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Podcast Description
Podcasts of the Writers of Project Syndicate
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The Humiliation of Britain 10.27.10 | At the end of 2008, as the financial crisis hit with full force, the countries of the world divided into two groups: those whose leaders decided to muddle through, and China. Only the Chinese took seriously Milton Friedman’s and John Maynard Keynes’s argument that, when faced with the possibility of a depression, the first thing to do is use the government to intervene strategically in product and financial markets to maintain the flow of aggregate demand. Then, at the start of 2010, the countries that had been muddling through divided into two groups: those where government credit was unimpaired continued to muddle through, while countries like Greece and Ireland, where government credit was impaired, had no choice but to pursue austerity and try to restore fiscal confidence. Today, another split is occurring, this time between those countries that are continuing to muddle through and Great Britain. Even though the British government’s credit is still solid gold, Prime Minister David Cameron’s administration is about to embark on what may be the largest sustained fiscal contraction ever: a plan to shrink the government budget deficit by 9% of GDP over the next four years. So far, China is doing the best in dealing with the financial crisis. The mudding-through countries lag behind. And those where confidence in the government’s liabilities has cracked, forcing the government into austerity, are doing worst. Now the question is: will Britain – where confidence in the government has not cracked and where austerity is not forced but chosen – join the others at the bottom and serve as a horrible warning? Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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The French Reactionary Revolution 10.26.10 | The expression “the French exception” applies not only to culinary matters, but to social and economic issues as well. A majority of today’s French recognize that raising the retirement age is necessary to ensure the survival of the pension system. Yet, according to all public-opinion polls, close to 70% of the French support the demonstrators who are taking to the streets to block the very modest reforms introduced by President Nicolas Sarkozy’s government. “The French exception” is the product of an encounter between a peculiar political and intellectual history and the rejection of the elites currently in power. To the dismay of their European neighbors, and in front of a bemused global public, the French are once again demonstrating their bizarre tradition of using revolutionary means to express extreme conservative leanings. Unlike their predecessors in May 1968, today’s demonstrators are not in the streets to defend a different and better future. They are out there in significant numbers to protect the status quo, and to express their nostalgia for the past and their fear of the future. And yet the reactionary/revolutionary movement of the type that we are witnessing – a backlash against the inevitable consequences of globalization – remains unmistakably French. It is driven by the extreme Cartesian rationality, verging on the absurd, of a country whose citizens continue to view their state in the same way that adolescents view their parents. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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The Scaremongers of the Roundtable 10.20.10 | How often do you see capitalists screaming and even going to court to defend the principle that legitimate owners cannot exercise any control over their property? It is not happening in Latin America or in socialist Sweden, but in the United States of America. The capitalists in question are nothing short of the upper echelon of corporate America: the Business Roundtable, a powerful group composed of the CEOs of major US corporations, which promotes pro-business public policies. The object of their contention is the much-debated “shareholders’ access to proxy” rule, adopted by the Securities and Exchange Commission (SEC) in August to address the fundamental lack of accountability of corporate boards. In the current system, corporate boards are self-perpetuating entities. To be elected, a board member needs to be nominated by the current board, where executives have considerable influence. As a result, board members owe their loyalty to the managers who directly or indirectly appoint them – and thus have little incentive to dissent, lest they be punished with exclusion. Even independent directors, often acclaimed as the solution to all problems, are subject to the same pressure. To change this state of affairs, institutional investors must be allowed to propose their own slate of directors. The possibility of being rejected in a real election would naturally make board members accountable to shareholders, indirectly making the executives accountable as well. The SEC rule was an attempt to grant institutional investors this right. It did it in a very mild format. Companies with a public share worth less than $75 million were exempted, and shareholders who want to propose a slate must hold at least 3% of voting power of the company’s securities and have held it continuously for at least three years. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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Health Care’s Frequent Flyers 10.20.10 | For those of you who have seen the (American) movie “Up in the Air,” think of the scene where George Clooney meets Vera Farmiga. He’s an outsourced human-resources executive who flies around the country firing people on behalf of timid managers; she’s a counterpart female road warrior. Their courtship ritual revolves around loyalty cards: he pulls out his American Airlines Executive Platinum card; she matches. Next, his Diamond VIP Hilton HHonors card; she calmly slaps hers on the rickety table where they are sharing drinks. The unspoken message: points make you sexy. Airlines and hotels have known this for a long time. Dean Margolis, who long ago consulted for major airlines and is now applying the same techniques to healthy behavior, recalls wondering how to get executives to fly just a little more. It’s not by offering discounts, which benefit an executive’s company rather than the executive. Margolis asks: “When the boss says ‘Who wants to come to Philadelphia with me?’, what’s going to get two people instead of one to say yes? To abandon their families, stand in line, and perhaps take a middle seat...” Points, of course, will do the trick. The promise of being recognized at the airline counter, ushered to the front of the line, and, yes, looking like a big shot at the airport bar. Margolis’s new company, MedRewards, plans to give people points for healthy behavior – everything from taking their medications regularly to signing in at the gym more than five times a week. As in the airline business, the actual customers won’t be the users, but rather the vendors who want to influence users’ behavior: pharmaceutical companies who want patients to buy their drugs, along with insurers and employers who want to lower long-term costs. (Employers, bless them, even have an interest in keeping people healthy!) Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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Obama at Halftime 10.12.10 | In September 2008, the global economy and financial system was hit by an earthquake, whose epicenter was in the United States. It was the end of the Bush administration. The presidential election was two months away. The timing, from the point of view of crisis management, could not have been worse. The level of uncertainty about asset values, solvency, and the connectedness of balance sheets that prevailed at the time was extraordinarily high. Uncertainty bred fear, causing banks, businesses, and households to hoard cash. Consumption plummeted, taking down retail sales with it, and, after a short lag, employment and investment as well. Individually rational choices were giving rise to collectively irrational results. These conditions had all the makings of a depression scenario, with credit rationing destroying businesses indiscriminately, and thus required fast, aggressive, and unconventional action by the US government and the Federal Reserve. The response, mounted by the Bush administration and taken over by the Obama administration, was all of the above. A combination of financial-sector recapitalization and rapid expansion of the Fed’s balance sheet prevented a complete credit lockup. Policies sometimes missed their target and had to be modified. For example, the Troubled Asset Relief Program (TARP) originally targeted the purchase of complex securitized assets that had lost value and stopped trading, but had to be partly altered to direct infusions of capital into banks. Financial support for Wall Street villains infuriated many, but no one proposed a better alternative at the time – or has since. The Bush and Obama administrations both understood that wise policymaking in crisis circumstances requires selecting the least bad option, accepting the inevitable anger and criticism, and implementing the decision quickly. The first priority, after all, was to stabilize a highly dangerous situation. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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The Wars of Austerity 10.12.10 | I have become increasingly less hopeful about prospects for a rapid recovery from the global recession. Coordinated fiscal expansion ($5 trillion) by the world’s leading governments arrested the downward slide, but failed to produce a healthy rebound. The current frustration is summed up by The Economist’s recent cover headline: “Grow, dammit, grow.” There are two reasons to be pessimistic. The first reason is the premature withdrawal of the “stimulus” measures agreed upon by the G-20 in London in April 2009. All the main countries are now committed to slashing their budget deficits. The second reason is that nothing has been done to address the problem of current-account imbalances. Indeed, the talk nowadays of currency wars leading to trade wars is reminiscent of the disastrous experience of the 1930’s. The problem of current-account imbalances is closely linked to the existence of a world savings glut. One part of the world, led by China, earns more than it spends, whereas another part, notably the United States, spends more than it earns. Provided the surplus countries invest in the deficit countries, these imbalances pose no macroeconomic problem. Indeed, this was the nineteenth-century pattern. A system of foreign investment, pivoting on London, channeled the savings of rich (or surplus) countries to the poor (or deficit) countries. Despite many financial crises and defaults, this creditor-debtor relationship worked, on the whole, to the benefit of both sides. Rich-country investors earned a higher rate of return than they would at home, and poor-country recipients raised the development finance they needed. There was no persistent tendency to deflation. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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Only the Weak Survive 10.12.10 | The risk of global currency and trade wars is rising, with most economies now engaged in competitive devaluations. All are playing a game that some must lose. Today’s tensions are rooted in paralysis on global rebalancing. Over-spending countries – such as the United States and other “Anglo-Saxon” economies – that were over-leveraged and running current-account deficits now must save more and spend less on domestic demand. To maintain growth, they need a nominal and real depreciation of their currency to reduce their trade deficits. But over-saving countries – such as China, Japan, and Germany – that were running current-account surpluses are resisting their currencies’ nominal appreciation. A higher exchange rate would reduce their current-account surpluses, because they are unable or unwilling to reduce their savings and sustain growth through higher spending on domestic consumption. Within the eurozone, this problem is exacerbated by the fact that Germany, with its large surpluses, can live with a stronger euro, whereas the PIIGS (Portugal, Ireland, Italy, Greece, and Spain) cannot. On the contrary, with their large external deficits, the PIIGS need a sharp depreciation to restore growth as they implement painful fiscal and other structural reforms. A world where over-spending countries need to reduce domestic demand and boost net exports, while over-saving countries are unwilling to reduce their reliance on export-led growth, is a world where currency tensions must inevitably come to a boil. Aside from the eurozone, the US, Japan, and the United Kingdom all need a weaker currency. Even Switzerland is intervening to weaken the franc. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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How to Prevent a Currency War 10.12.10 | Three years into the financial crisis, one might think that the world could put Great Depression analogies behind it. But they are back, and with more force than ever. Now the fear is that currency warfare, leading to tariffs and retaliation, could cause disruptions to the international trading system as serious as those of the 1930’s. There’s good reason to worry, for the experience of the 1930’s suggests that exchange-rate disputes can be even more dangerous than deep slumps in terms of generating protectionist pressures. In fact, it was not countries experiencing the worst economic downturns and the highest unemployment rates that raised tariffs and tightened quotas most dramatically in the 1930’s. Comparing countries, there was no relationship between either the depth and duration of the output collapse and the increase in levels of protection, or the magnitude of the rise in unemployment and the extent of protectionism. The reason why countries hit harder in the 1930’s were not more inclined to respond by protecting industry from foreign competition is straightforward. The onset of the Great Depression saw a collapse of demand, which in turn led to a sharp fall in imports. As a result, levels of import penetration actually fell, quite sharply, in virtually every country. Producers had problems, to be sure, but import competition was the least of them. The same thing happened this time: when the crisis went global in 2008-2009, imports fell faster than output. With the decline in trade, foreign competition became less of a problem for import-sensitive sectors. As a result, there was only limited resort to protectionism. The World Bank estimates that only 2% of the decline in trade during the crisis was due to increased protectionism. In the 1930’s, by contrast, roughly half of the decline in world trade was due to protectionism. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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What Have Climate Activists Learned? 10.5.10 | Advocates of drastic cuts in carbon-dioxide emissions now speak a lot less than they once did about climate change. Climate campaigners changed their approach after the collapse of the Copenhagen climate-change summit last December and the revelation of mistakes in the United Nations climate panel’s work – as well as in response to growing public skepticism and declining interest. Although some activists still rely on scare tactics – witness the launch of an advertisement depicting the bombing of anybody who is hesitant to embrace carbon cuts – many activists now spend more time highlighting the “benefits” of their policy prescription. They no longer dwell on impending climate doom, but on the economic windfall that will result from embracing the “green” economy. You can find examples all over the world, but one of the best is in my home country, Denmark, where a government-appointed committee of academics recently presented their suggestions for how the country could go it alone and become “fossil fuel-free” in 40 years. The goal is breathtaking: more than 80% of Denmark’s energy supply comes from fossil fuels, which are dramatically cheaper and more reliable than any green energy source. I attended the committee’s launch and was startled that the “Climate Commission” barely mentioned climate change. This omission is understandable, since one country acting alone cannot do much to stop global warming. If Denmark were indeed to become 100% fossil-free by 2050, and remain so for the rest of the century, the effect, by 2100, would be to delay the rise in average global temperature by just two weeks. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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The Federal Reserve’s Relevance Test 10.5.10 | With interest rates near zero, the US Federal Reserve and other central banks are struggling to remain relevant. The last arrow in their quiver is called quantitative easing (QE), and it is likely to be almost as ineffective in reviving the US economy as anything else the Fed has tried in recent years. Worse, QE is likely to cost taxpayers a bundle, while impairing the Fed’s effectiveness for years to come. John Maynard Keynes argued that monetary policy was ineffective during the Great Depression. Central banks are better at restraining markets’ irrational exuberance in a bubble – restricting the availability of credit or raising interest rates to rein in the economy – than at promoting investment in a recession. That is why good monetary policy aims to prevent bubbles from arising. But the Fed, captured for more than two decades by market fundamentalists and Wall Street interests, not only failed to impose restraints, but acted as cheerleaders. And, having played a central role in creating the current mess, it is now trying to regain face. In 2001, lowering interest rates seemed to work, but not the way it was supposed to. Rather than spurring investment in plant and equipment, low interest rates inflated a real-estate bubble. This enabled a consumption binge, which meant that debt was created without a corresponding asset, and encouraged excessive investment in real estate, resulting in excess capacity that will take years to eliminate. The best that can be said for monetary policy over the last few years is that it prevented the direst outcomes that could have followed Lehman Brothers’ collapse. But no one would claim that lowering short-term interest rates spurred investment. Indeed, business lending – particularly to small businesses – in both the US and Europe remains markedly below pre-crisis levels. The Fed and the European Central Bank have done nothing about this. