Wednesday, December 02, 2009
Global Warming (and prostitution...)
Some of you may have beaten me to post this video... I haven't checked your blogs yet.
Anyway, here's Jon's take on global warming, along the lines of what we discussed yesterday.
And, as an alum, I will echo his comments: Go Quakers!
Anyway, here's Jon's take on global warming, along the lines of what we discussed yesterday.
And, as an alum, I will echo his comments: Go Quakers!
Tuesday, December 01, 2009
The first Political Scientist, I might add...
By the way, Elinor Ostrom is one of the authors of one of our articles today. If the name rings a bell, it's because of something that happened a few weeks ago.
Recognize any names?
Check out the invitee list for the White House jobs summit. Note especially the economists...
Monday, November 30, 2009
Who's 21 out there?
I won't announce here what my age is (though you already know I grew up watching Mr. Roboto). You will have to look at the links for that. But in case you're interested in general demographic and political trends, a set of surveys finds that I am from the single most Republican age cohort in the United States today.
The argument - from the New York Times' semi-official conservative columnist, Ross Douthat - goes that having grown up in the Reagan years was likely to make for more stable commitments to free markets (while by contrast having grown up in the FDR years of successful government intervention was likely to make citizens into Democrats).
Anyway, what caught my eye is that while I am from the most Republican birthyear in modern American history, many of you may be from the most Democratic birthyear: that is, current 21 year olds.
As a flip side of that coin, 24 year olds are the least Republican (though not most Democratic) of all voters. Don't be confused by the scale here -- we're talking about a few percentage points -- but it is intriguing to see what happened in your lifetimes (in the Clinton and Bush years) as contrasted with mine.
The argument - from the New York Times' semi-official conservative columnist, Ross Douthat - goes that having grown up in the Reagan years was likely to make for more stable commitments to free markets (while by contrast having grown up in the FDR years of successful government intervention was likely to make citizens into Democrats).
Anyway, what caught my eye is that while I am from the most Republican birthyear in modern American history, many of you may be from the most Democratic birthyear: that is, current 21 year olds.
As a flip side of that coin, 24 year olds are the least Republican (though not most Democratic) of all voters. Don't be confused by the scale here -- we're talking about a few percentage points -- but it is intriguing to see what happened in your lifetimes (in the Clinton and Bush years) as contrasted with mine.
Monday, November 16, 2009
The President Goes to China...
... and all we get are these lousy t-shirts?
The New York Times has multiple columns up today: an Op-Ed, plus Krugman on global imbalances (again).
Similarly, the WSJ rings in on not forgetting the rest of Asia, and on China blaming the U.S. (turning the Krugman and Ferguson articles on their heads). The latter is behind the subscription wall, but can be reached via Google News.
Friday, October 30, 2009
This is JUST PLAIN COOL...
Count me in ...but now tell me we're not a hair's breadth away from transcontinental open heart surgery...
Wednesday, October 28, 2009
This American Life
Links referenced by Prof. Smitka yesterday:
"The Giant Pool of Money" transcript and audio.
I recall hearing this some time ago. It's clear and some of you will enjoy it.
"The Giant Pool of Money" transcript and audio.
I recall hearing this some time ago. It's clear and some of you will enjoy it.
Zero-sum and Positive-sum IPE
Toliy offered some thoughts in comments on the US-China post below. I started with a reply to his comments, but decided to make this a longer post. In short, I think he is correct to note that a country's political strategy and economic strategy may point in different directions. Specifically, China may "gain politically" from greater prestige relative to the U.S. (say, from a weakening dollar), even if it may "lose economically" by doing so. And I agree with his first paragraph in his comments. If I follow correctly, he also then asks whether China's "political strategy" might be to look for a decline in the dollar.
My expectation would simply be that economic logic would trump political "point winning" for China in this regard. I too would argue as Toliy has: that China wants a long-term move away from the dollar as reserve currency, but surely wants no collapse of the dollar in the short-term. (For what it's worth, I can think of no-one who would want a collapse of the dollar in the short-term. Except maybe this guy. That is, Mr. July 2004. And no, for those keeping score, not even Mr. June 2005 would want a collapse of the dollar -- no way.) As for the question of "winning political points", or what I called "bragging rights", my expectation is that China would subordinate these to its economic objectives, trying to manage a long-term, slow weakening of the dollar with no sudden movements.
Perhaps this expectation that China would not seek "political points" from hurting the dollar's prestige comes from my belief (and one is free to call it a "perspective", "bias", or other term) that IPE probably has fewer "zero-sum games" than security studies. You will have to ask yourself if you agree.
Think of the Cold War. The US and USSR opposed one another militarily, and any relative increase in US power was seen to be a comparable decrease in Soviet power, and vice versa. This is a zero-sum game, just like football, baseball, or (of course) ice hockey: one side scores points at the expense of the other side. Notice in the Cold War case that the US and USSR also did not trade with one another. That is, each side denied the economic benefits of exchange (from basic comparative advantage, etc.) to its rival.
Contrast that with most cases in IPE between countries that maintain economic relations with one another. The U.S. and China today being the biggest example, but take the U.S. and the EU, for a moment (or the EU and China). Of course, each side is going to maximize the advantage it can get in negotiations and in trade with other parties, but there is very little sense that the EU would benefit from American economic weakness, or that America wants an economically weak Europe. Economics simply isn't that zero-sum between trading partners. Again, each will try to get the best deal for itself, and will try to maximize its own power, and other caveats exist (domestic politics may intervene in many ways, and the question of rapid growth's effects on the environment may shape peoples' preferences), but you will not find many arguing that we want an economically weak EU or a less vibrant world economy. A decrepit China would also mean a less vibrant world economy, and China probably competes less than Europe with the U.S. when it comes to directly competitive goods. (That is, we buy European stuff that Americans also make - like cars and airplanes - but buy relatively few Chinese items that are also Made in the U.S.A.)
