars” are too blunt for a G20 communique, but that is what the world’s finance ministers will talk about when they meet in Moscow this week.
A new round of monetary easing in advanced economies is pushing down their currencies and prompting howls of protest from the developing world.
Indeed, the most cogent critiques of the developed world's combined QE strategy comes from officials and op-ed writers focused on the less developed world. And to be sure, the combined effect of developed country actions on the monetary front can create some policy problems in the developing world.
Again, though, what's striking isn't the vocal complaints about currency wars in 2013 but the relative absence of them compared to, say, the fall of 2010 after QE2. Which suggests that while there might be some mild grumbling among the advanced developing countries, they prefer the status quo to policies that cause the OECD economies to contract in size.
So, to sum up: when you read about someone voicing "grave concern" about currency wars, see if they are based in A) an export-dependent developing economy; B) a bond fund; or C) the German central bank. If they are, you can safely tune them out. It's when people outside those places start carping that I'll start getting concerned about a currency war.
Am I missing anything?
The Washington Post's Howard Schneider and Danielle Douglas have a story detailing the ways in which post-crisis global financial reform has allegedly ground to a halt:
Five years after the collapse of Lehman Brothers, a global push to tighten financial regulation around the world has slowed in the face of a tepid recovery and a tough industry lobbying effort....
the post-Lehman goal — of a global scheme that would immunize the financial system from another large-scale shock — remains incomplete. Big banks, insurers and other financial giants remain intact and arguably “too big too fail.” Tools to guard against dangerous bubbles in the value of property or other assets are not yet in place. There is no agreement on how countries should coordinate the failure of a globally important financial company. Implementation of basic banking rules in major nations has fallen behind schedule.
Finishing the job “is going to take many years,” International Monetary Fund chief economist Olivier Blanchard said last week. “It is conceptually very difficult, politically very difficult.”
In their effort to overhaul the global system, regulators have been confronted by a number of head winds. The world’s economy has been unexpectedly slow to recover, making governments leery of doing anything that might make banks cautious to loan and invest. The financial industry has pushed back hard, warning that aggressive regulation might undermine growth. And regulators are simply limited in their understanding of how modern finance can be made safe while still supporting economic activity.
The result: Some of the proposals once considered core to a safe, post-Lehman system have been delayed and weakened, and others have been played down, at least for now, as too politically complex.
Well, this sounds like a blow against my theory of "pretty good" or "good enough" global governance that I've been yammering about on the blog.... that is, until one starts reading the rest of the Post's story.
First of all, with the exception of one Jamie Dimon quote, there's not any real evidence in the story that industry lobbying is to blame. I'm not saying that this means that there was no industry lobbying, or that it was inconsequential -- merely that there's no evidence in the story to support the lede.
What there is evidence of, however, are two things that seem pretty consistent with "good enough" global governance. The first is that even in areas where there's been minimal global agreement, there have beern "patchwork" arrangements that look like they will work. For example:
There also is no comprehensive global approach for addressing bank failures. Individual members of the Basel committee, including the United States, have established resolution plans in case their own lenders become insolvent. And the United States and Britain in December released a set of guidelines to handle a major insolvency — a potentially important agreement between two world financial centers.
But determining how to coordinate the collapse of a major multinational bank is an area where the IMF and others have had limited success in pushing for a broader global agreement. The issue is important because a method to share the fallout of a bank failure across national borders would probably make countries more willing to let institutions go out of business, rather than propping them up with taxpayers’ money.
Again, in a perfect world one would like to see a comprehensive agreement. Given the center of gravity for the financial sector, however, an Anglo-American arrangement is actually pretty powerful and covers the biggest concerns.
Then we get to the implementation of the Basel III accords, designed to insure that banks have sufficient reserves of safe and liquid assets on hand to prevent a panic. As Schneider and Douglas note, the Financial Stability Board reports that only 8 of 27 nations are on track to implement these reforms on schedule.
Why is that the case? Here we find that interest group lobbying seems to matter less than... a recognition by regulators that life is not so simple:
[O]ther Basel proposals have been revised as regulators, bankers and officials have better understood how some of their major assumptions about finance and risk had been upended by events.
In Basel this month, regulators scaled back one key set of provisions that would force banks to keep the equivalent of larger levels of cash on hand to guard against a run on deposits or another fast-moving crisis.
Such highly liquid assets had been defined to include government bonds — which traditionally can be sold quickly and at close to their face value — and to exclude securities backed by residential mortgages, the bundled, complex assets that had triggered the financial crisis in 2007 when they proved difficult to sell other than at a steep loss.
The financial crisis in the euro zone showed a flaw in the approach when Greek, Portuguese and other government bonds plummeted in value. Smaller U.S. banks, meanwhile, argued that to completely exclude mortgages from the new “liquidity coverage ratio” would reduce their ability to make home loans.
When the final Basel rules on the issue were released this month, the required liquidity levels were reduced, mortgages were included in the tally and banks were given extra time to comply.
“Nobody set out to make it stronger or weaker as a standard but to make it more realistic... to make sure there was no impediment to financing recovery,” said Bank of England Governor Mervyn King, who chairs a Basel committee of central bankers and regulatory chiefs.
So, to sum up: after an initial burst of regulatory arrangements, progress has slowed down in some areas, and in other areas relies on a more patchwork arrangement. That said, there appear to be intrisically good reasons for the slowdown, and the patchwork covers the major financial centers.
Yeah, this is "good enough" global governance.
It's that time of the year again, when the Great and Good and Rich converge to Davos, Switzerland for the
realpolitik starfucking World Economic Forum. The coverage of this event gyrates wildly between bland pronouncements from attendees and world class snark from the Not as Great and Good and Rich that are not invited to attend. I will certainly confess to my own contribution to the snark pile.
As someone who casually curses way too much to ever score an invitation, I nevertheless wonder if some of the critiques of Davos are just a bit overhyped. Take Timothy Noah, who blogged the following at The New Republic yesterday:
There is no better example of social and economic policy discussion as an idle pastime for the rich than the World Economic Forum at Davos....
Ian Bremmer, who chairs Davos’s Global Agenda Council on Geopolitical Risk reports in the Huffington Post that the unifying theme this year at Davos is, yes, “the increasing vulnerability of elites.” Keep in mind as you read what follows that Bremmer is not a parodist:
We're seeing leaders of all kinds, in the developed and developing world, in politics as well as business and media, answering to constituents who grow more dissatisfied... and information-rich. Look at the riots in India over the recent rape scandal, the U.S. Congress' abysmal approval ratings, or the phone hacking scandal at News Corp. Corruption, special interests, or a lack of transparency will spell trouble for leaders. The same goes for a widening gap between rich and poor.
....if I’m reading Bremmer right, Davos sees inequality mainly as a problem bearing down on elites. The blighters simply won’t shut up about living in mud huts (or enduring weak rape laws, a dysfunctional legislature, corporate malfeasance, etc.) while the rest of us hit the slopes.
Now, much as I'd love to snark along with Noah, I don't think he's entirely reading Bremmer right, and I also think he's making a categorical policy error. To be fair to Noah, Bremmer's geopolitical risk report does have a section on the problems with too much transparency that does read a bit too much like a pity party for the elite ("in developed democracies, scandals involving leaders can distract whole nations for weeks on end, while more important business remains undone.")
That said, I don't think this is my FP colleague's main point. His primary thesis is that tectonic shifts in domestic politics are imposing increasing political constraints on what political elites can do to ameliorate policy problems:
In 2013, this breakdown of international coordination will go increasingly local: in such a world, governments will focus more on their domestic agendas, which will create new risks in and of itself. Most importantly, the growing vulnerability of elites makes effective public and private leadership that much more difficult to sustain. Leaders of all kinds are becoming more vulnerable to their constituents, generating more reactive and short-term governance....
Welcome to ‘the new local,’ where governments are more shackled by regional concerns and their domestic constituencies—at the expense of tackling larger-scale global issues that need collective leadership to solve.
Now I'm on record as thinking that Bremmer overstates the collapse of global governance. That said, if one accepts his premises, then the ability of leaders to address policy problems is more constrained. Whether you think this is a problem or not depends on how much faith you have in public policy elites -- and public policy in general -- to compensate for the vicissitudes of the marketplace.
Stepping back, however, I'm not sure inequality is as big of an issue as either Bremmer or Noah think it is. What we presumably should care about at places like Davos is poverty reduction, which is not necessarily correlated with inequality reduction. And the dirty secret of the post-crisis global economy is that global poverty reduction is proceeding quite nicely, thank you very much.
The primary problem with the current state of the global economy is that the biggest losers are unskilled and semi-skilled laborers in the developed world. That's an issue -- but it's one that I don't think developing country atendees at Davos are gonna care too much about.