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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Europe in the IMF 10.5.10 | Europe’s leaders never tire of reminding their constituencies, almost like a mantra, that the major emerging-market countries are overturning the existing global economic order. But when it comes to recognizing that reality in the world’s international financial institutions, they adopt a different tune. This is particularly true of the eurozone. The eurozone as such has no representation in the international financial institutions. Instead, 12 eurozone countries are represented on the board of the International Monetary Fund via six different “constituencies,” or country groups. The two largest, Germany and France, have a constituency all their own. Ten other eurozone members are part of four other constituencies headed by Belgium, the Netherlands, Spain, and Italy. However, these four constituencies also contain more than 20 other countries, most of which are not even EU members. Together with the Scandinavian and British constituencies, there are thus eight EU representatives on the IMF’s executive board. Given that the IMF’s Articles of Agreement stipulate that there can be only 20 board members, this means that 40% of all the IMF’s executive directors from the EU, with one-third coming from the eurozone. The IMF is a prime example of the over-representation of Europeans in international fora. Counter-intuitively, however, the excessive number of Europeans actually diminishes Europe’s influence, because they usually defend national interests, which are often divergent. The net effect is that common European interests are not represented at all. Contrast this current condition of extended misery with the only sensible long-term solution: a pooling of IMF quotas by all eurozone countries. The eurozone would then have one constituency, or seat, on the Fund’s executive board, filled by a candidate nominated by the eurozone group of finance ministers. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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Troubling Interventions 9.30.10 | The most noteworthy commemoration of the second anniversary of Lehman Brothers’ collapse on September 15, 2008, was Japan’s unilateral currency intervention to depreciate the yen. That move marks a shift in the character of the global financial crisis, away from concern with banking problems and toward a focus on the world’s dysfunctional exchange-rate system – or, rather, its current lack of one. The Japanese intervention was immediately controversial. American politicians denounced it as predatory; Europeans saw it as a step on the road to competitive devaluations. And Switzerland’s central bank recently launched a costly and futile attempt to stop the Swiss franc’s rise against the euro – an effort that produced only large losses on the bank’s balance sheet. Japan’s new activism also was widely imitated. South Korea and then Brazil started similar action to drive down their currency. The 1980’s was the last time anyone tried this sort of intervention. At that time there was little agreement about its usefulness as a tool of international policy, and the G-7 summit at Versailles in 1982 was extraordinarily conflict-ridden and unproductive. Indeed, it was to be the first act in a long exercise of futile mega-diplomacy. Almost the only concrete outcome was the commissioning of a report by a group chaired by a senior French civil servant, Philippe Jurgensen, on whether intervention was an effective instrument against the volatility that seemed to be undermining trade relations. When the report eventually came out, it acknowledged that “excess” volatility had “adverse consequences” for individual economies, as well as for the smooth functioning of the international adjustment process. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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Economics for Parrots 9.30.10 | It is said that the early nineteenth-century British economist J.R. McCulloch originated the old joke that the only training a parrot needs to be a passable political economist is one phrase: “supply and demand, supply and demand.” Last week, US Federal Reserve Chairman Ben Bernanke said that McCulloch’s economics – the economics of supply and demand – was in no way discredited by the financial crisis, and was still extraordinarily useful. It’s hard to disagree with Bernanke’s sentiment: economics would be useful if economists were, indeed, likeMcCulloch’s parrots – i.e., if they actually looked at supply and demand. But I think that much of economics has been discredited by the manifest failure of many economists to be as smart as McCulloch’s parrots were. Consider the claims – rampant nowadays in the US – that further government attempts to alleviate unemployment will fail, because America’s current high unemployment is “structural”: a failure of economic calculation has left the country with the wrong productive resources to satisfy household and business demand. The problem, advocates of this view claim, is a shortage of productive supply rather than a shortage of aggregate demand. But it should be easy – at least for an average parrot – to tell whether a fall in sales is due to a shortage of supply or a shortage of demand. If a fall in sales is due to a shortage of demand while there is ample supply, then, as quantities fall relative to trend, prices will fall as well. If, on the other hand, the fall in sales is due to a shortage of supply while there is ample demand, then prices will rise as quantities fall. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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China’s Great Migration 9.18.10 | China’s Henan province has a population of about 100 million – larger than that of most countries. In China’s administrative system, a province is at the highest level of sub-national government, followed by counties, cities, and townships. But a township in Guangdong province can easily serve a population of 500,000 to one million – larger than that of many cities outside of China. Thus, it is difficult to overestimate the importance of regional issues – particularly inter-regional disparities – for China’s politics. China is divided by nature. Among the large continental countries, including India and Brazil, only China has a small segment of coastline but vast interior regions. When the main object of human consumption was food, this was not a problem, because what mattered was land and water. But in modern industrial, urban, and market-based societies, what may matter increasingly are transport costs, which means that geography can cause deep regional inequalities. Though such disparities can, of course, have other causes as well, geography does seem to explain a lot. First of all, it explains why China’s coastal regions developed earlier and faster after the country launched its market reforms and opened to the world. It was not “preferential” policies or skewed resource allocation by the government that caused China’s coastal cities to boom, but rather their proximity to the ocean, which was and remains the cheapest way to move resources and products. China may have more and larger high-tech and service industries – sectors that do not depend so heavily on transport – in the future. But, as China grows increasingly dependent on imports of resource commodities to meet its basic needs, its coast will continue to enjoy a transport-cost advantage. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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Muppets and Middle East Peace 9.18.10 | Can furry puppets in Day-Glo colors provide the lessons we need to calm the fires of the Israeli-Palestinian conflict? The Muppet empire is now worldwide. Those who grew up with the children’s educational TV show Sesame Street know that it gives five-year-olds easy-to-take lessons in literacy, numeracy, and social skills. But Sesame Street has a loftier agenda, finding partners in the developing world – including Saudi Arabia, South Africa, and Pakistan – to bring the fuzzy little creatures, with their message of peace and tolerance, to local audiences. A new documentary, “When Muppets Dream of Peace,” tracks the harrowing joint production of Sesame Street in Israel and Palestine, with a Jordanian production team brought in to help facilitate. This program, like so many educational or cultural Israeli-Palestinian partnerships, began in starry-eyed idealism. But, based on the film – and on a recent panel discussion with the filmmakers and a Muppets spokesman in New York City – it was undermined by a common flaw in such partnerships. The original plan – like with so many of these programs – was based on a notion of parity: Israeli and Palestinian production teams would work together. But the Palestinian partners vetoed that idea – “We aren’t there yet,” they explained. Could they have a stand-alone Palestinian Sesame Street? No funding for that, came the reply. The Palestinian team finally agreed to parallel productions with a major “cultural exchange” element – rather than creating segments together, they would produce a series with Palestinian Muppets and adults that also incorporated cartoons and mini-documentaries produced by the Israelis and Jordanians. The other two teams would do likewise. Some unifying characters – such as an Arab- Israeli girl who explains each “side” to the other – would create a measure of continuity. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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Japan’s Savings Crisis 9.18.10 | Japan is heading toward a savings crisis. The potential future clash between larger fiscal deficits and a low household saving rate could have powerful negative effects on both Japan and the global economy. First, some background. Japan was long famous for having the highest saving rate among the industrial countries. In the early 1980’s, Japanese households were saving about 15% of their after-tax incomes. Those were the days of sharply rising incomes, when Japanese households could increase their consumption rapidly while adding significant amounts to their savings. Although the saving rate came down gradually in the 1980’s, it was still 10% in 1990. But the 1990’s was a decade of slow growth, and households devoted a rising share of their incomes to maintaining their level of consumer spending. Although they had experienced large declines in share prices and house values, they had such large amounts of liquid savings in postal savings accounts and in banks that they did not feel the need to increase saving in order to rebuild assets. A variety of forces have contributed to a continuing decline in Japan’s household saving rate. The country’s demographic structure is changing, with an increasing number of retirees relative to the workers who are in their prime saving years. Surveys tell us that younger Japanese are more interested in current consumption and less concerned about the future than previous generations were. And the traditional notion of saving for bequests has waned. The household saving rate therefore continued to fall until it was below 5% at the end of the 1990’s and reached just above 2% in 2009. At the same time, the fiscal deficit is more than 7% of GDP. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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Sarkozy Chooses Dishonor 9.18.10 | “Britain and France had to choose between war and dishonor. They chose dishonor. They will have war.” Winston Churchill’s famous denunciation of the delaying tactics of the British and French on the eve of World War II should be a warning to French President Nicolas Sarkozy. In fanning vicious anti-immigrant passions for short-term political gain, he will have dishonor first and then defeat. For, although a majority of French today may be inclined to sympathize with Sarkozy’s immigrant-bashing rhetoric, there is no guarantee that they will re-elect him in 2012. It is not so much Sarkozy’s performance as president that most Frenchmen reject; it is his essence. At a time of rising unemployment, with France dominated by fears about the future, the French need a reassuring father or mother figure, not a jittery and manipulative leader ready to compromise ethics and France’s proud tradition that every citizen is entitled to equal treatment under the law. Former Prime Minister Michel Rocard did not mince words about Sarkozy’s recent proposals to strip foreign-born French nationals of their citizenship if convicted of threatening the life of a police officer, practicing polygamy, or female “circumcision.” “One has not seen such measures since the Vichy regime or since the Nazis,” Rocard declared. Equating Sarkozy with Marshal Pétain’s collaborationist Vichy regime is, of course, an exaggeration, but Rocard’s concerns are shared by many French – and not only intellectuals and pundits. Even among traditional conservatives, there is a whiff of ethical disgust at Sarkozy. Can the French really violate their values to such an extent? Will re-introduction of the death penalty be the next step on this populist downward spiral? Two years, of course, is a long time in politics, and any predictions today about the presidential vote in 2012 would be imprudent. Yet few analysts today would bet on Sarkozy’s re-election. He proved to be a great candidate in 2007, but he was also running against a particularly weak Socialist contender, Ségolène Royal. In 2012 it is unlikely that a Socialist Party “starved for power” will commit electoral suicide once again by nominating an unelectable figure. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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The IMF and Global Coordination 9.15.10 | Before the crisis of 2008, the International Monetary Fund was in decline. Demand for loans was low, leaving it short of revenue. Asia remained leery of the Fund a full ten years after the currency crises of the late 1990’s. Its analytical talents remained high but downsizing placed them at risk. The crisis changed all that. It became clear that the IMF has a crucial role to play in dealing with crisis-induced instability. Moreover, because of the Fund’s broad and deeply embedded multinational expertise, its activities are central to achieving globally cooperative solutions to economic and financial problems. Without such solutions, the system will tend to become periodically unstable, and to go off on unsustainable paths that end destructively. We have just lived through one of these episodes. The IMF is needed for several key purposes. One involves crisis response. In a global financial upheaval like our most recent one, capital flows shift abruptly and dramatically, causing credit, financing, and balance-of-payments problems, as well as volatile exchange rates. Left unattended, these problems can cause widespread damage in a wide range of countries, many of which are innocent bystanders. The system needs circuit-breakers in the form of loans and capital flows that dampen the volatility and maintain access to financing across the system. A well capitalized IMF, much better capitalized than pre-crisis, should be able to fill this backstop – similar to what central banks do (and did in the crisis) to prevent a credit freeze and the inevitable and excessive economic damage that would result. The new IMF Flexible Credit Line performs this function for what amount to AAA-rated countries. A program that meets the needs of the more vulnerable countries is under construction. The challenge is to find the right mix of pre-approval, limited conditionality, and speed. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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The Eurozone’s Autumn Hangover 9.15.10 | After a summer of Europeans forgetting their woes and tanning themselves at the beach, the time for a reality check has come. For the fundamental problems of the eurozone remain unresolved. First, a trillion-dollar bailout package in May prevented an immediate default by Greece and a break-up of the eurozone. But now sovereign spreads in the peripheral eurozone countries have returned to the levels seen at the peak of the crisis in May. Second, a fudged set of financial “stress tests” sought to persuade markets that European banks’ needed only €3.5 billion in fresh capital. But now Anglo-Irish alone may have a capital hole as high as €70 billion, raising serious concerns about the true health of other Irish, Spanish, Greek, and German banks. Finally, a temporary acceleration of growth in the eurozone in the second quarter boosted financial markets and the euro, but it is now clear that the improvement was transitory. All of the eurozone’s peripheral countries’ GDP is still either contracting (Spain, Ireland, and Greece) or barely growing (Italy and Portugal). Even Germany’s temporary success is riddled with caveats. During the 2008-2009 financial crisis, GDP fell much more in Germany – because of its dependence on collapsing global trade – than in the United States. A transitory rebound from such a hard fall is not surprising, and German output remains below pre-crisis levels. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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Lady Macbeth of Pyongyang 9.14.10 | North Korea’s communist regime is, by most accounts, set to complete its second dynastic transfer of power, this time from Kim Jong-il, who has ruled since 1994, to his youngest son, Kim Jong-eun. The general assembly of North Korea’s Workers’ Party, now underway for the first time in 44 years, is the clearest sign yet that “Dear Leader” Kim, who is seriously ill, is passing the crown in the hermit kingdom founded by his father, Kim Il-sung. One reason why a dynastic succession is taking place is that Kim Il-sung created a national ideology, Juche, which mixes communism and autarky with a heavy dose of Confucian values. Confucianism exalts an idealized bond between father and son as the model for all human relations, including between ruler and ruled. So, just as a Confucian son’s absolute duty is to revere his father, the absolute duty of a Confucian subject is to revere the ruler. Moreover, Kim Jong-il, like his father, has consistently appointed members of his family to positions of power. Indeed, Kim Jong-eun, the third son of Kim Jong-il and his late consort Ko Young-hee, was mooted as his father’s successor almost a year ago. North Korean propagandists proclaim Kim Jong-eun “the Young General,” but whether he will exercise the same absolutist authority as his father is an open question. Not only is he young and inexperienced, but his aunt, Kim Kyong-hui, Kim Jong-il’s sister and the wife of the second-ranking figure in North Korea’s hierarchy, Chang Song-taek, may balk at power slipping through her fingers. Although rarely seen or heard, Kim Kyong-hui, born on May 30, 1946 to Kim Il-sung and his first wife Kim Jong-suk, has served in a range of key Workers’ Party positions, including deputy director of the International Department and director of the Light Industry Department. She became a member of the all-powerful Central Committee in 1988 – a post she retains to this day. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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Smarter Thinking on Climate Change 9.9.10 | Politicians and commentators are understandably pessimistic about the chances of an international deal on carbon cuts emerging from the United Nations summit in Mexico this December. Nothing has been resolved since the Copenhagen climate talks fell apart last year. Fortunately, recent research points to a smarter way to tackle climate change. There is no longer any mainstream disagreement about the reality of global warming. The crucial questions concern the economics of our response. But this debate can be just as heated. Ever since I published The Skeptical Environmentalist in 2001, I have always acknowledged that man-made global warming is real. Yet activists have repeatedly labeled me a “climate-change denier.” This is not because I have ever suggested that the basic science of global warming is wrong. Rather, it reflects anger and frustration over my insistence on pointing out that drastic carbon cuts make no sense. The Copenhagen Consensus Center – a think tank where I serve as director – recently asked a large group of top climate economists to explore the costs and benefits of different responses to global warming. At the same time, we convened a second, equally stellar group of economists, including three Nobel laureates, to examine all of the research and rank the proposals in order of desirability. Cambridge University Press is publishing their research and findings this month, under the title Smart Solutions to Climate Change. The book includes a chapter by prominent climate economist Richard Tol, who has been a contributing, lead, principal, and convening author for the United Nations’ Intergovernmental Panel on Climate Change. In his chapter, Tol shows why grand promises of drastic, immediate carbon cuts are such a flawed strategy. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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A Productivity Boom-in-Waiting? 9.9.10 | A double-dip recession is one thing, but a lost decade is something far more sinister. In the United States, there is growing concern that the worst recession since the Great Depression has damaged the economy’s capacity to grow. Indeed, there are good reasons for worrying that the US and other advanced countries will now be consigned to a long period of sub-par growth. Having been burned by the crisis, banks have tightened their lending standards, and will now be subject to more stringent capital and liquidity requirements. As a result, bank credit will be harder to obtain. A more limited supply of bank credit will mean higher capital costs. Small and medium-sized firms – the most important sources of innovation and employment growth – will feel the effects most acutely. Governments, for their part, will come out of the crisis more heavily indebted, which implies higher future taxes, less investment, and hence slower rates of growth. Another worry is that the crisis will create a hard core of long-term unemployed whose skills atrophy and who become stigmatized in the eyes of potential employers. Rising structural unemployment will reduce labor input and efficiency. It is harder to grow when construction workers and hedge-fund managers have to be retrained to work as welders and nurses. This mismatch between skills supplied and demanded represents a serious drag on employment growth. All of these effects were evident in the wake of the Great Depression, too. In the US, there was zero growth in bank lending between 1933, the trough of the Depression, and 1937, the subsequent business-cycle peak. Investment suffered. Stocks of both equipment and structures were actually lower in 1941 than in 1929. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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Is Chinese Mercantilism Good or Bad for Poor Countries? 9.9.10 | China’s trade balance is on course for another bumper surplus this year. Meanwhile, concern about the health of the US recovery continues to mount. Both developments suggest that China will be under renewed pressure to nudge its currency sharply upward. The conflict with the US may well come to a head during Congressional hearings on the renminbi to be held in September, where many voices will urge the Obama administration to threaten punitive measures if China does not act. Discussion of China’s currency focuses around the need to shrink the country’s trade surplus and correct global macroeconomic imbalances. With a less competitive currency, many analysts hope, China will export less and import more, making a positive contribution to the recovery of the US and other economies. In all this discussion, the renminbi is viewed largely as a US-China issue, and the interests of poor countries get scarcely a hearing, even in multilateral fora. Yet a noticeable rise in the renminbi’s value may have significant implications for developing countries. Whether they stand to gain or lose from a renminbi revaluation, however, is hotly contested. On one side stands Arvind Subramanian, from the Peterson Institute and the Center for Global Development. He argues that developing countries have suffered greatly from China’s policy of undervaluing its currency, which has made it more difficult for them to compete with Chinese goods in world markets, retarded their industrialization, and set back their growth. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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Fixing America’s Broken Housing Market 9.3.10 | A sure sign of a dysfunctional market economy is the persistence of unemployment. In the United States today, one out of six workers who would like a full-time job can’t find one. It is an economy with huge unmet needs and yet vast idle resources. The housing market is another US anomaly: there are hundreds of thousands of homeless people (more than 1.5 million Americans spent at least one night in a shelter in 2009), while hundreds of thousands of houses sit vacant. Indeed, the foreclosure rate is increasing. Two million Americans lost their homes in 2008, and 2.8 million more in 2009, but the numbers are expected to be even higher in 2010. Our financial markets performed dismally – well-performing, “rational” markets do not lend to people who cannot or will not repay – and yet those running these markets were rewarded as if they were financial geniuses. None of this is news. What is news is the Obama administration’s reluctant and belated recognition that its efforts to get the housing and mortgage markets working again have largely failed. Curiously, there is a growing consensus on both the left and the right that the government will have to continue propping up the housing market for the foreseeable future. This stance is perplexing and possibly dangerous. It is perplexing because in conventional analyses of which activities should be in the public domain, running the national mortgage market is never mentioned. Mastering the specific information related to assessing creditworthiness and monitoring the performance of loans is precisely the kind of thing at which the private sector is supposed to excel. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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Can Russia Be Great? 9.3.10 | In the 1950’s, many Americans feared that the Soviet Union would surpass the United States as the world’s leading power. The Soviet Union had the world’s largest territory, the third largest population, and the second largest economy, and it produced more oil and gas than Saudi Arabia. Moreover, the USSR possessed nearly half of the world’s nuclear weapons, had more men under arms than the US, and had the most people employed in research and development. It detonated a hydrogen bomb in 1952, only one year after the US, and it was the first to launch a satellite into space, in l957. In terms of soft power, communist ideology was attractive in post-World War II Europe, owing to its anti-fascist credentials, and in the Third World because of its identification with popular national-independence movements. Soviet propaganda actively fostered a myth of the inevitability of communism’s triumph. Nikita Khrushchev famously boasted in 1959 that the Soviet Union would overtake the US by 1970, and by 1980 at the latest. As late as 1976, Leonid Brezhnev told the French president that communism would dominate the world by 1995. Such predictions were bolstered by reported annual economic growth rates of 5-6% and an increase in the USSR’s share of global output, from 11% to 12.3%, between 1950 and 1970. After that, however, the Soviet growth rate and share of global output began a long decline. In 1986, Mikhail Gorbachev described the Soviet economy as “very disordered. We lag in all indices.” A year later, Foreign Minister Eduard Shevardnadze told his officials, “You and I represent a great country that in the last 15 years has been more and more losing its position as one of the leading industrially developed nations.” Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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Recession Geopolitics 9.3.10 | The news that China has overtaken Japan as the world’s second largest economy did not come as a surprise. This is the major geo-political outcome of the Great Recession of the early twenty-first century – one that carries both economic hope and political fear. First, the good news: the economic side of the case.China’s response of to the world economic crisis is the central reason why the financial turbulence that emanated from the US sub-prime debacle did not completely destroy the world economy and lead to a repeat of the 1930’s Great Depression. In a famous analysis of the Great Depression, the economic historian Charles Kindleberger argued that it arose from a failure of world leadership. Great Britain had been the hegemonic power of the nineteenth century, but its creditor status had been severely eroded by the cost of fighting World War I. The United States had emerged from the war as the world’s largest creditor, but it had a double vulnerability. Its financial system was unstable and prone to panics, and its political system was immature and prone to populism and nativism. In the Depression, according to Kindleberger, the US should have provided an open market to foreign goods. Instead, the Smoot-Hawley Tariff Act closed off American markets and provoked other countries into a spiral of retaliatory trade measures. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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Colombia’s New Dawn 9.3.10 | Trapped since the 1960’s in a protracted armed conflict with the most unscrupulous militias imaginable, and hostage to drug lords who turned the country’s vast rural areas into fiefdoms of crime and untold atrocities, Colombia long projected to the world the image of a country addicted to violence. But no more. The Colombian paradox is that violence and the drug economy coexisted with one of the oldest and most genuinely constitutional traditions in Latin America. Yet a long succession of presidents failed to solve the paradox. It was Alvaro Uribe’s exceptionally effective administration in 2002-2010 that finally made the difference. President Uribe’s unwavering fortitude in sticking to his policy of “democratic security” – admittedly, its flaws were rightly and severely criticized by human rights groups – radically changed Colombia’s course and national self-image. Violence decreased most significantly with the disbanding of the right-wing paramilitaries, and with the decimation in battle of the left-wing FARC guerillas and the decapitation of its leadership. Colombia’s homicide rate, for years one of the highest in the world, has almost halved since 2002. Moreover, Colombia is no longer the world’s gold medalist in producing cocaine. According to a report by the United Nations Office Against Drug and Crime, Colombia’s cocaine output has now reached its lowest level since 2000. In 2009 alone, the government eradicated more than 165,000 hectares of coca. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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The Skills Deficit 9.1.10 | Two years after the world economy suffered a nervous breakdown in the wake of the collapse of Lehman Brothers, global financial markets remain unsettled, and the recovery that started so vigorously in 2009 seems to be stalling. The slowdown has predictably led to calls for further fiscal and monetary stimulus. The argument seems simple: only a massive dose of government spending and massive central-bank support for the financial system prevented a slide into a second Great Depression, so more of the same medicine is now needed to prevent a slide back into recession. This argument seems particularly strong in the United States, which during the long boom years grew accustomed to unemployment rates of around 5% and steady growth in consumption. But, in assessing the outlook for the US economy, one should not compare low quarterly growth rates (the data for April-June are particularly disappointing) and the current unemployment rate of almost 10% to the “goldilocks” bubble period. A longer-term view is required, because the US is facing a structural-adjustment challenge that will be accompanied by high unemployment. Like Southern Europe, the US economy must move away from the consumption/housing-led growth model of the last decade. President Barack Obama has encapsulated this challenge by setting the goal of doubling US exports over the next decade. But this is easier said than done. The structural shift towards exports will be difficult and time-consuming mainly because producing the high-tech goods that the US should be exporting requires a skilled workforce, which has largely been lost and cannot be re-created overnight. During the ten years preceding the peak of the bubble in 2007, about four million jobs were lost in the US manufacturing sector, whose share in total employment fell from more than 17% to 12%. Unemployment remained low because the booming domestic economy created enough jobs in services and construction. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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Why America Isn’t Working 9.1.10 | As the US economy limps toward the second anniversary of the Lehman Brothers bankruptcy, anemic growth has left unemployment mired near 10%, with little prospect of significant improvement anytime soon. Little wonder that, with mid-term congressional elections coming in November, Americans are angrily asking why the government’s hyper-aggressive stimulus policies have not turned things around. What more, if anything, can be done? The honest answer – but one that few voters want to hear – is that there is no magic bullet. It took more than a decade to dig today’s hole, and climbing out of it will take a while, too. As Carmen Reinhart and I warned in our 2009 book on the 800-year history of financial crises (with the ironic title “This Time is Different”), slow, protracted recovery with sustained high unemployment is the norm in the aftermath of a deep financial crisis. Why is it so tough to boost employment rapidly after a financial crisis? One reason, of course, is that the financial system takes time to heal – and thus for credit to begin flowing properly again. Pumping vast taxpayer funds into financial behemoths does not solve the deeper problem of deflating an overleveraged society. Americans borrowed and shopped until they were blue in the face, thinking that an ever-rising housing price market would wash away all financial sins. The rest of the world poured money into the US, making it seem as if life was one big free lunch. Even now, many Americans believe that the simple solution to the nation’s problem is just to cut taxes and goose up private consumption. Cutting taxes is certainly not bad in principle, especially for supporting long-term investment and growth. But there are several problems with the gospel of lower taxes. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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America’s Saving Surprise 8.31.10 | The household saving rate in the United States has tripled in the past three years. Why? And what does it mean for the US economy and the rest of the world? The rapid rise in saving has reduced consumer spending, slowing the pace of GDP growth in 2009 and in early 2010. If the saving rate continues to rise rapidly, it could push America’s fragile economy into another downturn. That would mean lower imports, creating a potential problem for countries that depend for their employment on exporting to the US. Higher household saving depresses consumption because it is the difference between households’ after-tax income and what they spend. The saving may be deposited in bank accounts or used to buy mutual funds or corporate stock. Saving may also take the form of individual contributions to retirement accounts or employer contributions to corporate saving plans. Paying down debt on credit cards or mortgages also counts as saving – but increases in the value of existing assets like stocks or real estate do not, even though they increase the value of household wealth. In any year, some households are savers and others, especially retirees, are dissavers that use past saving to finance current consumption. The nation’s net household saving rate is the difference between the saving of the savers and the dissaving of the dissavers. The recent rise in the US household saving rate reversed a long-term decline that began 25 years ago. Before that, between 1960 and 1985, American households saved an average of 9% of their after-tax incomes. The saving rate in each of those 25 years was between 7% and 11%. But, after 1985, a variety of changes caused saving to decline until it reached less than 2% in 2007. One reason was that rising stock markets and higher house prices made individuals wealthier, reducing their need to save for retirement and allowing retirees to dissave more. The general shift from defined-benefit pension plans to defined-contribution plans meant that employees felt the effect of rising share prices directly in their own personal accounts. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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Is Low-Wage China Disappearing? 8.24.10 | Reports about labor shortages, wage disputes, and wage increases for migrant workers in China have abounded of late. They naturally raised concerns, or expectations, that China’s labor-cost advantages may be disappearing. It is my hope that China’s comparative advantage as a low-wage producer does disappear – the sooner the better. But why should I, a Chinese economist, wish to see China’s competitiveness reduced through rising labor costs? After all, when a country still lacks real advantages, such as higher education, efficient markets and enterprises, and a capacity for innovation, it needs something like low wages to maintain growth. While cheap labor has been a key factor in generating high growth over the past three decades, it has also contributed to profound income disparities, especially in recent years. And persistent, widening inequality might cause social crises that could interrupt growth and damage competitiveness. China must avoid such a scenario, and if wages could increase in some meaningful way, it would indicate that the economy might finally reach the next stage of development, during which income disparities would be narrowed. Unfortunately, China has not yet reached that point – and will not any time soon. Agriculture remains the main source of income for more than 30% of China’s labor force, compared to less than 2% in the United States or 6% in South Korea. Another 30% of the labor force comprises migrant workers, who have doubled their incomes by moving from agriculture to the industrial and service sectors. Although migrant workers earn only about $1,500 per year on average, the income gap between them and agricultural laborers provides a powerful incentive for the latter to try to find better-paid non-farm jobs. Naturally, this competition in the labor market suppresses non-farm wages: whereas labor productivity in non-farm sectors increased by 10-12% annually in the past 15 years, migrant workers’ real wages have increased by only 4-6% per year. As a result, income disparity between low-end labor, on the one hand, and professionals and investors, on the other, has also increased. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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The Single Mother Makeover 8.24.10 | In the 1992 United States presidential election, George H. W. Bush’s campaign made a political splash by going after the television show Murphy Brown – one of the first times, but far from the last, that a fictitious character was introduced to score political points in America. Murphy Brown, played by actress Candice Bergen, was a TV anomaly at that time: a sympathetically portrayed single mother. So Bush’s vice president, Dan Quayle, attacked the show for normalizing rather than stigmatizing single motherhood. Much hand-wringing followed, with single mothers (never, at that time, single fathers) cast as harbingers of doom for core American values. The implication was that selfish me-first feminists (if they were affluent white women) or feckless social parasites (if they were low-income women of color) were putting their own interests above their children’s. Daniel Patrick Moynihan’s widely reprinted study The Negro Family: The Case for National Action painted a picture of single motherhood as the primary instigator of inner-city and especially African-American criminality, illiteracy, and drug use. How times have changed. Just as single mothers were irrationally castigated then, so today an equally irrational hagiography has risen around them. (Europe has more single mothers than the US, but, characteristically, has less need to moralize about them one way or the other). In US pop culture, the single mother has evolved from selfish yuppie or drug-dazed slut into a woman who is more fun, slightly more heroic, and certainly less frumpy than her married counterpart. Indeed, single mothers are the new maternal ideal – women whose maternal drive is so selfless and intense that they choose to raise children even under the burden of their solitary status. Angelina Jolie’s photo spread with her toddler son, adopted from Cambodia, in Vanity Fair heralded this shift: the sexy young woman and her son in a luxurious hotel bedroom made single motherhood look fun and glamorous. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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Growth in a Buddhist Economy 8.24.10 | I have just returned from Bhutan, the Himalayan kingdom of unmatched natural beauty, cultural richness, and inspiring self-reflection. From the kingdom’s uniqueness now arises a set of economic and social questions that are of pressing interest for the entire world. Bhutan’s rugged geography fostered the rise of a hardy population of farmers and herdsmen, and helped to foster a strong Buddhist culture, closely connected in history with Tibet. The population is sparse – roughly 700,000 people on territory the size of France – with agricultural communities nestled in deep valleys and a few herdsmen in the high mountains. Each valley is guarded by a dzong (fortress), which includes monasteries and temples, all dating back centuries and exhibiting a masterful combination of sophisticated architecture and fine arts. Bhutan’s economy of agriculture and monastic life remained self-sufficient, poor, and isolated until recent decades, when a series of remarkable monarchs began to guide the country toward technological modernization (roads, power, modern health care, and education), international trade (notably with neighboring India), and political democracy. What is incredible is the thoughtfulness with which Bhutan is approaching this process of change, and how Buddhist thinking guides that thoughtfulness. Bhutan is asking itself the question that everyone must ask: how can economic modernization be combined with cultural robustness and social well-being? In Bhutan, the economic challenge is not growth in gross national product, but in gross national happiness (GNH). I went to Bhutan to understand better how GNH is being applied. There is no formula, but, befitting the seriousness of the challenge and Bhutan’s deep tradition of Buddhist reflection, there is an active and important process of national deliberation. Therein lies the inspiration for all of us. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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Taking August Seriously 8.24.10 | Europe’s holiday month of August is no time for serious politics. The world and its worries are meant to close down while Europeans repose. I usually spend the month with my family at our old converted farmhouse in southwestern France. It is the deepest countryside. As I write this under a vine in my vegetable garden, I look west across wooded hills and cannot see another building. In our hamlet, there is one small working farm, a couple of holiday houses and the ruins of seven or eight other houses. A century ago, this would have been a community of more than 50 people. Today, there are two full-time residents, the farmer and her elderly mother. Otherwise, the inhabitants are vacation visitors. Progress in France brought a fairly recent migration from country to town. “How is it,” a local pig farmer asked me a few a years ago, “that we locals all want to get out of here, and you northern European city dwellers want to buy up our old farmhouses and move in?” It is a part, I suppose, of the urban, middle-class northern European dream – the pursuit of the sun by day and silence by night. Even in the 15 years that we have owned this former tobacco farm, further progress has left its mark. In our village, there used to be two of every shop – butcher’s shop, bakery, hardware store. Now, there is only one. Supermarkets in the surrounding towns have driven the smaller shops out of business. I guess they provide more choice, and they are probably cheaper. But the commercial life has been squeezed out of local villages. Another mark of progress is the arrival of a broadband Internet connection. So now I can use my laptop just as though I was at home in London, and the satellite dish gives us the world’s television and radio stations as well. This is an advance in many respects. But I used to be able to switch off from the world when on holiday, cut off from the intrusions of technology. Today there are no excuses. I am always on duty. Thanks to our television, we have of course been able to witness signs of progress elsewhere. Maybe the terrible floods in Pakistan and China are not the direct result of climate change. But the evidence seems to suggest that variations in climactic conditions are increasing in scale and frequency. We know that a 17-fold increase in the carbon dioxide in our atmosphere over the last century is part of the price of the surge in our prosperity, and that the world’s poorest citizens will bear the heaviest burden in paying it. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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The Future of Internet Search 8.19.10 | Imagine that Googling an address gave you a list of the closest buildings, ranked by distance. Not exactly what you were looking for, most likely. But that is pretty close to what we still accept for most Internet searches. You don't get what you actually want to finish your task; you get a list of pages that might lead you to it. That is beginning to change. Even as the online world has turned its attention from searching to social networking, search is getting interesting again. Consider the development of online search in the broadest terms. First came Yahoo!, with its carefully cultivated (by human editors) catalogue of interesting web pages. Then along came Google, with co-founder Larry Page’s innovative ranking of Web pages not just by their content, but also by the quantity and quality of other pages that link to them. Social networking brings a new insight. People are likely to buy what their friends recommend, which is why marketers should spend time on social networks and join the conversation, rather than interrupt it with traditional advertising. But what happens when, influenced by their friends, people actually go to buy something or take some action? That long list of blue links to pages that may or may not contain what they want looks pretty old. Now, however, something is happening to fix this, and it’s not just a prettier background. It’s structure – the same sort of context the old Yahoo! catalogue supplied, but this time automatically generated and deeper – and across more than just a few categories such as sports and travel. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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The Bonus Risk 8.13.10 | In its July session, the European parliament approved some of the strictest rules in the world on the bonuses paid to bankers. The aim is to curb risk-taking by financial institutions. The new rules require that no more than 30% of bankers’ bonuses be paid in cash, that between 40% and 60% be deferred for at least three years, and that at least 50% be invested in “contingent capital,” a new form of debt that converts to equity when a financial company is in distress. The most innovative aspect of these new rules is that the limits do not apply only to financial institutions’ chief executive officers, but to all the top managers (though the definition of top managers is delegated to national parliaments). The alleged justification for this major interference in private contracting is the systemic effect that these bonuses can have. High pay in the banking sector, so the argument goes, rewards success but does not penalize failure. Managers can easily move from firm to firm when things go badly, avoiding any punishment. This system rewards managers for taking risks, even when the risk is excessive. This distortion is perceived to be one of the main causes of the 2008 financial crisis. The problem with this argument is that there is no evidence supporting the first crucial link in its logic. Much research has tried to establish a connection between bankers’ compensation schemes and risk-taking, but has failed to find one. At most, such research has found that more highly paid executives took greater risks, but it is unclear whether this is a cause or an effect. Executives in highly leveraged institutions should be paid more, because they bear more risk. To be sure, these investigations are limited to the top five executives, for which data is publicly available. Unfortunately, there is no publicly available data to establish a causal relationship between bonuses’ pay-for-performance sensitivity and risk-taking for lower-level managers. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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Four Steps to US Fiscal Health 8.13.10 | The United States has a significant budget deficit, likely to be $1.3 trillion (10% of GDP) this year, and the long-term forecasts are worrying. According to the Congressional Budget Office (CBO, the leading nonpartisan experts), Social Security, together with Medicare, Medicaid, and other health-care programs, will grow to consume almost all tax revenues by 2035. The US can finance these deficits in the short term – in fact, interest rates on US Treasuries have recently fallen to record low levels. But if there is no serious effort at fiscal consolidation, serious trouble lies ahead, both for the US and for the world economy. Thus, the US urgently needs to begin making four serious changes. The first is comprehensive tax reform aimed at aligning tax policy with desirable economic incentives. In particular, the US should consider introducing a value-added tax (VAT), widely used in other industrialized countries. By levying a tax on consumption at each stage of the production chain, America could reduce the overconsumption that helped feed the recent credit bubble, encouraging savings and investment instead. To be sure, a simple VAT is regressive, though it can be made progressive by combining it with a partial rebate or by exempting necessities. Moreover, the US should look hard at tax breaks that act like hidden spending programs. One place to start is the tax deduction for interest payments on home mortgages. The deduction is currently available on mortgages of up to $1 million, this forming a key component of America’s excessive incentives to buy houses – a policy eschewed by most other industrialized countries. The second change is carbon pricing, either by auctioning emissions allocations or by taxing carbon directly, at rates that start low and rise over the coming decades. Given large potential revenues – in 2008, the CBO estimated that one proposal would yield $145 billion in 2012 and more in subsequent years – it would make sense to dedicate a portion to cushioning the impact of higher energy prices on the poor, while applying the rest to the fiscal balance. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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Can We Regulate Systemic Risk? 8.13.10 | In the past two years, two dangerous episodes of financial instability and sudden changes in market dynamics have hit the world economy. More are likely, because the global economy is out of balance in several respects as it emerges from the crisis, particularly in terms of sovereign debt and the structure of global demand. Systemic risks drive most crises, and pose a challenge for several reasons. First, they are not easy to detect with confidence, and are even more difficult to prove. Second, predicting the exact timing of a break point (when bubbles burst, markets lock up, and credit freezes) is, and will likely remain, beyond our ability. Finally, crises are highly non-linear events, which means that they occur without much warning. Periodic outbreaks of instability impose high social costs on those who had the least to do with causing them. If repeated, this pattern may erode confidence in financial markets and regulators, which could well lead to heavy-handed regulation, the expansion of the state, and retrenchment from globalization. But the problem is even more serious. The financial and economic crisis is morphing into a sovereign debt crisis in advanced countries. Financial and economic imbalance can lead to dangerous fiscal imbalance, as tax revenues plunge and social insurance and bailout expenditures rise. The International Monetary Fund suggests that as much as 75% of the “fiscal stimulus” in the advanced countries comprises non-discretionary counter-cyclical measures. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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Hillary’s Kissinger Moment 8.13.10 | Hillary Clinton’s recent trip to Asia may one day be seen as the most significant visit to the region by a United States diplomat since Henry Kissinger’s secret mission to Beijing in July 1971. Kissinger’s mission triggered a diplomatic revolution. Renewal of US-Chinese relations shifted the global balance of power at the Cold War’s height, and prepared the way for China to open its economy – the decision that, more than any other, has defined today’s world. What Clinton did and said during her Asian tour will mark either the end of the era that Kissinger initiated four decades ago, or the start of a distinct new phase in that epoch. Clinton’s tour produced the clearest signals yet that America is unwilling to accept China’s push for regional hegemony. Offstage at the Association of Southeast Asian Nations (ASEAN) summit in Hanoi, Clinton challenged Chinese Foreign Minister Yang Jiechi over Beijing’s claim that its ownership of the Spratly Islands in the South China Sea was now a “core interest.” By that definition, China considers the islands (whose ownership is disputed by Vietnam and the Philippines) as much a part of the mainland as Tibet and Taiwan, making any outside interference taboo. Rejecting this, Clinton proposed that the US help establish an international mechanism to mediate the overlapping claims of sovereignty between China, Taiwan, the Philippines, Vietnam, Indonesia, and Malaysia that now exist in the South China Sea. For China, Clinton’s intervention came as a shock, and, given the warm response she received from her Vietnamese hosts – despite criticizing Vietnam’s human-rights record – the US Secretary of State may well have raised the issue at least partly at their urging, and perhaps with additional prompting from Malaysia and the Philippines. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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Who’s Afraid of Climate Change? 8.11.10 | Imagine that over the next 70 or 80 years, a giant port city – say, Tokyo – found itself engulfed by sea levels rising as much as 15 feet or more. Millions of inhabitants would be imperiled, along with trillions of dollars worth of infrastructure. This awful prospect is exactly the sort of thing global-warming evangelists like Al Gore have in mind when they warn that we must take “large-scale, preventive measures to protect human civilization as we know it.” The rhetoric may sound extreme, but with so much hanging in the balance, surely it’s justified. Without a vast, highly coordinated global effort, how could we possibly cope with sea-level rises on that order of magnitude? Well, we already have. In fact, we’re doing it right now. Since 1930, excessive groundwater withdrawal has caused Tokyo to subside by as much as 15 feet, with some of the lowest parts of the downtown area dropping almost a foot per year in some years. Similar subsidence has occurred over the past century in a wide range of cities, including Tianjin, Shanghai, Osaka, Bangkok, and Jakarta. In each case, the city has managed to protect itself from such large sea-level rises and thrive. The point isn’t that we can or should ignore global warming. The point is that we should be wary of hyperbolic predictions. More often than not, what sound like horrific changes in climate and geography actually turn out to be manageable – and in some cases even benign. Consider, for example, the findings of climate scientists Robert J. Nicholls, Richard S.J. Tol, and Athanasios T. Vafeidis. In research funded by the European Union, they studied what the global economic impact would be if global warming were to result in a collapse of the entire West Antarctic Ice Sheet. An event of this magnitude would likely cause the oceans to rise by perhaps 20 feet over the next hundred years – precisely the sort of thing that environmental activists have in mind when they warn about potential end-of-the-world calamities. But would it really be all that calamitous? Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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Marriage Counseling for the G-20 and the IMF 8.10.10 | The relationship between the International Monetary Fund and the G-20 is symbiotic but conflicted. Like a long-married couple who habitually bicker and fight, the two can’t seem to live together – but they can’t live apart, either. The question of what to do about this relationship is coming to a head in advance of the November G-20 summit chaired by South Korea. Since the 1997-1998 crisis, Asian governments have sought to keep their distance from the Fund. It is admirable, therefore, that South Korea’s government has taken the lead in discussions about reforming the IMF’s mandate. It has contributed significantly to international thinking on the design of new lending facilities. The IMF’s crisis-prevention efforts begin with its country surveillance, as provided for by Article IV of its Articles of Agreement. The problem with these exercises is that they are regularly relegated to the “duly noted” bin: governments receive them, file them away, and go back to doing what they were doing before. A further problem is that these exercises rarely address the implications of national policies for third countries and the international system. Article IV surveillance of the United States during the sub-prime mortgage boom said little about the dangers posed by such lending for international financial markets. Article IV reviews of China have similarly said little about the implications of the country’s policies for global imbalances. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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Japan’s Unfinished Reformation 8.4.10 | Revolutions, it is often claimed, do not happen when people are desperate. They occur in times of rising expectations. Perhaps this is why they so often end in disappointment. Expectations, usually set too high to begin with, fail to be met, resulting in anger, disillusion, and often in acts of terrifying violence. Japan’s change of government in 2009 – when the Democratic Party of Japan (DPJ) broke the almost uninterrupted monopoly on power held by the Liberal Democratic Party (LDP) since 1955 – was not a revolution. But, rather like the election of the first black president of the United States, it was fizzing with popular expectations, promising a fundamental shift from the past. This was even truer of Japan than the US. The DPJ not only put many new faces into power, it was going to change the nature of Japanese politics. At last, Japan would become a fully functioning democracy, and not a de facto one-party state run by bureaucrats. To judge from the Japanese press, as well as the DPJ’s plunging poll ratings, disillusion has already set in. The permanent bureaucracy proved resistant, and DPJ politicians, unused to power, made mistakes. One of the worst was Prime Minister Naoto Kan’s announcement in June of a consumption-tax hike just before the Upper House elections, which the DPJ went on to lose badly. The other disappointment has been the government’s failure to get the US to move its Marine airbase out of Okinawa. This promise by the DPJ was meant to be part of Japan’s new assertiveness, a first step away from being a mere “aircraft carrier” for the US, as a former LDP prime minister once described his country. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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The Crisis Down Under 8.4.10 | The Great Recession of 2008 reached the farthest corners of the earth. Here in Australia, they refer to it as the GFC – the global financial crisis. Kevin Rudd, who was prime minister when the crisis struck, put in place one of the best-designed Keynesian stimulus packages of any country in the world. He realized that it was important to act early, with money that would be spent quickly, but that there was a risk that the crisis would not be over soon. So the first part of the stimulus was cash grants, followed by investments, which would take longer to put into place. Rudd’s stimulus worked: Australia had the shortest and shallowest of recessions of the advanced industrial countries. But, ironically, attention has focused on the fact that some of the investment money was not spent as well as it might have been, and on the fiscal deficit that the downturn and the government’s response created. Of course, we should strive to ensure that money is spent as productively as possible, but humans, and human institutions, are fallible, and there are costs to ensuring that money is well spent. To put it in economics jargon, efficiency requires equating the marginal cost associated with allocation (both in acquiring information about the relative benefits of different projects and in monitoring investments) with the marginal benefits. In a nutshell: it is wasteful to spend too much money preventing waste. While the focus for the moment is on public-sector waste, that waste pales in comparison to the waste of resources resulting from a malfunctioning private financial sector, which in America already amounts to trillions of dollars. Likewise, the waste from not fully utilizing society’s resources – the inevitable consequence of not having had such a quick and strong stimulus – exceeds that of the public sector by an order of magnitude. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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King Coal’s Pyrrhic Victory 8.4.10 | Sometimes the most important news is what is not happening. This summer has given us one such example: the climate-change bill, for which President Barack Obama had pushed so hard, will not even be presented to the United States Senate, because it stands no chance of passage. This means that the US is about to repeat its “Kyoto experience.” Twenty years ago, in 1990, the US participated (at least initially) in the first global talks aimed at achieving a global accord to reduce CO2 emissions. At the time, the European Union and the US were by far the greatest emitters, so it seemed appropriate to exempt the world’s emerging economies from any commitment. Over time, it became apparent that the US would not live up to its commitment, owing, as now, to opposition in the Senate. The EU then went ahead on its own, introducing its path-breaking European Emission Trading System in the hope that Europe could lead by example. Without the American climate-change package, the promises made by the US administration only seven months ago at the Copenhagen summit have become worthless. The European strategy is in tatters – and not only on the transatlantic front. China’s commitment to increase the CO2 efficiency of its economy by about 3% per year is of no help, because annual GDP growth rates of close to 10% mean that the country’s emissions will soar during this decade. Indeed, by 2020, Chinese emissions could be more than triple those of Europe and even surpass those of the US and Europe combined. Exempting emerging markets from any commitments, as the Kyoto Protocol sought to do, no longer makes sense. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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The Phantom Middle East Peace Process 8.4.10 | Twenty years after the Madrid Peace conference, and ten years after President Bill Clinton’s heroic efforts at Camp David failed to yield a settlement between Israelis and Palestinians, one cannot escape the conclusion that the Israeli-Palestinian peace process has become one of the most spectacular deceptions in modern diplomatic history. The process fell victim to the parties’ inability to bridge the gap between what was politically feasible for them and what was required for a settlement. Trapped between the possible and the necessary, Israelis and Palestinians simply learned to live without a solution. However obsessed international opinion may be with Gaza’s agony, to most Israelis the Palestinian “problem” seems to be happening on the dark side of the moon. The wall/fence in the West Bank and Ariel Sharon’s disengagement from Gaza have practically done away with daily friction between Jews an Arabs. Absorbed by their booming economy, reassured by President Barack Obama’s recent commitment never to let Israel down, and convinced of their success in defeating Palestinian terrorism in the West Bank and deterring Hamas from venturing into another war, Israelis have lost any sense of urgency concerning the Palestinian problem. Israelis also find satisfaction in the relative prosperity of the West Bank, where order and stability are being secured by well-trained security forces, in line with Prime Minister’s Salam Fayyad’s meticulous bottom-up construction of Palestinian statehood. Moreover, massive inflows of international aid make Israel’s occupation one of the most convenient in world history; the Israelis control the land and its population without having to bear the financial burden of direct rule. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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Distressing Stress Tests 8.4.10 | The stress tests applied to American banks last year are widely credited with restoring financial stability in the United States and removing the fear that major financial institutions might fail. Europeans hope that the recent publication of the results of stress tests that were applied to their own banks will have the same effect. But, while the results of the tests may be good for the financial sector, they may be bad for the real economy. The financial crisis is over, but the age of general economic slowdown is only just beginning. Financial crises have two sorts of effects on the real economy. In the acute stage of the crisis, there is so much nervousness and anxiety that it is almost impossible for anyone to borrow. The inter-bank market dries up, as banks lose trust in one another. Only central banks – typically lenders of last resort – lean against the hurricane-strength winds. It was the complete collapse of trade credit that sent global commerce into a tailspin for half a year after the failure of Lehman Brothers in September 2008. At moments like these, financial crises look like a heart attack – wreaking immediate and devastating damage to the whole of the economic body. Indeed, financial stress tests – designed to estimate the likelihood of bank failures in the event of bad economic news – are intended to be the equivalent of cardiac stress tests. And, like most cardiac stress tests, the primary aim is to reassure. We do not want to see another heart attack – or another financial crisis. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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God Crashes the Tea Party 7.30.10 | Where does America put God? Historically, there has always been tension between the separation of church and state that the United States has enshrined in its Constitution and regular upsurges of religious faith, even religious extremism, that seek an outlet in the political process – or even seek to dominate it. Nowhere is this tension more visible today than in the struggle for the political soul of the Tea Party. For, as the coalition on the religious right that dominated American conservatism since the 1980’s has begun to fall apart, some of the same Christian fundamentalist elements are seeking to absorb – some would say take over – the originally non-sectarian Tea Party. The Tea Party emerged from a laudably grassroots base: libertarians, fervent Constitutionalists, and ordinary people alarmed at the suppression of liberties, whether by George W. Bush or Barack Obama. Libertarians, of course, tend to understand church-state separation: if you don’t want government intruding in your life, you definitely don’t want it telling you how to worship. This anti-establishmentarian impulse is a time-honored tradition in America, where advocacy of separation of church and state – a radical view in the late eighteenth century – was driven by the experiences of religious minorities such as Quakers, Huguenots, and Puritans, all of whom suffered religious persecution in Britain and France. Unfortunately, religious bigotry also has a long history in America, and there are powerful factions that cannot accept that God did not intend the US to be a Christian nation. Ronald Reagan saw the benefit of tapping these constituencies, introducing a faith-first element into what had been a more secularized, “big tent” conservatism. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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The Gaza Prison 7.30.10 | GAZA CITY – It is easier to enter a maximum-security prison than it is to enter the strip of land – 45 kilometers long and maybe eight wide – that is home to Gaza’s 1.5 million Palestinians. Surrounded by a forbidding wall, watchtowers, and deadly buffer zones, I entered with a hard-to-obtain visa at the Erez crossing – iron gates, an interrogation by bored young immigration officers and scanners. On the other side is a kilometer-long caged walkway that leads into this part of Palestine, trapped between Israel, Egypt, the Mediterranean, and the general indifference of the international community. The view walking – in sweltering heat – through that long cage is apocalyptic. Small groups of Palestinians smash up the remains of Gaza’s bombed industrial infrastructure – the concrete blocks that litter the sandy landscape. They pummel the blocks for gravel and the steel bars inside. The result of their labor is hauled away in carts pulled by mangy horses or donkeys. This is much of what passes for industry in Gaza. The world periodically wakes up to the horrors of life in Gaza, and then goes back to watching the World Cup or planning summer holidays. We were awakened, for example, by the military assault of December 2008 and January 2009, when more than 1,300 Palestinians (including over 300 children) and 13 Israelis died. We noticed the long-running horror story again when the Israeli Defense Forces attacked a Turkish flotilla, carrying relief supplies, in May, with nine civilian fatalities. Read by OutloudOpinion | 28 10 10 | Free | View In iTunes |
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Balancing China’s High Savings 7.29.10 | China’s national savings rate has been very high in recent years, amounting to 52% of GDP in 2008 (the most recent year for which statistics are available), and is often blamed for today’s global imbalances. Countries that save too much export too much, according to conventional wisdom, resulting in high trade surpluses and growing foreign-exchange reserves. But this is not always true. For instance, if I save $100, but at the same time I invest $100 in my factories’ fixed assets, I am “balanced domestically” and not running an export surplus with anyone. Such an example captures China’s recent economic situation. In late 2009 and in early 2010, China’s savings rate might well have remained at 50% of GDP had its trade surplus not narrowed significantly compared to previous years. Indeed, China recorded a trade deficit in part of this period, as high investment in fixed assets (owing to government stimulus policies enacted in the wake of the global financial crisis) fueled domestic demand for goods in the same way that higher consumer spending would. Read by OutloudOpinion | 29 7 10 | Free | View In iTunes |