When it comes to the positive-sum international relations we find in the global economy, consider also the Marshall Plan, in which the U.S. was part of the reconstruction of Europe after WWII. The logic was that - apart from humanitarian reasons - the U.S. smartly recognized the need for a vibrant international economy in the long run and thus invested in building up Europe as a powerful integrated economy. (Incidentally, administering the Marshall Plan was the origin of the institution Prof. Smitka referenced yesterday - the International Bank for Reconstruction and Development, or the World Bank.)
Returning to China now, the same principle of interdependence seems operative. In short, as David Razum noted in referencing a recent book, and as The Economist notes in its current issue, and as Niall Ferguson noted in coining the term "Chimerica", we have a partial "fusion" of the two major economies. The notion of interdependence suggests to me that if China has the U.S. by the throat, the U.S. has China by the [insert graphic image here]. Either one squeezes and both are going to get hurt. So neither wants to squeeze.
My expectation would simply be that economic logic would trump political "point winning" for China in this regard. I too would argue as Toliy has: that China wants a long-term move away from the dollar as reserve currency, but surely wants no collapse of the dollar in the short-term. (For what it's worth, I can think of no-one who would want a collapse of the dollar in the short-term. Except maybe this guy. That is, Mr. July 2004. And no, for those keeping score, not even Mr. June 2005 would want a collapse of the dollar -- no way.) As for the question of "winning political points", or what I called "bragging rights", my expectation is that China would subordinate these to its economic objectives, trying to manage a long-term, slow weakening of the dollar with no sudden movements.
Perhaps this expectation that China would not seek "political points" from hurting the dollar's prestige comes from my belief (and one is free to call it a "perspective", "bias", or other term) that IPE probably has fewer "zero-sum games" than security studies. You will have to ask yourself if you agree.
Think of the Cold War. The US and USSR opposed one another militarily, and any relative increase in US power was seen to be a comparable decrease in Soviet power, and vice versa. This is a zero-sum game, just like football, baseball, or (of course) ice hockey: one side scores points at the expense of the other side. Notice in the Cold War case that the US and USSR also did not trade with one another. That is, each side denied the economic benefits of exchange (from basic comparative advantage, etc.) to its rival.
Contrast that with most cases in IPE between countries that maintain economic relations with one another. The U.S. and China today being the biggest example, but take the U.S. and the EU, for a moment (or the EU and China). Of course, each side is going to maximize the advantage it can get in negotiations and in trade with other parties, but there is very little sense that the EU would benefit from American economic weakness, or that America wants an economically weak Europe. Economics simply isn't that zero-sum between trading partners. Again, each will try to get the best deal for itself, and will try to maximize its own power, and other caveats exist (domestic politics may intervene in many ways, and the question of rapid growth's effects on the environment may shape peoples' preferences), but you will not find many arguing that we want an economically weak EU or a less vibrant world economy. A decrepit China would also mean a less vibrant world economy, and China probably competes less than Europe with the U.S. when it comes to directly competitive goods. (That is, we buy European stuff that Americans also make - like cars and airplanes - but buy relatively few Chinese items that are also Made in the U.S.A.)
When it comes to the positive-sum international relations we find in the global economy, consider also the Marshall Plan, in which the U.S. was part of the reconstruction of Europe after WWII. The logic was that - apart from humanitarian reasons - the U.S. smartly recognized the need for a vibrant international economy in the long run and thus invested in building up Europe as a powerful integrated economy. (Incidentally, administering the Marshall Plan was the origin of the institution Prof. Smitka referenced yesterday - the International Bank for Reconstruction and Development, or the World Bank.)
Returning to China now, the same principle of interdependence seems operative. In short, as David Razum noted in referencing a recent book, and as The Economist notes in its current issue, and as Niall Ferguson noted in coining the term "Chimerica", we have a partial "fusion" of the two major economies. The notion of interdependence suggests to me that if China has the U.S. by the throat, the U.S. has China by the [insert graphic image here]. Either one squeezes and both are going to get hurt. So neither wants to squeeze.
Tuesday, October 27, 2009
Why do recessions happen?
Just as a marker for future conversation, note that Krugman and others seem to look at major systemic economic crises -- call them "depressions" -- in the following way:
Depression = recession + financial crisis
Which begs the question (since we're looking at financial crisis a good deal), why do recessions happen? Just as a first glance, have a look at this article in The Week. In short, it's a business cycle.
Depression = recession + financial crisis
Which begs the question (since we're looking at financial crisis a good deal), why do recessions happen? Just as a first glance, have a look at this article in The Week. In short, it's a business cycle.
Monday, October 26, 2009
Occam's Razor and China's currency reserves
One recent item of much discussion has been whether the Chinese government wants to see the dollar decline as a reserve currency. The main reason we have given that China would not wish to see a precipitous decline in the dollar is that the government would be shooting itself in the foot: destroying the value of its trillion-dollar reserve stash. This certainly matters.
But another simple way to look at why China might not want this is to consider how its policy has long been centered around an undervalued yuan. To be sure, China is looking at moving towards a greater emphasis on domestic consumption of domestic production in the future (as part of the global "rebalancing" Bernanke and many other economists wish to see), but in recent years we have seen general agreement that the yuan is undervalued -- the question has been "how much".
Now consider what China would be doing if it initiated the much-feared "run on the dollar" apart from hurting the value of its reserves: it would be smashing the very logic of its export-oriented growth strategy by makings its products dramatically pricier to Americans. Again, there are caveats here (China sells a large amount to Europe as well and may be interested in a strong euro as a competitor to the dollar as a global reserve currency, and moreover past policy is unlikely to be reflected in future policy), but it would seem very unlikely to have an export-oriented economy seek to undermine the purchasing power of its biggest customer.
In other words, to address some concerns in class, China may wish to see a long-term waning of the dollar's dominance in favor of a more stable "basket" of currencies (perhaps including its own yuan in the long run), but it surely does not wish to see a collapse of the dollar for the sake of bragging rights.
In short, sometimes a simple argument can suffice: if China really wanted to hurt the dollar, why wouldn't they have simply revalued the yuan long ago? And why would they have accumulated so many of them in reserves in the first place?
