Friday, 31 July 2009
though, it does mark the fourth straight quarter of decline, the longest streak for the US economy since records began in 1947...
and things have been 'worse than prior estimates'...
but it does appear the recession has, at the very least, bottomed out, which very, very good news.
Thursday, 30 July 2009
One theme that keeps re-appearing is that of Chinese expansion abroad. For instance, Marc Chandler at BBH argues that China's use of its enormous foreign reserves to lock up strategic resources abroad is a 21st century version of colonialism. Moreover, the country's level of outbound foreign investment, currently tagged at $41 billion, is set to increase after August when Chinese firms will be permitted to purchase currencies to fund foreign acquisitions.
Marc worries that such activities will stagnate development in the countries that China invests in because "It prevents the economic diversification away from low value-added commodity extraction... and often doesn’t lead to employment opportunities as China often exports workers to operate projects." That may be true in some circumstances, but Adrian Wood counters that this is a one-off phenomenon. As China grows and moves up the value-added chain, it will open up a huge gap in labour-intensive manufacturing that workers in other developing countries can fill. (Of course, that's assuming they can keep growing at pace, which I'm not so sure about).
Nor are China's foreign investments simply to acquire strategic resources to fuel their rapid growth - according to an op-ed by Moldova's OECD ambassador, China has moved into Russia's sphere of influence by acting as Moldova's lender-of-last resort (and replacing the IMF to boot). Moldova isn't what you might call a reliable debtor, so there must be other considerations at play here.
Two other areas where Chinese foreign acquisitions suggest that they're not only interested in "hard power" assets or geopolitical maneuverings, but also "soft power:"
Wednesday, 29 July 2009
The more Bernanke speaks in an open, frank forum (Americans might remember his much-lauded interview on '60 Minutes'), unencumbered by Fed-speak and congressional grandstanding, the more I am convinced that there is no better American to be steering the country's monetary policy/systemic reform/inflationary death spiral(?!?) than Bernanke. He's not only gotten the policies right (well mostly, minus one very very big exception), but has the unique ability to articulate the complexity of the crisis in a manner that enables lay audiencies to make sense of the madness around them. Imagine if a less imaginative or aggressive chief had been at the helm over the past two years. Where would we be?
Following the very public differences between the US and Indian on who should shoulder the burden of the climate change fight, the US-China talks in Washington this week are a critical test of whether a real consensus can be formed ahead of Copenhagen.
Tuesday, 28 July 2009
With all the optimism over green shoots and stock market rallies, many remain worried that the global economy will face a second-wave assault, from credit cards or commercial mortgages or some unforeseen feedback that plunges the real economy back down, irrespective of asset prices.
I am interested in the negative feedback mechanisms that could undermine a return to significant growth over the coming years. The consensus is that the global economy will rebound in 2010, but to what level? And how will factors like the lack of financial aid to college students, or higher US savings rate, shape this recovery and re-order developed economies?
Monday, 27 July 2009
...evaluate their lives more favorably, and... are more likely to report a
range of positive emotions such as enjoyment and happiness. They are also less
likely to report a range of negative experiences, like sadness, and physical
pain, though they are more likely to experience stress and anger, and if they
are women, to worry. These findings cannot be attributed to different
demographic or ethnic characteristics of taller people, but are almost entirely
explained by the positive association between height and both income and
education, both of which are positively linked to better lives.
(He also links to an article which discusses the idea of taxing tall people for this very same reason. I do not like this idea one bit.)
Note that all the measures here are relative. This does not mean that tall people are happy, just happier. Except when they are seated in small vehicles, of course.
Does this apply to societies, as well as people? Are countries full of tall people happier and more economically successful than those full of shorter people? Should the poorest countries of the world invest in growth-steroids for their children?
I'm guessing no. The effects of "tallness" are most likely dependent upon your immediate surroundings. You might be happier because you are taller than your neighbour, but how tall you are relative to someone living half-way across the world has no effect. (The same applies to income, by the way). Therefore being 5-foot-9 in Bolivia might result in higher levels of happiness than being the same height and living in the Netherlands.
Also, at what point does the curve of happiness drop off and the effect of constantly knocking one's head on doorframes result in a perma-frown?
Sunday, 26 July 2009
-Funny difference a year (see: plunging output and investment) makes: foreign oil companies are suddenly welcome again in Russia.
-Balance of payments pressures + growing investor risk appetite = emerging market debt bonanza.
-While Russia's ticking demographic timebomb made the news this past weekend, Shanghai was hard at work fighting its own.
-Zsolt Darvas makes the argument for easing euro-area entry criteria.
Friday, 24 July 2009
But North Korea (the DPRK) is not going away. And what to do about it is a problem that has bedevilled senior statesmen, diplomats and international relations scholars ever since the miserable little regime was formed. They are possibly the most frustrating negotiation partners in international diplomacy - I've heard stories of negotiations breaking down because DPRK officials didn't like the placement of chairs in the conference room - and anything they agree to is liable to be ignored or reversed at a whim.