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Making Sense of the Climate Impasse 7.29.10 | All signs suggest that the planet is still hurtling headlong toward climatic disaster. The United States’ National Oceanographic and Atmospheric Administration has issued its “State of the Climate Report” covering January-May. The first five months of this year were the warmest on record going back to 1880. May was the warmest month ever. Intense heat waves are currently hitting many parts of the world. Yet still we fail to act. There are several reasons for this, and we should understand them in order to break today’s deadlock. First, the economic challenge of controlling human-induced climate change is truly complex. Human-induced climate change stems from two principal sources of emissions of greenhouse gases (mainly carbon dioxide, methane, and nitrous oxide): fossil-fuel use for energy and agriculture (including deforestation to create new farmland and pastureland). Changing the world’s energy and agricultural systems is no small matter. It is not enough to just wave our hands and declare that climate change is an emergency. We need a practical strategy for overhauling two economic sectors that stand at the center of the global economy and involve the entire world’s population. Read by OutloudOpinion | 29 7 10 | Free | View In iTunes |
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The Hidden Future of the US Economy 7.27.10 | Just how bad is the outlook for the United States’ economy? Unfortunately, you cannot tell from the forecasts. These days, it is common to read forecasts predicting that the US economy will grow at a 3% annual rate in the coming year. But just what does that mean? The forecaster is not saying that he or she is confident that growth will be exactly 3%. Every forecaster recognizes that the actual growth rate may be higher or lower than the number that he states. There is a distribution of possible growth rates, and the forecaster is telling us just one of the outcomes that he can contemplate. But if a forecaster tells us that he “expects” a growth rate of 3%, does that mean that he thinks that it is as likely to be above 3% as it is to be below 3% – the “median,” as he sees it, of the distribution of possible growth rates? Or could it mean that the he thinks the most likely growth rate will be close to 3% (the “modal” value), even though he may believe that it is much more likely to be less than that value than to be greater? Read by OutloudOpinion | 27 7 10 | Free | View In iTunes |
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The Recession Dating Game 7.22.10 | The optimism that emerged in the early stages of the recovery from the financial crisis and recession has given way to more sobering assessments of the short-, medium-, and long-run challenges facing the global economy and its constituent national parts. In many countries, fears have even arisen of a prolonged period of slow and occasionally negative growth, persistent obstacles to reducing unemployment, and continued economic anxiety; or worse, of a Japanese-style “lost decade” with multiple recessions; or, even worse, of a depression, (which politicians and intellectuals have stoked in an attempt to justify continued massive government intervention in the economy for years to come). But are multiple downturns so unusual in periods of severe economic distress? It would be useful to know the answer to this question before trying repeatedly to pump up the economy in the short run with costly policies that might worsen longer-run prospects. Read by OutloudOpinion | 27 7 10 | Free | View In iTunes |
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Life by the Numbers 7.22.10 | Last week, I learned that I don't have cancer. My doctor called and said, “I have some good news!” Fortunately, we were in the middle of a fire drill in my office at the time, so no one noticed as I blinked back tears of relief. I had found the lump almost two weeks earlier, while at a conference in South Africa. I returned home early to have a biopsy, but the pathology lab was achingly slow; days passed with no word. Clearly they were working hard to figure out exactly how bad my condition was. In fact, they were working hard not to miss anything before they concluded that my tumor was rare but benign. I had been preparing for the diagnosis for more than a week…and to some extent for years, as I turned my investing focus from “all things Internet” to all things health-related. It turns out that understanding and promoting health is a great application of information technology. Health increasingly involves numbers. Many of those numbers aren't just medical probabilities; they concern daily life choices that you can make before you get sick (or are threatened, as I was). Read by OutloudOpinion | 27 7 10 | Free | View In iTunes |
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Consolidators versus Stimulators 7.20.10 | All intellectual systems rely on assumptions that do not need to be spelled out because all members of that particular intellectual community accept them. These “deep” axioms are implicit in economics as well, but, if left unscrutinized, they can steer policymakers into a blind alley. That is what is happening in today’s effort, in country after country, to slash spending and bring down budget deficits. The chief task that John Maynard Keynes set himself in writing his General Theory of Employment, Interest, and Money was to uncover the deep axioms underlying the economic orthodoxy of his day, which assumed away the possibility of persistent mass unemployment. The question he asked of his opponents was: “What must they believe in order to claim that persistent mass unemployment is impossible, so that government ‘stimulus’ to raise the employment level could do no good?” In answering this question, Keynes reconstructed the orthodox theory – and then proceeded to demolish it. Today, despite the Keynesian revolution, the same question demands an answer. What do people who demand rapid “fiscal consolidation” amid heavy unemployment need to believe about the economy to make their policy coherent? Read by OutloudOpinion | 27 7 10 | Free | View In iTunes |
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Russia’s Lost Opportunity with Japan 7.19.10 | The recent smooth exchange of spies between Russia and the United States appears to demonstrate that the “reset” in relations between the two countries has worked. But Russia has so far done little to “reset” its relations with Japan. That is not only a lost opportunity, given Russia’s need to modernize its economy, but a grave strategic error in view of Russia’s increasing worries about China’s ambitions in Asia, which includes Russia’s lightly populated Siberian provinces. In April, China’s navy carried out military exercises near Japan, and its Fleet No. 91756, recognized as one of its finest, conducted a live-fire exercise in the East China Sea off the coast of Zhejiang province, including missile-interception training with new vessels. China’s objectives appear to have been to enhance its navy’s operational capacity, particularly in terms of jamming and electronic warfare, and to test its joint capabilities with the Chinese air force. Perhaps more importantly, the Chinese seem to have intended to send a warning signal to US and South Korean naval forces as their joint maneuvers in the Yellow Sea approach. But the Chinese also sent a powerful signal to Japan and Russia. Read by OutloudOpinion | 27 7 10 | Free | View In iTunes |
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In Finance We Distrust 7.16.10 | Around the world,, the debate about financial regulation is coming to a head. A host of arguments and proposals is in play, often competing with one another – and thus inciting public and political confusion. One approach to financial re-regulation – supported by arguments of varying persuasiveness – is to limit the size and scope of financial institutions. Some claim that smaller entities can fail without impairing the system, thus sparing taxpayers the cost of a bailout. But if systemic risk emerges in ways that are not yet fully understood, smaller banks may all fail or become distressed simultaneously, damaging the real economy. A second, hotly debated argument is that limiting banks’ size and scope has relatively low costs in terms of performance. This point is used to bolster a third argument: large institutions have undue political influence and thus “capture” their regulators. Put bluntly, large and profitable financial institutions will find a way to get the regulatory system they want – one that is compatible with a highly profitable trading super-structure that goes beyond the requirements of hedging and seeks to maximize short-term gains. Read by OutloudOpinion | 27 7 10 | Free | View In iTunes |
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A Roosevelt Moment for America’s Megabanks? 7.14.10 | Just over a hundred years ago, the United States led the world in terms of rethinking how big business worked – and when the power of such firms should be constrained. In retrospect, the breakthrough legislation – not just for the US, but also internationally – was the Sherman Antitrust Act of 1890. The Dodd-Frank Financial Reform Bill, which is about to pass the US Senate, does something similar – and long overdue – for banking. Prior to 1890, big business was widely regarded as more efficient and generally more modern than small business. Most people saw the consolidation of smaller firms into fewer, large firms as a stabilizing development that rewarded success and allowed for further productive investment. The creation of America as a major economic power, after all, was made possible by giant steel mills, integrated railway systems, and the mobilization of enormous energy reserves through such ventures as Standard Oil. Read by OutloudOpinion | 27 7 10 | Free | View In iTunes |
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Affordable Green Energy 7.14.10 | Public skepticism about global warming may be growing, but the scientific consensus is as solid as ever: man-made climate change is real, and we ignore it at our peril. But if that issue is settled (and it should be), there is an equally large and important question that remains wide open: what should we do about it? One prescription that is bandied about with increasing frequency certainly sounds sensible: the world should drastically cut the amount of greenhouse gases that it pumps into the atmosphere each day. Specifically, we are told, the goal should be a 50% reduction in global carbon-dioxide emissions by the middle of the century. Even its backers concede that achieving this target won’t be easy – and they are right. In fact, they are so right that they are wrong. Allow me to explain. Read by OutloudOpinion | 27 7 10 | Free | View In iTunes |
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Fiscal Fibs and Follies 7.13.10 | Across the globe, the debate over fiscal consolidation has the distinct sound of two sides talking past one another. On one side are those who insist that governments must move now, at all cost, to rein in budget deficits. Putting public finances on a sustainable footing, they argue, is essential to reassure financial markets. If concerted efforts are taken to balance budgets, confidence will be bolstered. And if confidence is bolstered, consumption and investment will rise. In this view, cutting deficits will be expansionary. As evidence that this is not merely a hypothetical possibility, advocates of fiscal consolidation point to cases like Denmark in the early 1980’s, Ireland in the late 1980’s, and Finland in the 1990’s. On the other side are those who insist that additional public spending is still needed to support demand. Private spending remains weak, not least where continued high unemployment has led consumers, concerned about future prospects, to pocket their wallets. Read by OutloudOpinion | 27 7 10 | Free | View In iTunes |
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The Market Confidence Bugaboo 7.12.10 | A specter is haunting Europe – the spectre of “market confidence.” It may have been fear of communism that agitated governments when Karl Marx penned the opening line of his famous manifesto in 1848, but today it is the dread that market sentiment will turn against them and drive up the spreads on their government’s bonds. Governments all over are being forced into premature fiscal retrenchment, even though unemployment remains very high and private demand shows few signs of life. Many are driven to undertake structural reforms that they don’t really believe in – just because it would look bad to markets to do otherwise. The terror spawned by market sentiment was once the bane of poor nations alone. During the Latin American debt crisis of the 1980’s or the Asian financial crisis of 1997, for example, heavily indebted developing countries believed they had few options but to swallow bitter medicine – or face a stampede of capital outflows. Apparently, now it’s the turn of Spain, France, Britain, Germany, and, many analysts argue, even the United States. Read by OutloudOpinion | 27 7 10 | Free | View In iTunes |
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The Dollar and the Dragon 7.12.10 | For several years, American officials have pressed China to revalue its currency. They complain that the undervalued renminbi represents unfair competition, destroying American jobs, and contributing to the United States’ trade deficit. How, then, should US officials respond? Just before the recent G-20 meeting in Toronto, China announced a formula that would allow modest renminbi appreciation, but some American Congressmen remain unconvinced, and threaten to increase tariffs on Chinese goods. America absorbs Chinese imports, pays China in dollars, and China holds dollars, amassing $2.5 trillion in foreign-exchange reserves, much of it held in US Treasury securities. To some observers, this represents a fundamental shift in the global balance of power, because China could bring the US to its knees by threatening to sell its dollars. Read by OutloudOpinion | 27 7 10 | Free | View In iTunes |
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Taming Finance in an Age of Austerity 7.8.10 | It was not long ago that we could say, “We are all Keynesians now.” The financial sector and its free-market ideology had brought the world to the brink of ruin. Markets clearly were not self-correcting. Deregulation had proven to be a dismal failure. The “innovations” unleashed by modern finance did not lead to higher long-term efficiency, faster growth, or more prosperity for all. Instead, they were designed to circumvent accounting standards and to evade and avoid taxes that are required to finance the public investments in infrastructure and technology – like the Internet – that underlie real growth, not the phantom growth promoted by the financial sector. The financial sector pontificated not only about how to create a dynamic economy, but also about what to do in the event of a recession (which, according to their ideology, could be caused only by a failure of government, not of markets). Whenever an economy enters recession, revenues fall, and expenditures – say, for unemployment benefits – increase. So deficits grow. Read by OutloudOpinion | 27 7 10 | Free | View In iTunes |
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Is Israel a Normal Country? 7.8.10 | Israel’s decision in May to drop commandoes onto a flotilla of pro-Palestinian activists was brutal. The killing of nine civilians by those commandoes was a terrible consequence. Israel’s blockade of Gaza and occupation of Palestinian territories on the West Bank, not to mention the road blocks, destruction of homes, and other daily torments of the Palestinians, are also a form of institutionalized inhumanity. Nevertheless, Turkish Prime Minister Recep Tayyip Erdogan’s description of the Israeli raid on the activists’ boat as “an attack on the conscience of humanity,” which “deserves every kind of curse,” and as a “turning point in history” after which “nothing will be the same,” seems hysterical. Whatever one thinks of various Israeli governments (and I don’t think much of the current one), reactions to Israeli government-sponsored violence tend to be much fiercer – not just in Turkey – than to crimes committed by the leaders of other countries, with the exception perhaps of the United States. But then, in the minds of many critics, the two countries are often conflated. Israel has never done anything comparable to the late Syrian leader Haffez al-Assad’s 1982 massacre of more than 20,000 members of the Muslim Brotherhood in the city of Hama. Far more Muslims are still being murdered by fellow Muslims than by Israelis, or indeed by Americans. And if one thinks of the death toll of the civil war in the Democratic Republic of Congo (more than four million), talk of turning points in history, after the killing of nine people, sounds a little absurd. Read by OutloudOpinion | 27 7 10 | Free | View In iTunes |
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Central Banking Deflowered 7.7.10 | After the European Central Bank announced on May 9 that it would buy the government bonds of Mediterranean countries experiencing severe fiscal strains, critics complained that the Bank had “lost its virginity.” The actions looked like a clear contravention of Article 21 of the ECB’s Statute, which forbids credit facilities to governments or to European Union institutions. Similar comments were made about the US Federal Reserve in 2008, after it began large-scale purchases of non-conventional assets, including agency debt and mortgage-backed securities, in order to support the collapsing US housing market. Former Fed Chairman Paul Volcker, for example, complained that the institution was operating at the bounds of legality. In both cases, the central bank looked as if it was doing something other than traditional monetary policy. In the past 30 years, a remarkable degree of consensus had been established that the primary, if not sole, responsibility of central banks was to ensure price stability. Increasingly, since the early 1990’s, it had become fashionable to define price stability more precisely through the use of inflation targets. Read by OutloudOpinion | 27 7 10 | Free | View In iTunes |