But another simple way to look at why China might not want this is to consider how its policy has long been centered around an undervalued yuan. To be sure, China is looking at moving towards a greater emphasis on domestic consumption of domestic production in the future (as part of the global "rebalancing" Bernanke and many other economists wish to see), but in recent years we have seen general agreement that the yuan is undervalued -- the question has been "how much".
Now consider what China would be doing if it initiated the much-feared "run on the dollar" apart from hurting the value of its reserves: it would be smashing the very logic of its export-oriented growth strategy by makings its products dramatically pricier to Americans. Again, there are caveats here (China sells a large amount to Europe as well and may be interested in a strong euro as a competitor to the dollar as a global reserve currency, and moreover past policy is unlikely to be reflected in future policy), but it would seem very unlikely to have an export-oriented economy seek to undermine the purchasing power of its biggest customer.
In other words, to address some concerns in class, China may wish to see a long-term waning of the dollar's dominance in favor of a more stable "basket" of currencies (perhaps including its own yuan in the long run), but it surely does not wish to see a collapse of the dollar for the sake of bragging rights.
In short, sometimes a simple argument can suffice: if China really wanted to hurt the dollar, why wouldn't they have simply revalued the yuan long ago? And why would they have accumulated so many of them in reserves in the first place?
Foreign and domestic capital flight
We have talked a about how uncertainty over a currency's value might lead to foreign capital fleeing a country. Nobody wants to be left "holding the bag" of cash after the hypothetical peso declines in value. This is true, but in the discussion, we may have been overlooking something that is also important: domestic capital. That is, citizens of [insert real country name here] Pesolandia might look to put their savings in dollars or another "hard currency" so they are not left holding the bag.
In other words, just a note that capital flight out of a developing country at a time of crisis may come from either international or domestic sources. And in some cases, it may be the latter that is more significant.
In other words, just a note that capital flight out of a developing country at a time of crisis may come from either international or domestic sources. And in some cases, it may be the latter that is more significant.
Friday, October 23, 2009
Animal Spirits
From the growing field (no joke!) of primate economics: evidence that monkeys know how to reward specialization, high-value tasks, and productivity with higher "wages" or maybe "profits". (You will love the form the earnings take.) More intriguing yet, when new suppliers enter the market, competition increases and earnings decline. Classic.
Have a listen. It is a 4 minute clip.
Have a listen. It is a 4 minute clip.
Reid Reads Krugman, but does Krugman Read Reid?
Paul Krugman this morning on China's currency and the dollar.
Beyond the arguments about the desirability of a strong or weak dollar, notice the linkage to the subprime mortgage crisis. Someone mentioned the "global savings glut" (or "Chinese" or "Asian" savings glut) as a possible cause of the crisis. How does that work? China uses the dollars from its exports to purchase massive amounts of U.S. government bonds. Since China is demanding so many bonds, the interest rate stays low. Low interest rates on government bonds leads to low interest rates on other loans, including mortgage rates, car loans, etc. So in this sense, the Chinese trade surplus led to Americans contracting more and more debt, which they/we largely used to buy bigger and bigger houses. You see where this is going...
Beyond the arguments about the desirability of a strong or weak dollar, notice the linkage to the subprime mortgage crisis. Someone mentioned the "global savings glut" (or "Chinese" or "Asian" savings glut) as a possible cause of the crisis. How does that work? China uses the dollars from its exports to purchase massive amounts of U.S. government bonds. Since China is demanding so many bonds, the interest rate stays low. Low interest rates on government bonds leads to low interest rates on other loans, including mortgage rates, car loans, etc. So in this sense, the Chinese trade surplus led to Americans contracting more and more debt, which they/we largely used to buy bigger and bigger houses. You see where this is going...
Thursday, October 22, 2009
China's Economy
What is your immediate reaction to this news:
China's Economy Grows 8.9%
Many of you may look at this and fear that it will signal China's continued growth at the expense of the United States, and its ever-more-imminent threat to overtake the U.S. as the world's "leading" economy. The case has already been made that China is the "leader" in the global macroeconomy, with the U.S. and Europe as followers.
There is a natural tendency to see the IPE as inherently "competitive". While this is appropriate for many reasons, it is worthwhile to note that the world economy is not "zero-sum". In fact, it is important to note that Asia (esp. China) must necessarily be a big part of any plan to get past the global financial panic and restabilize the world economy. By many counts, the U.S. needs China to do well.
So have a look at the article and consider the ways rapid Chinese growth presents both a challenge and an opportunity for the U.S.
China's Economy Grows 8.9%
Many of you may look at this and fear that it will signal China's continued growth at the expense of the United States, and its ever-more-imminent threat to overtake the U.S. as the world's "leading" economy. The case has already been made that China is the "leader" in the global macroeconomy, with the U.S. and Europe as followers.
There is a natural tendency to see the IPE as inherently "competitive". While this is appropriate for many reasons, it is worthwhile to note that the world economy is not "zero-sum". In fact, it is important to note that Asia (esp. China) must necessarily be a big part of any plan to get past the global financial panic and restabilize the world economy. By many counts, the U.S. needs China to do well.
So have a look at the article and consider the ways rapid Chinese growth presents both a challenge and an opportunity for the U.S.
Tuesday, October 20, 2009
It's Our Fault, All of Us
Since we took both sides of the lender-saver issue, Ben Bernanke decided to do the same.
It's everybody's fault!
It's everybody's fault!
Blast from the Past (Stiglitz 2005)
Note the following from Stiglitz, p. 254:
Two notes on this. First, the interest in diversifying away from the dollar is not a product of the recent financial crisis; rather it has been percolating for longer than that as a way to address "global imbalances", as Wolf would call them. Second, this proposal is not far off from what Stiglitz proposed in his reformed "global reserve system". To that, I can only say, hmm.
In early 2005, China announced that it is no longer committed to holding reserves in dollars. It had, in fact, already moved substantial amounts out of dollars (about a quarter of its reserve), but the announcement had immense symbolic value. Other central bankers, more in keeping with their tradition of staying out of the public eye, quietly confided to me that they too were moving out of dollars.Compare with the news from 2009 that China is calling for a new international reserve currency to replace the dollar, as reported in the New York Times and Wall Street Journal, among other places.
