30 June, 2009

The American military budget (and I use the word "budget" loosely)

I teach American foreign policy, and every semester I run into the problem of trying to estimate how much money the government spends on the military. So I'm glad to see Mother Jones running a series on the budget. For a start, see what happens if you add other military expenses (like the Coast Guard role in the DHS, or the nuclear weapons facilities under the DoE, but not Veterans Affairs).

This doesn't include budgets for the intelligence community (other than those hidden within the DoD budget), so the total funding for "national security" is higher.

Shock and Audit: The Hidden Defense Budget | Mother Jones

A glass half full in Afghanistan

Bill Lind does his typical excellent job analyzing the policy changes initiated by General McChrystal in Afghahistan. My favorite: shifting the official measure of effectiveness from "number of militants killed" (i.e., body counts) to "the number of Afghans shielded from violence." It's harder to estimate, but at least it recognizes what success is supposed to be.

Lind proceeds to a review of many of the structural problems that stand in the way of being as effective (as possible) in Afghanistan.

In sum, General McChrystal faces a full plate. His most difficult challenges are internal, in the form of a flawed military instrument, inadequate doctrine, a neo-liberal Establishment drunk on COIN juju and strategic objectives no commander can attain. Internal challenges are often harder to overcome than those posed by the external opponent, because potential fixes run into the immovable object of court politics.

As an Army friend put it to me, until these and similar internal challenges can be met, our efforts in Afghanistan are like trying to get somewhere by riding faster on an exercise bicycle.

Faster, faster!

Defense and the National Interest » On War #309: Going Nowhere Fast

China has its own problems

A story by Ambrose Evans-Pritchard includes this warning from Fitch Ratings. Fitch is an international credit rating agency, as well as one of four Nationally Recognized Statistical Rating Organizations (NRSRO) (the big ones are Moody's and Standard & Poor's) designated by the U.S. Securities and Exchange Commission. Unlike the big two, Fitch warned the market on the constant proportion debt obligations (CPDO) with an early and pre-crisis report, and its reputation has grown accordingly.

China's banks are veering out of control. The half-reformed economy of the People's Republic cannot absorb the $1,000bn (£600bn) blitz of new lending issued since December.

Money is leaking instead into Shanghai's stock casino, or being used to keep bankrupt builders on life support. It is doing very little to help lift the world economy out of slump.

Fitch Ratings has been warning for some time that China's lenders are wading into dangerous waters, but its latest report is even grimmer than bears had suspected.

"With much of the world immersed in crisis, China appears to be one of the few countries where the financial system continues to function largely without a glitch, but Fitch is growing increasingly wary," it said.

"Future losses on stimulus could turn out to be larger than expected, and it is unclear what share the central and/or local governments ultimately will be willing or able to bear."

Note the phrase "able to bear". Fitch's "macro-prudential risk" indicator for China threatens to jump from category 1 (safe) to category 3 (Iceland, et al). This is a surprise to me but Michael Pettis from Beijing University says China's public debt may be as high as 50pc-70pc of GDP when "correctly counted".

The regime is so hellbent on meeting its growth target of 8pc that it has given banks an implicit guarantee for what Fitch calls a "massive lending spree".

Bank exposure to corporate debt has reached $4,200bn. It is rising at a 30pc rate, even as profits contract at a 35pc rate.

Fitch traces the 2009 bubble to the central bank's decision to cut interest on reserves to 0.72pc. Bankers responded to this "margin squeeze" by ramping up the volume of lending instead. Over half the new debt is short-term. Roll-over risk is rocketing. China's monetary stimulus since November is arguably more extreme than the post-Lehman printing of the US Federal Reserve, though less obvious to the untrained eye.

No need to panic, but keep watching.

China's banks are an accident waiting to happen to every one of us - Telegraph

29 June, 2009

The world is an interesting place

Don't believe me? Let's open the newspaper. South Korea and Japan have agreed, according to the South Korean president, that they "will never tolerate" a nuclear-armed North Korea. This, despite the historic animosity between Koreans and the Japanese. On the other hand, what are they going to do about it? They call for implementing current UN sanctions, and "the need to deepen cooperation with China."

Where to look next: China. There are reasons why China wants and needs a North Korean buffer on its border, but only if NK isn't falling apart internally.

