While your humble blogger
remains jet-lagged out of his gourd adjusts back to the Western hemisphere, he strongly encourages you to read this fantastic David Barboza story in the New York Times on the predilection in China to use cash for ... well ... everything:
Lugging nearly $130,000 in cash into a dealership might sound bizarre, but it’s not exactly uncommon in China, where hotel bills, jewelry purchases and even the lecture fees for visiting scholars are routinely settled with thick wads of renminbi, China’s currency.
This is a country, after all, where home buyers make down payments with trunks filled with cash. And big-city law firms have been known to hire armored cars to deliver the cash needed to pay monthly salaries.
For all China’s modern trappings — the new superhighways, high-speed rail networks and soaring skyscrapers — analysts say this country still prefers to pay for things the old-fashioned way, with ledgers, bill-counting machines and cold, hard cash.
Many experts say it is not a refusal to enter the 21st century as much as wariness, of the government toward its citizens and vice versa (emphasis added).
Now you should definitely read the whole thing, but a few thoughts here:
1) From a personal perspective, as the occasional visitor to China, I can confirm the wads of cash thing -- but it's a bit more complicated than Barboza suggests. First of all, for U.S. academics at least, the payment isn't in renminbi, but in U.S. dollars. Renminbi is sometimes dispensed for things like per diem reimbursements, but not for honoraria. After all, officially, the RMB is still not convertible to dollars outside of the country, so it wouldn't be very nice to get paid in a currency that is technically useless outside the People's Republic.
There are two other qualifiers here. First, at least with respect to academic honoraria, it's not just China that pays in cash -- so does Japan, for example. Second, speaking as an academic who's received the occasional honorarium, it's friggin' awesome. At some point, someone takes you aside and gives you an envelope stuffed with bills. I know it's impolite to say, but every time it happens, I feel like I'm an earner in Tony Soprano's crew. It's soooooo much more satisfying than getting a check (as is the norm in the U.S.) or receiving a bank transfer
three months later than it should be and only after haranguing someone a few times (as is the norm in Europe).
2) The more substantive point of Barboza's story is how the cash-based system reflects the degree of distrust between the government, Chinese citizens, and the financial system. From a global political economy perspective, this cuts in two directions. On the one hand, it suggests that the effects of a real estate bubble popping in China might have a muted effect on the broad mass of Chinese. After all, if they're holding their assets outside the financial system, then their bigger fear will be currency-gnawing rats (read to the end of Barboza's story) than banks closing.
On the other hand, it's worth reading articles like this whenever someone suggests that the renminbi will soon be a challenger to the U.S. dollar as an international reserve currency. For that to ever truly happen, China's capital account will have to be one hell of a lot more transparent and liberal than it is now. As it turns out, even China's Superbank isn't actually that super once one digs into the numbers. And if Chinese citizens are trying to avoid dealing with China's financial system and the renminbi, then I seriously doubt global capital markets are going to embrace the RMB as a rival to the dollar.
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?
Well, this sounds like very bad news for the global financial system:
A plan to rescue the tiny European country of Cyprus, assembled overnight in Brussels, has left financial regulators, German politicians, panicked Cypriot leaders and a disgruntled Kremlin with a bailout package that has outraged virtually all the parties.
In the end, a bailout deal that was supposed to calm a financial crisis in an economically insignificant Mediterranean nation spread it wider. Word of the plan unnerved markets across Europe, raised fears of bank instability in Spain and Italy and sent pensioners into the streets of the island’s capital, Nicosia, in protest.
As markets tumbled and the Cypriot Parliament fell into turmoil, salvos of blame were hurled back and forth across the Continent.
Officials scrambled to explain what went wrong and how best to control the damage of what Philip Whyte, a senior research fellow at the Center for European Reform, called a “completely irrational decision” to make bank depositors liable for part of the bailout. The deal flopped so badly that finance ministers who came up with it shortly before dawn on Saturday were on the phone to each other Monday night talking about ways to revise it.
Now, on the one hand, you would be hard-pressed to find anyone who will defend the Cypriot deal as it was announced on Saturday -- but it's pretty easy to find critics of the proposed deal across the political spectrum. So this seems like yet another data point confirming the truly mind-boggling stupidity of European governments and regulators. It's particularly galling that they did this during a time when global capital markets are still fragile from the 2008 financial crisis.
Oh, except, wait a minute, it turns out that those markets aren't as fragile as the perception suggests. If you burrow into the McKinsey Global Institute's latest report on global asset markets, it turns out that, excepting Europe, the rest of global finance has experienced a decent recovery from the 2008 crash. According to MGI:
With the pullback in cross-border lending, foreign direct investment from the world’s multinational companies and sovereign investors has increased to roughly 40 percent of global capital flows. This may bring greater stability, since foreign direct investment has proved to be the least volatile type of capital flow, despite a drop in 2012.
Of course, this was written before the Cypriot stupidity, so now markets are really roiled, right? Well... here's Business Insider's Joe Weisenthal's take early this a.m.:
Markets are down a bit in Europe although not dramatically so yet.
US futures were flat, and Asia was actually up nicely, with Japan gaining 2%.
That seems like a thoroughly appropriate reaction. And over at the New York Times, Andrew Ross Sorkin explains why that's the rational and appropriate reaction:
While the bailout of Cyprus is a fascinating case study and raises interesting theoretical questions about moral hazard for policy wonks and talking heads, here is the reality: It is largely irrelevant to the global economy. Cyprus is tiny; its economy is smaller than Vermont’s. And the bailout is worth a paltry $13 billion, the equivalent of pocket lint for those in the bailout game.
Even the larger issue about bailing out a country by taking money from depositors — which quickly created outrage around the world — seems overblown....
[I]n truth, the smart money knows that the bailout of Cyprus says very little about future actions.
“I would assume that anyone in Spain, Portugal or elsewhere who knows about the taxation of Cypriot depositors also would know that the Cypriot banking system is a very different animal than anywhere else in the euro zone,” Erik Nielsen, chief economist at UniCredit, wrote in a note to clients.
Mr. O’Neill of Goldman also acknowledged: “I am sure it will not set a precedent.”
Cyprus is unique. Besides being tiny, its banking system looks different from those in most other countries. Much of the big money deposited in its banks is from foreign investors, including Russians who have long been suspected of money laundering. Those investors had fair warning that Cypriot banks were troubled. The issue has been simmering for six months. But those investors left their money in the bank, in part because they were gambling that the banks would be bailed out at no cost to them. If the current plan is approved, depositors will have lost that bet.
Now this is a perfectly rational analysis. What's significant is that it seems like markets are making the same calculation. When financial markets are fragile, when there's a fear of financial contagion, they don't make the rational calculation -- they freak out. That hasn't happened with Cyprus.
I know I'm at the risk of pulling a Donald Luskin here, but what's happening in Cyprus right now primarily affects Cypriots, with a small concern about regional effects. It doesn't look like it's triggering the same kind of concerns of either the Lehman collapse or the Greek sovereign debt crisis. And anytime the abject stupidity of European financial statecraft can be confined to Europe, that's a very, very good thing indeed for the global financial system.
Am I missing anything?
One of the lasting effects of the 2008 financial crisis was the belief that the distribution of economic power had radically shifted. China rising, West fading, yadda, yadda, yadda. A minor key in this argument has been the notion that a new and important measure of economic power is the size of a country's official reserves. This has led to the occasional panicked article that "China is buying gold!!" or "Russia is hoarding gold!!" or "Germany is moving gold!!" as a first step towards pushing the dollar out as the world's reserve currency.
Which is just so much horses**t.
Here are three facts to remember whenever you read any story about a BRIC economy hoarding gold:
1) Buying gold would have been extremely savvy in 2008. Now it's just silly. The price of gold peaked at over $1900 in September 2011 -- and despite massive amounts of quantitative easing and numerous reports about central bank hoarding, it's fallen by $300 since and trending downward.
2) The BRIC economies did not have a lot of gold to begin with. As Bloomberg notes, "Russia’s total cache of about 958 tons is only the eighth largest [in the world]."
1. The United States (8,134 tons)
2. Germany (3,391 tons)
3. The International Monetary Fund (2,814 tons)
4. Italy (2,451 tons)
5. France (2,435 tons)
So, to sum up: To believe that gold holdings really matter in the global political economy, you have to be willing to assert that Italy is a great power in global finance. I, for one, am not going there.
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?
A little more than a year ago I blogged that global policymakers had reached a "focal point" moment on the merits of austerity as a macroeconomic policy during a global recession. Namely, central bank authorities had concluded that the policy doesn't really work well at all. If true, this was a big deal. One could argue that from the May 2010 Toronto G-20 summit to the end of 2011 was a period where the austerity policies were widely touted and occasionally implemented. If this was the wrong policy, and there was a shift, that's kind of a big deal.
So where are we now on this?