One of this blog's
annoying tics persistent themes has been its insistence that the 2008 financial crisis did not, in fact, doom the United States to a future of inevitable decline. Indeed, there are many reasons to be optimistic about America's future, and there are many reasons to be skeptical about claims that China will be able to exercise leverage over the United States.
Now, one of the counterarguments to this thesis over the past five years has been the explosion of U.S. debt and Washington's need for Beijing to continue to buy that debt to finance America's current expenditures. This was a running theme of financial writers in 2009. Four years ago, there was a particular concern that "China is also trading long-term Treasuries for short-term notes." If the United States could only borrow overseas by issuing more short-term debt, that ostensibly gave China some kind ov leverage as Washington needed to continually roll over those debt obligations.
I bring this up because Daniel Altman highlights a fascinating data point in his Foreign Policy essay about the shifting composition of the federal government's debt:
In the past several years, the national debt of the United States has undergone a tremendous change. Long-term securities -- those with maturities of seven years or more -- have gone from about 30 percent of the debt in 2009 to about 40 percent today. By 2018, according to the Treasury's own estimates, they'll make up 50 percent of the debt, a proportion the Treasury expects to maintain from then onward. The United States is doing what any smart borrower would do: locking in low rates for the long term. As a result, its probability of default for any given level of debt has dropped.
Huh. So it turns out that desite a surge in borrowing by the U.S. government and China's desire to keep the arrangement on a short-term basis, Washington has managed to borrow in a relatively efficient manner at historically low interest rates.
Oh, and by the way, how has China altered its purchases of U.S. debt? Well, besides a general slackening of such purchases (which partially explains the appreciation of the yuan) and a general lack of complaint in response to QE3, it has also changed the composition of those U.S. debt purchases:
China has actually decreased its short term U.S. bond holdings by 5.1%. China holds $US 3.7 billion short term U.S. paper. On June 2011 China held $US 4.9 billion of short term U.S. paper. So basically all the debt that China holds are long term treasuries now. Interesting to know, China had $US 200 billion in short term U.S. debt in May 2009. So they divested all short term paper to long term paper.
In other words, contrary to the fears of debt hawks in 2009 -- including, it should be noted, Hillary Clinton -- China has not exercised an iota of influence over the United States via its debt holdings. Indeed, the shifting pattern of their debt purchases strongly suggests that the Chinese have recognized the futility of such an approach.
While Beijing has recognized this truth, certain Very Serious People who write Very Serious Columns persist in being afraid of China's mythical debt leverage. So, on occasion, as a public service, this blog will continue to remind its readers that U.S. remains clothed in immense financial power.
To follow up with another data point suggesting that we're living in a world of "good enough" global governance, let's take a look at piracy on the high seas , shall we?
You might recall that in 2009 piracy off the Horn of Africa and elsewhere was skyrocketing. This triggered multiple policy responses by shipping companies as well as governments. Ships started carrying armed guards on tankers as a form of deterrene. An ad hoc and diverse group of countries formed Combined Task Force 151 to help patrol the Horn of Africa to prevent pirate attacks. Hell, even Iran sent ships to participate in anti-piracy operations.
So it turns out that all of these measures seem to be working. By 2012, both press reports and official statistics suggested that the tide had turned. As the New York Times' Thom Shanker wrote up one U.S. Navy finding last September:
Data released by the Navy last week showed 46 pirate attacks in the area this year, compared with 222 in all of last year and 239 in 2010. Nine of the piracy attempts this year have been successful, according to the data, compared with 34 successful attacks in all of 2011 and 68 in 2010.
How bad have things gotten for Somali pirates? The top pirate just announced that he has retired from piracy.
So can we chalk this up as an example of successful global governance? I would say yes, but it's worth noting two additional points. First, it's far from clear that activity on the water is the sole factor responsible for the decline in piracy attacks. Events on land -- including Kenya's invasion of Somalia and Puntland's increasing "stateness" -- might have something to do with it as well. Second, it's not only multinational sea patrols that have played a role. If it was, then shipping companies wouldn't be mobilizing their own private navy.
Still, these actions compliment rather than substitute for each other. The protection of shipping is one of the global economy's oldest public goods -- and it appears that after a post-financial crisis spike, there has been a useful policy corrective. That's good enough.
The mobilization towards an agreement reflects the changing landscape of global trade. If a deal emerges, it will allow the U.S. and EU more leeway to set the rules of the road for the industries that matter most to them....
This potential trade deal is also a further sign of the collapse of the movement toward global free trade. The new round of WTO negotiations is effectively dead, and a major deal between two of the world’s largest economies would be a further signal that bilateral negotiations are once again becoming the norm.
Finally, this deal shows us that the BRICs are not quite as influential as many think. A U.S.-EU trade deal is essentially a way to ignore countries like Brazil and India while crafting rules that will govern some of the high-tech industries and information-based services that play a growing role in US-EU trade.
Mead is correct to point out the advantages of the US and EU trying to craft an FTA template, particularly for the sectors they care about a lot. Still, a few quibbles and disagreements.
First, a transatlantic deal doesn't signal a "collapse of the movement toward global free trade" -- it signals a different pathway towards that goal. The collapse of Doha suggests that the traditional multilateral round negotiaions are dead, but it's worth remembering that the global economy got very close to zero barriers in the late 19th century and there was nary a multilateral institution to be found. True, the trade agreements of the 19th century had most-favored nations clauses and their 21st century counterparts do not. Nevertheless, the political economy of trade diversion still generates competitive incentives for a growth in FTAs, thereby leading to a similar end outcome -- a world blanketed in free-trade agreements.
Second, contra Mead, I'd suggest that a transatlantic trade deal is not a sign of US-EU strength, but rather its weakness. There have been rumblings and trial balloons to do something like this for the past fifteen yewars, but it never really got off the ground. The reason it never got off the ground was simple -- both Americans and Europeans were worried that any trade deal this massive would scupper the WTO system. It would seem like a developed country effort to completely rewrite the rules of the global trading game. Since everyone had a lot of skin in the WTO game, it didn't seem like it would be worth it.
Two things have changed. First, the traditional method of multilateral trade liberalization has died. Second, while both the US and EU are major trading states, they're not quite as pivotal as they used to be. Ironically, it's their declining (though still appreciable) importance in global trade that makes a US-EU agreement feasible now. The BRIC economies are now sufficiently large that a transatlantic trade deal doesn't seem like an existential threat.
Your humble blogger was watching CNN late last night after the House of Representatives passed the fiscal cliff compromise, and was struck by the
anchor's Ali Velshi's complete and total disdain for what had just transpired. He repeatedly said that this was, "an embarrassing moment for America," and that it was so frustrating because these wounds were self-inflicted. This was surprising, since CNN is ostensibly the cable news netowrk that's the least partisan and most likely to maintain the detached, sonorous perspective that can only be incubated after prolonged exposure to Wolf Blitzer.
Now I'm certainly not gonna defend what went down the past two months as the exemplar of Jeffersonian democracy or anything, but I do think some perspective is in order here. The truth is that America's political institutions engage in self-destructive behavior on a fairly regular basis. This holds even in the post-Vietnam era. In the 1970s the country nearly tore itself apart because of Watergate. In the 1980s it was Iran-Contra. In the 1990s the federal government was shut down because Republicans and Democrats couldn't agree on the budget for a spell. That was followed by the House of Representatives impeaching President Clinton for perjury and obstruction of justice. In late 2000 the Supreme Court issued a 5-4 ruling short-circuiting ballot recounts in Florida and making George W. Bush the next president using a legal logic that was so tortured that the Court said no one could ever use it again. And last year U.S. debt was downgraded -- not because of any fundamental U.S. economic weakness, but because of the U.S. political system. All of these episodes were politically self-inficted wounds -- and the United States weathered all of them pretty easily. Please bear this in mind the next time you read something about America going to hell.
[But haven't things gotten worse?--ed. Well, no, I think what's changed is that the Dems and the GOP are acting more like European parliamentary parties in a constitutional system that emphasizes the separation of powers. That's a problem, and gerrymandering is exacerbating the situation. But it's a situation that a few nonpartisan districting commissions would be able to solve.]
Now, with this dose of perspective sauce, there also needs to be a recognition that elements of the United States have shifted in an ideological direction that makes them increasingly isolated in the world. To see why, look at this Financial Times story by Hannah Kuchler on David Cameron's G8 priorities. The salient part for this conversation:
In a letter to the leaders, Mr Cameron said the world will continue to face “grave economic uncertainty” in 2013 but the rich countries must set “ambitious standards” to drive growth in their countries and across the globe.
