Neoliberalism

If you read the Washington Post and came across this one by Richard Cohen and you have no idea how he is using the word "neoliberal", well, neither do I. Just for the record: whether you agree with Bush or not, or think he is a conservative or not, this is not the definition of neoliberal we've been working with. (Just to avoid confusion.)

U.S.-China Relations III (...everything's trilogized)

Another perspective.

Internalizing externalities

If you're trying to get a handle on the idea of "internalizing externalities", have a look at this. It's about "bottle bills". I grew up in a state where you paid $.05 in deposit on every drink you bought, then got the same amount back for taking the bottle to a recycling/redemption center.

Now, to digress for a moment: I'm older than I think. A nickel used to mean something back in the 1970s... a Bazooka bubble gum, or maybe even a superball. Get a few of them together and you'd even have a shot at a Cal Ripken rookie card now worth way more than a nickel. Anyway, this nickel deposit hasn't been adjusted for inflation, and so on and so on (so it goes). (In fact, how long ago the 1970s was has really been driven home for me right now as I realized for the first time -- when writing "$.05" above -- that keyboards don't even have the "cent sign". I grew up writing on an electric typewriter that DEFINITELY had a little c with a line through it.)

But more importantly, as the article notes, there are other reasons why soda and beer cans aren't the big story anymore when it comes to the idea of dealing with packaging and waste. Now we're all bottled water and SoBe and so on (so it goes).

Anyway, the relevant point is about internalizing externalities. Those beer and soda cans, if dumped unceremoniously into the garbage, had a "social cost". The bottle bills attempted to internalize those social costs (or at least an approximation of them) by moving the burden of paying for that waste to private actors. If you pay careful attention to the article, you'll note the debate over which private actors should bear these costs: the consumer of the drink or the producer/bottler. (Think of the factory and the town in our in-class example.)

On a more general note: this just goes to show how much political economy turns up in the news around us, and how often the principles economists and political scientists talk about make their way into these little items. Hopefully, you'll never be able to think about things like recycling (regardless of whether you think it's essential or a useless waste of time) the same way again.

The Summers "underpolluted" memo

For your viewing pleasure. Something to discuss tomorrow, perhaps.

U.S.-China Relations II

Lots of news, from Yahoo! and from Reuters and from the Washington Post. Not that China is the only news in the IPE, just some of the biggest.

U.S.-China Relations

I highly recommend several articles in this week's Economist, including the cover story. (Yes, I know I often recommend it, but especially this week.) Again, it's not because of the magazine's editorial stance (which, in the interest of full disclosure I will repeat is very pro-free trade, pro-market, pro-globalization, and rather socially liberal). Rather, it's because their articles are like a one-stop shop for reinforcing the logics and ideas we discuss in class.

Anyway, there's a great deal on China, and a big section on international banking. The latter is more technical on the financial side (discussing derivatives, collateralized debt obligations, etc.), but the former is quite accessible.

On the China issue, here's something that Mr. Reynolds brought up in class recently. China investing $3 billion in the Blackstone Group, a private-equity firm. Notice the clever strategy they're using in an attempt to avoid the backlash Dane predicted a couple of weeks ago.

More on this tomorrow.

Who's Next at the WB?

Heard it first from Mr. Reynolds at the end of class, but word gets around fast. To be clear... it's just a rumor. But what fun are blogs if without a bit of that?

Note: the FT is Martin Wolf's home newspaper.

One more round to go...

Nathaniel James kickin' butt. Thanks to Andy for letting us know about the live updates...

Don't laugh (too much...)

I don't know whether you'll find this funny or not. You don't have to answer.

Matt was correct too (on capital imports)

In class the other day, we went over this question, whose answer I need to correct; Wolf's Chapter 12 (esp. pp. 259-261) made me revisit this. The short story is that Matt's answer was correct. The question was the following:

Dynamics of trade. If a country’s trade deficit increases, it is (importing/exporting) capital. An example of this would be the U.S., where increases in the trade deficit have been financed by the (import/export) of dollars (to/from) countries such as Japan and China. The U.S. trade deficit is in the (current account/capital account), while the U.S. has a surplus in the (current account/capital account).

The way I have viewed (and explained) this is the following: when the U.S. has a trade deficit, we are purchasing more goods from overseas than we are selling overseas: a current account deficit. Accordingly, to pay for those extra imports, we send dollars (and assets denominated in dollars, including bonds and other forms of capital) overseas, where they are accumulated in places like the Bank of China. This is, unambiguously, a capital account surplus. It means we are, on net, borrowing from China, etc., to pay for the things we buy from them.