On the public commentary side, I'd say we're approaching near-consensus on the failures of austerity for large economies. The passing of time has allowed for a comparative look at the data, and the results are not pretty for austertity enthusiasts. Martin Wolf sums up the indictment rather neatly, riffing off of a paper by Paul De Grauve and Yuemei Li:
[T]he chief determinant of the reduction in spreads over German Bunds since the second quarter of 2012, when OMT [the ECB pledge to open up its monetary taps] was announced, was the initial spread. In brief, "the decline in the spreads was strongest in the countries where the fear factor had been the strongest."
What role did the fundamentals play? After all, nobody doubts that some countries, notably Greece, had and have a dreadful fiscal position. One such fundamental is the change in the ratio of debt to gross domestic product. The paper makes three important observations. First, the ratio of debt to GDP increased in all countries even after the ECB announcement. Second, the change in this ratio turned out to be a poor predictor of declines in spreads. Finally, the spreads determined the austerity borne by countries.
On the policy output side, there's been a demonstrable but partial shift. In the past year, the European Central Bank, Federal Reserve, and Bank of Japan have rejected austerity policies in favor of greater levels of quantitative easing. Furthermore, contrary to the outright hostility developing countries directed at quantitative easing in the fall of 2010, the reaction to the past half-year of quantitative easing has been far more muted. When the latest G-20 communique said:
Monetary policy should be directed toward domestic price stability and continuing to support economic recovery according to the respective mandates. We commit to monitor and minimize the negative spillovers on other countries of policies implemented for domestic purposes.
That was code for "hey, G-7 central banks, you gotta do what you gotta do. We get that." Which is demonstrably different from yelling "currency wars", a meme that seems not to have caught fire this time around.
Top central bank authorities have also been willing to speak truth to power -- in this case, GOP members of Congress. John Cassidy recounts Ben Bernanke's testimony from yesterday:
Departing from his statutory duty of reporting to the Senate Banking Committee on the Fed’s monetary policy, Bernanke devoted much of his testimony to fiscal policy, warning his congressional class that letting the sequester go ahead would endanger the economic recovery and do little or nothing to reduce the country’s debt burden.
"Given the still-moderate underlying pace of economic growth, this additional near-term burden on the recovery is significant," Bernanke told his students, who included a number of right-wing Republican diehards, such as Senator Bob Corker, of Tennessee, and Patrick Toomey, of Pennsylvania. "Moreover, besides having adverse effects on jobs and incomes, a slower recovery would lead to less actual deficit reduction in the short run."
Translated from Fed-speak, that meant that congressional Republicans have got things upside down. Bernanke has warned before about the dangers of excessive short-term spending cuts. But this was his most blunt assertion yet that Mitch McConnell, John Boehner, et al. should change course. "To address both the near- and longer-term issues, the Congress and the Administration should consider replacing the sharp, frontloaded spending cuts required by the sequestration with policies that reduce the federal deficit more gradually in the near term but more substantially in the longer run," Bernanke said. "Such an approach could lessen the near-term fiscal headwinds facing the recovery while more effectively addressing the longer-term imbalances in the federal budget."
So does this mean some additional policy shifts? Alas, probably not. The consensus against austerity seems pretty strong on the monetary policy side of the equation. On the fiscal policy dimension, however, austerity remains the de facto policy for a lot of economies. This includes the United States, which is conventionally depicted as not having embraced austerity. The New York Times' Binyamin Appelbaum outlines the current fiscal austerity in his story today:
The federal government, the nation’s largest consumer and investor, is cutting back at a pace exceeded in the last half-century only by the military demobilizations after the Vietnam War and the cold war.
And the turn toward austerity is set to accelerate on Friday if the mandatory federal spending cuts known as sequestration start to take effect as scheduled. Those cuts would join an earlier round of deficit reduction measures passed in 2011 and the wind-down of wars in Iraq and Afghanistan that already have reduced the federal government’s contribution to the nation’s gross domestic product by almost 7 percent in the last two years.
The cuts may be felt more deeply because state and local governments — which expanded rapidly during earlier rounds of federal reductions in the 1970s and the 1990s, offsetting much of the impact — have also been cutting back.
Federal, state and local governments now employ 500,000 fewer workers than they did on the eve of the recession in 2007, the longest and deepest decline in total government employment since the aftermath of World War II.
Total government spending continues to increase, but those broader figures include benefit programs like Social Security. Government purchases and investments expand the nation’s economy, just as private sector transactions do, while benefit programs move money from one group of people to another without directly expanding economic activity.
The reason for this split does not require rocket science. Monetary policy is a tool of politrically insulated central bankers. Fiscal policy is a tool for elected politicians. The public might dislike specific budget cuts, but damn if they don't love austerity in theory.
So, in retrospect, I think early 2012 was a focal point -- but only for central bankers and commentators. As Cassidy notes, there remain elected politicians who are super-keen on austerity:
Corker, a former builder who is a long-time critic of Bernanke’s expansionary policies, called him "the biggest dove since World War Two." Toomey, a former head of the conservative lobbying group Club for Growth, questioned whether the sequester would have any real impact on the economy. Bernanke shrugged off the criticisms, calmly and methodically laying out the realities of the situation.
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.
Your humble blogger has been following the raging debate about online education for a number of reasons. First, like offshore outsourcing last decade, it's a phenomenon that has finally spread to a profession that is pretty traditional -- in no small part because higher education has not thought of itself as a tradeable good. Second, it's a fascinating development without any consensus about the end point. And third, as a prof, I have some skin in this game.
Now I have a little more... er... skin in this game. Over the past year I have been working with The Teaching Company to prepare one of their Great Courses, and it's now available for order. The course is modestly titled "The Foundations of Economic Prosperity." Here's a brief description:
Prosperity has transformed the world. Defined as the ability to afford goods and services beyond basic necessities, prosperity is now a way of life for most residents of developed countries—so commonplace that few people realize what a rare and recent phenomenon it is.
A mere two centuries ago, most people lived at a subsistence level, in or near the edge of poverty, as the overwhelming majority had since prehistoric times. Then the Industrial Revolution began and per capita income shot up. It is still rising today.
But the story of prosperity is far from simple—or complete. Many people in the developed world fear that their children will be less prosperous than they are. Meanwhile, new economic titans such as China and Brazil enjoy year after year of rapid growth and an ever-rising standard of living. Elsewhere in the world, millions are still trapped in poverty, despite the best efforts of organizations such as the World Bank to help lift them out of it.
Fostering and sustaining economic prosperity—whether at the individual, national, or global level—is a multilayered endeavor that reaches far beyond economics into the political and social spheres....
Professor Drezner shows that achieving prosperity involves more than economics. Psychology, sociology, political science, and history also come into play. By taking this broad view, he leads you to fundamental insights about how the modern world works and a deeper understanding of the functioning of the U.S., European, Chinese, and other major economies, as well as an appreciation for the special problems faced by underdeveloped nations.
Buy the whole thing and
help me pay for my children's college education learn about the political economy of prosperity.
Now, this is not a course for credit, or a MOOC, or anything that's bandied about as the future of higher education. After spending the past year designing and making this course, however, let me say that those who believe that it will be easy to "scale up" existing lecture courses into the online world are kidding themselves. Teaching to a classroom audience requires a very different pedagogy than teaching to a captive online audience. The former can provide instantaneous feedback, which is crucial for a professor. They can ask for a concept to be repeated, or ask a follow-up question, or query about how the abstract concept under discussion connects to a headline of the day. None of these things are easy to pull off for an online audience.
I will also add that the amount of effort I put into the Foundations of Economic Prosperity easily exceeded anything I've had to do for my traditional lectures or seminars. This is not because I slack off with my Fletcher students -- rather, it's because teaching those courses is a collaborative exercise between me and the students. With a strictly online course, the professor has to do a lot more work to keep it engaging.
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?
With 2012 down to its last day, it's now safe to announce this year's Albies -- named in honor of noted political economist Albert O. Hirschman. The Albies are awarded to the best writing in global political economy over the past calendar year. The writing can be in a book, journal article, think tank report, blog post, whatever -- the key is that the article makes you reconsider the way the world works.
This time around the bar was rather high, as Hirschman passed away earlier this month. Still, what with the world supposedly ending this year, there was a lot of really excellent work in this area. So, in no particular order, here are the ten Albie winners:
1) Mario Draghi's September 6th press conference on ECB policy. In response to a question about whether there would be a limit to the European Central Bank's "outright monetary transactions" -- i.e. buying distressed sovereign debt in secondary markets, Draghi replied, "there is no ex ante quantitative limit to these interventions because we want this to be perceived as a fully effective backstop that removes tail risk from the euro area." And, with those words, Draghi effectively put a stop to the immediate financial crisis that was crippling the southern European economies. From a n IPE perspective, Draghi also did something surprising and interesting: he signaled that the ECB could take steps independent of what the Bundesbank wanted it to do. With this one statement, Draghi gave the eurozone area room to breathe, stabilized global financial markets, and may have well given a major assist to Barack Obama's re-election. Now that's a press conference.