The UK will push for action in three key areas: trade deals, including a potential EU-US trade agreement; measures to tackle tax evasion and open government; working with developing countries to fight corruption....
The British government has prioritised chasing tax evaders, with prosecutions for tax evasion up by 80 per cent and a treaty with Switzerland, its largest ever deal on tackling tax evasion. Mr Cameron wants to use the UK’s time at the top of the G8 to “galvanise collective international action”.
“We can lead the way in sharing information to tackle abuses of the system, including in developing countries, so that governments can collect taxes due to them,” he wrote in the letter. “We can work together to sign more countries up to international standards. And we can examine the case for strengthening those standards themselves.”
Now, international tax evasion has been an on-and-off G8 priority for the past 15 years, and there's actually been some progress on tax havens. I guarantee you, however, that to the House GOP caucus this will look like some back-door globalist conspiracy by the Obama administration to raise taxes or enforce collection through jackbooted G8 thugs. So anything that will require legislative approval ain't going anywhere.
[Uh, isn't this kinda nuts? Everyone knows that the G8 doesn't have any thugs, much less jackbooted ones!!--ed. Yes, and everyone knows that Agenda 21 is a nonbinding plan of action for sustainable development, but that hasn't stopped a few deluded people from freaking out about a U.N.-hatched global conspiracy.]
So some things have changed, and for the time being there will be some issues on which legislative action is likely not gonna happen. On the other hand -- much like Americans after New Years Eve parties -- the United States usually recovers from these bouts of temporary stupidity. The federal government will muddle through, and I suspect even the 113th Congress will be interested in a U.S.-E.U. trade deal.
Am I missing anything?
I was trying to cogitate a post on the attacks in Cairo and Benghhazi yesterday inspired by this 13-minute piece of tripe that was consistent with what I've said before about stupid speech acts and the necessity of government tolerance of them.
Fortunately, Marc Ambinder has already written something that is better than anything I can craft on the fly, so I'll just outsource the argument to him. In particular:
We live in a world where American provocateurs can easily arouse the militancy of Muslim extremists who are more ubiquitous than even I would like to admit, or, at the very least, allow bad people to use extant anti-American sentiment to whip crowds into frenzies. In either case, innocent people, including Americans, die.
On Twitter, the first instinct of a lot of Americans was retributive justice. But the U.S. government's sensitivity about the mood of the violent protesters is maddening but necessary. Being aggressive would cause more unnecessary dying.
Those who use the gift of institutionally and legally-protected free speech to exploit and prey upon the vulnerability of certain people to violence ought to be shamed.
At the same time, the people who killed people; protesters, thugs, militants, whomever, are ultimately responsible for their actions. If the U.S. government is going to discourage our own idiots from provoking people, then the governments of Egypt and Libya should act to corral those within their own nations who would storm an embassy on the pretext that a film offends. Well, barely, a film. A piece of anti-Muslim bigotry that was made to make the filmmakers feel good and others feel bad. If, as an American, I feel embarrassed that so many of my fellow Americans are bigots, I would, as an Egypt or a Libyan, be even more horrified that the majority in my country seemed unable to stop (and barely condemn) the even more deplorable violent religious extremism of a minority.
The Arab Spring is incredibly messy and it is hard to see how American values and sensibilities about religious speech will ever take hold in some countries there. That’s incredibly depressing, but I do know this: The barrels of our own guns won't help anything either.
Hey, remember when I said that China's debt holdings did not pose a serious threat to the United States? And remember when I banged my head against the desk because Very Serious People continue to insist otherwise?
I bring this up because, according to Bloomberg's Tony Capaccio and David Kruger, the Department of Defense has my back:
China's holdings of more than $1 trillion in U.S. debt and the prospect that it might “suddenly and significantly” withdraw funds don’t pose a national security threat, according to a first-ever Pentagon assessment.
“China has few attractive options for investing the bulk of its large foreign exchange holdings out of U.S. Treasury securities,” given their extent, according to the report dated July 20 and obtained by Bloomberg News
China is the second-largest holder of U.S. government debt after the Federal Reserve. Acting at the direction of Congress, the Defense Department studied the rationale behind the investments and whether “the aggressive option of a large sell- off” would give China leverage in a political or military crisis. China’s debt holdings have been cited as a sign of U.S. vulnerability by Republicans in this year’s election campaign....
“Attempting to use U.S. Treasury securities as a coercive tool would have limited effect and likely would do more harm to China than to the United States,” according to the report, which was sent to congressional committees by Defense Secretary Leon Panetta. “As the threat is not credible and the effect would be limited even if carried out, it does not offer China deterrence options” in a diplomatic, economic or military situation, the Pentagon found....
China decreased its Treasury holdings last year with little apparent impact in the market, Treasury data show. The world’s most populous country reduced its position in Treasuries in the first yearly decline since Bloomberg began tracking the data in 2001.
The holdings declined 0.7 percent, or by $8.2 billion, to $1.15 trillion last year. The decline was much steeper in the second half of the year when China’s stake plunged 12 percent, or by $163 billion, from an all-time high of $1.31 trillion in July 2011, the data show.
During that period, 10-year Treasuries rallied as the U.S. credit rating was reduced by Standard & Poor's to AA+ from AAA and the European sovereign debt crisis worsened, pushing the yield to 1.88 percent from 2.80 percent.
Foreign investors held 50.3 percent of the $10.52 trillion in outstanding Treasuries as of June, government data show. That’s down from April 2008, when they reached 55.7 percent of the $4.64 trillion in U.S. marketable debt....
The Pentagon said in its report that the Fed also is “fully capable of purchasing U.S. Treasuries dumped” by China and “reducing the economic impact.”
A Chinese move to “suddenly and significantly” reduce its Treasury holdings “would fundamentally change the international finance and business community’s perception of China as a reliable and respected economic and financial partner,” the Pentagon said.
This report isn't going to end the silly campaign rhetoric or the Niall Ferguson/Tom Friedman foreign policy community talking point, of course. But I thought it was worth posting here so I can link back to it the next time I need to bang my head against a desk.
If you're an American and want o worry about China, don't focus on the debt -- focus on the apparent disappearance of China's next leader.
I should be really pleased with Thomas Friedman's column today. Entitled "In MItt's World," Friedman pens a substantive column criticizing Romney's foreign policy rhetoric to date and wishing that Romney displayed the same analytic acumen about foreign policy that he displayed as CEO of Bain Capital.
So I should be happy, except that I passed out from banging my head against my desk after reading the first two paragraphs:
Mitt Romney has been criticized for not discussing foreign policy. Give him a break. He probably figures he’s already said all that he needs to say during the primaries: He has a big stick, and he is going to use it on Day 1. Or as he put it: “If I’m president of the United States ... on Day 1, I will declare China a currency manipulator, allowing me to put tariffs on products where they are stealing American jobs unfairly.”
That is really cool. Smack China on Day 1. I just wonder what happens on Day 2 when China, the biggest foreign buyer of U.S. debt securities, announces that it will not participate in the next Treasury auction, sending our interest rates soaring. That will make Day 3 really, really cool.
No. No, no, no, no, no, and no.
To elaborate a bit further:
First, it wouldn't be enough for China to stop buying Treasuries -- as Joe Weisenthal showed with some fun charts a few weeks ago, China has pared back its Treasury purchases intermittently over the past few years -- with zero appreciable effect on U.S. interest rates. (see non-panda-hugger Paul Krugman on this point as well). No, for China to have the effect that Friedman envisions, they would also have to actively dump most of their holdings of U.S. debt as well.
So what if they do? Well, second, while Romney's stated China policies border on the destructive, the "labeling" move is bone-headed rather than truly calamitous. China wouldn't dump its debt unless things got really bad between the two countries. Not even Stephen Roach thinks this would be the initial Chinese response -- and I think Roach is being way too gloomy about Sino-American relations under Romney.
The reason China won't respond with the nuclear option of dumping all its U.S. debt holdings is that -- to repeat a theme -- this move would hurt China way more than it would hurt the United States. The far more likely response by China would be to retaliate with trade measures. This would not be good, as China is now the third largest export market for the United States. Beijing can hurt a Romney administration by reducing its American imports far more adroitly than trying to trigger another financial crisis.
Now, for the record, I don't think Romney should label China as a currency manipulator on day one, and I think Friedman makes some trenchant observations on Romney's consequences-free foreign policy statements later in his column. But this Niall Ferguson-lite version of Sino-American relations is bad international relations theory and really bad economics -- and yet Very Serious People keep trotting it out.
I really, really wish this would disappear from public discourse. But it won't. So, most likely, my desk is gonna get dented a few more times before Election Day.
