Fire Sale USA or the Desperate States of America

♠ Posted by Emmanuel in Americana,Cheneynomics at 5/16/2011 12:01:00 AM

Here's a very pertinent news article I almost forgot to post about. Imagine America as one big pawnshop and you wouldn't be far off as federal, state, municipal, household and individual entities are in various states of distress. In particular, what's an increasingly desperate collection of United States (in debt) to do but hock the family jewels? It's the same strategy for households on the brink of bankruptcy or an equally sorry collection of states whose finances are very nearly beyond salvation. In North Carolina, for example, some observers believe that the state intends to mostly do away with providing K-12 education altogether. Maybe it's time to sign up to the NC Hope Coalition for those being affected.

A few weeks ago, we had LSE IDEAS' very own Niall Ferguson write about how selling off the good bits of America can be a measure to help raise American revenue. Given that all American states except Vermont have some sort of balanced budget law, recent hard times have been accompanied by Greece-inspired fudges and kludges. Like with all Cheneynomic commentary, the numbers just don't add up for these states. No matter; eventually, the stench of US fiscal decay escapes and the odour ain't pleasant. So, aside from slashing services left, right and centre--taxes are still a bit more difficult to push through with the American electorate--what is this motley collection of states to do? You got it--Fire Sale of the States is well underway:

The Great Government Tag Sale is on. As states and cities struggle with billions of dollars in shortfalls, elected officials are increasingly selling public assets to cover their costs. Sometimes municipalities sell the buildings to pocket a one-time pile of cash and then lease them back so they can continue to use them.

To proponents, selling government property is an efficient way to plug budget holes. That's one reason the Obama administration has looked at unloading office towers, courthouses, warehouses and shacks. Private owners who develop the properties can inject vibrancy into municipal dead zones, the thinking goes. Buildings that were once exempt from property taxes are put back on the rolls.

But to critics, these sales are as misguided as pulling money out of your house to pay your bills. They point out that the government is letting go of a long-term, valuable asset in exchange for a one-time payment. When the asset is a building, a municipality then has to spend more money on leasing it back or renting another facility...

There is no alternative? Well, it's pretty close:

Years of wishful budgeting and fiscal gimmickry have finally caught up. The states' "ridiculous" budget and pension accounting would "make Enron blush," as Microsoft founder Bill Gates recently put it. For fiscal 2012, states face a $125 billion shortfall, according to the Center for Budget and Policy Priorities.

Elected leaders have already raided road-repair budgets and borrowed from emergency-service coffers. They've nabbed citizens' unclaimed checking account cash and sold future proceeds from lotteries. Detroit and Omaha just reduced the pensions of the police. Now that other options have been exhausted, officials say that to avoid mammoth tax hikes — or any tax hikes, in some cases — they have no choice but to sell municipal assets.

Also see the informative TIME "Broken States of America" piece detailing this lot's sorry fate. The downside of these one-off sales is precisely that they can be only done once. So the stock of saleable assets will only keep dwindling unless some major turnaround in state finances occurs. Don't count on it, however.

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To Understand Europe, Watch Eurovision (Dammit)

♠ Posted by Emmanuel in Entertainment,Europe at 5/15/2011 03:01:00 PM

[OK, so it may be more difficult for those in Asia, the Middle East, and the Americas to watch this programme on broadcast TV, but you can certainly watch the videos online. Relive when Finnish Klingons won with their rendition of "Hard Rock Hallelujah."]

Even for Europe's boosters, creating a European identity has proven to be a difficult task. Just what is it that defines being part of Europe? Judeo-Christian heritage probably would have counted sometime ago, but Europe is becoming famously secular. Nor is it, sadly for Europhiles, the European Union. Aside from not incorporating all the countries in the region, there remain ardent Eurosceptics in several member countries who threaten to undermine the entire project. For the sporting-minded, you can't say that it's football given that certain powers dominate the competition year in and year out in Champions League and the Euro football tournament.

From a democratic standpoint, there are certain things we'd like to see in a gathering that truly represents Europe. Aside from allowing all comers in, a majority of them actually having chances at winning the grand prize would help. Maybe to contrast the seemingly distant and stereotypical "bureaucrats from Brussels," we'd also like a genuine sense of participation from the citizens of the continent. And to top things off, how about having a large audience (turnout) when this gathering comes around?

If you put together all the desirables in the last paragraph, the closest we come to European popular appeal that brings the continent together is the Eurovision Song Contest. In the past, it's been a hit-and-miss affair if you're interested in slick entertainment. While daft outfits and dodgy performances have been staples of previous competitions, this year's event seemed solidly produced. Believe it or not, nations put much time and effort in grooming contestants for the top prize. Football bragging rights are hard to come by; Eurovision champions less so. Moreover, its pulling power shames elections for members of European parliament as fans watch the show and phone in their votes in droves.

Academics have taken notice of the significance of Eurovision, too. It has been the subject of serious academic research with its own network of researchers. For instance, given that fans and judges cannot vote for performers from their own countries, it's always been interesting how cultural similarity and geographical proximity account for results. There are even pretty extensive Wikipedia entries on Eurovision voting patterns. Among observable voting blocs are those for former Soviet satellites. Consider, for instance, Russia:

Anyway, Americans are usually not keen observers of Eurovision for the obvious reasons that (a) they don't participate and (b) the event receives scant media coverage stateside. However, the New York Times has just come out with a pretty good article on the event. As many commentators including myself have now done, what lessons are there from Eurovision that can be transferred to the project of European integration?

Eurovision, a Continental battle of the bands that has been building to a climax this week with live televised semifinals, is often dismissed as tacky, politicized and rarely capable of producing durable stars. Yet this wildly popular song contest may also be just the thing that Europe needs right now.