The US general in charge in Iraq reports the American troops are out of the cities, and the al Maliki government has taken the responsibility for urban security. One problem: General Odierno spoke of turning over authority to the "Iraqi Federal Government." There is no federal government in Iraq. It has been proposed, but the US blocked it, relying instead on centralization under al Maliki. For his part, al Maliki referred to the end of the American "occupation" of Iraqi cities. That plays well to the Iraqis, but it's a bit of a slap to the US.

One more example of how you can press for control by force, but you can't make someone your friend. Gratitude has a very short half-life among States.

Khomeni and Akmedenijad have done a thorough job of putting loyalists in charge of the army. Opposition leaders are falling over themselves to support the regime. The unrest now moves to discussions at dining room tables, and the economy continues to decline.

The Honduran ouster of president Zelaya is being described as a coup. Yet it was in defense of the Honduran constitution, in keeping with a Supreme Court finding that an upcoming referendum to allow Zelaya to run for a third term was unconstitutional. Apparently a lot of officers found themselves dealing with cognitive dissonance. What is superior: the orders of the Commander-in-Chief, or the law? On balance, they chose to back the rule of law.

What would the American military do under similar circumstances? I hope we never have to find out.

27 June, 2009

Conservativism I could live with

Jonathan Rauch , in a review of a book by Allitt that's going on my wish list, examines the rise and decline of the conservative movement into today's "zombie party." And what's that?

We know what happens when movements or parties continue to stagger forward after running out of ideas: They become zombies. Zombie parties are a recurrent feature of electoral democracies. Unable to articulate any coherent or workable governing philosophy, they mindlessly jab at cultural hot buttons, mechanically repeat hardwired tropes ("cut taxes, cut taxes, cut taxes"), nurse tribal resentments, ostracize independent thinkers. Above all, they feel positively proud of their doggedness. You can’t talk them out of it. Think of the Republicans in the FDR years, the Democrats in the Reagan years, the British Labour Party in the Thatcher period, and the British Conservative Party in the Blair period. Think of Japan’s Liberal Democratic Party for most of the past half-century, or France’s Socialists today. To get a new brain, zombie parties usually need to spend years out of power or wait until a new generation rises to leadership.

The current Republican Party--and, I dare say, the Libertarians (the Party, not philosophy)--could get a shamble-on part in the next George Romero movie.

"The refusal of so many of my fellow conservatives in the United States to adapt their thinking to facts and realities does not demonstrate their adherence to principle," David Frum recently wrote in Canada’s National Post. "It demonstrates a frivolous indifference to the responsibilities of political leadership." But Frum will tell you that his admonitions fall on deaf ears. "These days," he writes, "the question I hear most from political comrades is: ‘What the hell happened to you?’ " There are smart, modern people in the Republican Party and the conservative movement. But the movement is in no mood to listen to them.

History looks a little different from this perspective. For example, the Civil War is " 'a conflict between two types of conservatism.' Southern conservatives fought to conserve the South’s distinctive society, its time-honored traditions; northern ones, to conserve an indivisible, democratic nation-state." In our era "conservatives," in all their variety, were only able to keep it together as long as they did because of the fear of communism and the papering over of real ideological rifts.

The paper's gotten too thin. Tax cuts aren't always the solution. The growth of government probably can't be reversed, because for the most part people want a big government--so long as it is doing the right things.

Some conservatives do have ideas: Bruce Bartlett champions the idea of a Value-Added Tax (VAT) because, as well as raising funds, it can get government out of the micromanagement-by-taxation system (with all its inequities, inefficiencies, lobbyists, and corruption). Charles Murray builds on Milton's Friedman's call for a negative income tax, suggesting that all federal government transfer programs be cashed out and replaced by direct checks for $10,000 to every non-incarcerated American over the age of 21. Call it socialism, as I'm sure some conservatives will. Call it a Guaranteed Annual Income. Call it a Social Dividend (as Robert Heinlein alluded to in several of his novels). Labels don't matter. Getting a foundation of support to everyone, as a benefit of citizenship, equally, gets government out of the business of managing lives and playing political games with people's survival. Would it be perfect? Hell, no. This is politics. But it's certainly worth a look. And maybe, when the Republicans (or the Libertarians) have been wandering in the desert long enough, they'll find the courage to consider it.

Conservatism: Attack of the Zombie Party

23 June, 2009

Is poverty a violation of human rights?

