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? 

As longtime blog readers are aware, I'm working on a book-length project arguing that global economic governance has done a surprisingly good job of things in the post-2008 world.  Not perfect, mind you, but "good enough" global governance. 

Now, the interesting thing about making such a counterintuitive argument is the number of opportunities one comes across of the conventional wisdom asserting itself -- the idea that the system is crumbling, we're in a Brave New World of uncertainty, no one is in charge, yadda yadda yadda.  You, my dear reader, must wonder how I react when I see such assertions.  Well, pretty much like Cliff Poncier but with shorter hair: 

No, seriously, I like seeing good arguments pushing against my position -- it's a way for me to see whether my argument holds up. 

Which brings me to Naazneen Barma, Ely Ratner and Steve Weber's new essay in The National Interest, entitled "The Mythical Liberal Order."  The title is pretty clear -- as is their argument: 

Instead of a gradual trend toward global problem solving punctuated by isolated failures, we have seen over the last several years essentially the opposite: stunningly few instances of international cooperation on significant issues. Global governance is in a serious drought—palpable across the full range of crucial, mounting international challenges that include nuclear proliferation, climate change, international development and the global financial crisis.

Where exactly is the liberal world order that so many Western observers talk about? Today we have an international political landscape that is neither orderly nor liberal.

It wasn’t supposed to be this way. In the envisaged liberal world order, the “rise of the rest” should have been a boost to global governance. A rebalancing of power and influence should have made international politics more democratic and multilateral action more legitimate, while bringing additional resources to bear. Economic integration and security-community enlargement should have started to envelop key players as the system built on itself through network effects—by making the benefits of joining the order (and the costs of opposing it) just a little bit greater for each new decision. Instead, the world has no meaningful deal on climate change; no progress on a decade-old global-trade round and no inclination toward a new one; no coherent response to major security issues around North Korea, Iran and the South China Sea; and no significant coordinated effort to capitalize on what is possibly the best opportunity in a generation for liberal progress—the Arab Spring.

It’s not particularly controversial to observe that global governance has gone missing. What matters is why. The standard view is that we’re seeing an international liberal order under siege, with emerging and established powers caught in a contest for the future of the global system that is blocking progress on global governance. That mental map identifies the central challenge of American foreign policy in the twenty-first century as figuring out how the United States and its allies can best integrate rising powers like China into the prevailing order while bolstering and reinforcing its foundations.

But this narrative and mental map are wrong. The liberal order can’t be under siege in any meaningful way (or prepped to integrate rising powers) because it never attained the breadth or depth required to elicit that kind of agenda. The liberal order is today still largely an aspiration, not a description of how states actually behave or how global governance actually works. The rise of a configuration of states that six years ago we called a “World Without the West” is not so much challenging a prevailing order as it is exposing the inherent frailty of the existing framework.

I encourage you to read the whole thing.  I have two reactions to it.  The first is thast I wholeheartedly endorse one point that they are making.  The notion that the liberal wprld order was perfectly functioning prior to 2008 is one of the biggest sources of misperception about the global political economy.  As Barma, Ratner and Weber point out, this was at best a partial order even prior to 2008.  This matters:  a misplaced nostalgia for prior eras of global governance is one reason that so many commentators think that the system is f**ked right now.  Once you realize that the post-1945 liberal order was partial, riddled with exceptions, and also prone to crisis, suddenly the present day doesn't look so bad in comparison. 

Now, that said, I think Barma, Ratner and Weber get some big things wrong.  This is a blog post, so I'll focus on one point in particular -- the claim that liberal ideas are faltering in today's world:

Ask yourself this: Have developing countries felt and manifested over time the increasing magnetic pull of the liberal world order? A number of vulnerable developing and post-Communist transitional countries adopted a “Washington Consensus” package of liberal economic policies—freer trade, marketization and privatization of state assets—in the 1980s and 1990s. But these adjustments mostly arrived under the shadow of coercive power. They generally placed the burden of adjustment disproportionately on the most disempowered members of society. And, with few exceptions, they left developing countries more, not less, vulnerable to global economic volatility. The structural-adjustment policies imposed in the midst of the Latin American debt crisis and the region’s subsequent “lost decade” of the 1980s bear witness to each of these shortcomings, as do the failed voucher-privatization program and consequent asset stripping and oligarchic wealth concentration experienced by Russians in the 1990s.

If these were the gains that were supposed to emerge from a liberal world order, it’s no surprise that liberalism came to have a tarnished brand in much of the developing world. The perception that economic neoliberalism fails to deliver on its trickle-down growth pledge is strong and deep. In contrast, state capitalism and resource nationalism—vulnerable to a different set of contradictions, of course—have for the moment delivered tangible gains for many emerging powers and look like promising alternative development paths. Episodic signs of pushback against some of the excesses of that model, such as anti-Chinese protests in Angola or Zambia, should not be confused with a yearning for a return to liberal prescriptions. And comparative economic performance in the wake of the global financial crisis has done nothing to burnish liberalism’s economic image, certainly not in the minds of those who saw the U.S. investment banking–led model of capital allocation as attractive, and not in the minds of those who held a vision of EU-style, social-welfare capitalism as the next evolutionary stage of liberalism.

Yes, this explains why the publics in the developing world have rejected economic globalization as an economic strategy -- oh, wait, I'm sorry, they haven't done that, nor have their governments.  If anything, the commitment to a liberal economic order has held up remarkable well since 2008.  As for the appeal of the "Beijing Consensus" or the "China Model," I'll outsource this refutation to Yang Yao, Scott Kennedy, and Matt Ferchen. 