Two notes on this. First, the interest in diversifying away from the dollar is not a product of the recent financial crisis; rather it has been percolating for longer than that as a way to address "global imbalances", as Wolf would call them. Second, this proposal is not far off from what Stiglitz proposed in his reformed "global reserve system". To that, I can only say, hmm.
The Dollar is Falling! The Dollar is Falling!
Obligatory weekly contribution from The Economist.
There are many possible responses to the dollar's decline. One is from renowned commentator Ian Reid. Reid's argument is as follows:
One thing to be clear about is that inflation and currency depreciation should be differentiated from currency collapse and hyperinflation. It is unlikely the U.S. would suffer from the latter, even if/when it does suffer from the former.
There are many possible responses to the dollar's decline. One is from renowned commentator Ian Reid. Reid's argument is as follows:
I say stop the printing presses, raise some rates and let those with money spend it and save the dollar. I don't want to be a 21st century Zaire...This could certainly defend the dollar, largely by giving developing countries (read: China) more incentive to buy U.S. bonds. The downside is... well, someone else can make the counterargument.
One thing to be clear about is that inflation and currency depreciation should be differentiated from currency collapse and hyperinflation. It is unlikely the U.S. would suffer from the latter, even if/when it does suffer from the former.
Thursday, October 15, 2009
News Doesn't Stop for Reading Days
The EU and South Korea move ahead on international trade.
One of the interesting elements of the main plot is that the US and South Korea are moving (slowly) towards ratifying free trade, and a question is whether this will accelerate that process. One of the subplots here is whether bilateral trade agreements between countries present blocks or stepping stones to broader multilateral trade agreements. Something to follow for the purposes of the simulation, and especially in the event you plan on writing about international trade for the final paper.
Wednesday, October 14, 2009
Monday, October 12, 2009
Timely Op-Ed
On the "gold standard mentality" and the strength vs. weakness of the dollar. From Paul Krugman in today's New York Times.
For what it's worth, you could add Peter Temin's Lessons from the Great Depression to the list of pre-approved books for Week 7. (Temin is mentioned by Krugman in the op-ed.)
For what it's worth, you could add Peter Temin's Lessons from the Great Depression to the list of pre-approved books for Week 7. (Temin is mentioned by Krugman in the op-ed.)
Remittances and searches
Some of you may be interested in economic development in low-income countries, as it relates to some of the topics we will be discussing these weeks. In that vein, one of the big stories in development in recent years is about remittances. These are funds sent "home" by workers residing abroad. Most often, remittances come pass between family members from one earning a wage/salary in a higher-income country to the family in the low-income country. For families, this is obviously a supplemental source of income. From a national or macroeconomic perspective, they are also a source of "hard currency" -- an established, internationally-traded currency such as the dollar, euro, or yen.
Now, say you wanted to write your paper on this. As is often the case, I can link to a recent article in The Economist. But the point I'd like to make with the link here is a slightly different one: because the article piqued my interest, I googled "remittances capital account" and found a few different sources, including this interesting paper. This came after searching and finding similarly interesting material in a couple of other related searches. The lesson, I suppose, is one I have mentioned to several people: persist in trying out different search terms and take some time to sift through the results. (One of the great problems nowadays for me, being accustomed to easy availability of sources, is that I too often don't conduct a thorough search with different search parameters and the like.) If something interests you, find out more about it. It can be done, even if it takes a little extra effort.
Now, say you wanted to write your paper on this. As is often the case, I can link to a recent article in The Economist. But the point I'd like to make with the link here is a slightly different one: because the article piqued my interest, I googled "remittances capital account" and found a few different sources, including this interesting paper. This came after searching and finding similarly interesting material in a couple of other related searches. The lesson, I suppose, is one I have mentioned to several people: persist in trying out different search terms and take some time to sift through the results. (One of the great problems nowadays for me, being accustomed to easy availability of sources, is that I too often don't conduct a thorough search with different search parameters and the like.) If something interests you, find out more about it. It can be done, even if it takes a little extra effort.
Good news about gassy rocks
If you are feeling the need for some good news this morning, try this. The author, who writes for The Telegraph newpaper in the UK, was on NPR this morning with a decidedly optimistic assessment of the future of U.S. energy production and its resultant impact on the current account: easier extraction of natural gas from shale rock in the U.S. means natural gas prices decline, so oil prices must decline (because natural gas is increasingly a substitute for oil), so the U.S. will be sending much less overseas.
Have a look at the article. Before you get too excited, note one important caveat:As for the US, we may soon be looking at an era when gas, wind and solar power, combined with a smarter grid and a switch to electric cars returns the country to near energy self-sufficiency.
This has currency implications. If you strip out the energy deficit, America's vaulting savings rate may soon bring the current account back into surplus – and that is going to come at somebody else's expense, chiefly Japan, Germany and, up to a point, China.
Shale gas is undoubtedly messy. Millions of gallons of water mixed with sand, hydrochloric acid and toxic chemicals are blasted at rocks...Nonetheless, the article notes, "[n]atural gas has much lower CO2 emissions than coal, even from shale." The article concludes with a note that we can be prone to hyperbole... but also that "we may need to rewrite the geo-strategy textbooks for the next half century". So I'm glad we resolved that.
Nor is it exactly green.
Friday, October 09, 2009
Reading Options addendum
Add Globaloney 2.0, by Michael Veseth, to your list... though it is just being released and may not be available in time...
Tuesday, October 06, 2009
"Be careful what you wish for", Or "How Europe paid for the Vietnam War"
I can't believe I'm posting something I found via Drudge, but since Shamira's blog sent me there...
Here's another IPE issue raised... the dollar's role as a reserve currency.
We will be talking about the international monetary system soon, but notice that this issue -- the strength of the dollar -- underpins a huge range of related IPE issues. This includes your postings about China and the yuan, the Japanese yen, and so on.