Wil Wilkinson, blogger and philosopher, has a long and interesting post on rights. In turn, it has generated a long and interesting discussion in the comments section. He starts with the question of whether or not poverty is a violation of a (positive) right, and the more he looks at the question the more complicated it becomes. Along the way, he makes some fascinating connections. Check out this concluding paragraph:

The idea that there is something natural and inevitable, and therefore nothing objectionable, about the status quo global system of exclusive states is I think one of the ultimate barriers to the spread of legitimate human rights and the prosperity that entails. I think current debates over economic development and global justice seem so fruitless because they take for granted a set of illegitimate assumptions of which we have attained only a flicker of awareness.

How he gets to this point deserves to be read in full.

Is Poverty a Violation of Human Rights?

19 June, 2009

Why global governance is not global government

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ACLU and Campaign for Liberty join against the TSA

Good news. When we get past the partisanship and bloviating, there are good people across "the political spectrum" (a stupid metaphor these days) who are learning they have a lot in common.

Raw Story » ACLU, Ron Paul’s Campaign for Liberty sue TSA over ‘illegal’ detention

Here's a report to read

A pretty good short review of some of what might be coming down the road. Best of all, the authors don't describe a single "future" but point out some of the directions current trends might take us.

Foreign Policy: The Next Big Thing

Here's a report to avoid

The usual suspects make the usual arguments to reach the usual conclusions.

Strategic Failure: Congressional Strategic Posture Commission Report » FAS Strategic Security Blog

15 June, 2009

Medical care and the AMA

When insurance companies lobby and buy advertising, the general assumption is that they are doing so in their own interest. There may be a public interest as well, but its a secondary motive (at best) for the corporation. When a union supports a candidate with money and volunteers, we can also assume it is doing so in its own interest. While there may be a public interest, it is not the motive for the union's action. When a trade organization, like the National Association for Manufacturers, lobbies and buy advertising, it's most like that they are doing so in their own interest. The public interest, if any, is secondary.

And then there's the American Medical Association. The AMA is a trade association. Even among doctors it represents only a fraction of the population. According to Carol Paris, M.D., the AMA represents less than a third of American doctors. Of those it represents, half are retired.

When the AMA speaks for "America's doctors," it is--like any other lobbying group--looking out for its own interests. At best, those interests correspond to a fraction of the population of doctors. At worst, it's just looking out for itself. If (and I admit it's an ENORMOUS if) a single-payer system, or anything else, could significantly improve patient care at less cost, the AMA and its members would be the losers.

Whenever someone says they speak for "the doctors," or "the lawyers," or "the workers," or the businessmen," or "the students," ask for names, check identifications, and figure out who really benefits or loses, and by how much.

Electoral fraud in Iran?

Juan Cole makes a good case for it. At the very least, the numbers point to irregularities. Follow the comments for a range of opinions, as well as for what appears to be commentary from inside the country. Even if the election wasn't stolen, there seem to be a lot of Iranians who think it was--and that's what counts.

This could be the beginning of the fragmentation of the elite predicted by Bruce Bueno do Mesquita's models at the start of the year. From his TED talk:


Informed Comment: Stealing the Iranian Election

Time to run?

A post from Lila Rajiva's excellent blog, as well as an article on LewRockwell.com, articulates something that has been making more and more sense to me. Perhaps it's just that I'm tired--perhaps a little bit depressed--but she's asking a critical question. Whatever the answer, it's time to think about it, and what it implies.

“Is it time to run?

That’s what I’ve been asking myself for three years now.

Before that, I thought it was simply a matter of finding a better place to live. A place that was quieter and cheaper. Where flippers and developers hadn’t taken over the neighborhood. Somewhere safe I could park my car on the street and not worry about it.

But by the time I found it, I also found that the thieves were inside the house, not on the street. There’s really no hiding from them. And no hiding from what they can do.
Our mene, mene, tekel upharsin is on the wall.

It’s time to run, not hide.
I mean that. We’re in the throes of an economic collapse of a kind last seen in the 1930s. The government is intent on grabbing control of whatever it can. American firms are dropping like flies. Unemployment is soaring. Debt is soaring. The money supply is soaring. Our foreign policy is a wreck – we have more enemies than we can count. We have a drug war on the borders, we have gang war in the ghettos, we have culture wars in the academy and media.