Since 1956, Eurovision has been one of the few cultural institutions that bind citizens of Europe together, proponents say, an urgently needed common denominator at a time when European solidarity is under strain. If the past is any guide, the finale on Saturday will draw well over 100 million viewers.

“Critics claim that the European Union lacks legitimacy because people don’t identify with it,” said Milija Gluhovic, an assistant professor of theater at Warwick University in Britain, and a scholar of Eurovision. (Yes, there is such a thing as a scholar of Eurovision.) “There is something to be said for the ways in which the contest may be engendering a way of identifying with this larger supra-nation, Europe.” Professor Gluhovic is among a growing number of scholars treating Eurovision as a subject for research. “There are not too many events doing this kind of cultural work,” he said.

What's nice is its inclusiveness. Especially after the fall of the Berlin Wall, Eastern Europeans have taken to the event like fish to water. What's more, as someone keen on Turkey joining the EU, the inclusion of any number of nearby countries (especially Turkey) is welcome:

Europe, as defined by Eurovision, extends as far west as Iceland, as far south as Israel and as far east as Azerbaijan. Yet, in what could be a reflection of the mood of austerity and fiscal gloom hanging over Europe, some connoisseurs of the event have detected an unsettling trend in this year’s entries.

The campiness that has won the event a global cult following — especially among some gay people, researchers say — seems muted this year. The Eastern European countries, which normally set the standard for bizarre combinations of folk culture and Vegas glitter, are going easy on the sequins...

And there is of course, the notion of good neighbourliness that pervades despite occasional real-life skirmishes:

To be sure, the contest has some elements that seem typical of politics in the European Union, widely criticized for its byzantine decision-making process that produces mediocre results. The winner of Eurovision is chosen by a combination of professional jurors and telephone voting by viewers. Jurors and viewers cannot vote for their own countries, so they tend instead to choose their neighbors.

That has led to charges of collusion, as when Serbia won in 2007 with help from Bosnia and Herzegovina and Croatia. But Mr. Gluhovic, who is from Sarajevo, said voting patterns reflected cultural similarities rather than deliberate manipulation. “You had the Balkan wars in the ’90s, former Yugoslavia in flames, but then after fighting each other, these nations gave each other big scores,” he said. “When I saw that, I was really moved.”

Tonight millions of European households will have watched this year's finals--and many would have bought the CD too. Look past all the vocal contortions and glittering sequins. Intelligent observers will spend time seeking clues as to how Eurovision holds lessons for the more specific project of European integration.
---------------------------------

From the clip above, you can probably infer that my favourite is the gospel-tinged entry from Austria, Nadine Beiler. She has powerful "pop diva" pipes from the Whitney Houston / Mariah Carey template. Plus, the song she composed is really very well constructed, going from an acapella performance to power ballad territory. This is, after all, a talent competition.

We all are dreamers on our way
In a world where we´re not meant to stay...

BTW: Others that floated my boat were Estonia's Bjork-esque Getter Jaani and Georgia's pop-rock Eldrine. But in the end, oil-rich Azerbaijan won the competition this year via Ell & Nikki. With all those oil revenues, they can certainly afford to host next year's event even in austerity-hit Europe as is the privilege of the winning contestant's home country. Alike Lena from Germany who won last year, it certainly wasn't to my taste in being too so-so, but de gustibus non est disputandum. See you next year in Baku.

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Repairing the Adulterated IMF Post-Strauss-Kahn

♠ Posted by Emmanuel in Bretton Woods Twins,IMF,Neoliberalism at 5/15/2011 02:02:00 PM

I wonder what our colleagues at the Bretton Woods Project would make of this. Before going to sleep last night, I caught news that IMF Managing Director Dominique Strauss-Kahn was held in New York en route to France on attempted rape charges [1, 2]. Having written about the big kahuna's peccadilloes before, this latest episode will probably surprise Americans more than those of us in Europe who've become accustomed to these sorts of allegations against DSK. Yet, alike with the Monica Lewinsky allegations, the magnitude of these claims invites initial disbelief. This news story has even topped Yahoo! News. When the IMF only receives popular coverage when an event like this happens, you know that it has a problem with getting the public to understand what it does as well as with the kind of attention it receives. Pick your news outlet of choice: it may be a slow weekend, but DSK is front-page on nearly every one.

Much comment has already been made about the incident. While innocent until proven guilty is the operating principle, you can certainly argue that this incident has damaged DSK's credibility mortally. There are of course many implications here:

1. His chances of being the Socialist Party standard-bearer for next year's French election against the UMP's Nicolas Sarkozy are now nugatory. Various polls have claimed that he led Sarkozy at various points in the run-up to 2012. Though he probably did not foresee the extent of it, offering DSK as IMF managing director was a Sarkozy masterstroke in neutralizing a potential rival on the domestic political scene. Segolene Royal partie deux, mon ami?
2. In his place, American First Deputy Managing Director John Lipsky--formerly of JP Morgan and a securitization cheerleader in his earlier days [1, 2]--takes control. This certainly isn't the outcome most of us wishing for more diversity in IMF leadership want. However, this is mitigated by Lipsky indicating that he will step down at the end of August. Fancy that: a guy most clearly associated with promoting securitization prior to the crisis now has to deal with the fallout from their abuse and misuse.
3. On the bright side, the unlikely return of DSK and the stopgap term of Lipsky will put to test IMF indications of reform (including from DSK himself) to make it reflect the world's changing centre of economic activity. Your truly will certainly hold it to account in choosing its next chief from a developing country instead of the unbroken tradition of having a European head and an American #2. Given the buildup in previous years, I can certainly assure you that developing countries will cause a ruckus if it doesn't happen this time around. All change at the top is long overdue.
   