The fundamental disagreement between these authors and myself is revealed in this paragraph: 

Global governistas will protest that the response to the global financial crisis proves that international economic cooperation is more robust than we acknowledge. In this view, multilateral financial institutions passed the stress test and prevented the world from descending into the economic chaos of beggar-thy-neighbor trade policies and retaliatory currency arbitrage and capital controls. The swift recovery of global trade and capital flows is often cited as proof of the relative success of economic cooperation. The problem with this thesis is that very real fears about how the system could collapse, including the worry that states would retreat behind a mercantilist shell, are no different from what they were a hundred years ago. It’s not especially indicative of liberal progress to be having the same conversation about global economic governance that the world was having at the end of the gold-standard era and the onset of the Great Depression. Global economic governance may have helped to prevent a repeat downward spiral into self-defeating behaviors, but surely in a world order focused on liberal progress the objectives of global economic governance should have moved on by now.

My response to this is two-fold:  first, given the crisis-prone nature of global capitalism, preventing and repairing catastrophes should be a pretty timeless function of global economic governance.  Second, there is no way that one can objectively compare the world order of the 1930s -- or 1940s or 1970s, for that matter -- and not conclude that massive amounts of liberal progress have not been made.  The world is far more free politically and economically now than at any point in history.  That suggests a surprisingly robust liberal world order. 

Or, in other words, all this negative energy about global economic governance just makes my argument stronger, man. 

What do you think? 

Like other wonks, I watched last night's State of the Union address with a mixture of curiosity and whiskey. As I noted a few days ago, each State of the Union address contains some statements that history will judge rather harshly. Initially that was my focus in listening to last night's speech. That was quickly supplanted by a more interesting undercurrent to Obama's text, however. 

Foreign policy wonks like Fred Kaplan have argued that there wasn't much foreign policy content in the speech. That's true only if one has a rather narrow definition of foreign policy. What was striking to me was Obama's global justifications for a lot of his economic policy. Throughout his speech, he used the specter of foreign economic threats to prod Congress into action.  Consider the following: 

Every day, we should ask ourselves three questions as a nation: How do we attract more jobs to our shores? How do we equip our people with the skills needed to do those jobs?....

After shedding jobs for more than 10 years, our manufacturers have added about 500,000 jobs over the past three. Caterpillar is bringing jobs back from Japan. Ford is bringing jobs back from Mexico. After locating plants in other countries like China, Intel is opening its most advanced plant right here at home. And this year, Apple will start making Macs in America again.

There are things we can do, right now, to accelerate this trend....

After years of talking about it, we are finally poised to control our own energy future. We produce more oil at home than we have in 15 years....

Four years ago, other countries dominated the clean energy market and the jobs that came with it. We’ve begun to change that. Last year, wind energy added nearly half of all new power capacity in America. So let’s generate even more. Solar energy gets cheaper by the year – so let’s drive costs down even further. As long as countries like China keep going all-in on clean energy, so must we.....

America’s energy sector is just one part of an aging infrastructure badly in need of repair. Ask any CEO where they’d rather locate and hire: a country with deteriorating roads and bridges, or one with high-speed rail and internet; high-tech schools and self-healing power grids. The CEO of Siemens America – a company that brought hundreds of new jobs to North Carolina – has said that if we upgrade our infrastructure, they’ll bring even more jobs....

Let’s also make sure that a high school diploma puts our kids on a path to a good job. Right now, countries like Germany focus on graduating their high school students with the equivalent of a technical degree from one of our community colleges, so that they’re ready for a job....

In each of these passages, Obama was using comparative language to contrast the United States with other countries -- or, as he would put it, other magnets for jobs. The explicit thesis is that unless the United States makes the necessary investments, scarce jobs will leave American shores. 

Obama has used this kind of rhetoric on the campaign trail and in previous SOTUs. It reveals a somewhat mercantiilist worldview, one in which jobs and economic growth have a zero-sum, relative gains quality to it. 

[So, what, Dan? Most Americans see the world through a mercantilist lens as well. Will this kind of rhetoric matter?--ed.] I'm honestly not sure. Here's the foreign economic policy component of the SOTU:

Even as we protect our people, we should remember that today’s world presents not only dangers, but opportunities. To boost American exports, support American jobs, and level the playing field in the growing markets of Asia, we intend to complete negotiations on a Trans-Pacific Partnership. And tonight, I am announcing that we will launch talks on a comprehensive Transatlantic Trade and Investment Partnership with the European Union – because trade that is free and fair across the Atlantic supports millions of good-paying American jobs.

Now on the one hand, announcing the formal start of negotiations with the EU on a trade deal augurs well for my prediction last year about foreign economic policy playing a big role in Obama's second term. On the other hand, viewing trade through a mercantilist lens will make tough negotiations even tougher ... which means I might owe Phil Levy an expensive DC dinner.

In a speech in which traditional security threats seemed very much on the wane in terms of actual threat as well as political salience, it would be a cruel twist of fate to ratchet up ill-conceived foreign economic threats as a substitute. 

Developing...

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.

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. 

Developing....

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!! 

Dani Rodrik tweets that Albert O. Hirschman has passed away.  Over at Marginal Revolution, Alex Tabarrok has a lovely obituary up explaining Hirschman's life and work. 

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.

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? 

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).

2)  The United States benefits a great deal from trade with China and the rest of the world.

3)  Perfect trade enforcement would have only a marginal impact on employment;

4)  China's currency interventions have been slowing down for much of 2012.  Literally.

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. 

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).

As I've said before, the dollar ain't going away anytime soon, and whatever leverage analysts believe China possesses with its dollar holdings is vastly overstated.   

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? 

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.

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. 

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. 

I've been banging on about the useless "we need leadership" meme this week.  Erik Voeten has a good follow-up, and makes a trenchant point -- leadership is not the same thing as good leadership: 

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.