We have criminals in government.
The future isn’t any brighter. Subprime is only the first leg down. We still have a second wave of housing trouble in store, centering around commercial real estate and option ARM loans.

Gerald Celente, the CEO of Trends Research, wrote a piece last year predicting that by 2012 there would be food riots, tax rebellion, and revolution across the country. Celente has a good track record in the forecasting business.

Experts predict a 100% rise in prices across the board. In the best-case scenario, it will happen over ten years. In the worst case, it might happen within months….”

It's an integrated global system. In a lot of ways there may not be any practical places to run to (and now I know my thinking is depressed--it's time to pull back and work through it). However, some places will be better off than others. And a point she makes in a later post drives home the difference between practical and formal liberties:

The rest of the world has its own problems, true. Some of them are grave. But it's here in the US that activism is most sidetracked by partisan politics, insularity, grandstanding, and politically correct insanity. Really and truly, there are few countries in the world outside totalitarian regimes that are as conformist, pervasively and fundamentally, as this country.

I'd rather live under a benign despot that left me to my own devices from day to day, than in a democracy where I'm spied on and manipulated constantly. I may have theoretical rights, but much good they'll do for me if they're strangled at birth by spies, PR flacks, and thought-police.

Meanwhile, half these so-called rights don't exist any more, even in theory. A government that monkeys around with habeas corpus, privacy, bankruptcy procedure, eminent domain, and contracts is signaling loud and clear that it has no respect for the rule of law. It's telling you as plainly as it can that it's arbitrary. It's telling you that it's a mass state and not a constitutional republic. It's telling you that it's on the auction block.

Which part of all that hasn't got through to you yet?

Maybe like she's a little depressed, too. Or angry. But she's right to remind us that "America" is not a particular location, irregardless of what happens there. America is about an ideal. It is possible to be an "American" and never touch the soil of the United States. It's also possible to wrap oneself in the flag of the United States and be "American" in name only.

The good news is that the distinction between "America" the place and "America" the ideal makes it more likely that the America that matters will remain resilient at home and attractive to the rest of the world. This is a place where there's a tradition of distinguishing between the country and the State, and where the nation isn't a matter of blood but of vision. Although we can't (and shouldn't) impose an empire on the world, the spread of the ideal--voluntarily, the only way it can be done that is consistent with the ideal--could create something like the "empire of liberty" envisioned by Jefferson. A world that squares the circle by being both "global" and (increasingly) "liberal". To some extent Obama is playing to this in his attempts to accept criticism for the past and pledge to do better, and it seem to be working to remind people of the ideal. On the other hand, the actual policies aren't changing as much as the rhetoric.

Time to Run | LILA RAJIVA: The Mind-Body Politic

12 June, 2009

Geopolitics and economics

Peter Zeihan of STRATFOR published a long essay on the natural advantages accruing to the United States, vis-a-vis any competitor. Either by dumb luck, or act of God (take your pick) the US has more usable land than anyone (for farming, or for other development), plus the bonus of an world's largest interconnected river system to provide cheap transportation, and three of the world's best natural harbors.

Map: North American agricultural regions

The real beauty is that the two overlap with near perfect symmetry. The Intercoastal Waterway and most of the bays link up with agricultural regions and their own local river systems (such as the series of rivers that descend from the Appalachians to the East Coast), while the Greater Mississippi river network is the circulatory system of the Midwest. Even without the addition of canals, it is possible for ships to reach nearly any part of the Midwest from nearly any part of the Gulf or East coasts. The result is not just a massive ability to grow a massive amount of crops — and not just the ability to easily and cheaply move the crops to local, regional and global markets — but also the ability to use that same transport network for any other economic purpose without having to worry about food supplies.

The implications of such a confluence are deep and sustained. Where most countries need to scrape together capital to build roads and rail to establish the very foundation of an economy, transport capability, geography granted the United States a near-perfect system at no cost. That frees up U.S. capital for other pursuits and almost condemns the United States to be capital-rich. Any additional infrastructure the United States constructs is icing on the cake. (The cake itself is free — and, incidentally, the United States had so much free capital that it was able to go on to build one of the best road-and-rail networks anyway, resulting in even greater economic advantages over competitors.)

