Religion, Culture, and Development

Hal Bozarth has written a lengthy post on the Protestant work ethic, and the role of religion and culture in economic development. It has not received much attention yet, but I will be curious to see if reactions emerge. The piece takes a strong tone on these issues, with Bozarth (let me refer to the scholar by his last name, as convention dictates) calling the Protestant ethic "nonsense", for instance.

My own reactions to the piece are mixed. On the positive side, there are two items. First, I am intrigued by Bozarth's argument that the fragmentation of authority in modernizing Europe contributed to economic dynamism, and will be on the lookout to see how and where that argument is developed further. The thrust of my reading being that the rivalry between Protestant and Catholic authorities and between Protestant denominations themselves inhibited the rise of a continental church-state (a "super-Church") that might have stunted economic growth. An interesting historical hypothesis to test and consider further.

Second, I too am generally queasy about cultural interpretations that can become overly deterministic. The suggestion that a certain theology or worldview is more conducive to dynamism more sound innocuous, but a paired implication is that other worldviews are more conducive to backwardness. From here, the leap is too easy to the idea that if, say, Africans are economically behind, they must have certain cultural deficiencies. Experience in Africa and other developing countries leads me to object to that culturalist implication more strongly than almost any other proposition in all the social sciences. I rather think of seemingly cultural expressions of economic practice (in Africa, for example) as something less theological and culturally-given, and more environmentally adaptive and even rationalist: communal solidarity and collectivism (at the level of families, villages, community groups, and other local units, but not at the level of the state) have a different economic significance when people are living at close to a subsistence level, to use one example. I have met very few Africans who have any less ambition for capital accumulation than Americans, but I have probably met more Africans who feel strong socio-economic obligations to share meager wealth with family and friends.

On the other side of the argument, Bozarth seems too quick to categorize and to make sweeping statements in some areas, even as he adds welcome nuance in others. Islam's economic history is much more varied than the caricature of Koranic limitations on usury would suggest, for instance. It also strikes me as overstated that "Calvinism and other sects had no bearing on economics". Cultural theories of development come in a range of flavors, from the baldly deterministic (which I do often find reprehensible and inaccurate) to much subtler and more conditional theories that treat religion and culture as factors that may matter among others, and that further deem religion and culture to be endogenous, subject to their own modifications and alterations over time.

This would be central to my critique of Bozarth: that he treats religion as rather exogenous and fixed, rather than being itself malleable, adaptable, and engaged in a more reciprocal relationship with economy and society. Perhaps this is because he is responding in kind to what he sees as religious determinists, but I would not find it fair to assert that Weber and others necessarily do the same. I am not a culturalist, yet I feel comfortable saying that one of the reasons for Weber's enduring significance is that he both carved out a clear theoretical statement of religion's possible impact (which I agree may well have been wrong) AND understood religion's embeddedness in economy and society, and its own adaptability. For this reason, while I agree with Bozarth on the merits of some of the critique of religious and cultural arguments, I think it precipitous to flatly argue that these lines of thought are of necessity wrong and/or imply they are reprehensible. Instead, cultural arguments are only partially correct (at best, and they require constant revision) and exist on a spectrum from reprehensible to something much more thoughtful and even humanistic.

It would also be useful to distinguish further between strict scriptural or textual interpretations of religions and their actual application in different societies. On this note, Bozarth offers an interpretation, drawing on Christopher Hitchens (see brief, but touching obituary here) of biblical requirements on the accumulation of wealth, but we cannot paint with a broad brush the extent to which these have been adopted as Christian practice; we cannot simply cast Protestantism as looking solely to scripture for guidance, then assume it should come out with a single, fixed interpretation of what that scripture says. It has never done so. No major text survives centuries without being subject to interpretation and reinterpretation. (Consider the Supreme Court and the U.S. Constitution, among others.) It is unclear the extent to which people and cultures through history have taken the "vow of poverty" and service as the central interpretation of the Christian economic gospel. Certainly, modern Christianity has included hugely ranging perspectives on wealth, from the "prosperity gospel" to liberation theology's "preferential option for the poor", with the Calvinist ethic being one of these many understandings.

I risk a reply that is longer than the original post, which I prefer to avoid for substantive blog entries. I encourage others to have a look and offer comments on Bozarth's blog and/or here.

Friedman: Don't be average

Not exactly new stuff, but in case you are up for a dose of Thomas Friedman's latest.

The more we discuss this, the more I am struck by the different implications and implicit recommendations from Friedman and Blinder. The two seem to me to depart from a common diagnosis of the fundamental challenge: that competition from an increasingly global labor supply will put downward pressure on white-collar American wages (see also Freeman on factor price equalization). But as many of you have noticed, the remedies do diverge from there, with Friedman seeming to be a science and technology enthusiast and Blinder deeming personal services to be the set of options that will be less vulnerable to offshoring.