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Can Good Emerge From the BP Oil Spill? 7.2.10 | Perhaps it is a pipe dream, but it is just possible that the ongoing BP oil-spill catastrophe in the Gulf of Mexico will finally catalyze support for an American environmental policy with teeth. Yes, the culprits should be punished, both to maintain citizens’ belief that justice prevails, and to make other oil producers think twice about taking outsized risks. But if that is all that comes out of the BP calamity, it will be a tragic lost opportunity to restore some sanity to the United States’ national environmental and energy policy, which has increasingly gone off track in recent years. Why should there be any reason for hope, especially given that US environmental policy has been predicated on the unrealistic belief that relatively small subsidies to new energy technologies can substitute for tax-induced price incentives for producers and consumers? The fact is, the BP oil spill is on the cusp of becoming a political game-changer of historic proportions. If summer hurricanes push huge quantities of oil onto Florida’s beaches and up the Eastern seaboard, the resulting political explosion will make the reaction to the financial crisis seem muted. Read by OutloudOpinion | 27 7 10 | Free | View In iTunes |
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The Unaccountable G-8 6.30.10 | In hosting the 2010 G-8 summit of major economies (Canada, France, Germany, Italy, Japan, Russia, the United Kingdom, and the United States), Canadian Prime Minister Stephen Harper called for an “accountability summit,” to hold the G-8 responsible for the promises that it made over the years. So let’s make our own account of how the G-8 did. The answer, alas, is a failing grade. The G-8 this year illustrates the difference between photo-ops and serious global governance. Of all of the G-8’s promises over the years, the most important was made to the world’s poorest people at the 2005 G-8 Gleneagles Summit in Scotland. The G-8 promised that, by this year, it would increase annual development assistance to the world’s poor by $50 billion relative to 2004. Half of the increase, or $25 billion per year, would go to Africa. The G-8 fell far short of this goal, especially with respect to Africa. Total aid went up by around $40 billion rather than $50 billion, and aid to Africa rose by $10-$15 billion per year rather than $25 billion. The properly measured shortfall is even greater, because the promises that were made in 2005 should be adjusted for inflation. Re-stating those commitments in real terms, total aid should have risen by around $60 billion, and aid to Africa should have risen by around $30 billion. Read by OutloudOpinion | 27 7 10 | Free | View In iTunes |
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The High Cost of Cheap Fashion 6.30.10 | I confess: I do it, too. Like most Western women, I do it regularly, and it is a guilty pleasure every time. It is hard to listen to one’s conscience when one is faced with so much incredible temptation. I am talking, of course, about cheap trendy fashion. I'll visit a Zara – or H&M, or, now that I am in the United Kingdom for the summer, the amazing Primark – and snap up items that are “cute,” effectively disposable, and so shockingly inexpensive that one does a double take. I need to face my addiction – and so do all women like me. Fashion has been transformed by the recent emergence of retail chains that hire good designers to make throwaway clothing and accessories that are right on trend. This evolution has freed Western women from the tyranny of a fashion industry that in the bad old days would dictate a style, compelling women to invest heavily in updating their wardrobes, and then blithely declare their entire closets obsolete – again and again, with no end in sight. Read by OutloudOpinion | 27 7 10 | Free | View In iTunes |
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The Chinese Economy’s Secret Recipe 6.29.10 | China’s GDP growth this year may approach 10%. While some countries are still dealing with economic crisis or its aftermath, China’s challenge is – once again – how to manage a boom. Thanks to decisive policy moves to pre-empt a housing bubble, the real-estate market has stabilized, and further corrections are expected soon. This is good news for China’s economy, but disappointing, perhaps, to those who assumed that the government would allow the bubble to grow bigger and bigger, eventually precipitating a crash. Whether or not the housing correction will hit overall growth depends on how one defines “hit.” Lower asset prices may slow total investment growth and GDP, but if the slowdown is (supposedly) from 11% to 9%, China will avoid economic over-heating yet still enjoy sustainable high growth. Indeed, for China, the current annualized growth rate of 37% in housing investment is very negative. Ideally, it would slow to, say, 27% this year! Read by OutloudOpinion | 27 7 10 | Free | View In iTunes |
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Listening to Arsonists 6.28.10 | I had always thought that Barack Obama made a significant mistake in naming the Republican ex-senator Alan Simpson to co-chair the president’s deficit-reduction commission. Simpson was a noted budget arsonist when he was in the Senate. Indeed, he never met a budget-busting, deficit-increasing initiative from a Republican president that he would not lead the charge to pass. Nor did he ever meet a sober deficit-reducing initiative from a Democratic president that he did not oppose with every fiber of his being. You don’t pick an arsonist to head the fire department, I thought when Obama named him co-chair of the National Commission on Fiscal Responsibility and Reform. But perhaps I am ungenerous. Perhaps Simpson has had a change of heart. Perhaps he has traveled his own road to Damascus, come face-to-face with what he had done and who he was, repented, and wanted to repair some of the damage to America and its long-run economic growth prospects that he had caused. Read by OutloudOpinion | 27 7 10 | Free | View In iTunes |
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From “Les Bleus” to “the Blues” 6.25.10 | Is football (soccer) just a mirror that reflects the collective emotions of a country? Or should it instead be seen as a magnifying glass, if not sometimes a distorting mirror, that reveals on the playing field the frustrations, fears, ambition, or hope of a nation? It would be tempting to attribute to football a “mapping” of the emotional state of the world. Asia is doing less well in the World Cup than it is doing in economic terms, yet it is definitely progressing, compensating for the current lack of individual talent by the greater collective discipline shown by its teams. By contrast, in terms of creativity, Latin American flair shines well beyond Brazil and its confirmed emerging-power status in the world to encompass countries such as Argentina, Uruguay, and even Chile. Africa, despite some rare individual national successes, continues to underperform, even with the World Cup in its backyard. As a Frenchman who watched with a mixture of sadness and humiliation the behavior of the French national team, on and off the field (happily, the torture is over), the image in the mirror makes a lot of sense. But can one go so far as to say that a depressed country can produce only a depressed team? Read by OutloudOpinion | 27 7 10 | Free | View In iTunes |
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What Euro Crisis? 6.25.10 | Despite huge rescue packages, interest-rate spreads in Europe refuse to budge. Markets have not yet found their equilibrium, and the governments on Europe’s southwestern rim are nervously watching how events unfold. What is going on? The rescue packages were put together on the weekend of May 8-9 in Brussels. In addition to the €80 billion program already agreed for Greece, the European Union countries agreed on a €500 billion credit line for other distressed countries. The International Monetary Fund added a further €280 billion. The driving force behind all this was French President Nicolas Sarkozy, who colluded with the heads of Europe’s southern countries. French banks, which were overly exposed to southern European government bonds, were key beneficiaries of the rescue packages. Since rescue measures beyond the pre-arranged Greek package had not been on the agenda for the Brussels meeting, German Chancellor Angela Merkel thought she could safely go to Moscow to commemorate the end of World War II – unlike Sarkozy, who declined Russian Prime Minister Vladimir Putin’s invitation. Worse, the leader of the German delegation to the EU meeting fell ill and was taken to hospital upon arrival in Brussels. This left the German delegation headless. Read by OutloudOpinion | 27 7 10 | Free | View In iTunes |
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Turkey’s Rise and the Decline of Pan-Arabism 6.23.10 | The deadly fiasco of the Turkish-led “peace flotilla” to Gaza highlighted the deepening strain in the Israeli-Turkish alliance. But it mainly helped expose the deeper, underlying reasons for Turkey’s shift from its Western orientation toward becoming a major player in the Middle East – in alliance with the region’s rogue regimes and radical non-state actors. Foreign policy cannot be separated from its domestic foundations. The identity of nations, their ethos, has always been a defining motive in their strategic priorities. Israel’s blunders did, of course, play a role in the erosion of its alliance with Turkey. But the collapse of its old “alliance of the periphery,” including Turkey, the Shah’s Iran, and Ethiopia, had more to do with revolutionary changes in those countries – the Ayatollah Khomeini’s rise to power, the end of Emperor Haile Selassie’s regime, and now Turkish Prime Minister Recep Tayyip Erdogan’s Islamic shift – than with Israeli policies. The current crisis reveals the depth of Turkey’s identity complex, its oscillation between its Western-oriented Kemalist heritage and its Eastern Ottoman legacy. Snubbed by the European Union, Erdogan is tilting the balance towards the latter. Read by OutloudOpinion | 27 7 10 | Free | View In iTunes |
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Inflation or Deflation? 6.23.10 | The investors that I talk to these days are not sure whether to worry more about future inflation in the United States or about future deflation. The good news is that the answer – for at least the next few years – is that investors should worry about “neither.” America’s high rate of unemployment and the low rates of capacity utilization imply that there is little upward pressure on wages and prices in the US. And the recent rise in the value of the dollar relative to the euro and the British pound helps by reducing import costs. Those who emphasize the risk of inflation often point to America’s enormous budget deficit. The Congressional Budget Office projects that the country’s fiscal deficit will average 5% of GDP for the rest of the decade, driving government debt to 90% of GDP, from less than 60% of GDP in 2009. While those large fiscal deficits will be a major problem for the US economy if nothing is done to bring them down, they need not be inflationary. Sustained budget deficits crowd out private investment, push up long-term real interest rates, and increase the burden on future taxpayers. But they do not cause inflation unless they lead to excess demand for goods and labor. The last time the US faced large budget deficits, in the early 1980’s, inflation declined sharply because of a tight monetary policy. Europe and Japan now have both large fiscal deficits and low inflation. Read by OutloudOpinion | 27 7 10 | Free | View In iTunes |
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Keynes and Social Democracy Today 6.22.10 | For decades, Keynesianism was associated with social democratic big-government policies. But John Maynard Keynes’s relationship with social democracy is complex. Although he was an architect of core components of social democratic policy – particularly its emphasis on maintaining full employment – he did not subscribe to other key social democratic objectives, such as public ownership or massive expansion of the welfare state. In The General Theory of Employment, Wages and Interest, Keynes ends by summarizing the strengths and weaknesses of the capitalist system. On one hand, capitalism offers the best safeguard of individual freedom, choice, and entrepreneurial initiative. On the other hand, unregulated markets fail to achieve two central goals of any civilized society: “The outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes.” This suggested an active role for government, which dovetailed with important strands of left-wing thought. Until The General Theory was published in 1936, social democrats did not know how to go about achieving full employment. Their policies were directed at depriving capitalists of the ownership of the means of production. How this was to produce full employment was never worked out. Read by OutloudOpinion | 27 7 10 | Free | View In iTunes |
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America’s Oil-Spill Nationalism 6.18.10 | American exceptionalism, when it runs rampant, is a tsunami to be avoided. The oil company BP is discovering that right now. The environmental disaster destroying seaside communities around the Gulf of Mexico and killing off marine life is a globally important tragedy. BP has to take its sizeable share of the blame. So, presumably, should the American companies like Transocean and Halliburton, which were part of this doomed enterprise. But their nationality seems to have let them off the hook. BP’s corporate responsibility is huge. So, too, was that of the American companies that caused the chemical disaster at Union Carbide’s plant in Bhopal, India (which killed 3,000 initially and perhaps another 15,000 in later years), and of those that caused the Piper Alpha oil-rig accident, which killed 167 people in the North Sea in 1988. Corporate sin is not unknown in the US. Read by OutloudOpinion | 27 7 10 | Free | View In iTunes |
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Face-to-Face with Facebook 6.18.10 | Long ago, when Facebook founder Mark Zuckerberg was in grade school, I wrote a book (Release 2.1: A Design for Living in the Digital Age) in which I lauded something called “P3” (now p3p), the platform for privacy preferences. I was sure that people would start using P3 or something like it to control access to data about themselves. Of course, I was wrong...for about 10 years. Now, at last, it’s starting to happen – though not exactly the way I envisioned it. Nor is it exactly the way Zuckerberg envisioned it... While many people are up in arms about Facebook’s shifting privacy policies, millions of others are calmly managing their reputations online, using the tools that Facebook and other social Web sites provide. In fact, Facebook has helped them learn how to do that. Read by OutloudOpinion | 27 7 10 | Free | View In iTunes |
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China Needs a Service-Sector Revolution 6.18.10 | China is getting its exchange-rate adjustment whether it likes it or not. While Chinese officials continue to mull the right time to let the renminbi rise, manufacturing workers are voting with their feet – and their picket lines. Honda has offered its transmission-factory workers in China a 24% wage increase to head off a crippling strike. Foxconn, the Taiwanese contract manufacturer for Apple and Dell, has announced wage increases of as much as 70%. Shenzhen, to head off trouble, has announced a 16% increase in the minimum wage. Beijing’s municipal authorities have preemptively boosted the city’s minimum wage by 20%. The result will be to raise the prices of China’s exports and fuel demand for imports. The effect will be much the same as a currency appreciation. China should count these wage increases as a measure of its success. Higher incomes are an entirely normal corollary of economic growth. Read by OutloudOpinion | 27 7 10 | Free | View In iTunes |
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Banking on the IMF 6.17.10 | The biggest financial nightmare looming over the world economy is the insolvency of a large international bank. Be it because of a sovereign default or because of large losses accumulated under complacent accounting rules, the insolvency of a large bank (particularly a European bank) is far from a remote possibility. Even if it were a remote possibility, the 2008 financial crisis has taught us that rare events occur. What makes this possibility the financial nightmare of choice, worse than the collapse of Lehman Brothers in 2008, is the fear that many sovereign states have already shot all their bullets and would thus be powerless to intervene. Credit default swaps (CDS) of major southern European banks trade slightly lower than the CDS of their sovereign states, indicating that the market does not perceive the latter as able to support the former. Unfortunately, almost two years after Lehman’s collapse, little has been done to address this risk. The United States Congress is about to finalize a bill that will grant resolution authority over major US financial institutions to a newly formed systemic council. The procedures to trigger this intervention, however, are complex and the funding is sufficiently opaque that the bill will not eliminate collateral damage from a large bank failure even for US institutions, let alone for international ones, whose unwinding would require coordination by several states, with varying degree of solvency. Read by OutloudOpinion | 27 7 10 | Free | View In iTunes |