4. A non-European head would still come too late to limit IMF "mission creep." I have written on why the IMF should not bail out Greece, Ireland and Portugal since the primary causes of their crises were not balance-of-payments difficulties which the IMF was designed to address. Hopefully, an LDC chief would resist calls from rich Western countries to misallocate funds meant for aforementioned BOP crises--especially contributions from LDC members. If the EU wants to bail out its own, fine, but don't use monies set aside for other purposes at the IMF.
   
5. DSK was already becoming antsy about Greece's similarly socialist leaders not living up to their end of the bargain. With this rapport now ended, the IMF's already limited powers of persuasion in keeping Greece in line will probably take another knock. Ironically, Sarkozy's efforts to keep EU bailouts a European affair will likely suffer a blow from his fiercest rival effectively discrediting himself via nasty entanglements. The IMF/EU/ECB troika with the possible exception of the ECB has taken its lumps. but is not terminally damaged to the point of not being able to work alongside each other.
   

Personal factors aside, IMF prescriptions will likely not change under whatever new leadership it will have in a couple of months. It may have eased somewhat on high neoliberal orthodoxy during his time in charge--especially when friends in high places rather than low places got in trouble--but conditionalities are still there that are quite harsh for the rest. Ask Greece. Still, one hopes that an LDC chief can signal a more truly cosmopolitan outlook for the organization in composition while returning to its core mission of handling BOP crises.

As for le grand seducteur, some people just want to party all the time. DSK is a socialist in the way Super Mario is a communist, and his hankering for the good life looks to have terminally ended his future political prospects. But hey, loving the limelight, he can always become an Eliot Spitzer-esque talking head.

UPDATE 1: The NYPD making DSK do the perp walk shows a good amount of confidence by the authorities in their case.

UPDATE 2: Yahoo! News now features three stories on the case. Is this a case of misplaced priorities or something else? You know something is up when the IMF shares top billing with the world's best known if deceased terrorist.

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Coming Soon to Earth: A Superpowerless World

♠ Posted by Emmanuel in Hegemony at 5/13/2011 08:33:00 PM

Hegemony is quite an Anglo-Saxon obsession. You can certainly argue that this debate primarily rages in places that previously were (here in the UK) or have been (the US) ascribed such status. A few posts back, I discussed Barry Buzan's interesting pop culture take on American decline via the example of Star Trek and Battlestar Galactica. Actually, I only heard of this notion by attending his recent lecture "A World Without Superpowers: De-centered Globalism." Sadly as many of you probably know, Professor Buzan will be retiring soon. Yet, prior to that, he's unveiled quite a fascinating work charting the forthcoming plight of international society.

For Barry Buzan (alike many other observers), the hullabaloo over superpower status rests on both material capabilities and social standing. We all know how the Soviet Union fared with those come 1989. We also know how the United States has fared since the global financial crisis of 2008 that effectively saw the end of the Washington Consensus--or at least left it terminally damaged. Certainly, the American Dream so central to US identity has taken a major knock; so much so that most Americans no longer believe in it.

So what does the future hold? He argues that the arguments we commonly encounter are too simplistic. On one hand we have the scenario of America maintaining its status as the sole superpower. On the other hand, we have various scenarios of American decline combined with the rise of the rest resulting in conflictual situations. The problem, he says, is that these scenarios are too Amerocentric. Instead, he believes there is a third scenario in which we end up with a world without any superpower.

According to him, there is a secular trend that supports this notion: at the end of WWII the world arguably had three superpowers; during the Cold War there were two; after 1989 there was one. So, it is a natural progression for us to have no superpowers in the near future. Zip. Zilch. None. Nada.

Of course, I invite you to watch the YouTube clip or listen to the podcast to be clear on his differentiation between a superpower (of which there will be none) and a great power (of which there will be several in various regions) as well as his take on why China in its current form is neither able nor willing to be a superpower. Among other things, he believes that the onset of the industrial revolution coupled with certain technologies provided unique conditions for the emergence of superpowers. We certainly don't know whether the future hold another paradigm shift into a new mode of production that will enable the creation of another superpower. But, for me at least, his story is both positively plausible (it has a good chance of coming true) and normatively desirable (in that we won't have others trying to impose their way of life on us).

As a sneak preview, he comes up with five policy suggestions based on his latest work which point to a more heterogeneous world of de-centered globalism or the restoration of more geographically dispersed world power that is more in keeping with previous historical epochs:

1. There is no need for the US to see off challengers to its superpower status since there are none. Besides, its status as the sole remaining superpower is socially indefensible and its material conditions unsustainable
2. After the collapse of Communism and the fall of the Washington Consensus, countries should be more ideologically open. Humility can be reflected in tinkering with the workings of free-market capitalism and see if they succeed or fail in producing the good life.
3. Great powers--a step below superpowers--should look at their regions in gaining legitimacy and stability in international society. That is, great powers should prioritize relations with each other less than those with their neighbours (this is the decentering).
4. That said, all great powers need to understand the substrate of ideas and institutions they agree on so that different modes of capitalism can peacefully coexist. Moreover, doing so is conducive to handling collective actions problems via an interaction culture.
5. The West, particularly the US, needs to acknowledge that they no longer own the future. While some satisfaction derives from shaping the world's political, economic and social form. Not all of this was all good or well done, therefore rest of the world should be allowed to adjust socioculturally to the Western legacy.

It sounds like music to my ears, clearly. Let us wish Barry Buzan all the best in whatever endeavour he undertakes, but I for one hope that he can more fully develop this notion of de-centered globalism before moving on!