There is much to say about this. One point I would offer is the comment I suggested on Freeman's piece in class: that downward pressure on wages in one sector of a market economy should soon "trickle through" to other sectors, albeit with a time lag. If wages in offshorable jobs fall, would not people in those jobs be expected to move more toward the now-higher-wage jobs in personal services, thereby driving down wages in personal services due to the increased labor supply? (The example in class was that more people will become barbers, and the greater competition among barbers should lead to cheaper haircuts: good for consumers, but likely bad for barbers.)

There are many other angles, including the question of job satisfaction and what status professions would look like if Blinder is correct, but that can be discussed another time.

What is Batman Really About?

Economics. Of course.

And Natasha was right: it was Batman Begins.

On stimulus

We have discussed two perspectives on the economic stimulus that began in earnest in 2009 and is now winding down.

One perspective is exemplified by Sally Platt, who noted that the stimulus did not work, but merely contributed to the deficit and was detrimental to the overall economy: "Let's be honest, the stimulus plan did nothing". Another perspective - less featured on our blogs thus far, but one that received several approving nods in the classroom - is that the stimulus was inadequate, not big enough.

It may not come as surprising that both Stiglitz and Krugman take on the second of these perspectives. Krugman has done so in many articles in the New York Times over the last two years, and Stiglitz on several instances as well. It should be noted that while both lean more Democratic than Republican, neither necessarily applauds the Obama administration on their execution of the stimulus, though both would be highly critical of Republican reactions.

More surprising, perhaps, is Martin Wolf, whose perspective on the stimulus would not have been a foregone conclusion. Here it is.

Thanks to Prof. Casey in the Econ department for noting this when he saw me carrying my Wolf book around after class.

Early Blog Awards

Only some of the blogs are functional yet, but as I get the URLs and links from you, I will update the list at right. Incidentally, here are the early nominees for blog awards:

Best Title (3 nominees):
"If the Ruby Slipper Fits", Stephanie Brandao Carvalho
"Gringa Economics", unnamed student
"See email later*", Morten Wendelbo

Most Ambitious Title (only 1 nominee):
"All Things International", Ben Ersing

Lamest Title (2 nominees):
Sorelle Peat, for "Sorelle Peat"
Tyler Dickovick, for "International Political Economy"

Best image in a post:
"Gringa Economics" for Castro hugging Chavez

Best post that is not actually a post to the best of my knowledge (1 kandydat):
Bądź pierwszą osobą! (Dominika Kruszewska)

* this is Morten's blog URL as listed on the sign-up sheet. I think it actually means "See email later", not "my blog title is 'See email later'". If so, I reserve the right to unnominate him.

Useful resources

In a previous post, I noted that the Euro crisis (or resolution of the crisis) is likely to be the issue that dominates much of the IPE news this year. That is, barring an economic crash in China or the U.S. that could conceivably emerge for other reasons. One of my hopes in designing the course is that we will be able to discuss these sorts of issues on an ongoing basis, working to figure out what is going on even as global political leaders and leading economists are trying to do the same.

Now, many of the most reputable books and most major academic articles are going to get published more slowly than current events move; this is the nature of how academic work gets reviewed. So we will have to look to other sources to keep up with this. As noted on the bottom of p. 1 of the syllabus, I think some of the best resources are the regional banks of the Federal Reserve. Just click on the map in the link to go to one of the 12 banks, and then look for their research or publications. For some reason, the St. Louis and Atlanta banks in particular seem to have a lot of material on IPE. You may have to do a bit of fishing, but there is a lot of good material that won't show up easily in a Google Scholar search.

Here's an example of a report on the causes of the Euro crisis. Don't consider it required reading by any means - it's a bit technical and probably a better read a few weeks from now. But if this type of issue is your thing, do know that there is more where this came from.

Another good resource is the International Monetary Fund, though their reports tend towards the highly technical. Not to mention their website construction has been lousy for years. You can do a search, or look at their publications page, scrolling down to look at "Working Papers" and "Economic Issues in full text".

These sites have papers that will be timelier than many academic journals, but more analytical than newspapers. They can be helpful for research going forward. You will have to pick and choose, but do consider looking at these sorts of institutions and at this sort of material.

Book List (running)

This is a non-exhaustive list of books on financial and economic crisis that you might choose to read and write about for Weeks 7 and 8 [reposted and updated from 2009].

Ahamed, Liaquat. Lords of Finance: The Bankers who Broke the World.

Akerlof, George & Robert Shiller. Animal Spirits.

Bagus, Philip. Tragedy of the Euro.

Bernanke, Ben. Essays on the Great Depression.

Cooper, George. The Origin of Financial Crises.

Eichengreen, Barry. Globalizing Capital: A History of the International Monetary System

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.