2) Faisal Ahmed, "The Perils of Unearned Foreign Income: Aid, Remittances, and Government Survival." American Political Science Review, February 2012. Remittances have been the Big Thing in development circles for the past few years, particularly since these flows have been robust even in the face of the Great Recession. Ahmed's article shows that remittances are not an unalloyed good, however. Autocratic governments can use these flows as they have used foreign aid -- as a way to divert their own resources away from social programs and towards bolstering the government's coercice apparatus. Because families have thjis extra income source, their disconent against the state won't rise -- and the state will be better prepared to crack down if citizens do revolt. Remittances therefore paradoxically help authoritarian governments persist for longer. This doesn't mean that remittances are a bad thing -- but Ahmed's finding does a lovely job of mucking up some policy truisms.
3) McKinsey Global Institute, Debt and Deleveraging: Uneven Progress on the Path to Growth, January 2012. Very Serious People across the political spectrum agree that the United States desperately needs to get its debt problem under control. But as this McKinsey report demonstrates, the United States already has gotten its debt problem under control. Sure, the federal government's debt-to-GDP ratio has ballooned since the start of the Great Recession, but overall debt levels -- including households, the financial sector, and business more generally -- have shrunk quite nicely, thank you very much. Indeed, the U.S. approach of swelling government debt to absorb the slack in aggregate demand repeats the successful policies of the Scandinavian countries during their financial meltdowns in the early nineties. This -- comibined with an energy boom, the insourcing of manufacturing, and even a modicum of sane foreign economic and security policies -- augur a revival in America's economic fortunes.
4) Robert J. Gordon, "Is U.S. Economic Growth Over? Faltering Innovation Confronts the Six Headwinds," NBER Working Paper No. 18315, August 2012. The doppelgänger to the McKinsey paper, Gordon makes the somewhat speculative argument that the boom times for U.S. economic growth are over. Arguing that the productivity gains from the Information Revolution are puny compared to the Second Industrial Revolution, Gordon then sketches out a future where the rate of per capita income growth collapses to pre-Industrial levels. This provoked a lot of pushback -- see Brad Plumer's roundup and Paul Krugman's recent column. And for that reason alone, Gordon deserves an Albie -- he got people to think seriously about the sources of economic growth, a curiously neglected topic in economics.
5) Artemis Capital Management, "Volatility of an Impossible Object: Risk, Fear, and Safety in Games of Perception." September 30, 2012. To put it gently, the past few years have not been kind to the financial gurus of the world. Slowly, they've begun to acknowledge that their job isn't just to deliver the high "alpha" or the "smart beta" anymore -- it's also to recognize where there's a buildup of systemic risk and general uncertainty and hedge against it. Since perception is a big driver of asset valuation in a world of uncertainty, that makes life even trickier for financial analysts. In response, this was the year that they began to embrace post-modernism as an analytical tool. This Artemis newsletter is simply the most obvious example. After you read it, you could come away with the firm conviction that the author is either onto something truly fundamental, or he's just throwing up his hands and crying "Uncle!" Either way, some enterprising Ph.D. student is gonna produce one hell of a dissertation by analyzing the baroque literature of investment newsletters. Bill Gross would be a whole chapter unto himself.
6) Daron Acemoglu and James Robinson, Why Nations Fail: The Origins of Power, Prosperity, and Poverty, Crown Publishing. What explains why some countries prosper and some don't? When Mitt Romney credited the gap between Palestinians and Israelis as a matter of "culture," he stumbled into every social scientist's personal nightmare. The argument de l'année was Acemoglu and Robinson's observation about the power of political institutions to shape immediate economic incentives as well as long-term cultural patterns. Why Nations Fail is the popular capstone to a decade of Acemoglu and Robinson's research. It doesn't settle the argument by any means, but it's a powerful brief against those who argue that the sources of prosperity are either geographical or cultural.
7) Chrystia Freeland, Plutocrats, Penguin. As income and wealth inequality has increased both globally and in the United States, the political implications of this trend have slowly moved into the forefront of political debates. Freeland's Plutocrats is the perfect jumping off point for this debate. Freeland paints a complex portrait of the rich, demonstrating their worldview while avoiding both condescension and caricature. This is one of those rare books that actually improves upon the Atlantic cover story that kicked it off. The final third of the book in particular raises some profoundly troubling questions about the relationship between the uber-wealthy, the state and the rest of us.
8) David Barstow, "Vast Mexico Bribery Case Hushed Up After Top-Level Struggle," New York Times, April 21, 2012; Barstow and Alexandra Xanic von Bertrab, "The Bribery Aisle: How Wal-Mart Got It's Way in Mexico," New York Times, December 17, 2012. Social scientists often disdain journalists for not paying attention to macro trends and failing to understand statistics. These are valid concerns, but scholars also need to acknowledge when journalists actually generate data rather than merely report on it. In these two stories Barstow and his co-authors took a beacon and revealed the extent and methods of corruption in Mexico -- and the ways in which corrupt practices in one country can infect the culture of a multinational corporation. Outstanding reportage. This story gets bonus points for being an article about Mexicco but not about either immigration or narcotics.
9) FT Reporters, "Chinese Infighting: Secrets of a succession war," Financial Times, March 4, 2012/John Garnault, "Rotting From Within," Foreign Policy, April 16, 2012/David Barboza, "Billions in Hidden Riches for Family of Chinese Leader," New York Times, October 25, 2012 and "Family of Chinese Regulator Profits in Insurance Firm's Rise," December 30, 2012/Bloomberg News, "Heirs of Mao's Comrades Rise as New Capitalist Nobility," December 26, 2012. As China underwent its own leadership transition, the lack of a free press in that country did not prevent some crackerjack reporting on the corruption issues that plague the People's Republic. From the FT's harrowing story of how Bo Xilai used torture to amass his fortune to Garnault's examination of how corruption has ensnared the Chinese military to Barboza's and Bloomberg's explications of how political connections lead to wealth in China, western reporters did an outstanding job in 2012 of demonstrating the inner working's of China's political economy. If your newspaper or magazine gets blocked by the Great Firewall after a story, that should be taken as a sign of respect.
10) Matt Ferchen, "Whose China Model is it anyway? The contentious search for consensus." Review of International Political Economy, April 2012. This was a curious year for China-watching. On the one hand, the trend was for analysts to shift from bullish to bearish. On the other hand, some Chinese and a lot of Americans are now feeling pretty confident about the superiority of the Chinese system. But what exactly is the China Model? Ferchen does an excellent job dissecting what we're talking about when we're talking about the Beijing Consensus. He further dives into the internal Chinese debate on the existing model, revealing serious qualms about the stats quo. Ferchen shows that one of the interesting things about the "Beijing Consensus" is not its content per se, but how policymakers and pundits on both sides of the Pacific deploy the term.
Honorable Mentions: Lauren Greenfield's The Queen of Versailles; Angus Burgin, The Great Persuasion: Reinventing Free Markets since the Depression, Harvard University Press; Christopher Hayes' Twilight of the Elites; Annie Lowrey, "Dire Poverty Falls Despite Global Slump," New York Times; Peyer Doyle's letter of resignation to the IMF, June 16, 2012; and -- just under the wire - the automated Thomas Friedman Op-ed Generator.
So, to sum up: two books, to peer-reviewd journal articles, two investment reports, a passle of journalism, one draft paper, and one press conference. And yet I still feel like I nonly scratched the surface.
May 2013 be as rich a year for global political economy as this past one!!
A year ago your humble blogger penned a post suggesting that the United States was really, really, really super-bad at being an empire. Those who claim that the United States conducts all aspects of its foreign policy purely for profit need to cope with the fact that America really stinks at making a buck from its military actions. A year later, with respect to Afghanistan and Iraq, that assessment really hasn't changed: the United States investment in both of those countries remains a massive net loss. Even Libya doesn't seem to have panned out all that well as a money-making opportunity for Americans.
As a social scientist, however, I need to seek out potentially contradictory data points, and Matthew Brumwasser has a story in the New York Times about how one U.S. military action does seem to be yielding economic gains.... for the individual policymakers responsible for it:
So many former American officials have returned to Kosovo for business — in coal and telecommunications, or for lobbying and other lucrative government contracts — that it is hard to keep them from colliding.
They also include Wesley K. Clark, a retired Army general and the former supreme allied commander of NATO forces in Europe who ran the bombing campaign against the Serbian strongman Slobodan Milosevic; and Mark Tavlarides, who was legislative director at the Clinton White House’s National Security Council.
The State Department has no policy that forbids former diplomats from lobbying on behalf of nations where they served or returning to them for profit, beyond the one applying to federal employees as a whole, which prohibits senior officials from contacting agencies where they once worked for one year and bans all federal employees for life from advising on the same matters.
Kosovo is not the only nation where former officials have returned to conduct business — Iraq is another example — but it presents an extreme case, and perhaps a special ethical quandary, given the outsize American influence here. Pristina, the capital, may be the only city in the world where Bob Dole Street intersects Bill Clinton Boulevard.
Foreign policy experts say the practice of former officials’ returning for business is more common than acknowledged publicly. Privately, former officials concede the possibility of conflicts of interest and even the potential to influence American foreign policy as diplomats who traditionally made careers in public service now rotate more frequently to lucrative jobs in the private sector.