Over the years, various strategies of using carrots (aid, more trade, direct funding) and sticks (trade sanctions, financial sanctions) have been tried, but the impact has been limited. The most recent effort is a new set of UN sanctions imposed following North Korea's nuclear test in May of this year. The UN sanctions have more teeth than previous rounds, but will they have the intended effect of choking the DPRK into giving up its nuclear program?
Stephen Haggard and Marcus Noland argue that they probably won't. In a recent paper published by the Peterson Institute, the authors examine how multiple rounds of sanctions and economic isolation has altered North Korea's trade patterns. The effect of this shift has been to push North Korea towards engagement with countries that aren't particularly interested in enforcing UN sanctions.
In short, the US and its partners risk losing their leverage over North Korea. Here's a brief rundown of their findings:
- Despite the internal backlash against reform movements, the DPRK has actually become more economically open.
- Agricultural reforms are unlikely to play a role in North Korea's development, as it did in China and Vietnam; their agricultural sector is too small and fragile.
- North Korea's dependence on China and South Korea has grown dramatically; in addition, trade with partners in the middle east (Iran, Syria and potentially Egypt) has also increased.
- Meanwhile, trade with Japan, the US and Europe has either been reduced to a trickle, or has ceased entirely
- Uncertainty about the succession of North Korea's leader, Kim Jong-Il, is a further incentive for the ruling elite to circle the wagons and resist foreign influence.
- North Korea has re-arranged its external economic relations in order to reduce the impact that traditional sanctions could have.
All of this to say that China has become even more crucial to the unfolding North Korea saga. They are far and away the regime's biggest trading partner and likely the only source of significant external political pressure. By approving the UN sanctions, China is indicating its strong displeasure at North Korea's nuclear antics, but how far they are willing to push the fragile regime remains to be seen.
The US, meanwhile, is left with fewer options. Targeting financial institutions that deal with the DPRK is likely the only remaining tool that the US can use effectively. Using them will be risky, however, because once they're implemented North Korea may simply re-adjust to find new ways of doing business and leave Uncle Sam waving his stick into thin air. In the end, the threat of financial sanctions will likely prove to be more effective than actually using them.
The other option is to simply ignore them and talk about something else, as I do. Incidentally, that is Dan Drezner's half-serious advice to the Obama administration in his sobering summary of the situation.
But wait! you say. If everyone ignores North Korea, Kim Jong Il will be so ronery...
Thursday, 23 July 2009
-Dave Hart, 'A Call for Reader Feedback'
Hi friends. I have indeed been deficient in upholding my duty to provide the yearning masses with the kind of sophisticated insights and mind-blowing revelations they've come to expect from IPE Journal. I have quite a viable excuse (cue Dave's inner monologue), but for the sake of argument lets pretend I have been locked in my basement toiling over a masterful blog-post, tentatively called "The normative implications of Pinochet's pension reforms: deconstructing the post-war regulatory state." Ok, not really.
Anyway, my lack of consistency is nothing new; its something I have lacked since we began this little project. As Dave noted in his previous post, we've had periods of boom and bust since last August, but to Dave's enormous credit his busts have been more like blips. Nobody is more impressed by his commitment than I am.
My problem has been a fundamental one: a lack of incentives. Don't get me wrong: we started this site with nothing more in mind than providing a minor, thoughtful contribution to the debate on where our global economy is headed, and I think we have largely achieved that. Sometimes we get sidetracked by booze or expenses, though in our defense a) booze is the prism through which many of us deconstruct the world around us, and b) when such a scandal occurs in Africa it is called 'corruption', but when it occurs on the bank of the Thames it is a 'betrayal of trust.'
But without a more tangible incentive, even the noblest of pursuits can falter under the weight of competing alternatives, and I have found it difficult to sustain my contribution to the blog in a year defined by a gruelling job search and nomadic-like existence. It is not that I have lacked the time, I've had quiet a bit of that over the past 12 months. Rather, I have gone through periods of profound intellectual disillusionment, the circumstances of which I'll spare. That has been deeply disappointing and my sporadic work here has been but one consequence.
But that has turned over the past month or so, and I expect my consistency here to do so as well. Shorter, more frequent posts may be one result, but that probably serves our readers better anyway. And it helps when your partner is a rock star at this. Dave carries the torch well.
Catharsis complete, thanks for sticking with us this past year. You should see our childlike joy at getting an email from a reader. That's what this is all about.
Tuesday, 21 July 2009
So have at it, folks: what would you like to see discussed on this blog?
To get your thinking-juices flowing, here are some suggestions:
- US debt and the future of the dollar
- The impact of the financial crisis on sport
- More posts on the political economy of alcohol (a personal favourite)
- The future of the Bretton Woods system
- Posts about a particular country/region
- The British MP expenses scandal (just kidding!)