One argument, just for fun, and just to keep the juices flowing: since the dollar was the reserve currency in the 1960s and 1970s (and we went off the gold standard in 1971), the U.S. was basically able to "export inflation" from all the expenditures of the 1960s. Which included Vietnam, Medicare, and Medicaid. Because other countries were stuffing dollars under their mattresses, the U.S. could spend a huge amount of dollars, suffering some inflation at home, but also knowing that the Europeans and others would accumulate some of the excess. Of course, with inflation, the dollar bought less over time (35 of them could no longer buy an ounce of gold, for starters), but the impact of that inflation was felt by foreigners just as it was felt by Americans. In other words, Europe partly paid for the Vietnam War.
If the world moves away from the dollar as the global reserve currency, think about what this means for American consumers and producers. Less demand for dollars from overseas, a less valuable ("weaker") dollar. Imports get more expensive. (Fuhgeddabout German cars...) Exports become relatively cheaper for others to buy. (Buy American! Woohoo!) It could be a kind of "rebalancing" that many people wish for... but, as we'll discuss...
be careful what you wish for, you just might get it...
Here's another IPE issue raised... the dollar's role as a reserve currency.
We will be talking about the international monetary system soon, but notice that this issue -- the strength of the dollar -- underpins a huge range of related IPE issues. This includes your postings about China and the yuan, the Japanese yen, and so on.
One argument, just for fun, and just to keep the juices flowing: since the dollar was the reserve currency in the 1960s and 1970s (and we went off the gold standard in 1971), the U.S. was basically able to "export inflation" from all the expenditures of the 1960s. Which included Vietnam, Medicare, and Medicaid. Because other countries were stuffing dollars under their mattresses, the U.S. could spend a huge amount of dollars, suffering some inflation at home, but also knowing that the Europeans and others would accumulate some of the excess. Of course, with inflation, the dollar bought less over time (35 of them could no longer buy an ounce of gold, for starters), but the impact of that inflation was felt by foreigners just as it was felt by Americans. In other words, Europe partly paid for the Vietnam War.
If the world moves away from the dollar as the global reserve currency, think about what this means for American consumers and producers. Less demand for dollars from overseas, a less valuable ("weaker") dollar. Imports get more expensive. (Fuhgeddabout German cars...) Exports become relatively cheaper for others to buy. (Buy American! Woohoo!) It could be a kind of "rebalancing" that many people wish for... but, as we'll discuss...
be careful what you wish for, you just might get it...
Wednesday, September 30, 2009
Book list (expanded, non-exhaustive)
This is a non-exhaustive list of books on financial and economic crisis that you might choose to read and write about for Week 7.
Ahamed, Liaquat. Lords of Finance: The Bankers who Broke the World.
Akerlof, George & Robert Shiller. Animal Spirits.
Bernanke, Ben. Essays on the Great Depression.
Cooper, George. The Origin of Financial Crises.
Fox, Justin. The Myth of the Rational Market
Friedman, Milton. The Great Contraction, 1929-1933.
Galbraith, John Kenneth. The Great Crash of 1929.
James, Harold. The Creation and Destruction of Value: The Globalization Cycle
James, Harold. The End of Globalization: Lessons from the Great Depression.
Keynes, John Maynard. The General Theory of Employment, Interest, and Money.
Kindleberger, Charles. Manias, Panics, and Crashes: A History of Financial Crises.
Kindleberger, Charles. The World in Depression, 1929-1939.
Krugman, Paul. The Return of Depression Economics and the Crisis of 2008.
Lewis, Michael. Panic: The Story of Modern Financial Insanity.
Minsky, Hyman. Can 'It' Happen Again? Essays on Instability and Finance
Minsky, Hyman. Stabilizing an Unstable Economy.
Morris, Charles. The Two Trillion Dollar Meltdown.
Reinhart, Carmen and Kenneth Rogoff. This Time is Different: Eight Centuries of Financial Folly.
Shiller, Robert. The Subprime Solution.
Wessel, David. In Fed We Trust: Ben Bernanke's War on the Great Panic.
Wolf, Martin. Fixing Global Finance.
Zandi, Mark. Financial Shock.
Tuesday, September 29, 2009
Smaller advertisement
In keeping with the "public" media theme, don't overlook the PBS Newhour, which often has more coverage of the global economy than the 30 minute evening news or cable news (CNN, Fox News, or MSNBC).
Speaking of which, this looks like an interesting page...
Speaking of which, this looks like an interesting page...
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Frustrated with cable news? Tired of pundits who seem to shout at each other all the time?
Are you feeling depressed or down because you're only hearing limited analysis of the global economy?
Feeling the need for pick-me-up? Your own intellectual stimulus package?
Then tune into Marketplace from American Public Media, on Lexington's own WMRA, 89.9 FM. Your NPR affiliate in the Valley! Marketplace airs at 6:30 PM weekdays, but you can hear it anytime on the web.
You will discover exciting content about the day's business and economic news, including such great classics as "Joseph Stiglitz"!
Full content is archived and searchable on the site, so you can learn about the G-20, or your favorite country!
Woohoo!
Are you feeling depressed or down because you're only hearing limited analysis of the global economy?
Feeling the need for pick-me-up? Your own intellectual stimulus package?
Then tune into Marketplace from American Public Media, on Lexington's own WMRA, 89.9 FM. Your NPR affiliate in the Valley! Marketplace airs at 6:30 PM weekdays, but you can hear it anytime on the web.
You will discover exciting content about the day's business and economic news, including such great classics as "Joseph Stiglitz"!
Full content is archived and searchable on the site, so you can learn about the G-20, or your favorite country!
Woohoo!
Friday, September 25, 2009
Another book option... [list being updated...]
Richard Posner on John Maynard Keynes' General Theory of Employment, Interest, and Money. Feel free to choose Keynes as your supplemental book, if you wish.
Thursday, September 24, 2009
Prize systems
In a conversation with a former IPE student the other (by the name of Dane Davis -- some of you may know him), the issue came up of whether health reform will curtail innovation in the health industry (leading to fewer new drugs, etc.). Interestingly, we soon found ourselves discussing the "prize system" mentioned by Stiglitz (and in another context by Thomas Pogge, for those of you who have taken certain courses in the Poverty program).