If you read the whole story, however, you'll see that the correlation between ex-policymakers profiting and U.S. corporation profiting is not a perfect one. For example, the Slovenian firm IPKO hired Ms. Albright to be a "special advisor," no doubt to advance their burgeoning interests in Kosovo.
Still, this is a data point that suggests at least some Americans can make a profit off of successful military actions. Of course, contrary to the somewhat sinister tone of the story, I'm not sure that Americans are really screwing over the Kosovars in their hunt for government contracts and assets. Indeed, paradoxically, the very surfeit of ex-policymakers in Pristina means there's real competition among them for prime investments in Kosovo -- which means better terms for the Kosovars.
So yeah, I still think Americans are awful at empire-building.
What do you think?
You humble blogger has, on occasion, waxed poetic about Hirschman's accomplishments as a scholar and a writer. His primary area of expertise was in development economics, particularly in Latin America. He was a true giant in the larger study of political economy -- which is why my best-global-political-economy-of-the-year awards are named The Albies. The Social Science Research Council also named a prestigious award after Hirschman:
The Prize recognizes Albert Hirschman's pioneering role in contemporary social science and public policy as well as his life-long commitment to international economic development. Exploring theory and practice, the history of ideas - economic, social or political - and innovative approaches to fostering growth, Hirschman has seen scholarship both as a tool for social change and as an inherent value in a world in need of better understanding. He has written in ways that help social science effectively inform public affairs. His work stands as an exemplar of the necessary knowledge that the Social Science Research Council seeks to develop and the interdisciplinary and international approach in which it works.
What did Hirschman write to earn such honorifics? Well, Exit, Voice and Loyalty is one of those books that you have to read if you're earning a Ph.D. in any social science; as I've said before, that book was crucial to some of my thinking behind All Politics is Global. Beyond that book, however, Hirschman wrote must-read books on international economic power (National Power and the Structure of Foreign Trade), economic ideas (The Passions and the Interests), political rhetoric (The Rhetoric of Reaction), and the evolution of the social sciences themselves ("Paradigms as a Hindrance to Understanding").
Hirschman's ideas ere important, but I'd argue that his writing style was equaly important -- clear, lucid, vivid, never a word wasted. As a grad student, I dozed off a lot reading a necessary but abstruse journal article. One did not fall asleep reading Hirschman -- hell, he was better than any energy drink in boosting one's intellectual energies.
He will be missed -- but not forgotten.
It's now December, which means it's time to start garnering nominations for the 4th annual Albies, so named to honor of the great political economist Albert O. Hirschman.
To reiterate the criteria for what merits an Albie nomination:
I'm talking about any book, journal article, magazine piece, op-ed, or blog post published in the [last] calendar year that made you rethink how the world works in such a way that you will never be able "unthink" the argument.
This year was certainly not a boring one for the actual global political economy, which means it's a good year to write about it. So, please submit your ideas to me. And remember, this is the only year-end Top 10 list that neither Time nor the Atlantic has yet to comandeer. Here are links to my 2009, 2010, and 2011 lists for reference.
The winners will be announced, as is now tradition, on December 31st. In the meantime, readers are strongly encouraged to submit their nominations (with links if possible) in the comments.
The Financial Times' Alan Beattie is in a grumpy mood about the 2012 campaign, which leads to a wonderfully cranky column about the appalling campaign rhetoric on the global economy:
Hypocrisy and exaggeration may be an inevitable part of any election campaign, but the discussions on international economics and trade have had experts in the field longing for next Tuesday’s vote to be over.
Herds of peaceably grazing policy wonks have been left shaking their heads in dismay as the marauding presidential campaigns have rampaged through their turf, leaving a trail of wrong-headed assumptions, non sequiturs and outright falsehoods strewn behind them....
Unfortunately, a realistic debate would involve admitting that some of the biggest international economic threats to the US are outside any administration’s influence, and thus destroy an implicit pact to maintain the myth of presidential omnipotence....
And, most likely, we’ll be back here again in four years’ time, with the challenger accusing the incumbent of selling out to China and letting jobs be shipped overseas and the incumbent, by accepting the premise of the attack, ensuring another debate about the global economy that takes place at an oblique angle to reality.
I'm moderately more optimistic than Beattie on what will happen next year on the foreign economic policy front regardless of who wins on Tuesday, but he's not wrong about the ridiculously stupid four-year political cycle.
Unfortunately, if foreign economic policy wonks were honest with ourselves, we'd have to acknowledge that the truth would not really be a big political winner, unless you think the following speech would really bring out the undecideds:
I strongly favor inking more trade and investment agreements on behalf of the United States. Yes, it's likely true that greater globalization is one of the lesser drivers for increased inequality in the United States. Oh, and no trade deal is going to be a jobs bonanza -- the sectors that trade extensively are becoming so productive that they don't lead to a lot of direct job creation. Will some jobs be lost from these deals? Probably a few, but not a lot. But on average, greater globalization will boost our productivity a bit, which will in turn cause the economy to grow just a bit faster, which will indirectly create some jobs. Goods will be cheaper, which benefits consumers. Oh, and by the way, there are some decent security benefits that come with signing trade agreements.
Finally, the rest of the world is going to keep signing free trade agreeements and bilateral invesment treaties whether we play this game or not. So we can choose to stand pat and have our firms and consumers lose out on the benefits of additional gains from globalization, or we can actually, you know, lead or something. Your call. Greater integration with the rest of the globe is no economic panacea, but the one thing we're pretty sure about is that most of the policy alternatives stink on ice.
Here's a challenge to foreign economic policy wonks -- can the above message be sexed up at all without overpromising? In other words, what would be the best possible campaign rhetoric about foreign economic policy that would have the benefit of also being true?
Your humble blogger has been an "advisor" to the Legatum Prosperity Index for a few years now. They released their 2012 rankings today, and according to Bloomberg, the results ain't good for the United States:
The U.S. slid from the top ten most prosperous nations for the first time in a league table which ranked three Scandinavian nations the best for wealth and wellbeing.
The U.S. fell to 12th position from 10th in the Legatum Institute’s annual prosperity index amid increased doubts about the health of its economy and ability of politicians. Norway, Denmark and Sweden declared the most prosperous in the index, published in London today.
With the presidential election just a week away, the research group said the standing of the U.S. economy has deteriorated to beneath that of 19 rivals. The report also showed that respect for the government has fallen, fewer Americans perceive working hard gets you ahead, while companies face higher startup costs and the export of high-technology products is dropping.
“As the U.S. struggles to reclaim the building blocks of the American Dream, now is a good time to consider who is best placed to lead the country back to prosperity and compete with the more agile countries,” Jeffrey Gedmin, the Legatum Institute’s president and chief executive officer, said in a statement (emphasis added).
In the Wall Street Journal, Gedmin and Prosperity Index program director Nathan Gamester push on this message a bit harder in an op-ed:
Earlier this month the Obama administration received good news: U.S. unemployment seems finally to be coming down. This week, however, the news is not so good. In fresh data on economic prosperity from countries around the world, the U.S. has fallen out of the Top 10 for the first time ever. If elections were decided by data, today's findings would spell trouble for President Obama.
The 2012 Legatum Prosperity Index captures not simply the quarterly or annual ups and downs of the national economy, but rather long-term underlying components of national prosperity. Our findings suggest that the American Dream is in jeopardy.
The first problem is well-known. America has saddled itself with crippling debt and soaring entitlement spending. Couple these with projections of low growth—and possibly even another recession—and a bleak picture emerges.
It seems that even parts of Old Europe, the euro crisis notwithstanding, can teach America a thing or two. Norway, Denmark and Sweden top our rankings this year. Once upon a time the Scandinavians were world champions in big government and social spending. But bloated welfare states have been brought to heel in recent years. There has been deregulation and privatization: The Swedes even privatized air traffic control. Today Denmark has one of the most flexible labor markets in the world. (emphasis added)
So, the subtext seems pretty clear: U.S. prosperity is declining because of staggering debt and a bloated public sector, in contrast to those newly laissez-faire Scandinavians. You can guess which presidential camdidate is better-placed to reward entrepreneurship.
This has prompted some gnashing of
tweets teeth about the future of the United States. Now, having looked at the numbers, I share some of this anxiety. There is a powerful grain of truth to Gedmin and Gamester's assertions. But there are a few other grains of truth that should be sprinkled about before reaching any conclusions:
GRAIN OF TRUTH #1: The U.S. didn't really fall too far in the rankings -- it went from 10th place last year to 12th this year. That's partly because Luxembourg got added to the index in the interim and it did better than the United States in the rankings. It's not great, but it's not an exaggerated decline either.
GRAIN OF TRUTH #2: High levels of debt ain't what's holding the United States back in these rankings. Japan has a much higher debt-to-GDP ratio, but its economic performance ranked eight places higher than the U.S. There are other factors at work here.
GRAIN OF TRUTH #3: If you burrow into the report itself (.pdf), you find that the primary reason for the drop in the U.S. ranking was a fall in the "Entrepreneurship and Opportunity" score. The primary driver for this? "This fall is driven by a decline in the number of US citizens who believe that hard work will get them ahead and a decrease in ICT exports (p. 10)."