Annie Lowrey ably summarizes the outcomes of spring meetings of the IMF and World Bank for the New York Times. Here are her first two paragraphs:
Meetings of finance ministers and central bankers here over the weekend started with a pledge by wealthy nations to significantly increase the lending capacity of the International Monetary Fund to defend against the possibility of worsening economic conditions in the debt-laden euro zone.
But they ended on Sunday without a consensus on just how to speed up the economic recovery, stamp out the European debt crisis or lower unemployment around the world, officials said.
Now, I would say how you interpret this outcome is an excellent indicator of your overall opinion of post-crisis global economic governance. On the one hand, if you're Alan Beattie, Edward Luce, Ian Bremmer, Charles Kupchan, or Ted Truman, well, this outcome is a sign of chronic dysfunction. If the world's great powers can't agree on what to do with the specter of a double-dip global recession looming over them, there's little reason to hope. The glass is half-empty.
On the other hand, if you're John Ikenberry, Robert Kagan, Bruce Jones, or Alan Alexandroff, the glass looks half-full. Boosting the IMF's reserves by more than $400 billion ain't nothing, and it's faintly absurd to believe that any global governance structure will ever be able to "speed up the economic recovery, stamp out the European debt crisis or lower unemployment around the world."
I'll be tipping my hand as to which way I'm leaning in the coming months, but for now, I'm curious about my readers. What do you think? Is global economic governance a mess or doing reasonably well in trying circumstances?
I've been reading a raft of books recently arguing that authoritarian capitalism is a more sustainable model than us in the West appreciate. According to this meme, entities like sovereign wealth funds, state-owned enterprises, and national oil companies will be carving up ever-greater slices of the global economy.
Whenever I read these arguments, the question that gnaws at me is how these authoritarian capitalist institutions will operate in other authoritarian capitalist countries. See, this kind of argument presumes a harmony of interests that doesn't necessarily exist between authoritarian states. It also presumes a standard of competency and efficiency - or, at least, efficient corruption -- that makes these firms and institutions able to compete with private sector firms.
For see what I'm talking about, see this Washington Times story by Kelly Hearn on China's growing frustration with Venezuela:
China has poured billions of dollars into Venezuela’s oil sector to expand its claim over the country’s massive oil reserves.
But Beijing is getting relatively little for its investments, and Chinese officials are increasingly frustrated with Venezuelan President Hugo Chavez, according to energy analysts and former managers of the state oil company, Petroleum of Venezuela, or PDVSA as it’s known by its Spanish acronym....
In 2010, CNPC signed a deal to help Venezuela develop a major Orinoco oil field known as Junin 4, which includes the construction of a facility to convert heavy oil to a lighter crude that could be shipped to a refinery in Guangdong, China.
“Although the contract was signed in December 2010, not one barrel of oil has yet been produced, much less upgraded,” said Gustavo Coronel, a former PDVSA board member.
“So far, nothing much seems to be happening, except for the arrival of a large group of Chinese staff to the CNPC’s Caracas office,” he added, referring to the Venezuelan capital, Caracas.
“Apart from money, there seems to be little that China can offer Venezuela in the oil industry,” he said, adding that a “culture gap will make working with China very difficult for Venezuelan oil people, who were mostly trained in the U.S.”....
The Chinese also seem to be increasingly wary.
Internal PDVSA documents released by a Venezuelan congressman show that the Chinese balked at a $110 billion loan request by Mr. Chavez in 2010, after PDVSA officials failed to account fully for where the money would go.
Venezuela is not the only place that Chinese foreign direct investment in energy is running into bottlenecks and roadblocks. There was Myanmar last year:
fter five years of cozy cooperation with Burma’s ruling generals, China Power Investment Corp. got a shock in September when it sent a senior executive to Naypyidaw, this destitute Southeast Asian nation’s showcase capital, a Pharaonic sprawl of empty eight-lane highways and cavernous government buildings.
Armed with a slick PowerPoint presentation and promises of $20 billion in investment, Li Guanghua pitched “an excellent opportunity,” a mammoth, Chinese-funded hydropower project in Burma’s far north.
Then came the questions: What about the risk of earthquakes, ecological damage and all the people whose homes would be flooded? Is it true that most of the electricity would go to China?
Two weeks later, Burma, also known as Myanmar, scrapped the cornerstone of the project. President Thein Sein, a former general who took office in March, announced that he had to “respect the people’s will” and halt the $3.6 billion dam project at Myitsone, the biggest of seven planned by China Power Investment, or CPI.
As the world’s biggest consumer of energy, China has hunted far and wide in recent years for sources of power — and of profit — for state-owned corporate behemoths such as CPI. The result is a web of deals with often-repressive regimes, from oil-rich African autocracies such as Sudan and Angola to river-rich Burma.
But coziness with despots can also backfire.
Amid a dramatic, though still fitful, opening in Burma after decades of harsh repression, public anger has swamped China’s hydropower plan. The deluge threatens not only hundreds of millions of dollars already spent but also China’s intimate ties to what had been a reliably authoritarian partner, its only East Asian ally other than North Korea.
Beijing still has big interests in Burma, including a multibillion-dollar oil and natural gas pipeline that is under construction. But a partnership forged with scant heed to public opinion has been badly jolted by a barrage of no-longer-taboo questions.
These are just isolated cases -- I have no doubt that China has a boatload of successful FDI projects in energy. What's telling, however, is that regardless of whether the host regime is democratizing or reverting to autocracy, the political economy of these investments is far from problem-free.
One must sympathize with the Chinese firms here. China's domestic politicsal economy of investment aren't this messy. Oh, wait...
With 2011 down to a few hours, it's now safe to announce the 2011 Albies -- named in honor of noted political economist Albert O. Hirschman. The Albies are awarded to the best writing in global political economy for the past calendar year. The writing can be in a book, journal article, think tank report, or blog post -- the key is that the article makes you reconsider the way the world works.
This year yielded a bumper crop of excellent IPE writing. I attribute this to the 2008 crisis and its aftereffects generating such a bounty of fascinating trends/events that even straight reportage has been interesting. Indeed, it was such a good year that, for the first time, I'm including some "honorable mentions" at the bottom.
In no particular order, here's the top 10:
1) Chrystia Freeland, "The Rise of the New Global Elite," The Atlantic, January/February 2011. A slender common thread of the Arab Spring protests, Occupy Wall Street, and the Russia protests was a perception of rising inequality, and the refusal of elites to acknowledge that there is even a problem. Before any of these movements made the front page, Freeland examined the global 1% in this essay. As much as political scientists like to talk about public ignorance of the way the world works, Freeland makes the case that the global elite suffers from a different but very dangerous perception -- that fortuna and inherited advantage had no role in their own prosperity.
2) Thomas Oatley, "The Reductionist Gamble: Open Economy Politics in the Global Economy," International Organization, April 2011. Over the past decade, the "open economy politics" paradigm has dominated the study of global political economy. There are some strengths to this kind of approach, but the law of diminishing marginal returns kicked in a long time ago (OEP has little to say about the 2008 financial crisis). Oatley's paper -- published in the leading journal -- was a powerful wake-up call to the subfield.
3) Tyler Cowen, The Great Stagnation, Dutton. Americans have taken prospertity, and the engines of prosperity, for granted. Cowen's short book suggests that, appearances to the contrary, all of the easy ways for promoting economic growth in the developed world have dried up. I would posit that Cowen contradicts himself with his innovative way of getting this argument published (first as an ebook) but this is an excellent, accessible read on the future of the U.S. economy.
4) Boston Consulting Group, "Made in America, Again," May, and Edward Luce, "America is Entering a New Age of Plenty," Financial Times, November 20. These two essays provide an interesting counter to Cowen's prognosis. BCG's projections on manufacturing, and Luce's summary on energy innovations, suggest that a decade from now -- regardless of who is president -- the United States will be a manufacturing and energy powerhouse.
5) Damien Cave, "Better Lives for Mexicans Cut Allure of Going North," New York Times, July 6, 2011. I blogged about this story when it was first published about why it was so interesting. Now, I just want the debate moderators to hold it up like John Cusack in Say Anything whenever the GOP candidates natter on about stopping illegal immigration.
6) Jacopo Ponticelli and Hans-Joachim Voth, "Austerity and Anarchy: Budget Cuts and Social Unrest in Europe, 1919-2009," Centre for Economic Policy Research discussion paper no. 8513, August 2011. 2012 is going to be a year of austerity for a lot of countries. This timely paper looks at the causes of European social unrest over the 20th century, and concludes that fiscal retrenchment is the primary driver of unrest. Bear this in mind whenever you read about new austerity measures being imposed.