I have suggested for a couple of years that I expect this whole "prize" idea will soon be going "mainstream" as a way to attack complex social conundrums, ranging from infectious disease prevention to malnutrition to educational attainment, etc. As a recent example, you may recall SpaceShipOne (beware more corny music). There are other examples.
In some ways, this would seem to be more efficient than having governments and foundations provide grants, and then have the grantees report on the findings. Instead, the prize system promotes innovation by paying for demonstrated achievement. In economic terms, I suppose, for an output rather than for inputs.
Of course, there are many arguments against these, as well. Prizes would not be a perfect substitute for government action in some areas, because government is of a scope and scale that is far greater than any single corporation, making very large-scale investment at least feasible -- setting aside whether one things it is desirable. But it remains something to think about... and, I would argue, to watch for...
I have suggested for a couple of years that I expect this whole "prize" idea will soon be going "mainstream" as a way to attack complex social conundrums, ranging from infectious disease prevention to malnutrition to educational attainment, etc. As a recent example, you may recall SpaceShipOne (beware more corny music). There are other examples.
In some ways, this would seem to be more efficient than having governments and foundations provide grants, and then have the grantees report on the findings. Instead, the prize system promotes innovation by paying for demonstrated achievement. In economic terms, I suppose, for an output rather than for inputs.
Of course, there are many arguments against these, as well. Prizes would not be a perfect substitute for government action in some areas, because government is of a scope and scale that is far greater than any single corporation, making very large-scale investment at least feasible -- setting aside whether one things it is desirable. But it remains something to think about... and, I would argue, to watch for...
Tuesday, September 22, 2009
Future of Global Finance
By Liaquat Ahamed, who wrote Lords of Finance: The Bankers Who Broke the World. Includes references to Martin Wolf, discussion of trade deficits, how this affects currencies, and the like. We will talk about trade today, and about currencies and the international monetary system soon.
Monday, September 21, 2009
Football and the World
Don't get me started about football (i.e., soccer) players and global migration. Trust me.
Ok, you didn't start it maybe, but... see, back in 1995, there was something called the Bosman ruling. And suffice it so say -- I'm restraining myself here -- I have a crackpot theory about France winning the World Cup in 1998 that is all about Bosman (who himself was Belgian, which may seem like the first crack in the pot of the theory, but anyway...)
Now I hear the English Premiership, the top professional league in British soccer, has put in place new rules on "home-grown talent". This is to ensure more Brits make it onto the rosters of the top clubs, since the Premier League has seen ever-increasing proportions of players coming from soccer's "growth countries" in West Africa and South America, as well as some of the Old Countries on the continent (including France, the Netherlands, Belgium, and the like)
So it's basically protectionism for youth players from Jolly Ol' England (and Wales, it seems). In the interest of full disclosure, I spent much of my 20s playing pick-up soccer in West Africa... and now my family is mostly Brazilian. Three guesses how I feel about this.
Actually, I'll tell you, in three words: I feel conflicted. Though more for Brazilians than for Africans, for reasons that I can elaborate upon... upon request.
I tell you: don't get me started.
Ok, you didn't start it maybe, but... see, back in 1995, there was something called the Bosman ruling. And suffice it so say -- I'm restraining myself here -- I have a crackpot theory about France winning the World Cup in 1998 that is all about Bosman (who himself was Belgian, which may seem like the first crack in the pot of the theory, but anyway...)
Now I hear the English Premiership, the top professional league in British soccer, has put in place new rules on "home-grown talent". This is to ensure more Brits make it onto the rosters of the top clubs, since the Premier League has seen ever-increasing proportions of players coming from soccer's "growth countries" in West Africa and South America, as well as some of the Old Countries on the continent (including France, the Netherlands, Belgium, and the like)
So it's basically protectionism for youth players from Jolly Ol' England (and Wales, it seems). In the interest of full disclosure, I spent much of my 20s playing pick-up soccer in West Africa... and now my family is mostly Brazilian. Three guesses how I feel about this.
Actually, I'll tell you, in three words: I feel conflicted. Though more for Brazilians than for Africans, for reasons that I can elaborate upon... upon request.
I tell you: don't get me started.
Federal Reserve Bank publications
Increasingly, I am convinced that some of the most overlooked sites for research on the political economy (whether the domestic political economy of the U.S. or the international political economy) are the 12 sites of the branches of the Federal Reserve Bank. (There is a permanent link on the right-hand side to a page that will show the districts and allow you to navigate to the sites of any of the branches. I will reproduce the link here.)
Each of the 12 banks (Atlanta, Boston, Chicago, Cleveland, Dallas, Kansas City, Minneapolis, New York, Philadelphia, Richmond, St. Louis, and San Francisco) has its own research and publications department, staffed by its own in-house economists. The offerings include "working papers", full-on journals, data sources, and other reports. One important niche this fills is that the works are often "serious" and sophisticated, but are not always purely designed for economists. Some of them have equations and a high degree of technical knowledge required, but in many cases you can still get the essence of an article by skimming this a bit. As importantly, these are very timely. Academic journal articles may take several years in the writing, peer review, revision, editing, and eventual publication. The Fed branches seem to be able to produce good material on a shorter time cycle, as their scholars have internal access to tons of data, and probably more ease in moving from writing to publication.
An example of a posting that will make you think about on issue - the subprime mortgage phenomenon and the economic crisis - would be this posting by a researcher at the Cleveland Fed: Ten Myths about Subprime Mortgages. I am not recommending this post for its specific content, with which I partly agree and partly do not, but rather as part of a general observation: for contemporary treatments of the political economy of 2007-2009, consider these a likely source for up-to-date material -- probably moreso than JStor, Project Muse, and the like.
Have some patience, look at the different sites, find the publications section for each, and do some searches when the time comes to write your papers. You will likely find something useful.