You may also be asking yourself: what happened to including nifty pictures in your posts? or why did you pick such a boring name for your blog? or where's Rory? These are all reasonable questions. Some even have reasonable answers. I'm open to all questions.
So this is your opportunity to influence the content of the blog - don't miss out! Feel free to use the comments or contact us using the blog email address (to your right -->).
- Fred Bergsten urges Obama to be bold on trade in an op-ed for the FT.
- What went wrong with economics? With reponses being posted here, here annnnd here.
- Not-so-well-endowed: Harvard is facing financial troubles. Is Larry Summers partly to blame?
- Rumours that two of the most awful places on the planet are teaming up.
- Dan Drezner discusses Iran, rap music and international relations theory
Thursday, 16 July 2009
"Everything is on the table," Clinton said on Wednesday. "We're going to do
everything we can to broaden and deepen our engagement."
The last time the US showed up in India with that approach, they managed to completely undermine the fragile credibility of the nuclear non-proliferation treaty and the comprehensive test ban treaty. I hope this particular trip isn't nearly so short-sighted.
Friday, 10 July 2009
The big mistake is to assume that the future can be mapped out in linear progression from the present. The Chinese economy has been growing at something close to 10 per cent a year for 30 years. If it continues to expand at that rate it will quite soon overtake the US as the world’s biggest economy. Case closed: Beijing will rule the world.... Nothing, though, is pre-ordained. If there is a lesson to be drawn from the recent past it is that geopolitics does not travel in straight lines.
The well-informed are as determined in pointing this fact out as book publishers are in ignoring it.
Thursday, 9 July 2009
Wednesday, 8 July 2009
- President Hu of China has returned home from the G8 earlier than expected in order to deal with the unrest in the Xinjiang region. This of courses raises the question of why he was there in the first place, since China is not a member of the G8. Nor, for that matter, are most of the other 39 (thirty-nine!) heads of state, government and international organizations that are attending what Quentin Peel is calling "a monstrous gathering of literally thousands of officials and security staff and spin-doctors, not to mention the media circus that follows them."
In my view, the G8 has merit in its capacity to bring the leaders together, away from their staffers (and finance ministers) to discuss shared priorities. It is possible, albeit rare, to see real progress out of these fireside chats - but the Italians appear to have placed the emphasis on style over substance.
- The G8 aid priorities appear to be.... Africa? no. South America? no. The G8? yes. I know the G8 has promised in the past to help the Highly-Indebted Poor Countries (HIPCs), but Italy only meets most of the HIPC criteria (country, highly-indebted), not all of them.
- No big surprise here, but the focus of the G8 will be likely be on the economic crisis and "exit strategies" at the expense of other priorities like the environment.
UPDATE: Simon Johnson provides 3 reasons why the G8 leaders summit is becoming anarchronistic. His points are well taken, and he rightly acknowledges that the sub-leader-level meetings still have a purpose
Tuesday, 7 July 2009
Monday, 6 July 2009
Those of us who live in the north-west corner of the world might take civilian control over the military for granted, but in Turkey the army has a fiercely protected independence from government. This is partly because the army views itself as the protector of Ataturk's secular state - a view not shared by all. Nevertheless, throughout the last few decades, a cycle has been repeating itself in Turkey:
1) A right-wing religious/conservative party is elected and forms governmentHowever, by historical standard, it appears as though the most recent iteration of this cycle - the election of the Justice and Development Party (AKP) in 2002 - has been going rather well. Although there have been some controversies over the government's policies (notably over lifting the ban on headscarves) the army hasn't deemed it necessary to move to step 3. If this op-ed piece is correct, the army is slowly, but voluntarily, moving away from politics and "back into their barracks." Moreover, the AKP has implemented a number of the Copenhagen criteria for EU membership since being elected, bringing it closer to "Western" standards of governance and suggesting that it may be possible to more closely integrate religious views into Turkey's government without compromising the nature of the state itself.
2) the army deems this party "too religious" and a threat to the secular state
3) the army takes over
4) the party is banned, its leaders jailed
5) the army returns power to the civilian government
6) the banned party re-forms under a new name and leadership
7) return to step 1)
Of course, as the article points out, this is a very slow process and suspicions on both sides remain. There are plenty of open questions and unforeseen events on the horizon that could drastically shift the nature of this situation. For now, however, I am thankful that the various competing factions in at least one part of the world are moving towards a more stable co-existence, instead of in the opposite direction.
For a more nefarious connection between South America and Iran, Douglas Farah provides his take on things.
Sunday, 5 July 2009
A classy game by two classy players - pleasure to watch.
Friday, 3 July 2009
...what will happen to aggregate demand for goods and services as an
increasing number of people retire, effectively switching from saving mode to
dissaving (spending) mode. Price pressures?
Of course, that's assuming that people over the age of 65 will actually, ya know, have enough savings be able to retire in the first place. Besides, I suspect that by 2050 the benchmark age for retirement in OECD countries will no longer be 65.