Mexico and Canada have nothing approaching it. Until the US became regularly involved (and stationed) around the world, there was little need to guard the border, and no need for a large standing military. Capital could stay in private hands, invested in production.

Even with speculative bubbles, the US has managed to do pretty well--especially when compared to Russia and China.

Map: Russia

Russia’s labor and capital resources are woefully inadequate to overcome the state’s needs and vulnerabilities, which are legion. These endemic problems force Russia toward central planning; the full harnessing of all economic resources available is required if Russia is to achieve even a modicum of security and stability. One of the many results of this is severe economic inefficiency and a general dearth of an internal consumer market. Because capital and other resources can be flung forcefully at problems, however, active management can achieve specific national goals more readily than a hands-off, American-style model. This often gives the impression of significant progress in areas the Kremlin chooses to highlight.

But such achievements are largely limited to wherever the state happens to be directing its attention. In all other sectors, the lack of attention results in atrophy or criminalization. This is particularly true in modern Russia, where the ruling elite comprises just a handful of people, starkly limiting the amount of planning and oversight possible. And unless management is perfect in perception and execution, any mistakes are quickly magnified into national catastrophes. It is therefore no surprise to STRATFOR that the Russian economy has now fallen the furthest of any major economy during the current recession.

And then there is China: Three long rivers, no connection between then, and no port at the mouth of the Yellow.

China River System

With geography complicating northern rule and supporting southern economic independence, Beijing’s age-old problem has been trying to keep China in one piece. Beijing has to underwrite massive (and expensive) development programs to stitch the country together with a common infrastructure, the most visible of which is the Grand Canal that links the Yellow and Yangtze rivers. The cost of such linkages instantly guarantees that while China may have a shot at being unified, it will always be capital-poor.

Beijing also has to provide its autonomy-minded regions with an economic incentive to remain part of Greater China, and “simple” infrastructure will not cut it. Modern China has turned to a state-centered finance model for this. Under the model, all of the scarce capital that is available is funneled to the state, which divvies it out via a handful of large state banks. These state banks then grant loans to various firms and local governments at below the cost of raising the capital. This provides a powerful economic stimulus that achieves maximum employment and growth — think of what you could do with a near-endless supply of loans at below 0 percent interest — but comes at the cost of encouraging projects that are loss-making, as no one is ever called to account for failures. (They can just get a new loan.) The resultant growth is rapid, but it is also unsustainable. It is no wonder, then, that the central government has chosen to keep its $2 trillion of currency reserves in dollar-based assets; the rate of return is greater, the value holds over a long period, and Beijing doesn’t have to worry about the United States seceding.

Meanwhile, Europe still can't get it's act together. Zeihan even claims that diversity of economic policies in Europe can be linked to geography.

Every part of Europe has a radically different geography than the other parts, and thus the economic models the Europeans have adopted have little in common. The United Kingdom, with few immediate security threats and decent rivers and ports, has an almost American-style laissez-faire system. France, with three unconnected rivers lying wholly in its own territory, is a somewhat self-contained world, making economic nationalism its credo. Not only do the rivers in Germany not connect, but Berlin has to share them with other states. The Jutland Peninsula interrupts the coastline of Germany, which finds its sea access limited by the Danes, the Swedes and the British. Germany must plan in great detail to maximize its resource use to build an infrastructure that can compensate for its geographic deficiencies and link together its good — but disparate — geographic blessings. The result is a state that somewhat favors free enterprise, but within the limits framed by national needs.

One-factor explanations are a little too perfect. If Charles Martel had not defeated the Muslim invasion, would France really be the same today? Rome managed to fall, despite having the same geography as during its rise. Today, a country that really wants to screw itself up--through military overcommitment, financial stupidity, or corruption--can overcome geographic advantages. I'm not naming anyone in particular, of course...

(I hope I haven't quoted too much of the original essay to constitute fair-use. If I have, please notify me and I will take it down.)

Don't forget Mongolia

It's a shame that the success stories don't get the press. Mongolia is one of the success stories, and neglect of what's been going on there is anything but benign. A recent essay from ISN brings us up to speed:

Mongolia has emerged in less than two decades as a vibrant, if not complicated, democracy, and stands worthy of enhanced United States and international attention and support. With its rich cultural and historical legacy, literate population and abundant natural resources, Mongolia has achieved steady economic growth and stands as a model of reform to North Korea to the east and the autocratic Stans to the west. Mongolia also is wedged strategically between a resurgent Russia and a rising China and borders a burgeoning Northeast Asia, the world’s economic powerhouse, and an expanding and, post 9/11, strategically viable Central Asia.