7) Andrew Hill, "Inside McKinsey," FT Magazine, November 25. As the GOP looks set to nominate a former consultant as its standard-bearer, the culture of management consulting is worth considering. McKinsey is to consulting as Goldman Sachs was to management consulting, and this year a scandal has rocked that firm to the core. Hill's FT story gets at the powerful corporate culture that defines McKinsey -- and the ways in which the renumeration gap between management consultants and hedge fund managers led to a breakdown in McKinsey's norms.
8) Prabhat Jha et al, "Trends in selective abortions of girls in India," The Lancet, June 4, 2011. I blogged about this article back in May. Long story short: as India has grown richey, India's educated, wealthy elite have engaged in selective gender-based abortion on a massive scale. A very sobering reminder that modernizing societies will not necessarily become more Western in their values.
One does not have to dig very deep into foreign-policy punditry to find the belief that the question of the next decade is how world order will adapt to a waxing China and a waning United States. Will China embrace, reject, or simply ignore the set of pre-existing global norms? Will the United States continue to assert its privilege in setting global norms, or will it retreat into unilateralism? Beyond the punditry, very few scholars have bothered to look systematically at how both of these countries interact with global governance norms and structures. Rosemary Foot and Andrew Walter tackle the general question of Sino-American interactions with global rules and norms in a rigorous and informative manner, discussing issues as diverse as nonproliferation and financial regulation with a degree of empirical sophistication that borders on the astonishing. Foot and Walter have produced a must-read for anyone interested in the future of global governance
10) Michael Forsythe and Henry Sanderson, "China Debts Dwarf Official Data with Too-Big-To-Finish-Alarm," Bloomberg News, December 17, 2011. This was the year that China bears came to the forefront. I'm a bit more optimistic about the communist regime's prospects than, say, Gordon Chang, but this piece of investigative reporting by Bloomberg does a fine job of demonstrating the depths of the bad debt problem that pervades China's banking sector.
Honorable mentions: Nouriel Roubini, "China's Bad Growth Bet," Project Syndicate; Henry Farrell's "contagion" blog post, The Monkey Cage, August 15, 2011; J.C. Chandor's audacous directorial debut Margin Call, and, last but not least, the Ryan Gosling International Development Tumblr.
After a year of nearly-nonstop travel, I've flown airlines ranging from American to SATA, to airports as large as Shanghai's Pudong International Airport and as small as Ithaca's Tompkins Regional Airport. Which ones can I recommend? Which ones should be avoided? My long-awaited picks:
Best Airline: It's Virgin Atlantic, and whichever airline finished second ain't close. Admittedly, I was flying in their "Upper Class" cabin. Still, their airport lounges are far and away the most pleasant places to be in an airport, and their planes are quite comfortable as well. The food on the plane was tasty, the food in the airline loundes was exceptional, and the service was impeccable. These were the only flights I can honestly say I enjoyed this year. Besides, their commercials are just so darn kicky.
Worst Airline: I'm tempted to just say "all the rest," but I will put Lufthansa in its own inner concentric circle of hell. Old planes, grumbly service, and really, really bad food. The low point was when they showed a Golden Girls episode on hour 5 of The Longest Transatlantic Flight I've Ever Taken.
Worst Airport: My criteria here is very simple: How easy is it for me to get from the curb to my airplane seat with a minimum of time and a maximum of choices to feed myself? Using these criteria, I will be trying to avoid Dubai International Airport fot a spell. The security checks there are the more onerous I've seen in any airport anywhere -- and I'm including trying to fly in and out of Ben-Gurion Airport in this assessment. The Dubai security personnel were all nice, and I understand that they have a job to do, but this was a wretched experience.
Best Airport: I'm surprised to come to this conclusion, but I have to award this to Reagan National Airport. I fly in and out of this airport a lot, and I realized that I have never once had a bad TSA experience there. This is surprising, given the kind of travelers they encounter. Plus, they have a Five Guys.
Your humble blogger has been on an airplane twice in the past week on separate trips -- which, over the past year, was a depressingly common occurrence. Indeed, since December 2010, I've been to Mexico City, Dubai, Geneva, Basle, Montreal, Lisbon, Brussels, Beijing, London, Berlin, Shanghai, and Toronto. That was just the international travel; between business trips, promotion for Theories of International Politics and Zombies, and an actual vacation, there was a lot of domestic transportation as well.
With so much sojourning, I've managed to pick up a few impressions and pointers. So, in honor of this period of relatively intense travel for many newcomers, this week I'll be offering some useful tidbits of advice. Note: I have received no promotional considerations for the commercial endorsements and disses.
Let's start with a simple one:
Best Travel Aid for Avoiding Illness: For me, travel + alcohol + lack of sleep = guarantee of getting sick. I used to get sick quite a bit after travel, because such trips usually combined my three trigger mechanisms. For conferences, travel and drinking are pretty much essential, so the key thing for me ito avoid getting sick is sleep. Which is tough for me, as I traditionally have not slept on planes.
Despite this travel, I didn't get sick once during this past year (with the exception of Friedman's Disease, of course). I attribute this to taking melatonin as a sleep aid. It does make me feel drowsy, but it doesn't make me feel drugged.
Melatonin plus Vitamin Water Zero appears to have kept me virus-free for the year. Well, that or I'm now old enough to have been exposed to every travel bug out there.
More advice and tips to follow, including best and worst airlines, etc. Commenters should feel free to place requests in the comments.
Coming next: the best and most overrated pieces of travel luggage.
Hey, remember my last bloggingheads, when I went to the 1930s analogy to describe the current problems in the global political economy? Well, that was a few days ago, and my, how things have changed -- to make that 1930's analogy even more powerful. The eurogoggles metahor may be coming to an end -- because the situation is so dire that even the cheeriest summit won't alter perceptions in financial markets.
After a week of gyrating europolitics on the Greek bailout and meaningless G-20 summitry, markets and media will be focused on Italy this week. This matters -- for both Europe and the world, Greece is a diverting sideshow compared to a major financial collaspse in Italy. The pressure on Italian PM Sylvio Berlusconi to resign have gotten so loud that he had to take to his Facebook page to say, "The rumors of my resignation are groundless." New rule of thumb: any time a politician follows Sarah Palin's lead, there's going to be a problem.
The Daily Telegraph's Ambrose Evans-Pritchard explains the eurofarce that is currently playing out:
As of late Friday, the yield spread on Italian 10-year bonds over German Bunds was a post-EMU record of 458 basis points. This is dangerously close to the point where cascade-selling begins and matters spiral out of control.
The European Central Bank has so far bought time by holding a series of retreating lines but either it has reached its intervention limits after accumulating nearly €80bn of Italian debt, or it is holding fire to force Silvio Berlusconi to resign – if so, a foolish game.
The ECB’s hands are tied. A German veto and EU treaty constraints stop it intervening with overwhelming force as a genuine lender of last resort. The bank is itself at risk of massive over-extension without an EU treasury and single sovereign entity to back it up.
This lack of a back-stop guarantor is an unforgivable failing in the institutional structure of monetary union....
The spreads on EFSF 5-year bonds have already tripled to 151 above German debt, leaving Japan and other early buyers nursing a big loss. The fund suffered a failed auction last week, cutting the issue from €5bn to €3bn on lack of demand.
Gary Jenkins from Evolution Securities said the “frightening” development is that the EFSF is itself being shut out of the capital markets. “If it continues to perform like that then the bailout fund might need a bail out,” he said.
Europe’s attempt to widen the creditor net by drawing in the world’s reserve states evoked near universal scorn in Cannes and a damning put-down by Brazil’s Dilma Rousseff. “I have not the slightest intention of contributing directly to the EFSF; if they are not willing to do it, why should I?”
Europe is resorting to such antics because its richer states – above all Germany -- still refuse to face up to the shattering implications of a currency that they themselves created, and ran destructively by flooding the vulnerable half of monetary union with cheap capital.
Simon Johnson is, er.... less than optimistic about these developments:
MIT Sloan School of Management professor Simon Johnson didn’t equivocate on the perils of the current global economic environment. “We have built a dangerous financial system in the United States and Europe,” said the former chief economist at the International Monetary Fund. “We must step back and reform the system.”
Professor Johnson cited alarming parallels with October 1931, when “people thought the worst was behind them, but the smart people were wrong and instead the crisis just broadened.” (emphasis added)
I've said it before and I'll say it again: any time the global economy is counting on Sylvio Berlusconi to do the right thing is not a good time.
Bill Keller has moved on from the esteemed position of New York Times executive editor to the very vulnerable position of New York Times Op-ed Columnist Ripe for Mockery.