Each of the 12 banks (Atlanta, Boston, Chicago, Cleveland, Dallas, Kansas City, Minneapolis, New York, Philadelphia, Richmond, St. Louis, and San Francisco) has its own research and publications department, staffed by its own in-house economists. The offerings include "working papers", full-on journals, data sources, and other reports. One important niche this fills is that the works are often "serious" and sophisticated, but are not always purely designed for economists. Some of them have equations and a high degree of technical knowledge required, but in many cases you can still get the essence of an article by skimming this a bit. As importantly, these are very timely. Academic journal articles may take several years in the writing, peer review, revision, editing, and eventual publication. The Fed branches seem to be able to produce good material on a shorter time cycle, as their scholars have internal access to tons of data, and probably more ease in moving from writing to publication.
An example of a posting that will make you think about on issue - the subprime mortgage phenomenon and the economic crisis - would be this posting by a researcher at the Cleveland Fed: Ten Myths about Subprime Mortgages. I am not recommending this post for its specific content, with which I partly agree and partly do not, but rather as part of a general observation: for contemporary treatments of the political economy of 2007-2009, consider these a likely source for up-to-date material -- probably moreso than JStor, Project Muse, and the like.
Have some patience, look at the different sites, find the publications section for each, and do some searches when the time comes to write your papers. You will likely find something useful.
Giving the Prez a Flat Tire (or, Tyre?)
Barack Obama was endorsed by the magazine last year, but when you take on free trade, The Economist no likee.
(This issue was previously noted by John Weber. Amazing what a tiny sector of the economy can mean to the big debates...)
(This issue was previously noted by John Weber. Amazing what a tiny sector of the economy can mean to the big debates...)
Thursday, September 17, 2009
Economics Focus
For weekly articles that are thought-provoking and academic in content, you can generally find free access to The Economist Economics Focus. Available articles from recent weeks are on China's trade surplus, central banks targeting inflation, and whether the Crisis of 2008 was a product of the financial collapse of individual investment banks (or was economically inevitable).
Himitsu wo shiri tai (sp?)
In honor of last evening's Japan forum, I thought it worth noting that when I was growing up, we witnessed many of the concerns about America losing its economic preeminence that are present today. Except the concern was not about China, but rather its Pacific neighbor.
Being about 9 years old at the time, I will always remember it this way. (Listen carefully.)
Being about 9 years old at the time, I will always remember it this way. (Listen carefully.)
Options for Reading on Crisis
For those of you looking for readings about the financial-economic crisis/meltdown of 2008-2009, there are many options available. I will begin a list here, and will update periodically, perhaps reposting this entry to keep the list current. Feel free to offer suggestions or to ask questions in the comments.
Some initial ideas for good selections:
Akerlof, George & Robert Shiller. Animal Spirits
Cooper, George. The Origin of Financial Crises
Fox, Justin. The Myth of the Rational Market
Krugman, Paul. The Return of Depression Economics and the Crisis of 2008.
Lewis, Michael. Panic: The Story of Modern Financial Insanity.
Morris, Charles. The Two Trillion Dollar Meltdown
Shiller, Robert. The Subprime Solution
Wessel, David. In Fed We Trust: Ben Bernanke's War on the Great Panic
Zandi, Mark. Financial Shock
Just to note from the outset, I would want you to read books that have some discussion of the macroeconomy, and not those that focus on one brokerage or investment house. Unless you can determine from previews that the book will relate the collapse of an individual investment house to the broader questions of crisis in the larger economy. Thus, the following book might be of interest:
Muolo, Paul & Mathew Padilla. Chain of Blame: How Wall Street Caused the Mortgage and Credit Crisis
But not so much the following:
Cohan, William. House of Cards: a Tale of Hubris and Wretched Excess on Wall Street
Kelly, Kate. Street Fighters: the Last 72 Hours of Bear Stearns, the Toughest Firm on Wall Street
Macdonald, Lawrence & Patrick Robinson. A Colossal Failure of Common Sense: the Inside Story of the Collapse of Lehman Brothers
Some fall in the middle, and we can discuss individually:
Tett, Gillian. Fool's Gold: How the Dream of a Small Tribe at JP Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe.
More to come. Please let me know if you are looking for books.
Some initial ideas for good selections:
Akerlof, George & Robert Shiller. Animal Spirits
Cooper, George. The Origin of Financial Crises
Fox, Justin. The Myth of the Rational Market
Krugman, Paul. The Return of Depression Economics and the Crisis of 2008.
Lewis, Michael. Panic: The Story of Modern Financial Insanity.
Morris, Charles. The Two Trillion Dollar Meltdown
Shiller, Robert. The Subprime Solution
Wessel, David. In Fed We Trust: Ben Bernanke's War on the Great Panic
Zandi, Mark. Financial Shock
Just to note from the outset, I would want you to read books that have some discussion of the macroeconomy, and not those that focus on one brokerage or investment house. Unless you can determine from previews that the book will relate the collapse of an individual investment house to the broader questions of crisis in the larger economy. Thus, the following book might be of interest:
Muolo, Paul & Mathew Padilla. Chain of Blame: How Wall Street Caused the Mortgage and Credit Crisis
But not so much the following:
Cohan, William. House of Cards: a Tale of Hubris and Wretched Excess on Wall Street
Kelly, Kate. Street Fighters: the Last 72 Hours of Bear Stearns, the Toughest Firm on Wall Street
Macdonald, Lawrence & Patrick Robinson. A Colossal Failure of Common Sense: the Inside Story of the Collapse of Lehman Brothers
Some fall in the middle, and we can discuss individually:
Tett, Gillian. Fool's Gold: How the Dream of a Small Tribe at JP Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe.
More to come. Please let me know if you are looking for books.
Tuesday, September 15, 2009
What is Incoherent?
I was struck by rereading Wolf over the weekend that one of the main critiques of the antiglobalization protest movement (which is broadly categorized as being on the "left", though Wolf notes Pat Buchanan is also an honorary member) is the sheer range of issues the protestors bring to the table: environment, women's rights, outsourcing and the decline of American manufacturing, labor practices in the developing world, child labor, poverty, health care, greed in finance, and the like. For Wolf, this makes for incoherence, especially since he would say the concerns are wrongly directed at globalization.