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Joseph Stiglitz On Rethinking Macroeconomics

♠ Posted by Emmanuel in Credit Crisis at 5/11/2011 10:29:00 PM

In the wake of the global financial crisis, various economists have sought means to make macroeconomics and more specifically macroeconomic modelling more faithful simulations of the world economy instead of the other way around. That is, instead of trying to make the world behave more like neat economic models (the Procrustean bed of economic reductionism), several have tried to make macroeconomics resemble true-to-life phenomena more. However, reworking the assumptions of macroeconomics will be an awesomely huge task given how standard economic theory has permeated modern thought. Hence your behavioural economics, neuroeconomics, and all sorts of variations on a theme of making economics a more realistic discipline than assuming hyper-rational actors.

What are we to do with macroeconomics now? Although this theme has been given infinite variations in the wake of the global financial crisis, Stiglitz's spin may be worth considering. Among other things, Stiglitz suggests that we might return to the (good old?) days, presumably when building societies (in the UK) and savings and loan associations (in the US) dominated the home mortgage scene and were ultimately responsible for due diligence as well as risk bearing. That is, instead of passing off risk further down the line to ultimately no-one knows via relentless securitization, consolidating risk assessment and concentration at the traditional lender-borrower interface may be better.

Your mileage may vary; what follows are the abstract and policy implications. Unfortunately, dear readers, the LSE house journal Global Policy from which this excerpt has been taken has now been gated. (The associated PowerPoint slides are still available, though.) So the promotional period ends, but some of the world's leading thinker on global governance--whether you agree with them or not--still populate its pages:

Abstract

The financial crisis made obvious the deficiencies in the standard macroeconomic models, which not only did not predict the crisis, but also said that such events could not occur. While it has long been known that markets are not in general efficient, for example with imperfect information, standard models focused on special cases where the consequent problems did not arise. When market imperfections were introduced, it was done in ways that were ad hoc and/or did not adequately explain deep downturns, such as the Great Recession. This article charts the failures of the standard model, and relates policy failures in the lead-up to the crisis as well as its management to that model’s influence. The standard models focused on providing explanations of normal fluctuations, when what really matters is understanding what causes deep downturns, why shocks to the system get so amplified and why recovery from such events is so slow. (The standard models assumed that the economy was buffeted by exogenous shocks; most crisis shocks are, however, endogenous –‘manmade’.) Four hypotheses are presented about how the structure of the economy changed (sometimes as a result of policy) in ways that increased the likelihood of a large crash with a slow recovery. Finally, the article explains why, in the current context, the policy prescriptions derived from standard models are likely to be misleading.

Policy Implications

• The focus of monetary policy before the crisis – keeping inflation low and stable – clearly did not suffice to maintain real stability. In the future, monetary authorities need to focus more on the factors that affect the stability of the financial system and credit supply. The deadweight losses associated with the slight misalignment of relative prices associated with low or moderate inflation are miniscule compared to the losses associated with a deep recession.
• Central banks have at their disposal, in addition to interest rates, a wide range of regulatory instruments. Had they employed these properly, the bubble that caused the current crisis could have been dampened, and the economic consequences of its breaking mitigated. While there may be some costs associated with the use of these instruments, these pale in comparison to the costs of not using them – as the costs of the downturn in the US mount into the trillions.
• This will necessitate paying more attention to the behavior of the banking system – including tight supervision and regulations, designed to prevent excessive risk taking and excessive interconnectivity, and to encourage banks to focus on lending, especially to small and medium-sized enterprises, which typically do not have access to capital markets. Credit availability may be as important as or more important than interest rates in determining, for instance, investment, especially for SMEs.
• It is not a surprise that this crisis followed on from financial market liberalization measures taken by the US in recent years; financial crises frequently follow such liberalizations. Globally, financial and capital market liberalizations enabled the ‘made in America’ crisis to spread all over the world.
• Inherent problems in securitization of home mortgages mean that governments should not count on the restoration of that market – unless it is underpinned with what should be viewed as unacceptable government guarantees. Rather, there should be a return to more traditional mortgage systems (bank based, or the Danish mortgage system).
• Fiscal policies can be an effective mechanism for reducing unemployment and restoring growth, even in the presence of moderate levels of national debt. Well-designed programs can simultaneously reduce the debt over the long run. By contrast, with interest rates near zero, the contractionary effects of austerity policies cannot be offset by looser monetary policies.
• Many of the models that became standard in macroeconomics did not incorporate features that allowed them to forecast the downturn (they suggested that such events could not occur), to take actions to prevent such downturns or to respond to the crisis once it occurred. Much of macroeconomics was incoherent – using one set of models, with one set of strong assumptions, to advocate for capital and financial market liberalization, and another set of models to respond to the crises that often follow on from such liberalizations. Models estimated in periods in which firms and households do not face financial constraints and excessive leverage and where central banks are able both to raise and lower interest rates easily do not necessarily provide adequate guidance for behavioral responses in the midst of a deep downturn such as the current one.
• While it is important to ascertain dynamic responses to current government policies, a wider range of responses needs to be incorporated. Extended periods of unemployment and underinvestment in education and infrastructure can impact future growth and productivity.

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Star Trek Shows Demise of the American Idea

♠ Posted by Emmanuel in Entertainment,Hegemony at 5/11/2011 12:01:00 AM

Having shattered foolish notions that the "American Dream" is encapsulated by plausible metrics of US political-economic performance--it is, quite simply, a fraud--let us now turn our attention to how this reality is being reflected in pop culture. With the exception of the most delusional, anti-factual USA#1-style cheerleaders, Americans have become increasingly pessimistic about future generations being better off than they are. In a recent novelty article in Millennium, English school of international relations stalwart and LSE immortal Barry Buzan argues that the TV series Star Trek and Battlestar Galactica increasingly reflect this kind of (warranted) pessimism as a reflection of how America increasingly views its diminished situation.