In its own right, Mongolia offers the international community a view of how a successful, relatively young democracy should appear. Compared to many other nations, Mongolia has progressed remarkably well. Yet too, its fragility in consolidation, highlighted by a need for governmental capacity, institutional and media reinforcement, reminds us of the responsibility of the United States and international community to better assist Mongolia and advance it on a path it deserves high praise for pursuing.

Mongolia is an outstanding global citizen. It led the newly emerging and restored democracies effort early in the decade, hosted United Nations dialogue on human security, supported international peacekeeping efforts, sited a major regional peacekeeping initiative, and offered itself as a venue for talks on easing tensions on the Korean peninsula, notable given its good relations with both North and South Korea. Foreign Minister Batbold in Washington has emphasized this week opportunities aimed at energy and economic cooperation, as well as on Korea.


...for all the fears of democratic rollback in Russia, Central Asia and elsewhere in post-socialist systems, Mongolians have embraced choice; an active, vocal, and sensible civil society has emerged, and Mongolians value choice.

Mongolia too is increasingly active in the regional and global economies and is increasingly interconnected. Internet cafes abound, and urban cable boasts connectivity to multiple channels in some dozen countries. With a young, literate and polyglot population, Mongolia sometimes feels less like a Northeast Asian outpost and more like the Netherlands, Belgium or a Chinese or Korean small city.

In spite of these pluses, Americans have been less than steady investors. Post-transition, Mongolians expected heady US investment, but Russia, China, the European Union, Japan and Korea are more dominant investors in Mongolia. It is time to open necessary doors to stimulate the Mongolian-US economic relationship.

This week, Foreign Minister Batbold had the unfortunate task in Washington of informing US Secretary of State Clinton that Mongolia would need to re-direct $188 million in U.S. infrastructure development aid aimed at rail improvement -- part of the $285 million Millennium Challenge grant awarded in 2007 -- given Russian objections. Russia has a fifty percent stake in the railway.

This should concern Americans, as Mongolia finds itself more vulnerable to the influence associated with foreign moneys, especially from Russia and China, which jockey to secure preferential controls in vital extractive industries and within joint ventures. Mongolia struggles with these trade-offs, and to this end the United States and its foreign business community could do well by assisting Mongolia in its strategic diversification

We should remember this as Mongolia continues on its democratic path and swears in President Ts Elbegdorj, who studied at Harvard’s John F Kennedy School of Government. President Elbegdorj rides into office on an Obama-like pledge to provide Mongolians change they can believe in and grow their living standards. Remarkable too was the quick concession of his opponent, President N. Enkhbayar, who realized that not doing so might result in political violence like that that flared in July 2008. This week, Enkhbayar pardoned women and youth embroiled in last summer’s unusual violence. Both sides deserve credit for this smooth transition of democratic power.

There are natural limits to what the US can do. The geographic facts are working against the Mongolians, as they balance two major powers on their borders with expansionist tendencies and a history of dominating their lives. Yet the Mongolian students I've met (not a random sample, I admit) have been among the most intelligent and caring and sensible people I've ever known. They deserve every break they can get.

Mongolia: Successful but Fragile / ISN

Cycles and reforms

There's a very good discussion at The Baseline Scenerio (an all-around source for thought on the financial crisis). The short form: the US has done as well as it has because of the rule of law, but this has been undermined on more than one occasion by corruption and the concentration of power. Although there can still be "banana booms" (I love that term--comparing the current structure to banana republics), they aren't sustainable. These problems have led to course corrections in the past (under Johnson, TR, and FDR), but it isn't easy, and the reform period has averaged five to ten years. If it can't be fixed, we are doomed to a cycle of "oligarchy-boom-bust-oligarchy".

Global Crisis And Reform: Starting A Long Journey « The Baseline Scenario

10 June, 2009

Somalia is anarchy

Recommended reading: A correspondent in Mogadishu describes what it is like to live in a place that's been without a functioning State for 20 years. On the one hand, it looks like hell. On another, it's fascinating to see how people have done as much as they have to make it work.