The reason I was struck is because of the protests this weekend in Washington by the "9/12" movement, led in part by Glenn Beck. One of the criticisms of that movement has been... you guessed it, incoherence. The concerns of the 9/12 protestors range from corruption in Washington, to the financial bailout, to Obama's birthplace, to health care and the imminent advent of American Socialism, all wrapped up together in a protest movement that would broadly be seen as on "the right" (though there would undoubtedly be honorary members from the left as well). They may broadly be grouped together under "What is Obama doing to the U.S.A.!?!?!", but a question would for clarification be -- just like Wolf would ask of the antiglobalization types -- what is the ideology or belief system that underpins all of this?
Just to wrap it back around, from a Google search on incoherence in the antiglobalization movement, I come across the following quote about the 1999 protests in Seattle (or more specifically the puppets at Seattle), on FoxNews.com:
The reason I was struck is because of the protests this weekend in Washington by the "9/12" movement, led in part by Glenn Beck. One of the criticisms of that movement has been... you guessed it, incoherence. The concerns of the 9/12 protestors range from corruption in Washington, to the financial bailout, to Obama's birthplace, to health care and the imminent advent of American Socialism, all wrapped up together in a protest movement that would broadly be seen as on "the right" (though there would undoubtedly be honorary members from the left as well). They may broadly be grouped together under "What is Obama doing to the U.S.A.!?!?!", but a question would for clarification be -- just like Wolf would ask of the antiglobalization types -- what is the ideology or belief system that underpins all of this?
Just to wrap it back around, from a Google search on incoherence in the antiglobalization movement, I come across the following quote about the 1999 protests in Seattle (or more specifically the puppets at Seattle), on FoxNews.com:
It reflects the utter incoherence of the protesters' world views...just like those political metaphors you hear so much about these days.There is much to muse about here, but it may simply be worth mentioning these for the moment, for you to juxtapose and interpret yourselves. What is incoherent, and what issues are linked together?
Toliy Khomenko v. Martin Wolf Cage Match (Film at 11)
Short version of Toliy Khomenko post: "Let's cut down the 'global jungle'".
Martin Wolf, Making Globalization Work, p 12: "[Former French Prime Minister] Edouard Balladur was wrong. The market is not a jungle, but among the most sophisticated products of civilization."
Oh NO YOU DIDN'T!
Fight! Fight!
(Or maybe not? Maybe Toliy will agree with Wolf...?)
Martin Wolf, Making Globalization Work, p 12: "[Former French Prime Minister] Edouard Balladur was wrong. The market is not a jungle, but among the most sophisticated products of civilization."
Oh NO YOU DIDN'T!
Fight! Fight!
(Or maybe not? Maybe Toliy will agree with Wolf...?)
Monday, September 14, 2009
The Falling Dollar
Some of you may be interested in the article here. (Washington Post may require sign-in.) For some of you, this may be an article to breeze through, but probably not for most. Let me offer a couple of quick selections from it, and we will discuss as time permits:
We'll have plenty of chances to discuss.
Many economists think the global recession is winding down or is already over, which has encouraged investors to dump dollars to buy stocks and other higher-yielding assets. "As we have stepped away from the abyss people have a healthier appetite for risk," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman.
The Federal Reserve's strategy of keeping a key interest rate near zero to help get the economy back on track has given investors further incentive to search for alternative investments that pay a higher yield. They have poured money into emerging markets, which are expected to rebound quickly. ...
Gold has become attractive as another aspect of the Fed's strategy to jump-start the economy -- creating billions of dollars in new money to buy government debt and mortgage-related securities, also known as quantitative easing -- as well as doubts about the government's ability to get spending under control have stoked fears of inflation down the road.Again, we will have a few weeks to sort out all the reasons and implications here. For the moment, ask yourself this: what are the advantages and disadvantages of a strong dollar? Would you rather have a relatively "strong" dollar with a great deal of purchasing power, or a relatively "weak" dollar with less purchasing power? Why?
We'll have plenty of chances to discuss.
Thursday, September 10, 2009
Welcome to your life in the International Political Economy
Greetings to all of you in Politics 381.
Today, we will begin some preliminary discussions of I.P.E., but much of the heavy lifting will wait until next week, after you have had a chance to do readings. Three items of interest today.
1. All of you should be creating your own blogs in the next few days. When you do so, I will place links to your blogs along the right-hand side of this page, replacing the links to blogs from previous iterations of the course.
You may create your own blog at the site of your choosing, so long as it is publicly/openly available without requiring registration or sign-in. Two easy options are:
Blogger (which hosts this blog), and
WordPress
2. You must write a short (approx. 500 word) essay in no more than one hour by Monday morning. Please submit the essay via email to me and post your response to your blog. The question and template can be found here.
3. Please check in on this blog regularly for any updates, issues, and questions. You are encouraged to add your own links to your blog, and links to this page and your classmates' pages are logical choices.
I will leave my own commentary on I.P.E. until after you have submitted your responses, so we can initiate a discussion using your blogs (as well as this one) as a point of departure.
- jtd
Today, we will begin some preliminary discussions of I.P.E., but much of the heavy lifting will wait until next week, after you have had a chance to do readings. Three items of interest today.
1. All of you should be creating your own blogs in the next few days. When you do so, I will place links to your blogs along the right-hand side of this page, replacing the links to blogs from previous iterations of the course.
You may create your own blog at the site of your choosing, so long as it is publicly/openly available without requiring registration or sign-in. Two easy options are:
Blogger (which hosts this blog), and
WordPress
2. You must write a short (approx. 500 word) essay in no more than one hour by Monday morning. Please submit the essay via email to me and post your response to your blog. The question and template can be found here.
3. Please check in on this blog regularly for any updates, issues, and questions. You are encouraged to add your own links to your blog, and links to this page and your classmates' pages are logical choices.
I will leave my own commentary on I.P.E. until after you have submitted your responses, so we can initiate a discussion using your blogs (as well as this one) as a point of departure.
- jtd
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