Star Trek once portrayed a quaint, kumbaya interstellar organization in operation in the United Federation of Planets. For instance, even the warlike Klingons were eventually integrated into interstellar society by the time Star Trek: The Next Generation came around. Witness Worf. Note TNG's time frame, however: it made its debut at the tail end of the feel-good Reagan years and was very much in full flow as the events 1989 saw the demise of the Warsaw Pact. Fukuyama-esque triumphalism pervaded in TV as in real life. Later series, particularly those which came after 9/11, have a much darker tone. In English School terms, it's a regression from international society to a more primordial and conflictual interational system. From Professor Buzan:

For IR types, the obvious appeal of Star Trek was that it pictured a Westphalian international system set in a galaxy and universe filled with life and civilisations. This set it apart from the common Manichean streak in [science fiction] in which, as in H.G. Wells’ landmark War of the Worlds, the plot revolves around a zero-sum war of extermination between species in which there is no place for diplomacy. Star Trek was on board with the view of those such as Robert Zubrin, that there is a high probability of intelligent life in the universe being widespread.

Since this was America in space, the interplanetary relations in Star Trek are not just realist or apocalyptic, but contain a strong streak of liberalism. America has, with a bit of help from the Vulcans, a species with a rather Zen-like culture, fulfilled its liberal dream of remaking the whole world in its own image. Federal America has become Federal Earth, which then becomes the United Federation of Planets. The Federation has many of the qualities of a moderately solidaristic international society in terms of human rights and some (not always honoured) obligations for collective defence. There are to be sure also pluralist elements such as the right to cultural distinctiveness, and in the wider galaxy the Federation lives in a power political international system. This ‘America’ has left behind its isolationism and taken its liberal proselytism into space.

Well that was then. How did this American final frontier look like in a matter of a few years? While certain politically correct elements date these latter episodes, the mood is decidedly darker as prospects for the end of history fade:

Interestingly for an American television show, religion remains somewhat in the
background, associated mainly with more primitive and/or non-human cultures. The Star Trek universe, or at least the parts of it dominated by humans, is a pretty secular place in which religion is kept in the private sphere [cosmic Protestant work ethic?]. All of this could be seen as an expression of America in the 1960s, confident in its right to own the future, blithely imperialist in a cultural way, willing but not eager to use force, having no interest in conquest and occupation, and with a deep commitment to progress, humanism, anti-racism and liberal values. At its best, Star Trek represented an expansive and optimistic view of the human condition and its prospects without being naively utopian.

All of this was clearer in the original series of the late 1960s, though it remained
strong in The Next Generation during the late 1980s and early 1990s. During the 1990s, the Deep Space 9 and Voyager series, and the Next Generation films, turned darker and more apocalyptic with wars of survival against the Dominion and the Borg. During the 21st century, with the Enterprise TV series, and the 2009 Star Trek movie, Paramount ran out of visionary steam with the franchise, failing to take the story of the Federation further, and instead focusing on prequels to the original series. These are also darker and more apocalyptic in mood than the original series.

Think of it: in the real world, modern-day "Klingons" (cling ons? Think North Korea, Myanmar, etc.) refuse to take part in the international system. What's more, they have a strong backer that allows them to continue their existence outside of international norms--China (today's collective "Borg"?) Certainly, you don't expect a rehashing of the wilfully obtuse Star Trek: The Motion Picture in which a Voyager satellite obviously launched by Americans is used as shorthand for a shared human consciousness while encountering alien others. Metaphors of American exceptionalism in cinema have been, well, Guantanamo Ghraibed. But I digress. Here he is once again:

On a deeper level, there is an old theme in science fiction literature, and up to a point in world history, that differentiates between societies that look outward and venture outward, and societies that look inward and close themselves off. The turn inward lobby is always strong, saying ‘why should we spend billions going into space when we have more immediately pressing welfare and security priorities at home (the parochial version) or on the planet (the cosmopolitan version)?’ In today’s America such sentiments can play to the country’s isolationist tradition, seeing itself as the exemplary ‘city on the hill’, but eschewing external political engagements lest they corrupt the purity of its revolution.

Simply put, it's no longer an ambition "to boldly go where no man has gone before" when conditions sustaining such adventurism becoming increasingly unfavourable on the homeworld--I mean homeland. And in so doing, Star Trek mirrors the end of the American idea.

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Ghandian Ideas Don't Work in 21st Century India

♠ Posted by Emmanuel in Development,India at 5/11/2011 12:00:00 AM

I forgot to blog about this interesting WSJ piece from a few days back about how current efforts by the Congress Party to provide work to the mass of unemployed are quite lacklustre. Congress Party heirs of Gandhi and Nehru will of course be sensitive to questions of social justice, but you really must question if this is the way to go about it. Although it may provide more ammunition to rational choice types in providing state funds for dubious work projects, I believe that the broader matter of inequality and overall social stability deserves a broader framing than that. While the effects of globalization on inequality in developed countries are endlessly debated--hollowing out of the middle class, barbell society, etc--similar anxieties about how spoils are divided in an increasingly integrated world resonate in the developing world. Having defeated the BJP in the 2004 elections despite most expectations to the contrary given that India's economic resurgence was well underway, the Congress Party is well-attuned to the electoral consequences of those left behind. But is this the way to go?

India has its own version of America's Depression-era Works Progress Administration: a gigantic program designed to create jobs through building infrastructure in a developing nation's most-backward rural areas. But unlike its American counterpart eight decades ago, the Indian program, its detractors assert, is keeping the poor down, rather than uplifting them.

The Mahatma Gandhi National Rural Employment Guarantee Scheme, as the $9 billion program is known, is riddled with corruption, according to senior government officials. Less than half of the projects begun since 2006—including new roads and irrigation systems—have been completed. Workers say they're frequently not paid in full or forced to pay bribes to get jobs, and aren't learning any new skills that could improve their long-term prospects and break the cycle of poverty.