Now this leads to an interesting question: what drives the decline in the belief that hard work will get one ahead in life? Legatum explains that on p. 38:
Low business start-up costs and a positive perception of a country’s entrepreneurial environment contribute to improving citizens’ economic prospects and overall wellbeing. The sub-index also evaluates a country’s ability to commercialise innovation and measures the technological and communication infrastructure that is often essential to successful commercial endeavours. It further provides a snapshot of access to opportunity by tracking inequality and by asking citizens whether they believe their society to be meritocratic. (emphasis added)
And now we get to the nub of it. The decline in America's prosperity score is partly a function of the weak economy -- but it's primarily a function of citizen perceptions of their ability to get ahead. Government barriers to entrepreneurial activity would certainly depress those perceptions, but so would very high levels of inequality (moderate levels of inequality are a different animal altogether). The more unequal a society is, the less that ordinary citizens feel that their own efforts will yield commensurate rewards. And in the past few years, the data shows that the United States has become increasingly unequal.
So, if Gedmin and Gamester are correct that Americans should use this report to think about which presidential candidate would be poised to improve American prosperity, you have to ask yourself which candidate is more likely to improve Americans' belief that their society rewards hard work and effort. And I don't think the answer is as clear cut as they think it is.
What do you think?
I suspect that most of today's foreign policy post-mortems about last night's town hall debate will focus on the Libya question, in which, according to Taegan Goddard, "Obama acted like a president in the exchange while Romney was much less. It was Romney's Gerald Ford moment." He's not the only one to make this assessment. I'm not sure I would go that far, but Romney did manage to convert a pretty strong initial response to the question into a bad, bad moment for him.
But let's be honest: regardless of whether you think Romney exaggerated in his description of Obama's Libya response or Obama exaggerated in his rejoinder, those were not the biggest foreign policy whoppers told during this debate. Not by a long shot.
If we're going to engage in real-keeping, then let's acknowledge that both candidates fudged, exaggerated, or flat-out lied on just about everything pertaining to foreign economic policy during last night's debate. It was a truly bipartisan fib-fest. I could go through the debate transcript line by line, but let's just hit the highlights. At varous points, one or both of the candidates tried to convince undecided voters of the following:
1) Energy independence is the cure for what ails the U.S. economy;
2) The U.S. loses from trade with China, and tougher trade enforcement will fix that;
3) Free trade with Latin America will create millions and millions of jobs;
4) The only reason China is doing well comparatively is that it's keeping its currency undervalued; and finally
5) Illegal immigration is threatening the American economy.
Let's inject a little reality here, shall we? Repeat after me:
1) Because most energy sources are traded in global markets, energy independence has zero effect on the economy (though there might be a few security dividends).
3) Perfect trade enforcement would have only a marginal impact on employment;
5) Illegal immigration into the United States "has been in reverse for several years."
If the foreign policy debate next week has as much mendacity as this one on the global economy, your humble blogger will be passed out in a drunken stupor by 9:30 PM.
We live in a world where every other Thomas Friedman column bemoans the lack of global leadership, and every other David Rothkopf tweet bewails the dysfunction of global governance. Phrases like "G-Zero" get tossed around a lot, and trashing global economic governance seems to be a prerequisite for writing in the Financial Times.
Given this climate, I thought it would be useful to take a step back and point out a rather awkward and uncomfortable truth: global economic governance has actually done a surprisingly good job in response to the 2008 financial crisis.
Ludicrous, you say? Well, to make my case, I've written up an IIGG working paper for the Council on Foreign Relations entitled, "The Irony of Global Economic Governance: The System Worked." The opening paragraph:
The 2008 financial crisis posed the biggest challenge to the global economy since the Great Depression and provided a severe “stress test” for global economic governance. A review of economic outcomes, policy outputs, and institutional resilience reveals that these regimes performed well during the acute phase of the crisis, ensuring the continuation of an open global economy. Even though some policy outcomes have been less than optimal, international institutions and frameworks performed contrary to expectations. Simply put, the system worked
Now you'll have to read the whole thing to see if I'm blinkered or not. There's a decent chance that I am, mind you, but I'm pretty comfortable with the empirics of my case. What I'm uncomfortable with is the reasons why things have played out the way that they have. More on that as I work it out in my own head.
Now I've been just as skeptical as the next guy when it comes to some dimensions of global economic governance. Still, this is one of those times when stepping away from the day-to-day of the blog and looking at the overall situation provides some valuable perspective.
Still, feel free to point out where I'm wrong. Cause I suspect that this paper is going to drive some Very Serious People in the foreign policy community absolutely bonkers.
The Wall Street Journal has two great stories on the Federal Reserve's decision to go for QE3 -- a third round of quantitative easing. First, Jon Hilsenrath documents how Fed chairman Benjamin Bernanke built a consensus among the Federal Reserve governors:
For weeks, Mr. Bernanke made dozens of private calls on days, nights and weekends, trying to build broad support for an unusual bond-buying program he wanted approved during the Fed's September meeting, according to people familiar with the matter....
Fed officials described the Fed chairman's phone calls as low-pressure conversations. Mr. Bernanke sometimes dialed up colleagues while in his office on weekends, catching them off guard when their phones identified his private number as unknown. He gave updates on the latest staff forecasts, colleagues said. He asked their thoughts and what they could comfortably support, they said.
The calls helped Mr. Bernanke gauge how far he could push his committee. It also won him trust among some of his fiercest opponents, officials said. Nearly all of Mr. Bernanke's colleagues described him as a good listener.
"Even if you disagree with him on the programs, you know your voice has been heard," said [Dallas Fed President Richard] Fisher, one of his opponents. "There is no effort to bully."
So Bernanke did a lot of hand-holding, a lot of listening... to the key Fed decision-makers. What's equally important is who he didn't talk to -- namely, other central bank heads in the rest of the world.
I bring this up because some of these central bank officials are pretty pissed. QE3 has caused the yuan to hit its all-time high against the dollar, for example. Which leads us to the other interesting Wall Street Journal story. Aaron Back and In-Soo Nam document how South Korea and China have reacted to QE3:
Chinese and South Korean central-bank officials criticized the U.S. Federal Reserve's latest easing efforts and advocated reducing Asia's dependence on the U.S. dollar.
The comments Thursday, at a joint seminar in Beijing by the two central banks, are the clearest indication yet of a rising backlash in Asia against U.S. monetary policy, suggesting it could speed up the search for alternatives to the dollar as the main global currency.
"The rise in global liquidity could lead to rapid capital inflows into emerging markets including South Korea and China and push up global raw-material prices," said Bank of Korea Gov. Kim Choong-soo. "Therefore, Korea and China need to make concerted efforts to minimize the negative spillover effect arising from the monetary policies of advanced nations."
Chen Yulu, an academic adviser to the People's Bank of China, said Asia needs a "regional core currency" to reduce its dependence on the dollar. China's ultimate goal is for the yuan to be as important as the euro or the dollar, he said.
Whoa, this sounds pretty bad... until you get to the next paragraph:
But [Chen] acknowledged that will be a slow process, saying it would be possible for the yuan to be fully convertible by 2020, and that the overall yuan-internationalization process may last until 2040. China strictly controls its currency, though it has made small moves to broaden its use globally in recent years and has also allowed a little more flexibility in its movements (emphasis added).
Furthermore, it's worth noting that the international bitching and moaning about QE3 seems much less than the "currency war" rhetoric that QE2 triggered. Why? Based on my half-assed blog analysis I'd speculate that there are three reasons:
1) The global economy is in a more sluggish state in 2012 than in 2010, so it's hard to argue that expansionary monetary policy is inappropriate now.
2) The United States was not the only major economy to go the quantitative easing route in the past few months. Both the European Central Bank and the Bank of Japan have made similar -- if uncoordinated -- moves.
3) The central bank heads have learned frrom QE2 that the bitching and moaning won't accomplish anything. It didn't stop QE2 and it won't stop QE3.
Am I missing anything?
In today's paper the New York Times has two long stories on the two largest countries in the world: one on China and one on India. What's interesting is that both stories talk about the tensions between national and regional governments -- but their interpretation of the behavior of these local governments is very different.
Let's start with China, where Andrew Jacobs notes that political paralysis at the national level combined with the economic slowdown is causing regional governments to double down on their debt-driven growth:
Local governments, alarmed by a slowdown they fear could lead to mass unemployment and the kind of sluggish growth that can dent political careers, have decided to take matters into their own hands. In recent months, a number of cities have proposed extravagant infrastructure projects they hope will be financed in part by newly liberalized bank loan policies.
Tianjin claims $236 billion will be spent in the petrochemical, aerospace and other industries. Xi’an, home of the famed terra cotta warriors, plans to invest tens of billions of dollars on nine new subway lines. In Guizhou, one of China’s poorest provinces, officials said they hoped to funnel $472 billion into tourism-related development.
In Changsha, the provincial capital of Hunan, officials brag of 12.9 percent growth as they spend billions of dollars on a new subway system, a ring road, an intercity rail line and a pair of bridges to knit together its transportation system.