Alas, it's hard to mock Keller's column today for two reasons. First, Keller bothered to do some actual reporting, traveling to India to interview supporters of Anna Hazere to get their opinion on Occupy Wall Street. Since the Times itself has suggested that overseas protest movements might inspire similar action in the advanced industrialized economies, this seems appropriate. It certainly seems more appropriate than comparing the Occupy movements to the Arab Spring.
The second reason is what Keller got from his interview with Anna Hazare associate Kiran Bedi:
“When we started the movement, it was like Occupy,” Bedi told me. “But we went beyond Occupy.”
For starters, while Occupy Wall Street is consensus-oriented and resolutely leaderless, Hazare is very much the center of attention. There was an anticorruption movement before Hazare, but it was fractious and weak until he supplied a core of moral authority. When he announces his intention to starve himself, he parks himself on an elevated platform in a public place, thousands gather, scores of others announce solidarity hunger strikes, and TV cameras congregate, hanging on his every word. Hazare and his entourage can seem self-important and high-handed, but he is a reminder that leadership matters.
Second, the Occupiers are a composite of idealistic causes, many of them vague. “End the Fed,” some placards demand. “End War.” “Get the money out of politics.” Much of the Occupy movement resides at the dreamy level of John Lennon lyrics. “Imagine no possessions. ...”
Hazare, in contrast, is always very explicit about his objectives: fire this corrupt minister, repeal that law bought by a special interest, open public access to official records.
His current mission is the creation of a kind of national anticorruption czar, a powerful independent ombudsman. The measure is advancing, and Team Anna hovers over the Parliament at every step, paying close attention to detail, to make sure nobody pulls the teeth out of it. Instead of a placard, Bedi has a PowerPoint presentation.
Occupy Wall Street is scornful of both parties and generally disdainful of electoral politics. Team Anna (yes, they call themselves that) likewise avoids aligning itself with any party or candidate, but it uses Indian democracy shrewdly, to target obstructionists. Recently Hazare turned a special election for a vacant parliamentary seat into a referendum, urging followers to vote against any party that refused to endorse his anticorruption bill. Hazare has also called for an amendment to the election laws to require that voters always be offered the option of “None of the Above.” When it prevails, parties would have to come up with better candidates.
“What really changes them,” Bedi said of recalcitrant politicians, “is the threat of losing an election.”....
“Occupy has been, to my mind, an engaging movement, and it’s driving home the message, to the banks, to the Wall Street circles,” Bedi said. “That’s exactly the way Anna did it. But we had a destination. I’m not aware these people — what is their destination? It’s occupy for what?” (enmphasis added)
Damn, that sounds familiar.
There's one other big difference that's buried in Keller's column, however. He notes that, "One poll found 87 percent public support for Hazare’s 12-day August fast." While the Occupy movement is certainly more popular than the Tea Party movement, I haven't seen a single U.S. poll demonstrating that breadth of public support.
Am I missing anything?
You humble blogger has been skeptical but not dismissive of the Occupy Wall Street phenomenon. My general assessment was that it did reflect ongoing frustrations about trendlines in the American and global economy, but that in all likelihood the decisions of a few banking bureaucrats would have more of an effect than these protests.
As I've noted before, the big problem with networked movements of this kind is what happens over time:
What happens when the coalition of like-minded individuals stop being of like mind? These sorts of protests can be very powerful on single-issue questions where a single policy change is desired. Maintaining this level of activism to affect the ongoing quotidian grubbiness of politics, however, is a far more difficult undertaking. Even if people can be mobilized behind the concept of "Policy X is Stupid!" getting the same consensus on "Policy Y is the Answer!" is harder. Over time, these kind of mass movements have an excellent chance of withering away or fracturing from within. See, for example, the Tahrir Square movement in Egypt.
Another thing, and this is important: unless the people in these movements actually vote in elections, then their agenda will be thwarted in the long run. Even if these kinds of networked movements are new, the political imperative to get elected and re-elected is not. If they don't vote, then officials have a pretty powerful incentive to curry favor with the people who do vote, don't take to the streets and
don't like these young whippersnappers with their interwebshave different policy preferences.
I bring this up because n+1 relays some of the internal deliberations among the Occupy Wall Streeters.* Let's take a peek, shall we?
Friends, mediation with the drummers has been called off. It has gone on for more than 2 weeks and it has reached a dead end. The drummers formed a working group called Pulse and agreed to 2 hrs/day at times during the mediation, and more recently that changed to 4 hrs/day. It’s my feeling that we may have a fighting chance with the community board if we could indeed limit drumming and loud instrumentation to 12-2 PM and 4-6 PM, however that isn’t what’s happening.
Last night the drumming was near continuous until 10:30 PM at night. Today it began again at 11 AM. The drummers are fighting among themselves, there is no cohesive group. There is one assemblage called Pulse that organized most of the drummers into a group and went to GA for formal recognition and with a proposal.
Unfortunately there is one individual who is NOT a drummer but who claims to speak for the drummers who has been a deeply disruptive force, attacking the drumming rep during the GA and derailing his proposal, and disrupting the community board meeting, as well as the OWS community relations meeting. She has also created strife and divisions within the POC caucus, calling many members who are not ‘on her side’ “Uncle Tom”, “the 1%”, “Barbie” “not Palestinian enough” “Wall Street politicians” “not black enough” “sell-outs”, etc. People have been documenting her disruptions, and her campaign of misinformation, and instigations. She also has a documented history online of defamatory, divisive and disruptive behavior within the LGBT (esp. transgender) communities. Her disruptions have made it hard to have constructive conversations and productive resolutions to conflicts in a variety of forums in the past several days.
At this point we have lost the support of allies in the Community Board and the state senator and city electeds who have been fighting the city to stave off our eviction, get us toilets, etc. On Tuesday there is a Community Board vote, which will be packed with media cameras and community members with real grievances. We have sadly demonstrated to them that we are unable to collectively 1) keep our space and surrounding areas clean and sanitary, 2) keep the park safe, 3) deal with internal conflict and enforce the Good Neighbor Policy that was passed by the General Assembly.
This description sounded faintly familiar, and then I remembered -- it was a replay of every dorm meeting I attended when I was a first-year in college.
Don't worry, OWS sympathizers -- a few hours after this was posted, there was the following update:
Crisis averted: tonight at the General Assembly, the working group of drummers, Pulse, in a spirit of conciliation and generosity, brought forward a proposal to limit their drumming from 12 to 2 and 4 to 6 PM only. The proposal had been worked out through weeks of mediation with the direct action working group. It was considered a first step toward showing the community board that the community in Zuccotti Park can regulate itself. The proposal was approved by consensus by the General Assembly, with applause and rejoicing on all sides.
Good on OWS for resolving some conflict, but this little window into their internal deliberations suggest the hard limits on their movement. If the transaction costs of regulating drumming are this massive, I'm extremely dubious about their ability to agree on concrete policy proposals and articulate them effectively to anyone outside their band of sympathizers -- especially since I'm not sure that all of their views will resonate within the mainstream of American public opinion.
Am I missing anything?
*I confess that part of me is still wondering if this is satire.
[NOTE: the following reads much better if you read it using the voice of Rod Serling!--ed.]
There's a subtle art to reading broadsheet American journalism. Reporters strain for objectivity, and in the process, strain to avoid anything that smacks of the prejorative. If you squint real hard at the text, however, you can occasionally detect moments when the reporter is dying, just dying, to state their blunt opinion on the matter at hand.
I bring this up because Liz Alderman of the New York Times, in her story on the possibility of a big deal in Europe to enlarge the European Financial Stability Facility, appears to be ever-so-subtly banging her head against her keyboard:
The rally in American stock markets was set off by a report late Tuesday on the Web site of The Guardian, a British newspaper, that France and Germany had agreed to increase the size of the rescue fund — the European Financial Stability Facility — to as much as 2 trillion euros to contain the crisis and backstop Europe’s banks. But almost as soon as those hopes soared, European officials quickly brought them back to earth, with denials flooding forth from Brussels, Paris and Berlin.
This latest round of rumors and rebuttals about a European solution was a repeat of earlier situations. Such episodes have played out several times since the debt crisis intensified this year. Most recently, investors have been pegging hopes on a meeting of Europe’s leaders set for this coming Sunday in Brussels, anticipating that a comprehensive solution to the debt crisis might be unveiled (emphasis added).
It would appear that Ms. Alderman has discovered that there is a fifth dimension of reporting, beyond that which is known to ordinary economic journalism. It is a dimension as vast as developed country sovereign debt and as timeless as currency itself. It is the middle ground between austerity and stimulus, between national sovereignty and supranational authority, and it lies between the pit of man's fears and the summit of his knowledge. This is the dimension of European political economy. It is an area which we call... the eurozone.