In Nakrasar, a collection of villages in the dusty western state of Rajasthan, 19 unfinished projects for catching rain and raising the water table are all there is to show for a year's worth of work and $77,000 in program funds. No major roads have been built, no new homes, schools or hospitals or any infrastructure to speak of. At one site on a recent afternoon, around 200 workers sat idly around a bone-dry pit. "What's the big benefit?" said Gopal Ram Jat, a 40-year-old farmer in a white cotton head scarf. He says he has earned enough money through the program—about $200 in a year—to buy some extra food for his family, but not much else. "No public assets were made of any significance."

Scenes like this stand in stark contrast to India's image of a global capitalist powerhouse with surging growth and a liberalized economy. When it comes to combating rural poverty, the country looks more like a throwback to the India of old: a socialist-inspired state founded on Gandhian ideals of noble peasantry, self-sufficiency and a distaste for free enterprise [in a nutshell, swadeshi].

Workers in the rural employment program aren't allowed to use machines, for example, and have to dig instead with pick axes and shovels. The idea is to create as many jobs as possible for unskilled workers. But in practice, say critics, it means no one learns new skills, only basic projects get completed and the poor stay poor—dependent on government checks. "It actually works against the long-term future of the poor because it doesn't give them any long-term solutions to poverty," says Gurcharan Das, an author who has written about India's economic development. "It's a Band-Aid solution."

Indian officials acknowledge that the program is flawed, though they say it has provided an important safety net for the 50 million households, comprising more than 200 million people, that have participated in the past year alone. Proponents of the plan, including left-leaning economists and activists, say that because the pay is often better than other rural jobs, it has given workers a bargaining tool to demand higher wages. Echoing the Gandhian ideals for which the program is named, they say workers are also better off staying in their villages, close to their families, instead of moving to the cities in search of work and winding up in slums.

"The scheme has been a big success in creating employment for rural people," Sonia Gandhi, president of the ruling Congress party, told a meeting in February of officials who administer the program. "However, there have been complaints of irregularities and corruption, too."

Niten Chandra, a senior official at the federal rural affairs ministry, says the aim was never to build major highways or other large infrastructure, but to create work and raise wages. He says that state governments, whose job it is to monitor projects and ensure audits are carried out, are at fault for failing in many cases to guard against corruption and unfinished work...

The repercussions go far beyond irrigation projects. India's failure to uplift its poor and improve the economy in rural areas—where two thirds of the country's 1.2 billion people live, mostly untouched by the boom—threatens the country's growth, economists say. India has so far relied on its services industry in cities to fuel growth. But the country is running out of skilled workers and its agricultural dwellers are ill-suited to fill the gap. India's success or failure in boosting the size of its middle class will determine the long-term attractiveness of the market to foreign investors.

Yet the number of people relying on the program is expected to rise after the government earlier this year decided to tie wages to the cost of living, automatically increasing the 100-rupee maximum for a day's work to about 125 rupees in many states. That's higher in some places than the daily wage for farm labor. The result is that many more millions will likely become dependent on the government for income despite a two-decade-old push to reduce the state's role in the economy.

As quaint as it may sound, transitioning from agrarian to industrial or even post-industrial service-oriented societies is still the issue of the day in many of the world's emerging economies. With faith in "trickle-down" economics having been conclusively dashed via the example of developed economies where inequality remains on an upward trend, LDCs are experimenting with alternatives to redress this situation. Still, I have doubts whether a neo-primitivist work programme prone to corruption can help ensure the transition from agricultural-based societies as well as reduce inequalities on a sustained basis.

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'Since 2003, China's $ Reserve Losses are $271B'

♠ Posted by Emmanuel in China at 5/10/2011 12:00:00 AM

And there's probably more to come as "strong dollar" policy hilarity continues. Having accumulated $3 trillion in reserves--two-thirds of which are thought to be denominated in US dollars--the Chinese have finally marshalled enough courage to estimate their losses based on the declining value of the aforesaid currency. Never let it be said that this was ever going to be a pretty picture, although many commentators have warned China its accumulation of foreign exchange reserves was far in excess of what was necessary by conventional standards of reserve adequacy such as three months' worth of imports. China is way past that point now. $1 trillion having deemed unimaginable for a developing country all those years ago, what the heck can anyone meaningfully say about having $3 trillion? These sums are mind-boggling; so are the losses. From China Daily, still our favourite official publication:

China suffered a loss of about $271.1 billion on its foreign exchange reserves accumulated between 2003 and 2010, because of the depreciation of the US dollar, said a senior analyst at the National Development and Reform Commission (NDRC). And the country is likely to lose $578.6 billion if the US currency's exchange rate sinks to six yuan a dollar, Securities Daily quoted Zhang Anyuan, head of the fiscal and financial policy research division of the NDRC's Institute of Economic Research, as saying on Thursday.

"This amount of loss cannot be offset by the country's overseas investment earnings," Zhang said in a recent article, according to the report. Zhang said that diversification of China's foreign exchange portfolio is already crucially urgent for the country to maintain the value of the assets...

By the end of March, China's foreign reserves had increased by $197 billion to more than $3 trillion for the first time, a rise of 24 percent from the previous year, despite the first quarterly trade deficit in seven years during that same period. Zhou Xiaochuan, governor of the People's Bank of China (PBOC), said in April that the holding has exceeded a "reasonable" [now insane?] level and the management and diversification of the portfolio needs to be improved.

Hence the euro diversification play, although you have to wonder what will happen if Greece gives its bondholders a haircut--but more on that later...

China indicated in April that it was ready to buy more debt from the eurozone's weaker states, in a move to help stabilize the bloc's fragile finances and protect its business interests. It was considering purchasing more after investing billions of euros in Portuguese and Greek bonds to diversify its foreign reserves away from the dollar, said Song Zhe, China's ambassador to the European Union.