Lewis, Michael. Panic: The Story of Modern Financial Insanity.

Lynn, Matthew. Bust: Greece, The Euro, and the Sovereign Debt Crisis.

Marsh, David. The Euro: The Battle for the New Global Currency

Minsky, Hyman. Can 'It' Happen Again? Essays on Instability and Finance

Minsky, Hyman. Stabilizing an Unstable Economy.

Morris, Charles. The Two Trillion Dollar Meltdown.

Onaran, Yalman. Zombie Banks: How Broken Banks and Debtor Nations are Crippling the Global Economy

Reinhart, Carmen and Kenneth Rogoff. This Time is Different: Eight Centuries of Financial Folly.

Shiller, Robert. The Subprime Solution.

van Overtveldt, Johan. The End of the Euro: The Uneasy Future of the European Union

Wapshot, Nicholas. Keynes Hayek: The Clash that Defined Modern Economics

Wessel, David. In Fed We Trust: Ben Bernanke's War on the Great Panic.

Wolf, Martin. Fixing Global Finance.

Zandi, Mark. Financial Shock.

IPE 2012

One of the leading issues I will wish to address in the coming weeks and months will be the prospects for the survival or collapse of the Euro. This issue cuts across many of the themes we will be discussing, it is pressing and current, and it will have a huge impact on all of our futures (for reasons we can discuss).

As you think about your choices for selected books later in the semester, keep your eye out for any books coming out about the Euro, and we can talk about whether they would be good options.

This is an example of how IPE moves faster than a syllabus.

...and lest we miss it

The Daily Show also hits the Dubai crisis.

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!

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...

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 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.

"The key financial distortion in the world economy today..."

Niall Ferguson and Moritz Schularick on Chimerica.

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...

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.

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.

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.

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?

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.

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.

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...

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.

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!

Blast from the Past (Stiglitz 2005)

Note the following from Stiglitz, p. 254:

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:

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.

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.

Sir prize

Bringing together Jon's blog comments and the in-class debate.

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.)

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.

Throw more curveballs.

Trust them. Via a short article in The Economist.

Shamira has her answer

But surely they can do better than just the "What do YOU think?".

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.

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.

Have a look at the article. Before you get too excited, note one important caveat:

Shale gas is undoubtedly messy. Millions of gallons of water mixed with sand, hydrochloric acid and toxic chemicals are blasted at rocks...

Nor is it exactly green.

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.

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...

"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...

Do Cry for Me

Argentina (sigh...)

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.

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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...

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.

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.

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.

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...)

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.)

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.

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:

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...?)

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:

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.

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

Situation in Nigeria

Is complex.

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

DR-CAFTA & Ohio's 5th

Just want to remind you, as we think about the arguments in favor of free trade and against free trade, that we will have to keep our eye on the ball: Ohio's 5th district. Keep in mind that as we learn about DR-CAFTA, we should also remember what else we'll want to learn about... be resourceful, be resourceful, be resourceful...

DR-CAFTA subcommittee hearing, etc.

On Trey's DR-CAFTA post, I particularly recommend the subcommittee hearing to you all. Though I have not yet listened to the entire length of it (4 hours+), I encourage you to listen to the first 15 minutes or so. There is an introductory statement, with a bit of academic discussion of comparative advantage there (!)

Two opponents of CAFTA follow with "opening statements", then one proponent. In form (and in substance if you choose, and if appropriate to your position), you can think of these as models for what your opening statements might sound like tomorrow.

The other links on Trey's site are very helpful as well. Here also is the view of the Chamber of Commerce, here is the Agriculture Department's view on Ohio, and here is the AFL-CIO (the country's largest labor federation.

More to come.

Open thread on DR-CAFTA

Use the comments to make mention of issues related to DR-CAFTA.

America's Finest on the WTO

Straight outta Madison. Where else?

The Old Gray Lady demands tribute

So much for linking to NY Times Op-Ed columnists.

What would Ralph say...?

(Or better, yet, what would Homer say?
No good.... stupid... corporate ... non-free... media... Why you LITTLE...!)

Tom Brower, you won't have the New York Times to kick around anymore. At least not all of it.

"one atmosphere"

We closed out today with a discussion of Singer's ethical views that seemed to hint at some lingering tensions in his argument, and/or in your views of his argument. Since we never reached resolution, I just want to open up a forumhere where you can add comments if you want to think about this a bit more.

To raise again the key question that we did not resolve: are Singer's ethics correct? Another way of putting this is to ask whether his proposal (p. 43-49, but not the section beginning on p. 49 and after) is indeed fair. This would set aside for the moment any questions about the "practicality" of his proposal, both to simplify the issue and because he does the same in the way he structures the chapter.