Somalia: one week in hell – inside the city the world forgot | World news | The Guardian

09 June, 2009

CFR panel on the global consequences of the financial crisis

Is it good news for the US? A May 12th panel discussion included several scenerios, but in general it was optimistic. From Joe Nye:

To what extent has this crisis changed our views of what will be the relationship between the major powers in 10 to 20 years time? And when it first broke, the conventional wisdom -- Steinbrueck, the German finance minister, said this is the end of American dominance. Putin -- not Putin, Medvedev followed suit. Even my friend Michael Ignatieff, who's going, we hope, to become prime minister of Canada, said now that American power has reached high noon, Canada should be adjusting its policies elsewhere.

I think all this is wrong-headed. It's a big mistake to draw long-term conclusions from short run -- I mean, right now, you just project a linear projection of where we are, it looks bad. In fact, even those short-run -- or those predictions that were made at the beginning of the crisis have already been falsified. Decoupling -- remember decoupling?


NYE: Well, that got knocked on the head. The crisis was supposed to be the crisis of the dollar. Well, what happened to the dollar? Up, not down.

And then you say, yes, but China's doing well -- 6 percent growth this year -- America, not. We're somewhere in the negatives -- 3 percent, let's say, negative. But, you know, what's interesting is the decline of China's growth rate from 10 percent to 6 percent is greater than the decline of our growth rate. And that means the time when China would catch up with the United States in overall economic size doesn't get closer; it gets further out. I mean, Goldman Sachs's famous 2040 when they catch up, then they shortened it to 2027 -- well, you know what? It's going back to 2040.

On the other hand, Phil Zelikow does a very good job of reminding people that structurally, it's not possible to keep everyone happy, and a lot of people aren't.

The basic international political economy that we're revisiting today was forged in the late 1970s and early 1980s. And I want to remind some of you who took economics of the famous Mundell-Fleming impossibility theorem. The Mundell-Fleming impossibility theorem, for which Robert Mundell, a Canadian economist, won a Nobel Prize, stated that there are three desirable things you might want to have. You might want to have capital mobility, free movement of capital. You might want to have stable exchange rates. And you might want to have national autonomy in controlling your monetary policy, basically national economic autonomy. Those are three desirable things. Mundell argued you can never have all three of those things. You can only have two of those three things; pick which two you want.

The Bretton Woods system was liberal in many ways, on trade, especially. It was not a liberal system for capital mobility. Capital mobility was government-brokered and highly limited. This began to erode in the 1960s, and it was a system beset by constant crises, the -- no need to go into details. And therefore -- because what had happened is they resolved Mundell's theorem by saying, "We're going to sacrifice capital mobility to have stable exchange rates and national autonomy, because we're going to use national Keynesianism, and we want to have the freedom to do that." And then that system broke down and collapsed in the early 1970s.

What replaced it? What replaced it was a new solution to the Mundell theorem in which you sacrifice national autonomy to a very large degree. You get more stable exchange rates -- somewhat stable exchange rates and a high degree of capital mobility. That -- there were big crises that tested the formulation of that, bracketed by -- from the British IMF crisis of 1976 to the Third World debt crisis and Mitterrand's famous u-turn of 1982. Now, that is important.

The question is, today, are we going to revisit that solution to the Mundell theorem? And the place where it is most likely to be revisited is not the United States, nor in East Asia, which relies on capital mobility. It is in Europe. It is in Europe where, actually, it was tested most severely in the late '70s and Mitterrand's France, and it is in Europe where it may be tested again. Mitterrand made the u-turn in 1982 after he tried a national Keynesian approach. He was broken, basically, by the Germans and the European monetary system, by the way, who had also disciplined the Americans during the Carter administration. And finally the Americans gave in and appointed Paul Volcker in 1979 after they had bucked against Europe, for those of you who think the Americans always make the rules. The Germans really had been the anchor throughout, partly because of their continuing coalitions that always had the Free Democrats as a critical partner playing a governing role in their economic policy.

Now, the Germans are still actually the anchor in the way Europe has been approaching it and -- (inaudible) -- hard-money policy Europe has generally been adopting lately. That's being tested right now in Germany and in European politics. Not only are there the East European problems, which have gotten some attention. In some ways, I'm more worried about Southern Europe over the -- over the near term. But look at what's happening in German politics, per se. Oskar Lafontaine and others are now joining hands with some of the old former East German communists and they're making a square assault on the whole fundamental premises of the social market economy that has governed the German economy for the last generation. They're going after the Mundell theorem.