The country is also planning to invest in Spain, including participating in the reorganization of the troubled Spanish savings banks, the Ministry of Foreign Affairs said earlier in Beijing. Although the government is well aware of the necessity to diversify its foreign exchange assets to lower risks, other options cannot match the strength and security of US debt in the short term, said Wang Jun, economist at the China Center for International Economic Exchange...

On April 19, Foreign Ministry spokesman Hong Lei urged the US administration to adopt "responsible policies and measures" to protect the interests of investors. Zhang Jianhua, head of research at the PBOC, the central bank, said that concerns about a possible failure of the heavily indebted US government to repay its debt could drive Treasury yields higher and cause US debt prices to fluctuate.

What the heck to do with all these FX reserves, that is the question:

Analysts have also suggested that China use the capital to buy energy and resources assets overseas. But such a shift in investment strategy is unrealistic given the various barriers set by foreign governments, said Li Wei, an economist at Standard Chartered Bank in China. The central bank is also planning new investment funds to diversify the foreign reserves holdings, the New Century Weekly reported on April 25. The proposed funds will invest some of the foreign reserves in the energy and precious metal markets, it said, citing unnamed sources close to the central bank.

So the losses are mounting thick and fast for China, with a loss of a cool half a trillion in sight in the near future. While the euro diversification play helps a little, the real solution of course lies in not accumulating so many reserves in the first place. To paraphrase John Connally, it's America's currency but China's problem. And in the end nobody forced China to buy all those dollar-denominated "securities." In the end, you have no one to blame but yourself.

It's always sad to tally one's losses and realize how much you've been played for a fool. Worse, the PRC is way past the point of no return in that further, enormous losses on its dollar holdings are inevitable

Then again, the political fallout from losses of such magnitude in an authoritarian state are debatable. Having accumulated so much under such a tightly controlled system without popular discontent, Hu's to say that protests will appear once the magnitude of PRC losses become more apparent?

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Singapore One Party State? Foreign Minister Loses

♠ Posted by Emmanuel in Southeast Asia at 5/09/2011 09:19:00 PM

When it comes to electoral exercises, Singapore's usually attract next to no global media coverage for obvious reasons. In the past, this has been taken as a "good thing" since continuity and stability have been foundational hallmarks for Singapore's economic miracle. However, a failure to report on the recent elections in the city-state does internationally-minded audiences a major disservice. Indeed, it may be a warning shot to those aspiring to imitate its much-vaunted brand of authoritarian development.

Singapore is, on the whole, better run than any number of Middle East / North African states experiencing turmoil at the moment. However, just-concluded polls seem to betray a general tiredness with Lee Kuan Yew's People's Action Party (PAP) that has been in power practically since Singapore left the Malayan Federation all those years ago. While Singaporean elections are usually a PAP blowout in no small part due to obviously curtailed political freedoms for, shall we say the "other" parties, this result was a rather unexpected one. Think of it as an upset that was made less upsetting by rather severe controls on other parties' abilities to get their message across.

This time round, PAP's saving grace appears to be sticking with a first past the post and a mostly party list-like system. For, had Singapore adopted a proportional representation system, the 40% share of the vote gathered by various opposition parties would have meant so much more than having a total of 6 out of 87 seats won by the Workers Party (one party list of 5 members in Aljunied and a single directly elected representative, Yaw Shin Leong). Still, native Singaporeans--the few of them there are--expressed wariness about expatriates competing for remunerative jobs and driving up living costs (especially of real-estate).

As it turns out, one of the scalps is long-serving Singaporean Foreign Minister George Yeo. Given the surprising magnitude of losses by Singaporean standards, let's say PAP leadership were unaware that one of their big figures was soon to bite the dust and that they would have to groom another PAP member for that particular post. Given how Singapore routinely punches above its weight in Asian diplomatic circles, this is no small beer for the tiny nation-state to deal with:

"Singapore has been left with no ready replacement for Foreign Minister George Yeo, the biggest casualty of the city state's general election, a leading think tank warned Monday. Yeo, one of Southeast Asia's best-known diplomats, led a five-member People's Action Party (PAP) ticket that was toppled by the opposition Workers' Party in Saturday's poll -- the government's worst result since independence.

One of the most significant outcomes of May 7 has been the defeat of Foreign Minister George Yeo," Simon Tay, chairman of the Singapore Institute of International Affairs, wrote in the Today newspaper. "Yeo has emerged in the international community as among the best-recognised and respected of this generation of Singaporean leaders. The next cabinet has no ready replacement for him."

While the PAP lost only six of 87 seats as a result of an electoral system in which most seats are contested in groups, its 60 percent share of all votes cast was the lowest ever for a party that has been in power for 52 years. Yeo is a former brigadier general who entered politics in 1988 and held various positions including stints as trade minister and information minister before being appointed foreign minister in 2004.

Yeo in a way foretold his fate as one of the more observant PAP members:

An influential figure in the 10-member Association of Southeast Asian Nations (ASEAN), he was known as a moderate in a party led by conservatives and graciously accepted his defeat. "A new chapter has opened in Singapore's history, there's a tide which we were not able to overcome," a visibly shaken Yeo told his supporters in a brief speech after his defeat was confirmed in the early hours of Sunday.

On the eve of the vote, Yeo told the pro-government Straits Times newspaper that "there is considerable resentment against the government and its policies, and some of them run deep." He said the PAP, in power since 1959, needed to review its policies regardless of the outcome of the election, or risk further losing touch with the electorate. "We have to listen harder to what people say," he said.