Centrist pollster Douglas Schoen has an op-ed in today's Wall Street Journal that reports on some polling his firm did of the Occupy Wall Street protestors:
The protesters have a distinct ideology and are bound by a deep commitment to radical left-wing policies. On Oct. 10 and 11, Arielle Alter Confino, a senior researcher at my polling firm, interviewed nearly 200 protesters in New York's Zuccotti Park. Our findings probably represent the first systematic random sample of Occupy Wall Street opinion.
Our research shows clearly that the movement doesn't represent unemployed America and is not ideologically diverse. Rather, it comprises an unrepresentative segment of the electorate that believes in radical redistribution of wealth, civil disobedience and, in some instances, violence. Half (52%) have participated in a political movement before, virtually all (98%) say they would support civil disobedience to achieve their goals, and nearly one-third (31%) would support violence to advance their agenda....
What binds a large majority of the protesters together—regardless of age, socioeconomic status or education—is a deep commitment to left-wing policies: opposition to free-market capitalism and support for radical redistribution of wealth, intense regulation of the private sector, and protectionist policies to keep American jobs from going overseas.
Sixty-five percent say that government has a moral responsibility to guarantee all citizens access to affordable health care, a college education, and a secure retirement—no matter the cost. By a large margin (77%-22%), they support raising taxes on the wealthiest Americans, but 58% oppose raising taxes for everybody, with only 36% in favor. And by a close margin, protesters are divided on whether the bank bailouts were necessary (49%) or unnecessary (51%).
Thus Occupy Wall Street is a group of engaged progressives who are disillusioned with the capitalist system and have a distinct activist orientation.
Now there are two ways to look at this data. The first, as many sympathizers with the movement have done, is to impugn the pollster's politics, his methods, and the ways in which he's inferring broad political generalizatiions from the data.
These points are worth considering, though looking at the precise questions asked compared to his inferences, I'm not seeing all that much conceptual stretching. Plus, Schoen's results seem to jibe pretty strongly with a smaller New York poll of 100 protestors conducted earlier this month.Furthermore, consider Nate Silver's analysis of the protests that took place over the weekend across the globe. In looking at turnout, Silver arrives at a similar -- thouugh not identical -- conclusion:
The nascent movement known as Occupy Wall Street had its largest single day of protests on Saturday. And a funny thing happened: most of the action was far from Wall Street itself....
Over all, about 38,000 protesters — more than half of the documented total — turned out in the Western Census Bureau Region, which accounts for about 23 percent of the country’s population. On a per-capita basis, the West drew about two-and-a-half times more protesters than the Northeast, four times more than the Midwest, and five times more than the South. And it wasn’t necessarily in large cities — although places like Los Angeles and Seattle had large crowds, so did the wine-and-cheese town of Santa Rosa, Calif., and the college town of Eugene, Ore. among others.....
This could be due to a number of factors. Perhaps it has something to do with race, for instance. Cities where African-Americans make up a majority of the population, like Detroit, New Orleans and Cleveland, have tended to have underwhelming numbers of protesters and poorly organized Occupy groups. (There are plenty of those cities in the South, the Northeast and even the Midwest — but not really in the western United States).
Or maybe it has something to do with technology: Much of the organizational activity for the Occupy movement has taken place online, and the West Coast is particularly tech-savvy.
I suspect that more than anything, however, it reflects the politics of the protesters. Specifically, they tend to be more liberal than they are Democratic partisans. Take liberalism, subtract the Democratic Party, and the remainder might look something like Occupy Wall Street (emphasis added).
There needs to be more data, but Schoen's results don't seem out of line with the other data points.
At 8:30 this morning U.S. Secretary of State Hillary Clinton will give "a major address on the role of economics in our foreign policy." This speech is the culmination of a series of Clinton speeches and papers over the past few months, including her July remarks in Hong Kong, her essay on America's Pacific Century in the pages of FP, and her remarks on global leadership earlier this week.
A key precept in Clinton's effort is addressing a kind of cultural lag in the sprawling Washington bureaucracy. Lead policy makers may recognize the pivotal role that economics plays in global diplomacy--but in many ways, the diplomatic bureaucracy needs to catch up. Clinton's planned speech will be in large part a call to her own agency's ambassadors, diplomatic staff and analysts to shift their thinking.
And as Clinton lays out that vision in more detail, she will stress two main bulwarks. First, she will highlight the need to advance relations with the wider world as part of the effort to revive the American domestic economic order. And second, she will stress that State Department diplomats and foreign policy thinkers need to work harder to understand how market forces are driving first-order national security challenges in hot spots such as Afghanistan, Iraq and Iran.
Now, as I noted last week, my full disclosure here is that I've seen multiple draft versions of this speech and might have made a modest suggestion or two (because you, dear readers, know how gentle I am with the red pen). Last week, I was pretty pessimistic about the effect of this kind of initiative:
I fear that the State Department is fighting through hurricane-level winds on this front to make a difference. First, the trade deals just sent to Congress are the last ones we're going to see for a while. Doha is dead, the Trans-Pacific Partnership still hasn't materialized, and all of the momentum on trade policy is to move towards
futile gesturesclosure. The dynamic, growing economy is not looking so dynamic, and those deep capital markets are getting extremely jittery.
And this week? Oddly, I find myself more on the "glass half full" side, for a few reasons. First, Congress finally cleared the decks on the three outstanding trade deals, so that looks a bit less embarrassing. Second, there does appear to be genuine enthusiasm inside the administration for the Trans-Pacific Partnership, and a recognition that this would be a neat-o deliverable for the upcoming APEC summit in Honolulu. Third, my own conversation with State Department officials suggest that they've got a decent read on which geographic regions should be the focus of which initiatives. Fourth , dwindling resources doesn't mean no resources -- the U.S. still has some formidable foreign economic policy arrows in its quiver.
The most important reason I'm more optimistic, however, is that the Secretary will be doing two things with this speech that speeches can actually accomplish. A speech can act as a form of reassurance to other countries that the United States gets it -- economics is a vital component of foreign policy, and Washington is ready to play.
A speech can also signal to the foreign policy bureaucracy that there's a shift in priorities, and they had better get on the train if they want to
get promoted make a difference. If foreign service officers see that a familiarity with economics is a key for advancement, then the United States will develop a diplomatic corps that doesn't run away screaming in terror seem distracted if the words "exchange rates" or "geographic indicators" are uttered.
Watch the speech yourself -- it will be webcast at 8:30 AM -- and let me know what you think in the comments.
While Occupy Wall Street has been garnering many headlines with outrage about the financial sector, the Bank of International Settlements just released a paper that's likely to have more actual impact on said financial sector. The paper is an effort to estimate the costs and benefits from requiring global systemically important banks (G-SIB's) to increase their capital buffers. From the executive summary:
[R]aising capital requirements on the top 30 potential G-SIBs by 1 percentage point over eight years leads to only a modest slowdown in growth. GDP falls to a level 0.06% below its baseline forecast, followed by a recovery. This represents an additional drag on growth of less than 0.01 percentage points per year during the phase-in period. The primary driver of this macroeconomic impact is an increase of lending spreads of 5-6 basis points. Soon after implementation is complete, growth is forecast to be somewhat faster than trend until GDP returns to its baseline. The aggregate figures conceal significant differences across countries, which reflect differences in the role of G-SIBs in the domestic financial system and in current levels of bank capital buffers. International spillovers are also important, and in some countries are likely to be the dominant source of macroeconomic effects.
The overall results are robust to variations in key assumptions. Using a longer list of banks, scaling by assets rather than lending, shortening the implementation period, or limiting the ability of authorities to offset slower growth with monetary or macroprudential policy were all found to increase the growth impact, but not markedly.
What will be the effect of the full package of the Basel Committee's proposals for stronger capital requirements - the set of buffers that will be required of all banks under Basel III, combined with the additional buffers to be carried by G-SIBs? The impact of the Basel III proposals, using the end-2009 global capital levels as a starting point, was calculated by the MAG [Macroeconomic Assessment Group] in 2010. On top of this, we assume for illustrative purposes that the top 30 G-SIBs will need to raise their capital ratios by an additional 2 percentage points, and that both parts of the reform are implemented over eight years. Adding together these two components, we find that the impact is again quite small, with GDP at the point of peak impact forecast to have fallen 0.34% relative to its baseline level. Roughly 0.04 percentage points are subtracted from annual growth during this period, while lending spreads rise by around 31 basis points. As before, different assumptions lead to different effects, with faster implementation or a weaker monetary policy response increasing the impact on GDP.