“We haven’t felt any impact from the crisis in Europe,” said Liu Maosong, chairman of the Hunan Economics Association and an adviser to the Changsha government. “Our guiding philosophy is ‘investment, investment, investment.’ ”
Even if many such projects turn out to be wishful thinking, economists have expressed alarm that municipalities are still chasing debt-financed growth. “It almost scares me to death,” said Mao Yushi, a prominent economist. “Local governments are using the people’s money for investment, but when they can’t repay the banks, the financial system will snap.”
And Liao Jinzhong, an economist at Hunan University, worries that much of the spending is misplaced. “What we really could use is a functioning sewage system,” he said, speaking from his sixth-floor apartment in a crumbling faculty building that has no elevator.
Mr. Liao said he gave frequent lectures at the local party school about the dangerous fixation on propping up growth figures at all costs. He said officials often congratulated him on his frank views.
“But then they admit they can’t change the way they do things,” he said. “Given that the whole system is oriented toward bolstering the careers of officialdom, I just don’t see things changing any time soon.”
Interesting... so because of the political incentives that exist within the Chinese Communist Party, provincial and urban leaders have an incentive to prime their pumps to seek advancement.
Now let's turn to India, where Jim Yardley notes that -- wait for it -- seeming paralysis at the national level and a sagging national economy are causing unaffiliated leaders at the regional and local level to muse about things like forming a third party and compete at the national level. Yardley notes that the likelihood of success is low. What's interesting, however, is the question of why these local leaders are so popular:
Regional bosses, once in decline, are becoming kingmakers again: the squat, sleepy-eyed Mulayam Singh Yadav, who oversees the powerful Samajwadi Party, is even publicly musing about himself as a future prime minister.
“The incentive for every single party from the opposition to the allies is to send a signal that the Congress can’t govern,” said Pratap Bhanu Mehta, president of the Center for Policy Research in New Delhi. “That’s the election plank.”....
“Indian politics will have to live with bargains and negotiations with regional parties,” Ashutosh Varshney, a political expert, said in an e-mail interview. “A third front may or may not emerge, but both national parties will have to negotiate and bargain. That also means that India will find it harder to make firm assertions of power on the international stage, à la China. Its power will grow, but more gradually.”....
In the meantime, India’s regional leaders will continue to press for advantage. Ms. Banerjee is planning a huge demonstration in New Delhi on Monday against the government’s new economic measures. Even as [Bengal Chief Minister Ms. Mamata] Banerjee is often criticized for being intemperate and unpredictable, her influence is undeniable: this week the American ambassador, Nancy Powell met with her privately, just as Secretary of State Hillary Rodham Clinton made a point of visiting her during a trip to India in May.
Other regional leaders are also increasingly powerful national figures. Nitish Kumar, the chief minister of the state of Bihar, has hinted that his regional party could join any coalition that granted his state special status. Naveen Patnaik, the chief minister of Orissa, has expressed support for a third-front coalition. Jayalalithaa, the chief minister of Tamil Nadu, has also spoken suggestively about a new political alliance.
Most of them have won political support by delivering economic growth and, to varying degrees, improved government. This is one reason that even as India’s politics is again fragmenting, some analysts believe that the country’s economic modernization can continue. In recent years, as policy logjams paralyzed the central government, many international and domestic business leaders shifted their focus to negotiating with individual state leaders.
So, if one buys both of these stories, there's an interesting contrast. Both countries appear to be dealing with feckless national leadership and a slowdown in their national economies. In China, regional leaders are pursuing reckless "growth now" policies that could harm the national economy in the long run. In India, it's the competent economic leadership at the regional level that's bailing out a dysfunctional national government (emphasis added).
The thing is, I don't know if I completely buy Yardley's story on India. I've read enough on China to know that Jacobs' assertion about bad regional policy seems to be pretty accurate (not to mention the out-and-out distortions in economic statistics coming from China's provinces) I wish he had pushed a little bit deeper to see exactly how these regional political bosses had delivered better economic growth. If they did it using variants of what China's leaders did -- short-term measures that accelerate growth now at the expense of growth later -- then what's interesting is that regardless of regime type, local leaders can make life hell for national economic policymakers. If, on the other hand, India's regional leaders have done a genuinely better job at governing, then it's a really interesting story.
What do you think? Psst... in this case, by "you," I mean India experts.
For the past ten days your humble blogger has been doing some intense work on a project that will see the light of day in the spring of 2013. This project has left your humble blogger's brain in a state that most likely resembles tapioca pudding. So today's post is not gonna be about the abstruse nature of the global economy. Instead, I wanna talk about a bad TV show.
The NBC/J.J.Abrams/Jon Favreau show Revolution earned respectable ratings in its premiere and follow-up episode. Your humble blogger must confess that he was intrigued enough by the trailer to check out the pilot to see what all the fuss was about. As a self-identified expert in the political economy of the apocalypse, however, I'm afraid that I must conclude that Revolution is a pile of derivative crap.
So, the basic setup of the show is that at some point in the near future, something happens that causes all electricity to stop working, everywhere. Revolution then fast-forwards fifteen years. In the interim the United States has fallen apart, replaced with authoritarian militias like the Monroe Militia currently trying to control the Midwest. In that area, gun ownership is banned.
The basic problem with Revolution is that it wants to to get to the post-apocalyptic world of, say, The Walking Dead, with the anarchy and the chaos and the bloddletting, but it cheats way too much on its premise to earn its world.
I kinda like the idea of a reset in which electricity simply stops working for some malevolent reason, so I don't exactly have the same problem that the physics geeks have with the show. But Revolution's premise simply neither considers nor respects the lessons from history in trying to create it's post-apocalyptic world. Consider the following historical facts:
1) Countries and empires managed to maintain something resembling territorial integrity prior to the invention of electricity;
2) There's this little invention called the "steam power" which really only needs fire to be able to work, that the show completely elides. This matters one whole hell of a lot. Steam engines can power railroads, steamships, and even cars. So a blackout would have put some crimps in cross-country and cross-border communication -- but it wouldn't have slowed transportation all that much. Steam power would also allow things like industrial factories and foundies to continue -- albeit with considerable retooling. All told, the odds of state collapse are actually pretty remote.
3) Everyone in this show is either walking or riding a horse to get around. Now let's assume that everyone in the world developed historical amnesia about steam power. It's stupid, but OK. Where are the f**king bicycles?! Are those not working as well?
Now I realize that the show's creators are more interested in promoting
anything that gives this show a whiff of that Hunger Games vibe swordplay and hot young archers -- not that there's anything wrong with that. Still, this seems like a wasted opportunity.
Coming up next time in Drezner's TV round-up -- I'll review Last Resort.
The New York Times' Peter Baker wrote a pretty shrewd article pointing out that for all the differences in rhetoric, the actual foreign policy content of Barack Obama and Mitt Romney look pretty damn similar.
Of course, even if the policies would be similar, the execution and rhetoric matter. While I didn't think Romney's "disconcerting" line about the Olympics was all that bad in context, it wasn't a good day for his campaign. And while the Jerusalem leg of his trip seemed to please the Israelis, Romney still managed to stir up a hornets nest of trouble:
Mitt Romney told Jewish donors Monday that their culture is part of what has allowed them to be more economically successful than the Palestinians, outraging Palestinian leaders who suggested his comments were racist and out of touch with the realities of the Middle East. Romney's campaign later said his remarks were mischaracterized.
"As you come here and you see the GDP per capita, for instance, in Israel which is about $21,000, and compare that with the GDP per capita just across the areas managed by the Palestinian Authority, which is more like $10,000 per capita, you notice such a dramatically stark difference in economic vitality," the Republican presidential candidate told about 40 wealthy donors who ate breakfast at the luxurious King David Hotel.
Romney said some economic histories have theorized that "culture makes all the difference."
"And as I come here and I look out over this city and consider the accomplishments of the people of this nation, I recognize the power of at least culture and a few other things," Romney said, citing an innovative business climate, the Jewish history of thriving in difficult circumstances and the "hand of providence." He said similar disparity exists between neighboring countries, like Mexico and the United States.
The CIA World Factbook has a rather different assessment of what ails the Palestinian economy:
Despite the Palestinian Authority's (PA) largely successful implementation of economic and security reforms and the easing of some movement and access restrictions by the Israeli Government in 2010, Israeli closure policies continue to disrupt labor and trade flows, industrial capacity, and basic commerce, eroding the productive capacity of the West Bank economy.
So, Israel/Palestine is not a great example. And let's also stipulate that it's not... diplomatic to say that a foreign jurisdiction's development has been poor because of their culture. And let's skip over Romney's bad data and the public fallout and the White House glee and get to the really geeky question: is Romney right more generally? As Ashley Parker points out, Romney has made this "culture" argument before:
In the speech, Mr. Romney mentioned books that had influenced his thinking about nations — particularly “The Wealth and Poverty of Nations,” by David S. Landes, which, he said, argues that culture is the defining factor in determining the success of a society....