If and when Germany cracks, where is France? Then where is Europe? And where is the system as a whole?

The other key, everyone seems to agree, is whether China will grow its internal market to the point that some dollars are flowing out, rather than just in. This is seen as being a "responsible stakeholder" and a necessity for a country that has no alternatives to holding dollars. I'm not so sanguine about it.

The Global Consequences of the Crisis, Session One in the Stephen C. Freidheim Symposium on Global Economics on Financial Turbulence and U.S. Power

04 June, 2009

Comparing Argentina and the US

The Financial Times has a fun little piece on the relative successes and failures of the United States and Argentina in the first wave of globalization, and how they still resonate. Here's a taste:

Both countries opened up the west, the US to the Pacific and the Argentines to the Andes, but not in the same way. America favoured squatters: Argentina backed landlords. Short of cash, Buenos Aires found the best way to encourage settlers was to sell in advance large plots in areas yet to be seized from the native Americans. But once the battles were won the victors were exhausted, good farm labourers in short supply and the distances from the eastern seaboard to the frontier vast. Most of the new landowners simply encircled wide tracts of grassland with barbed-wire fences and turned them over to pasture.

Thus was privilege reinforced. European emigrants to Argentina had escaped a landowning aristocracy, only to recreate it in the New World. The similarities were more than superficial. In the 1860s and 1870s, the landowners regarded rural life and the actual practice of agriculture with disdain. Many lived refined, deracinated lives in the cities, spending their time immersed in European literature and music. The closest they came to celebrating country life was elevating polo, an aristocratised version of a rural pursuit, to a symbol of Argentine athletic elegance. Even then it took an elite form: the famous Jockey Club of Buenos Aires. By the end of the 19th century some were sending their sons to Eton.

America’s move westwards was more democratic. The government encouraged a system of smaller family holdings. Even when it did sell off large tracts of land, the potential for a powerful landowning class to emerge was limited. Squatters who seized family-sized patches of soil had their claims acknowledged. US cattle ranchers did not spend much time boning up on the entrance requirements of elite English schools. And as well as raising cattle, the western settlers grew wheat and corn. By the 1850s, the US was importing a quarter of a million immigrants a year.

Immigrants came to Argentina as well, but they came later and with fewer skills – largely low-skilled Italians and Irish. In 1914, a third of Argentina’s population was still illiterate. America imported the special forces of British agriculture, and in addition a large number of literate, skilled workers in cloth and other manufactures. Meanwhile, Argentina had more land than it could efficiently work. But it was well into the 20th century before the rot in the foundations was apparent.

Piracy: buisness is booming

The BBC has a fascinating description of the business practices, from planning and investment to ransom and distribution of profits, for a recent act of piracy.  One more example of how the only difference between MNCs and transnational organized crime is the existence and enforcement of legal sanctions.

Is mind reducible to brain states?

A perennial problem for philosophers, psychologists, and neuro-physiologists.  The confusion of terminology--of epistomology, of ontology--is clear in this article (and commentary) in OpenDemocracy.  The measurable observation that triggers the debate is a variation on the Ultimatum game.  Essentially, how willing subjects are to accept unfair offers can be "adjusted" by non-invasive transcranial electromagnetic stimulation.

In other words, your sense of an acceptable (moral?) distribution can be tuned.

Of course, the same thing can be done with drugs, or surgery, or a few too many beers.  But the means in this case seem more threatening to those who believe that meaning and morality are objective, independent of the observer.  It's Plato versus Aristotle, again.

Plato bothers me, if only because of the horrors (including The Republic) it has engendered. To be convinced that one knows (or can know) absolute "truth" has had a tendency to lead to practical harm.  

But we're still running in circles.  That's what happens with self-referential systems.  I can't prove that your "meanings" are the same as mine, even if we use the same terminology.  Heck, I can't even prove that you have a "mind".  Brain states, yes.  "Mind," outside of my direct experience (which I can't entirely define for myself), not so much.

In any case, it's a problem (even if it is primarily a problem of terminology) that I find hard to drop.  I guess I like looking in a mirror.  And it gets more and more difficult to ignore as we develop Nano-Bio-Bio-Cognito technologies.