There may be a lesson for even the most progressive of Middle East autocrats (think Jordan or the UAE at least) here. When even one of the most successful examples of authoritarian development suffers popular discontent over heavy-handedness, a lighter touch may be welcome. Try a little tenderness. Note too that these electoral gains have come while gerrymandering to ensure continuing PAP supermajorities has been practised.

If I were the opposition, the new battle cry is clear: "PR" (proportional representation)! Given that PR is usually touted as the solution for breaking through gerrymandering and single-party rule, expect the ruling PAP to be very, very hesitant. Yet, in a city-state as minuscule as Singapore, districting makes very little sense given the scale they have to deal with. Meanwhile, the PAP is likely to give more sops to its people in the form of social services while curtailing migration to appease disaffected voters. It will be interesting to see how Singapore's unbelievably low fertility rate of 1.16 [!] will affect electoral dynamics in the years to come. And do remember that voting is compulsory for Singaporean citizens. It's an odd thing: the PAP has made voting compulsory, but limits the public's ability to entertain alternative opinions and viewpoints.

In the meantime, Singaporean democracy is not an oxymoron.

UPDATE: Lee Kuan Yew has decided to quit his cabinet post in the wake of the elections. For such a seasoned operator, even this limited result in tightly controlled Singapore is flashing some warning signs among the old guard.

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'Pacman' Pacquiao & Fil-Am Protectionism Part 2

♠ Posted by Emmanuel in China,Southeast Asia,Sports at 5/09/2011 12:01:00 AM

Gotta love these alliterative titles. Anyway, my consciousness of legislative machinations was obviously jogged by the fighting congressman Manny Pacquiao eking out a comfortable margin of victory over Shane Mosley. The continuing popularity of the Filipino sportsman Pacquiao in the US--he claims to have secured a senatorial victory for Harry Reid in Nevada where his sporting fame has been cemented--has been covered extensively. While we await the release of the final tally, I expect Indians to have surpassed Filipinos as the second largest Asian minority in the States during the 2010 census. Still, the latter remain a continuing link between former colonizer and colonized. Leftists would of course say this exploitative relationship has never gone away. Perhaps what follows is in this vein.

A few weeks ago, I blogged about the "Save Our Industries Act" which, to my eyes, is a blatantly protectionist measure by the Philippines and United States against China. Key provisions of this bill include the following:

• Under the 809 component of the program, if the eligible garment's essential character is comprised of U.S.-made fabrics and yarns and is cut and wholly assembled in the Philippines, then it would qualify to re-enter the United States free of duty.
• In addition, if the eligible garment's essential character is comprised of U.S. spun yarn or extruded yarn formed in the Philippines, it may re-enter the United States at 50 percent of the most favored nation (MFN) duty.

This proposed tag team protectionism involving an industry that has long since seen its better days in the US would not have gathered much attention at all--indeed, I may be the only paying attention to it--had it not been for its high profile proponent, Congressman Pacquiao. Having a rags-to-riches story of his own, he declares that his biggest fight is against poverty. So, aside from training and contesting matches in Las Vegas, his stateside visits have begun to include, well, lobbying for the aforementioned "Save Our Industries Act." For the first time ever comes trade commentary from, er, Sports Illustrated [!]:

His most recent issue involves the United States. Pacquiao is a strong advocate for the Save Our Industries Act, a bill that was introduced to the U.S. Congress in 2009 that would permit Filipino apparel makers to import and use American textiles in the manufacture of certain garments, which they could then export to the U.S. tax free. The passage of this bill would allow the Philippines to compete with China and create more than 200,000 new jobs.

Pacquiao's status in boxing has opened doors for him to lobby for the bill. In February, he met with President Barack Obama. Later, he had a 30-minute meeting with Senate Majority Leader Harry Reid and recruited him to support his efforts. "He went right at Harry," said Pacquiao's promoter, Bob Arum, who was in the meeting. "He zoned in on that issue. He was a real politician. When it was over, Harry told him, 'I'm on it.' "

Given that Sports Illustrated is better known for lowbrow swimsuit issues that have little to do with sports, it's no surprise their commentary doesn't dwell on matters alike deadweight losses or anything of the sort. As mentioned in the earlier post, it appears very hard to reconcile this bill with both countries international trade commitments. Might it squeak by under the Generalized System of Preferences? Perhaps. Then again, it may be a familiar case of pre-match bluster boxers are known for.

Moreover, alike Pacquiao vs. Mosley perhaps, this trade match-fixing exercise is undergoing quarrels between the would-be conspirators as the US wishes to include more exceptions to duty-free imports. That is, it would like to not include certain finished goods it still makes in appreciable quantities. From Fiber2Fashion:

The US has directed Philippines to omit some vital fabric and garment segments, from the proposed list of Philippine-made garments produced from American yarn and fabrics, for which Philippines is seeking duty free access to the US, under the proposed ‘Save Our Industries Act’ bill.

Philippines Trade and Industry Undersecretary Cristino L. Panlilio stated that, he actually doubts if they have an option to not consent to the same. However, he said that, there is a need to fetch a solution to some of the controversial issues that exist between the two countries.

The first issue, he said, is the US wants to exclude ‘poplin’ cloth from the list, as American firms are already producing sizeable volume of apparels from this cloth [hence less need for export processing]. Poplin, which is also known as tabinet, is a sort of medium to heavy weight durable fabric, which is normally produced from cotton or a blend of cotton and polyester. Until last century poplin mainly was used to prepare cotton, silk or heavy weight woollen clothes for winters.

The second issue, he stated relates to undergarments.

It may be recollected that, the ‘Save Act’ bill is an initiative by Philippine, which seeks to revive the local garment and textile industries of both the countries - the Philippines and the US. Philippines is ready to once again put up the bill for approval, during June this year, after making necessary changes to make it more agreeable to the US legislators.

Shadowboxing and trade: who would've thunk it?

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