The argument comparing Israeli and Palestinian vitality is one Mr. Romney has made previously — in speeches and in his book “No Apology” — and one that he has used to explain economic disparities between other countries, as well.
Indeed, in No Apology, Romney uses the same David Landes quote from page 516 of Wealth and Poverty of Nations -- "culture makes all the difference" -- three separate times. I wish, however, that Romney had read onto page 517:
On the other hand, culture does not stand alone. Economic analysis cherishes the illusion that one good reason should be enough, but the determinants of complex processes are invariably plural and interrelated. Monocausal explanations will not work. The same values thwarted by "bad government" at home can find opportunity elsewhere.
It's that last sentence that suggests where Romney might be off base. As Daron Acemoglu and James Robinson have argued recently in Why Nations Fail, it's not culture that matters as much as political institutions. From p. 57:
Is the culture hypothesis useful for understanding world inequality? Yes and no. Yes in the sense that social norms, which are related to culture, matter and can be hard to change, and they also sometimes support institutional differences, this book's explanation for world inequality. But mostly no, because those aspectys of culture often emphasized -- religion, national ethics, African or Latin values -- are just not important for understanding how we got here and why the inequalities in the world persist.... they are mostly an outcome of institutions, not an independent cause (emphasis added).
The kind of gaps in economc output that Romney likes to stress are of so recent a vintage that institutions are the more likely driver of what's going on than culture. One can't assert, for example, that culture explains why South Korea is outperforming North Korea or why West Germany was more prosperous than East Germany. Acemoglu and Robinson don't get the final word on this -- this remains an unsettled question -- but their hypothesis is of a more recent vintage than Landes.
So no, I don't think Romney is right -- but it's still an open debate. That said, if this is what he actually believes, then there would be some profound implications for development policy if he was elected president. Chaging political and economic institutions is hard work -- but it is doable through policy. Changing culture is next to impossible -- they change, but at a glacial pace. So when Romney says he thinks culture is the key, it's another way of saying that he doesn't think the United States, World Bank or any policy tool out there is really going to promote economic growth in the least developed world.
That said, I will give Mitt Romney credit -- his political gaffes -- as opposed to those of his staff -- generate some damn fine debates.
What do you think?
For the past few days I've been getting emails asking whether I'm gonna comment on one of the most offensive and brutally effective campaign ads I have ever seen:
It's brutal because... well, let's face it, that Romney tic was always the most cringe-worthy aspect of the campaign. Anything negative that Romney did, contrasted with that song, would be powerful.
It's ridiculously offensive, however, because it baldly asserts that doing business with Mexico, China or Switzerland is un-American. Other idiocies like the Olympic-uniform controversy feed into the public perception that having the other countries make stuff is an abomination of the first degree.
So, does it matter for policy? Well.... no.
Mario Cuomo once said "You campaign in poetry. You govern in prose." Now, Mario Cuomo was clearly the world's worst poetry connoisseur. Still, to update his observation for our current needs, we can say, "You campaign as a mercantilist; you govern as a free-trader." The reason that Romney has seemed so discombobulated by the Bain attacks is that he's been China-bashing since Day One ofhis campaign, so it's tough to then
flip-flop pivot to a free trade stance. As for Obama, Matthew Yglesias noted the following last week:
[A]ll indications are that Barack Obama also doesn't think Bain was doing anything wrong. As president he's made no moves to make it illegal for companies to shift production work abroad and has publicly associated himself with a wide range of American firms—from GE to Apple and beyond—who've done just that to varying extents. And we all remember what happened to Obama's promise to renegotiate NAFTA after taking office, right?
Or, David Brooks today:
Over the years of his presidency, Obama has not been a critic of globalization. There’s no real evidence that, when he’s off the campaign trail, he has any problem with outsourcing and offshoring. He has lavishly praised people like Steve Jobs who were prominent practitioners. He has hired people like Jeffrey Immelt, the chief executive of General Electric, whose company embodies the upsides of globalization. His economic advisers have generally touted the benefits of globalization even as they worked to help those who are hurt by its downsides.
But, politically, this aggressive tactic has worked.
Brooks' colleague Nate Silver might quibble a bit with the "politically working" point, but that's a small quibble. Americans loooooooove mercantilism, so this kind of rhetoric makes tactical sense during a campaign. As stomach-churning as I find this kind of ad, I must reluctantly agree with Yglesias and Brooks that it doesn't matter all that much for governing. Even this Washington Post story that talks about Obama's "rethinking" of free trade doesn't really deliver the goods on significant policy shifts. And it appears that even the Chinese government recognize campaign bluster for what it is.
So -- to repeat a theme -- I don't think the mercantilist campaign rhetoric will amount to much.
Still, as someone who thinks offshore outsourcing is an unobjectionable practice, this is going to be a nauseating campaign.
Here's a more complete transcript of my interview with Peterson Institute for International Economics founder C. Fred Bergsten that Foreign Policy excerpted earlier in the week. I edited and abridged the transcript to clean up some of grammar. Have at it -- Bergsten's discussion of his role in the Trans-Pacific Partnership should make for interesting reading!!
DANIEL W. DREZNER: I guess the first question I would ask is, what do you think the [Peterson Institute for International Economics'] greatest accomplishment has been?
C. FRED BERGSTEN: I think our greatest accomplishment has been to educate Americans on the benefits of globalization. And the first calculation that tried to quantify the effects, namely a trillion dollar a year -- higher -- national income, the potential for further gains of another half-trillion a year could go all the way to reducing barriers to global trade. Um, it's been a tough battle. It started in earnest I'd say in the NAFTA fight in Congress, and it continued during every one of the trade policies at the time. It's of course come up repeatedly in the capital flows context as well with all the monetary crises going back to the 80s with the debt crisis, and the 90s with Asia, Russia, Brazil, Mexico, etc. And now, with the crises of the high-income countries...but I think, putting it in the broadest terms, we have been the people trying to expand understanding of globalization -- its benefits and costs, which there certainly are -- but how [on] balance, it's a positive force, both for the U.S. economy and for U.S. foreign policy. In doing that, we have never tried to cover up or short-change the costs, particularly the adjustment the cost to workers and [immobile] factors of production, but it's mainly workers. We've quantified that, about 50 billion a year to offset against the one trillion a year of gains --20/1 cost ratio -- pretty overwhelming but that is significant cost. So that has to be dealt with, and the U.S. has not dealt with it very well. Trade adjustment is miniscule -- one billion a year. We need to invest more to deal with the downside; the cost of losing, in order to keep the benefits of globalization on a stable basis. And we've argued that throughout, and I think our balance carried the day. But the battle rages on, as you know, so much work yet to be done.
DWD: Of course, I know you're a Fletcher alum, and I'm speaking right now from the Fletcher school, so I have to ask this question: In what ways did your Fletcher experience prepare you for going to DC and then sort of creating the Institute for International Economics?
CFB: Well, it prepared me really well because I learned really most of my international economics there, from the top professors of the day, [like] Charles Kindleberger.
DWD: Kindleberger was there when you were? Oh, I didn't know that.
CFB: Charlie taught a couple of courses -- a course on Europe, Europe Economy, an economics course on development with Humphry called the Don and Charlie show -- that was one of the highlight performances on the campus. But their teaching gave me most of my roots in international economics, and always -- obviously in a global context -- but also in a real world context; a political economy context that was, of course, really useful then for going into the policy world, which I did, most immediately into government, and then with that of most of my 20 years of career then to creating the institute.
DWD: Do you think America's foreign policy establishment has become more or less economically literate since when you first started IIE?
CFB: I don't think there's been much change. They were not very literate then, and they're not very literate now. My first big job -- I had a couple of lesser jobs -- my first big job was becoming economic deputy to Kissinger when he was National Security Advisor under Nixon.
Your humble blogger is
procrastinating his packing preparing for a family vacation. So, according to Jonathan Bernstein, Kevin Drum and Brendan Nyhan, is the political press corps. Bernstein explains:
[The summer] creates a whole lot of reporters with little to report on – and a whole lot of empty time on the cable news networks, the newspapers, the blogs, the new talk radio shows and the rest of it.
And what academic research tells us is that slow news days create scandals. That’s what Brendan Nyhan and other media researchers have found; indeed, Nyhan believes that the lack of scandal during Barack Obama’s first two years in the White House was caused, at least in part, by a series of very eventful news cycles. The mechanism, obviously, is that if there’s no major news, then minor news fills the hole, and if there’s no minor news, then we’ll hear plenty about stuff that if you squint just the right way might sort of pass for news....
It’s no surprise that mid-summer, when lots of newsmakers are on vacation (and when little is happening even in the sports world), is when stories such as the “ground zero mosque” or Shirley Sherrod’s supposed racism took off. Not just those; any kind of meaningless hype, whether it’s a supposed gaffe or some meaningless polling random variation, is going to get far more attention than it deserves.
Bernstein offers some suggestions for what political reporters could do with their surfeit of time besides explore stupid scandals. Let me proffer a suggestion of my own: cover the rest of the world.