Singer calls for everyone to have an "equal per capita share" of entitlement to use the atmospheric "sink". Straight up, let's ask ourselves: is it fair to give every individual on earth the same amount of "right to pollute"? Or should some people get more than others? We seem to get different answers to these two questions when we phrase the question differently.

Most seemed to agree that everyone should get the same allotment, or entitlement. (Of course we can disagree on how big or small that allotment is.) On the other hand, it seemed several people found something intrinsically unfair in the prospect of Americans, Canadians, Europeans, etc., being asked to either cut back on pollution disproportionately or prepare to pay out a bundle to non-polluters in poorer countries. These strike me not as two different issues, but as two sides of the same coin.

Let's examine the source of the unfairness. Is it unfair that a North American only gets the same "right to pollute" as someone from a country where there is little or no industry? (I have used Burkina Faso as the generic example here...). Or is it unfair to give a North American a different entitlement from an African? It seems we need to choose one of these options, but that we cannot have both.

It is certainly possible to disagree with Singer on his ethics -- and many seem to. Let's make sure, however, that we don't call his proposal fair on the one hand, and unfair on the other.

What is fair? WWYD?

As I may have misinterpreted people's reactions today, offer some comments here, if you will...

On the Environment

From the April 23rd edition of The Economist. A couple of articles on the cover story, which is about bringing the market to bear on an increasing number of environmental issues. The leader is here, while the longer cover story is here. These links will only work on campus, as the library has electronic access to The Economist via ProQuest.

Yuan to revalue, or not?

Others have picked up on this. Particularly interesting in this discussion of the valuation of the Chinese currency is the paragraph where one analyst says "Don't bite the hand that feeds you." Think about the logic there, and consider what the undervalued yuan has allowed the United States consumer to do for a very long time...

The Economist on Argentina: "Overdosed"

Here is an article from last week's Economist (mine tends to arrive in the mail a bit late...) on Argentina's current struggles with inflation. Since we contrasted the U.S. with Argentina briefly yesterday, this is worth a look. The article does a nice job, giving a quick overview of the links between inflation and monetary policy. Note in particular the following paragraph:

In a successful effort to resuscitate the economy after the collapse of 2002, the central bank pumped in money. It printed pesos to buy dollars, thus also boosting exports and import-competing local businesses by keeping the exchange rate undervalued. Conveniently, this allowed the government to impose export taxes to boost its revenues. These policies, together with non-payment of debt, engineered an impressive recovery: output is now almost back to its pre-collapse peak of 1998.

That may sound like a mouthful, but I suspect it is the kind of thing you can follow...

Also, they pick up on the fact that both monetary and fiscal policy are expansionary. See the following:

But the authorities carried on boosting demand for too long. In the three months to December, the monetary base rose from 47.5 billion pesos ($16 billion) to 52.5 billion pesos. The government joined in too: "discretionary" federal spending rose by 19% last year, while the government decreed wage increases for the private sector. [...] The inevitable result of more money chasing not many more goods has been price rises.

Don't cry for me...?

One more "fill in the blank"

See? This stuff's a can o'corn now... weak dollar, BMW complains. We'll talk about MNCs next week. (In the meantime, enjoy perspectives on globalization and the IMF from Mr. Nader and Professor Smitka.)

Combine BMW's lamentations with the news yesterday that the Fed raised interest rates, and you'll realize there's lots to think about out in that thar news. BMW might be glad to hear about the Fed's monetary policy, as this might strengthen demand for the dollar, right? This would make the dollar stronger, and BMW would be happy because... why again?

Unsolicited plug for The Economist

Several of you noted an article in The Economist on China, the U.S., and protectionism. I wanted to point out that in the same issue, there is a three-page spread on the hub of India's IT boom: the city of Bangalore (and the state of Karnataka).

The article nicely mixes the appeal of outsourcing and the constraints built into the process. You will probably all find something to agree with in the article -- those of you who find outsourcing a frightening prospect and those of you who are assuaged by its limitations alike.

As a general rule of thumb, flipping through a copy of The Economist (hard copy available in the reading room in Leyburn) is highly educational. The last few pages, for instance, have detailed data each month on economic variables such as exchange rates, interest rates, and trade deficits. Dry reading, perhaps, looking at the charts, but it does put many of our conversations in perspective. They are good about noting current rates vs. rates a year ago, and so on, so you can see how things have changed recently as well. For example, the $US on April 20th was worth only about 5/6 of what it was worth in 2000...

Just food for thought.

Lou Dobbs Tonight

You may recall I mentioned the CNN show Lou Dobbs Tonight in class the other day. The most prominent theme of the show is outsourcing, with a nightly segment called "Exporting America". You can see the site here.

There is even a quiz on how much you know about outsourcing! Go get 'em...

Incidentally, I have no comment about how I did on the quiz.