However, it also is what Wolf and others call importing capital, or net capital inflows. China (for example) is accumulating American-produced capital assets in the same way that we are accumulating Chinese-produced goods. This is viewed as the U.S. importing capital from China. I find this terminology counterintuitive because it involves overseas actors holding American capital, but have verified (online and in other texts) that mainstream economists, like Wolf, use the terms in this way.

There are two ways we could make sure we answer the question above correctly that might make intuitive sense. Using this terminology (and Matt's correct answer), we would say:

Dynamics of trade. If a country’s trade deficit increases, it is importing capital. An example of this would be the U.S., where increases in the trade deficit have been financed by the import of capital from countries such as Japan and China. The U.S. trade deficit is in the current account, while the U.S. has a surplus in the capital account.

Alternatively, more intuitive to me of understanding this is:

Dynamics of trade. If a country’s trade deficit increases, it is exporting assets and borrowing from abroad. An example of this would be the U.S., where increases in the trade deficit have been financed by the export of dollar-denominated assets to countries such as Japan and China. The U.S. trade deficit is in the current account, while the U.S. has a surplus in the capital account.

On the other hand, Googling "export(ing) capital" will show you that there are leading scholars with more (ahem) sensible (!?) views of capital imports and capital exports that we can get our ideas from: ay ay ay...

World Bank: Another Perspective

To be clear: I don't endorse the tone -- you know me and swearing -- but it sounds like Wolfie isn't dressing up in sheep's clothing...

America's future export-oriented economy?

Notice what this article says about the dollar and exports. Something to think about with respect to the Freeman/Friedman discussion. Will the growth of a middle-class in Asia result in a more export-oriented economy in the U.S., as well as (or instead of) a more personal-service-oriented economy?

This is just getting silly.

Sebastian Mallaby.

Hmm hmm.

Writers at the WaPo are piling it on. Now it's Marcela Sanchez.

Hmm.

George Will, in the Washington Post.

Pesos & pounds

The illustration: let's say 1 peso de Fielding = 1 Andyan pound.

Fielding every year is spending 1 peso on imports from Andyland.
Andy is spending 2 pounds every year on imports from Lewisland.

If trade is to balance between Andy and Fielding in the long run, the 1 peso de Fielding will be worth the 2 Andyan pounds.

If exchange rates are flexible, then the price of the exchange will move to 1 peso = 2 pounds. This is a depreciation of Andy's currency due to the sustained trade deficit with Fielding.

(Alternatively, if the exchange rate is fixed at 1:1, Fielding could accumulate Andyan pounds in his central bank, while Andy will deplete any reserves of pesos he has in his central bank.)

Either way, under the flexible or the fixed regime, Andy's currency will come under pressure to move from 1:1 in the long run.

And once Andy's currency depreciates or is devalued, what will happen to Fielding's demand for Andy's exportables? And vice-versa?

Cui bono?

Check out the Did You Know. Thoughts?

Insert Tiger Woods Reference Here

I hate to embarrass people for their achievements, but... no, actually, I enjoy it. The author of this IPE weblog also has other talents. I know all of you do as well... this one just made it onto the homepage.

Federal Funds rate target stays at 5.25%

The Fed leaves interest rates unchanged. So no big monetary policy news to report today, unless no news is news in its own right. Have a look through the article here, or a similar one from your favorite news source, to see if you can follow the logic about linking interest rates, inflation, and economic growth.

After the Call Center, before the TATA-mobile, the Mighty Mango

I have previously mentioned the TATA car, whose intended price will be in the $2,000 range (but which may not ready for American primetime for a while).

But first things first: non-tariff barriers to trade, comparative advantage, the politics of protection. You have it all in the Great Indian Mango Debate. This Washington Post article only scratches the surface. Also have a listen to this NPR report.

By the way, who in the U.S. would oppose Indian Mango importation? (This isn't the Detroit auto industry we're talking about...) Ponder...

Rogoff: The IMF Strikes Back

For Thursday, see this article by Ken Rogoff, as a counterpoint to Stiglitz. Wolf fits in the midst of this debate as well. We can clarify on Thursday how crises in foreign exchange arise (or balance of payments crises), and then will talk about the IMF's role.

Yuan some more of this?

Just as an exercise: why would China's Embassy be boasting about this? Does it seem a bit uncouth? Not very diplomatic language? Sticking it in our collective Yankee face...?

Or a subtle way of saying "You're welcome"...

Look up what the Administration has been calling for with regard to the exchange rate between the Yuan and the Dollar, and think about it in relation to Frieden's article.