Seriously. World politics doesn't stop for the summer, and as I'm sure I heard someone smart once say, the world is not a boring place. Sure, it used to stop in Europe, but I'm betting a lot will happen on that continent as well. Why shouldn't political reporters use the summer to earn their foreign correspondent bona fides?
Now, I'm sure newspaper and television editors reading these scribblings will immediately protest that even though they think the world is interesting, their audience won't. Hogwash. If there is anything the media excels at, it should be how to tart up stories that might otherwise pass under the radar. Here are a few suggestions:
1) The "where are they now?" gambit. Remember how, in 2011, the world seemed liked it was kinda ending? Earthquakes, revolutions, that kind of thing? Wouldn't it be wacky to send reporters to these places to see how things are going now? Think Fukushima, or Tunisia, or even states that didn't have full frontal revolutions, like Oman. Do some follow-up journalism.
2) The "Olympic Hangover" stories. The one big sporting event this summer will be the London Olympics. How about sending some reporters to previous Olympic host countries and see what happened to those facilities? I bet the Athens and Beijing reports would be interesting.
3) Foreign superheroes. This summer has seen a bumper crop of Hollywood blockbusters about men in tights and women in catsuits with extraordinary powers. While superheroes had their origins in American comic books, wouldn't it be cool to see if and how this genre has been adopted elsewhere in the globe? Is there are Russian Superman? A Chinese Iron Man? An Indian Wonder Woman? Go find out!
Readers are welcomed to come up with their own foreign policy hooks in the comments below.
Well, given this morning's headlines, I can't think of a better week for Foreign Policy to put excerpts of my interview with C. Fred Bergsten online. Bergsten is the founder of the hugely influential Peterson Institute for International Economics. At the end of this year, he will be stepping down as president of that institute.
Sometime this week I will post the full interview transcript. In the meanwhile, I found this answer to be particularly interesting:
They were not very literate then, and they're not very literate now. The problem is that the individuals who are at the top of the foreign-policy hierarchy, both at State and at the National Security Council, tend to be less than sophisticated, shall we say, about economic issues. It's not part of their DNA to think about economic topics when they go about their business with Syria or Iran or Russia, not to mention Europe or China.
This observation is ironic, given recent reports that Tim Geithner suggested Hillary Clinton replace him as Treasury Secretary last year. Still, I think Bergsten's proposition has held for quite some time. I don't think it will be able to hold for much longer, however.
I would add that you should be careful what you wish for. Kohl and Mitterand were heralded as strong leaders when they created the Eurozone and opened membership to Europe’s weaker economies. Strong leadership may not always work out so well.
The point is not that leaders who make good decisions and have persuasive power cannot make a difference. I won’t underestimate the power of good (and bad) ideas to shape outcomes. But lamenting “poor leadership” provides little guidance on understanding what is going wrong or how things could go better. It is with good reason that good leadership is usually only recognized after the fact and even then perceptions often adjust as facts change (see Kohl and Mitterand). Believing that things will go better if only there were better leadership is like wishing for politicians to “do the right thing:” it is a perfectly reasonable desire but not much of a prescription or explanation.
I bring this up again because I see that I managed to criticize Tom Friedman's latest op-ed -- two days before it was published!! Here's his opening paragraph:
One of the most troubling features of today’s global economic crisis is the lack of political leadership anywhere. No one has the courage to tell their people the truth. And the truth, alas, is that four of the pillars of today’s global economy — Europe, America, China and the Arab world — have, each in their own way, squandered huge dividends they enjoyed in recent decades, and now they have to dig out of their respective holes with fewer resources, less time and, almost certainly, more pain. There is no easy way out. But, as confronting these hard truths becomes unavoidable, I think we’re likely to see some wild, angry and destabilizing politics that could make the economic recovery even more difficult. Deep holes and weak leaders are a bad combination.
Excuse me, I have to go do this again.
What's interesting, if you read the next few paragraphs, is that Friedman thinks the leadership failure in Europe is on the periphery -- that these governments failed to exploit the windfall of euro-driven lower interest rates to make themselves more competitive. Friedman is not necessarily completely wrong here, but this overlooks a few things. The design of the euro -- which French and German leaders created -- contributed to the underlying curency area problem. The "Austerity!! Austerity!! AUSTERITY!!" response to the eurocrisis by Germany and the European Central Bank has also been... let's say problematic and incomplete (and, unfortunately, continues to be the status quo policy).
Indeed, this past week Germany's Angela Merkel has proven Voeten's point and undercut Frideman's argument. She has demonstrated leadership -- she's repeatedly offered up a Grand Bargain with the rest of Europe in which Germany agrees to a closer fiscal union and Eurobonds -- in return for a more centralized European political authority that would implement German policy preferences. This sounds an awful lot like leadership to me. Whether it's the right policy or not is juuuuuust a wee bit more contentious.
I've said it before and I'll say it again: "Yes, leadership matters on the margins -- but power and purpose matter one whole hell of a lot more."
Seriously, I'm beginning to suspect that those calling for greater "leadership" are the victims of a Jedi mind trick or something.
It would be an understatement to say that recent economic news across the globe has been... unsettling. With that in mind, Floyd Norris had a front-page essay in yesterday's New York Times on the failure of global policy coordination:
[T]here seems to be little willingness — or perhaps lit-tle ability — for the major countries to act together again. Squabbles have grown, some countries are in fiscal distress, and others face daunting domestic problems. The European situation is the most pressing. Banks are under pressure in many countries, for a combination of reasons. They did not raise as much capital as they might have when markets were more buoyant last year. In some cases, they appear to have been slow to recognize their real estate loan losses.
But the most important factor may be that national governments are weak — in every way possible.
This prompted FP head honcho David Rothkopf to tweet, "Current global economic leadership void likely to be seen by history as worst since that preceding Great Depression."
To which I have to say... bulls**t.
Bemoaning the lack of "global leadership" is the international relations equivalent of bemoaning the failure of a national leaders to possess the political will to Do The Right Thing or make the Really Big Speech that will change everything. Most of the time, "global leadership" doesn't change a thing.
For an example, in a follow-up tweet, Rothkopf provides a useful list of what ails the current global economy:
Euromess, rest of developed world spluttering, faltering EMs, bldg risk in global financial system, currency, trade issues
An excellent list -- and yet it's not at all clear whether global leadership would solve any of these problems. The Euromess a Europroblem. Weakening growth in the developed and developing world is a problem, but largely a function of domestic policies rather than global ones. The "currency war" meme has largely played out -- don't tell anyone, but the RMB is appreciating quite nicely right now. As for trade, Doha might be dead, but trade growth is still outstripping output growth. Protectionist actions have not matched protectionist sentiment -- indeed, the past few years might be definitive falsification of the "bicycle theory" of trade.
In fact, in some instances, global leadership might have exacerbated these problems. For example, one of the areas where there has been leadership is in the creation of the new Basel III core banking standards. And, hey, guess what's contributing to a drying up of cross-border credit?
Lending to banks in the eurozone fell $364bn or 5.9pc, with drastic reductions of 9.8pc in Italy and 8.7pc in Spain.
The BIS's quarterly report said the decline in lending was "largely driven by banks headquatered in the euro area facing pressures to reduce their leverage".
Banks must raise their core tier one capital ratios to 9pc by the end of this month or face the risk of partial nationalisation. The global Basel III rules are also pressuring banks to retrench.
So what, exactly, is "global leadership" supposed to do at this point? As I read it, those who complain about poor leadership want one of two things. First, they would like national leaders to excercise their "political will," defy domestic constraints, and push for greater economic growth. Fine, but remember -- asking politicians to exercise political will means asking them not to behave like politicians. As a rule, politicians don't do this.
Second, I think there is a desire for one leader to knock some global skulls together and get Germany to start consuming more and the ECB to print more money and China to stop saving and any other action that would jumpstart the global economy. Again, fine, but in the history of the global economy there has only been one instance in which one country had sufficient economic power to exercise this kind of leadership -- the United States of the late 1940s. Truman's leadership was important -- but the U.S. being responsible for close to half of the world's economic output was even more important. Even if Barack Obama had an iron grip over all of America's policy levers, he couldn't do what Truman did with the Marshall Plan and the Dodge Line. Leadership without power is simply someone ranting on a street corner.
Look, I don't like defending Angela Merkel or Barack Obama or the Standing Committee of the CCP Politburo. I do agree with my fellow wonks that they've made some mistakes. All I'm saying is that the notion that some kind of global policy coordination will lift the global economy out of its doldrums is a chimera. The biggest problems with the global economy are almost exclusively domestic in origin at this point. The big global steps, such as boosting IMF reserves, have already been taken. Greater trade liberalization might help a little, but it's not a panacea. Greater capital account liberalization might make things worse. Stronger global regulation might be the prudent long-term policy but it's causing havoc right now. Convincing Germany that a higher inflation rate might be a good idea would be wonderful, but anyone who suceeds at that would be pushing against 90 years of economic history.
So please, I beg my fellow wonks -- when you ask for more "global leadership," be specific -- what exactly do you want to see happen? Cause I don't think there's much at the global level that would really help right now.
Am I missing anything?
Daniel W. Drezner is professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University.