The benefits of the G-SIB framework relate primarily to the reduction in the exposure of the financial system to systemic crises that can have long-lasting effects on the economy. The LEI estimated the benefits of Basel III by multiplying the degree to which it reduces the annual probability of a systemic crisis, by an estimate of the overall cost of a typical crisis in terms of lost output. Drawing on the [Basel Committee Long-term Economic Impact Study's] results, the MAG estimated that raising capital ratios on G-SIBs could produce an annual benefit in the order of 0.5% of GDP, while the Basel III and G-SIB proposals combined contribute an annual benefit of up to 2.5% of GDP - many times the costs of the reforms in terms of temporarily slower annual growth.
Let me just translate how the BIS would put this to a lay audience:
Hey, you know how Jaime Dimon and all the other bankers who contribute to the Institute for International Finance, American Bankers Association, and Financial Services Forum keep saying that raising their capital requirement is "anti-American" and will lead to catastrophic economic consequences? Yeah, well, they don't know what the f**k they're talking about. Raising their capital requirements causes a extremely small dip in expected growth -- and by small we mean less than one tenth of one percent of GDP. This is massively outweighed by preventing the expected lost output that would result from recessions triggered by another financial crisis.
Now, it's not terribly surprising that global regulators will say that they're right and the banks are wrong. One would expect that the interest group power of Wall Street, however, would have the upper hand. What is surprising, as the Wall Street Journal's Sara Schaefer Munoz notes, is that the banks seem to be losing their battle with regulators:
The tug-of-war between banks and regulators over post-crisis financial rules has so far moved in the watchdogs' favor with banks largely failing to upend the tougher proposals in the U.S. and Europe....
Even before Monday's report, regulators didn't seem responsive to the industry's arguments. In the U.S., lawmakers have already determined that the country's big banks must hold more capital, but haven't yet specified how much.
The Dodd-Frank financial overhaul law, enacted more than a year ago, mandated many new restrictions on banks but left it to regulatory agencies to write the rules. Wall Street and the financial industry have spent millions of dollars lobbying to shape the rules, with little success so far.
They lost in their efforts to block new limits on the fees they can charge merchants when consumers use debit cards. Regulators are expected to vote Tuesday to issue a proposed "Volcker Rule," a part of the Dodd-Frank law designed to curtail trading activities at bank. Now they appear likely to fail in their efforts to block or water down a rule requiring them to hold extra capital.
In 2010, securities and investment firms spent a record $101.6 million on lobbying, up from $92.3 million in 2009, according to the Center for Responsive Politics. Through early October 2011, the firms had shelled out $49.5 million.
There are plenty of ways in which large banks can continue to fight the suggested rules, particularly on the implementation side. Still, this is not how open economy politics traditionally works. Traditionally, bank preferences are communicated to national governments, which then get expressed in BIS/Basle Committee meetings. This certainly happened in the actual Basel III negotiations. This kind of back and forth, in which regulators appear to trump the arguments of the financial sector, is highly unusual.
I confidently predict that this post will not generate the kind of comments that, say, an Occupy Wall Street post has in the past week. That's kind of a tragedy, because this ongoing tug of war between the BIS and IIF will likely have more far-reaching consequences than anything those protestors achieve.
I thought I'd said my
peace piece about Occupy Wall Street earlier this week -- interesting, but in all likelihood not going to amount to much unless it resonated culturally with broad swaths of American society.
I think it's safe to say that these protests don't resonate with OTB's Doug Mataconis. So this would seem to be a data point to support my argument. In his rant against the We Are the 99% crowd, however, Mataconis says something that triggered my history alarm:
The first thought I had when I looked through the Tumblr account is that these people can’t be doing all that bad if they’ve got access to the internet and a computer with a webcam necessary to create the posting that they put up at Tumblr. In any event, though, what strikes me more than anything else is that alot of these people are frustrated 20-somethings who have gotten out of college and found that the road to the good life isn’t quite as smooth as they thought it would be. Of course, things are more difficult today than they were ten years ago but that doesn’t mean they were easy back then. Establishing yourself in life is always a challenge, especially if you run up tens of thousands of dollars in student loan debt without really thinking about how you’re going to pay it off.
What comes across to me the most, though, is a sense of entitlement from some people and they idea that the situation they’re in clearly can’t be their fault so it must be the blame of someone else. There’s an attitude about the protests that there is something morally wrong about the fact that not everyone is suffering equally in the current economy as well. So when they look up and see that some people have managed to succeed during these rough economic times, that sense of entitlement becomes intermingled with a sense of envy and the belief that the only way these other people could have succeeded is by cheating....
There’s something pretty immature about blaming other people for your situation in life.
Now this strikes me as a bit harsh in judgment, but that's neither here nor there. What I can't help wondering, however, is whether Mataconis has also described the necessary conditions for a movement like Occupy Wall Street to sustain itself. Young people with a lot of time on their hands and prior entitlements possess both the will and the assets necessary to sit in for a looooooooooooong time.
There's something else: Mataconis' description of entitled young people used to peace and prosperity and demanding more of it sounds like... like... the people that decided to protest the Vietnam War after they began to realize that they might get drafted once they graduated college.
If the job prospects for twentysomethings are that bleak, then it really doesn't matter whether the protestors are responsible for their student loans or not. If they feel like the system has screwed them over, then they'll take to the streets and stay there. And in a society where the overwhelming majority of people haven't seen their wages or net wealth trending in the positive direction, I can't say they they'll necessarily trigger that much resentment.
I was fortunate enough to give a talk at my alma mater over the weekend and chat informally with some of the political science undergraduates
over some food from an Indian restaurant that didn't exist when I was in school and I can't believe how much greater their range of ethnic food choices are than when I was in school and their life is great and college life was much tougher back in my day while we broke bread. Inevitably, the question of Occupy Wall Street came up and whether it would go anywhere.
Now, in many ways, this phenomenon has many of the features of networked movements that have been at the center of The Slaughter-Drezner Debates (although in this case Slaughter seems a bit more disdainful of the movement's potential). If you read here or here or here, you'll see all the advantages of a networked structure outlined in painstaking detail. This ragtag group of rebels has managed to get coverage on The Daily Show, generate associated online movements like the "We Are the 99%" Tumblr, generate headlines through mass arrests over the weekend, and inspire similar movements in other cities.
So … what did I say to these impressionable young adults?
I said two things. First, I said the moment was ripe for this kind of movement. You have an ample supply of network technologies to start a movement, and rising economic inequality to create the necessary social purpose for such a movement. Indeed, the surprising thing about Occupy Wall Street isn't that it's happening -- it's that it took three years for it to happen.
The other thing I said was that for this group to generate more than a thousand people or so out in the streets, however, their message has to resonate culturally with people who would otherwise not want to go out onto the streets. And here's where I start to be a bit more skeptical. I'm not sure the latest manifesto is really cogent enough -- beyond a rejection of corporations as we know them -- to generate much sympathy with broad swaths of the American people. And, as I've said before, unless you attract people who vote, this kind of thing will generate news coverage and not much else.
Could they attract a larger crowd? After reading Time's Nate Rawlings, I'm skeptical:
While "Occupy Wall Street" has become more organized, its demands haven't coalesced into a coherent message. The only thing its various constituent groups appear to have in common is a deep-seated anger at inequality in this country. For them Wall Street symbolizes that unfairness, but the groups have other concerns as well. Many want to redistribute wealth; others want to enlarge government social programs. Some are protesting against the wars in Iraq and Afghanistan. Daniel Levine, a journalism student from upstate New York, said he was taking a stand against the controversial method of natural gas extraction known as hydrofracking in his hometown – but also noted that the practice can bring jobs to economically disadvantaged regions.
Just as it lacks a single message, the "Occupy Wall Street" movement has been defined by the absence of a clear leader. Participants say that is by design, and point to the committees that have sprung up to tend to the daily needs of those camped in Zuccotti Park. It isn't clear that they want a single leader, and many think the movement is better of[f] without one. “It's kind of cool how it's growing organically,” one said. “People just need to give it time and it'll come together.”
Maybe, over time, that will happen. There's a political paradox, however, that Occupy Wall Street faces. Without clear and coherent demands, there will be little to inspire ordinary citizens to take to the streets. Articulating clear and coherent demands, however, will destroy the very gestalt that the people currently on the streets seem to like some much.
Still, unions have started to come out in support of this movement. The U.S. economy is in a bad way, and the festering eurocrisis could make it really bad. So maybe external conditions will eliminate this paradox for the protesters.
So that's what I think. What do you think?
... you have to write a very quick blog post saying "I have arrived safely in Shanghai" because that's the best way to inform friends and family of that fact, because I can't access Facebook, Twitter, and Google+ (intriguingly, LinkedIn is no problem), and Gmail is loading so slowly that I'd expect the Israel-Palestinian peace process to move faster.
That is all.
Daniel W. Drezner is professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University.