How the World Explains Soccer

No, not this book, which (I will add once again) demanded great restraint for me not to place on the syllabus, but rather ... this report on the weekend results in the English Premiership. The most important passage, for an Arsenal supporter is the assessment found at the end:

You could argue that it took Chelsea's iron grip on English football to make Manchester United popular among the masses, although for some neutrals it was like choosing between two 'evil empires'.

These two sides can each make a claim to being the New York Yankees of England, though the analogy clearly fits better for Manchester United. On a related note, it has also been said that "rooting for the Yankees is like rooting for General Motors" (or, formerly, for U.S. Steel, or perhaps today the best analogy would be like "rooting for Microsoft"). Anyway, the GM analogy may take on a slightly new meaning in light of the news in Ryan's original test post.

But, regardless, Man U, Chelsea, and the Yankees all stink. I have considerable empirical evidence and extensive theoretical argumentation to support these propositions if you wish to hear them.

Blinder of an article!

Via Ryan's blog. Have a look at this article from the Washington Post. It's by Alan Blinder -- the eagle-eyed among you (at those who sit on the side of the room nearest the door) may recall my putting his name up on the board in the discussion on Tuesday (originated by Hugh) about "personal service" jobs being less "offshorable". Blinder hammers on that theme here. Keep in mind: jobs that place a premium on personal service, which Blinder suggests may be our future, may not necessarily be the most glamorous, high-status jobs in the world.

Just as an exercise, and using the terminology from class on Thursday, pick out his "independent" and "dependent" variables -- his causes and effects. Note how Blinder focuses on a couple of reasons white-collar workers should be worried. One is the technology, which Friedman in The World is Flat focuses on a great deal, obviously. But another cause of potential "wage-setting in Beijing", to use Freeman's term, is arguably more important: the massive (and increasingly educated) labor supply we're talking about in Asia and elsewhere.

Why do I say "more important" than the technology? Consider that if we were talking only about a very small supply of highly-skilled people overseas, then the consequences for our labor markets would be correspondingly limited. In that case, the availability of technology to the developing world would be nearly irrelevant in terms of Americans' economic prospects. By contrast, with only low technology availability in the developing world and a high labor supply, the size of that labor supply matters at least some; remember Freeman saying low wages in China affect Americans a bit, and consider the fact that there are other "substitute" ways a large labor force can affect global wages, such as through migration. But when you're talking about a large labor supply interacting with high technology, then you've got serious potential for outsourcing, and this is why the issue probably "got bigger" after about 1995 (as Friedman would say).

Thoughts?

Trade wars in the EU

Ok, so Krasner and Cox each have their arguments, but here are the REAL causes of tariffs. A societal or a statist argument? Discuss amongst yourselves.

Boss Hugo

Several people --including Reilly, Dane, and Hugh -- have noticed that news out of Caracas.

See you at the rally in front of the Lee St. Post Office?

As students from certain sections of POL 101 or POL 105 will attest, Milton Friedman (Dane's hero) has been saying for years we should privatize the post office. Sounds like some other economists have the same idea.

NOW Are your Wages Set in Beijing?

If you felt okay about things after reading Freeman, note that it was written in 1995. Coincidentally, the same year during which Thomas Friedman (of The World is Flat fame) wrote that offshoring really began for white-collar jobs in the U.S.

For a more recent set of data relating to the issue of "factor price equalization" (which we'll define tomorrow), have a look at this article from 2006 in Fortune magazine.

Gabriela (b. Apr 26) & Big Sister Carolina (2yrs.)

Thanks to those of you who were demanding photos. I promised on the first day of class to try to restrain myself. I am trying.

These were taken just before Gabriela and her mom left the hospital on Sunday.

France: Vive la globalisation! A bas la globalisation! (ho ho!)

I have two main sources I often look first to for coverage of IPE. They are The Economist and BBC News. Both have lots of coverage of IPE, relative to most American newspapers and online sources (even the biggies).

You may know France is in the midst of a two-step presidential election. One of the long-standing central issues in France is about openness to the market, and along with this France's attitude towards globalization (especially the USA). BBC News is doing a special on France's response to globalization. I may try to give a listen before class tomorrow. Anyway, in case you are interested in France (for your paper, or your own personal reasons, etc.)

Poster Child

Okay, please note I wasn't the first to say something like this, from Danetopia:

If they made posters of Milton Friedman or Friedrich Hayek, I would hang them on my wall.

But I will look into this on Dane's behalf... and... yes!

IPE Spring 2007

Hi all. I will look forward to reading comments on Wolf, Stiglitz, Singer, and any related current events in the coming days. Please let me know if you have questions.

Have a look at this, for a quick overview of Thomas Friedman's The World is Flat. Done only the way Jon can...

jtd