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Latin America’s Calm Before the Storm 6.16.10 | The perpetual seesaw in Latin American geo-politics is more vibrant than ever. The so-called “Americas-1” countries – those that are either neutral in the confrontation between the United States and Venezuelan President Hugo Chávez (and Cuba), or openly opposed to the so-called “Bolivarian” governments of Bolivia, Cuba, Ecuador, Nicaragua, and Venezuela – are slowly advancing. The “Americas-2” radical left is receding moderately, yet it can still maintain its positions and defeat any attempts to roll back its influence. But the relative quiet in the ongoing ideological, political, and diplomatic conflict between the two groups of countries is only temporary. If anything, it is the calm before an approaching storm. The tide has turned in part because voters in recent elections seem to have shifted from the center left to the center right, or at least re-confirmed their more conservative convictions. In Chile, the businessman and center-right democrat Sebastián Piñera put an end to more than twenty years of center-left Concertación rule. But his domestic policies, constrained by the recent severe earthquake and his own small mandate, differ only slightly from those of his predecessors, at least for now. The main change is in foreign policy, where, at least nominally, Piñera has clearly transferred Chile from one camp to another. Read by OutloudOpinion | 17 6 10 | Free | View In iTunes |
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Creating the Next Crisis 6.15.10 | Informed opinion is sharply divided about how the next 12 months will play out for the global economy. Those focused on emerging markets are emphasizing accelerating growth, with some forecasts projecting a 5% increase in world output. Others, concerned about problems in Europe and the United States, remain more pessimistic, with growth projections closer to 4% – and some are even inclined to see a possible “double dip” recession. This is an interesting debate, but it misses the bigger picture. In response to the crisis of 2007-2009, governments in most industrialized countries put in place some of the most generous bailouts ever seen for large financial institutions. Of course, it is not politically correct to call them bailouts – the preferred language of policymakers is “liquidity support” or “systemic protection.” But it amounts to essentially the same thing: when the chips were down, the most powerful governments in the world (on paper, at least) deferred again and again to the needs and wishes of people who had lent money to big banks. Read by OutloudOpinion | 17 6 10 | Free | View In iTunes |
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How to Avoid a Double-Dip Global Recession 6.15.10 | There is an ongoing debate among global policymakers about when and how fast to exit from the strong monetary and fiscal stimulus that prevented the Great Recession of 2008-2009 from turning into a new Great Depression. Germany and the European Central Bank are pushing aggressively for early fiscal austerity; the United States is worried about the risks of excessively early fiscal consolidation. In fact, policymakers are damned if they do and damned if they don’t. If they take away the monetary and fiscal stimulus too soon – when private demand remains shaky – there is a risk of falling back into recession and deflation. While fiscal austerity may be necessary in countries with large deficits and debt, raising taxes and cutting government spending may make the recession and deflation worse. Read by OutloudOpinion | 17 6 10 | Free | View In iTunes |
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Who Lost Europe? 6.9.10 | Financial meltdown has been averted in Europe – for now. But the future of the European Union and the fate of the eurozone still hang in the balance. If Europe doesn’t find a way to reactivate the continent’s economy soon, it will be doomed to years of gloom and endless mutual recrimination about “who sabotaged the European project.” Having suffered a deeper economic collapse in 2009 than the United States did, Europe’s economy is poised for a much more sluggish recovery – if one can call it that. The International Monetary Fund expects the eurozone to expand by only 1% this year and 1.5% in 2011, compared to 3.1 and 2.6% for the US. Even Japan, in a deep slump since the 1990’s, is expected to grow faster than Europe. Read by OutloudOpinion | 17 6 10 | Free | View In iTunes |
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The Future of Europe 6.7.10 | In the first half of the last century, Europe tore itself apart in two wars and destroyed its central role in world politics. In the second half of the century, farsighted leaders looked beyond revenge and gradually constructed the institutions of European integration. The thought of France and Germany fighting each other again seems impossible, and the development of the European Union has greatly enhanced Europe’s attractiveness and soft power in the world. Unfortunately, that historic achievement is now being called into question. In May 2010, financial markets lost confidence in the ability of Greece to manage its budget deficit and to repay its debt. Fears of default began to affect other countries, such as Portugal and Spain, among the 16 members of the eurozone. In response, European governments, the European Central Bank, and the International Monetary Fund arranged a €700 billion emergency eurozone rescue program to calm the financial storms. Read by OutloudOpinion | 17 6 10 | Free | View In iTunes |
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Can Emerging Markets Save the World Economy? 6.7.10 | Over the past two years, industrial countries have experienced bouts of severe financial instability. Currently, they are wrestling with widening sovereign-debt problems and high unemployment. Yet emerging economies, once considered much more vulnerable, have been remarkably resilient. With growth returning to pre-2008 breakout levels, the performance of China, India, and Brazil is an important engine of expansion for today’s global economy. High growth and financial stability in emerging economies are helping to facilitate the massive adjustment facing industrial countries. But that growth has significant longer-term implications. If the current pattern is sustained, the global economy will be permanently transformed. Specifically, not much more than a decade is needed for the share of global GDP generated by developing economies to pass the 50% mark when measured in market prices. Read by OutloudOpinion | 17 6 10 | Free | View In iTunes |
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Europe’s Competitiveness Obsession 6.4.10 | The President of the European Central Bank is said to show at each meeting of the European Council a graph depicting the evolution of relative wage costs across the eurozone’s 16 member countries. This chart shows increasing divergences over the last ten years, with the countries now facing difficulties (Greece, Portugal, and Spain) having lost competitiveness by around 20% relative to Germany. In other words, since 1999, wage costs have increased by about 20% less in Germany than in southern Europe. The conclusion seems straightforward. The eurozone’s southern European members must reduce their wage costs to claw back the competitiveness that they have lost since adopting the common currency. Concern about such divergences has also reached the task force headed by European Union President Herman Van Rompuy, which is supposed to devise fundamental reforms to the rules for economic policy coordination within the EU. A key proposal from the task force’s first meeting was to develop competitiveness indicators, and then force member countries to take “remedial action” should the EU find large divergences. Read by OutloudOpinion | 17 6 10 | Free | View In iTunes |
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Financial Re-Regulation and Democracy 6.4.10 | It has taken almost two years since the collapse of Lehman Brothers, and more than three years since the beginning of the global recession brought on by the financial sector’s misdeeds for the United States and Europe finally to reform financial regulation. Perhaps we should celebrate the regulatory victories in both Europe and the United States. After all, there is almost universal agreement that the crisis the world is facing today – and is likely to continue to face for years – is a result of the excesses of the deregulation movement begun under Margaret Thatcher and Ronald Reagan 30 years ago. Unfettered markets are neither efficient nor stable. But the battle – and even the victory – has left a bitter taste. Most of those responsible for the mistakes – whether at the US Federal Reserve, the US Treasury, Britain’s Bank of England and Financial Services Authority, the European Commission and European Central Bank, or in individual banks, have not owned up to their failures. Read by OutloudOpinion | 17 6 10 | Free | View In iTunes |
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Lame Ducks in Love 6.3.10 | Fears about sovereign debt and doubts about the euro rescue package have pushed the question of international reserve currencies to the fore. Until this spring, most observers had assumed that the share of the dollar in international reserves would gradually fall, while that of the euro would rise, and that the world would gradually and smoothly make a transition to a multi-reserve regime. Up to now, the global financial crisis was historically remarkable in having no major impact on foreign-exchange markets. The shares of the major reserve currencies were stable, with the dollar accounting for 62% of foreign-exchange reserves in 2009 and the euro 27%. Any major changes came not from deliberate decisions by central banks to reallocate reserves, but rather from the simple arithmetic of changing exchange rates: a stronger dollar raised the dollar’s share in total global reserves, while a weaker dollar reduced it. Read by OutloudOpinion | 17 6 10 | Free | View In iTunes |
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Haiti’s State-Building Challenge 5.31.10 | The $5 billion in short-term aid for Haiti, and the $10 billion pledged for its long-term reconstruction at the International Donors’ Conference on March 31, is a vote of confidence in the potential of collective international action. The question, however, is not only one of money; it is about whether Haiti’s agony is to be addressed as just one more humanitarian crisis or as a structural problem of state building – a long-term quest for institutional stability and sustainable development. Conspicuously, Haiti’s Dominican neighbors were the first to gauge the magnitude of the problem and the global nature of the required solution. The Dominican government’s decision to hold a summit on Haiti’s future has the objective of securing the international community’s ongoing commitment to Haiti, beyond the generous response to the catastrophe produced by the earthquake in January. Read by OutloudOpinion | 17 6 10 | Free | View In iTunes |
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Athens, China 5.31.10 | While parts of the world are dealing with the aftermath of the financial crisis or an emerging sovereign-debt crisis, China is coping with the risk of overheating and/or an asset bubble. Many factors may be pushing China’s economy in this direction. One of the most worrying is the same which fueled the current crisis in the eurozone: mushrooming public debt. In the eurozone, the problem is member countries’ sovereign debt; in China, the problem is borrowing linked to local governments. In the eurozone, a bloated social-welfare system, particularly for the rapidly growing population of retirees, and the economic slowdown caused by the financial crisis are key components of the structural debt problem. In China, local officials increased borrowing in order to ensure that their regions’ economic growth rates remain at double-digit levels. Read by OutloudOpinion | 17 6 10 | Free | View In iTunes |
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The Earth Moves in Britain 5.28.10 | Volcanoes have consequences – and I’m not just thinking about the chaos caused to air travel by Iceland’s unpronounceable last eruption (known to the Pentagon as E-15). In 1783, a volcano in Iceland spewed so much ash into the atmosphere that the entire northern hemisphere was cooled for almost three years. This resulted in crop failures and famine, and some historians argue that it helped to precipitate the French Revolution. Should we blame the “British Revolution” of 2010 on E-15? This undoubtedly would be going too far. But the agreement between the Conservatives and Liberal Democrats to form a coalition government does look revolutionary to many British voters. In London, governing arrangements that other countries take for granted look like a radically new type of politics. Read by OutloudOpinion | 17 6 10 | Free | View In iTunes |
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Development Aid in Five Easy Steps 5.26.10 | Every country, rich and poor, should ensure universal coverage of primary health care, including safe childbirth, nutrition, vaccines, malaria control, and clinical services. Each year, nearly nine million children die of conditions that could be prevented or treated, and nearly 400,000 women die because of complications during pregnancy. Almost all of these deaths are in the world’s poorest countries. Ending these deaths would not only reduce suffering, but would also unleash economic prosperity in impoverished and unstable societies. The greatest barrier to doing so is that the poorest countries can’t afford universal primary health care, even though the cost per person is very low. Using immunizations, modern medicines, state-of-the-art diagnostics, mobile phones, and other new technologies, universal primary health care is now highly effective and very inexpensive, costing around $54 per person per year in the poorest countries. Read by OutloudOpinion | 17 6 10 | Free | View In iTunes |
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Chronicle of a Currency Crisis Foretold 5.20.10 | The crisis in Greece and the debt problems in Spain and Portugal have exposed the euro’s inherent flaws. No amount of financial guarantees – much less rhetorical reassurance – from the European Union can paper them over. After 11 years of smooth sailing since the euro’s creation, the arrangement’s fundamental problems have become glaringly obvious. The attempt to establish a single currency for 16 separate and quite different countries was bound to fail. The shift to a single currency meant that the individual member countries lost the ability to control monetary policy and interest rates in order to respond to national economic conditions. It also meant that each country’s exchange rate could no longer respond to the cumulative effects of differences in productivity and global demand trends. In addition, the single currency weakens the market signals that would otherwise warn a country that its fiscal deficits were becoming excessive. And when a country with excessive fiscal deficits needs to raise taxes and cut government spending, as Greece clearly does now, the resulting contraction of GDP and employment cannot be reduced by a devaluation that increases exports and reduces imports. Read by OutloudOpinion | 17 6 10 | Free | View In iTunes |
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The Price of Clarity 5.20.10 | “Through the contrivance and cunning of stock jobbers there hath been brought in such a complication of knavery and cozenage, such a mystery of iniquity, and such an unintelligible jargon of terms to involve it in, as were never known in any other age or country.” Jonathan Swift’s eighteenth-century barb resonates in today’s world of financial “intermediation”: now, as then, finance shrouds its “complication of knavery and cozenage” in “unintelligible jargon.” As US President Barack Obama explained in a speech in April: “Many practices were so opaque and complex that few within these companies – let alone those charged with oversight – were fully aware of the massive wagers being made.” But was Swift right to see knavery as the main motive for unintelligibility? Obviously, it is a very powerful motive, in politics no less than in finance. The less people understand about something, the easier it is to fool them. There has never been a shortage of snake-oil merchants: Donizetti wrote an opera, L’Elisir D’Amore, about one of them advertising a love potion in a nonsensical patter. But the intention to deceive, or even to make money, is not necessarily what has driven the recent explosion of financial innovation. Read by OutloudOpinion | 17 6 10 | Free | View In iTunes |
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Good Policies for Great Countries 5.18.10 | We are in a protracted period of international transition, one that began more than two decades ago with the Cold War’s end. That era of strategic rivalry between the United States and the Soviet Union gave way to one in which the US possessed far greater power than any other country and enjoyed an unprecedented degree of influence. That American unipolar moment has given way to a world better described as non-polar, in which power is widely distributed among nearly 200 states and tens of thousands of non-state actors ranging from Al Qaeda to Al Jazeera and from Goldman Sachs to the United Nations. It didn’t work. Eurozone sovereign debt turned out not to be homogenous with respect to risk. Read by OutloudOpinion | 20 5 10 | Free | View In iTunes |
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The End of Fiscal Sovereignty in Europe 5.18.10 | The late Milton Friedman said that a common currency – that is, a monetary union – cannot be sustained without a deep form of economic and political union. By this, he meant an open economy that ensures the free flow of goods, labor, and capital, together with a disciplined central fiscal authority and a strong central bank. The latter two are pillars of a strong currency. They work in tandem. But the other pieces are no less important. The eurozone, currently wrestling with fiscal imbalance and sovereign debt risk, has a strong and autonomous central bank, but is fiscally fragmented and only partly unified politically. Enter the Maastricht Treaty, which in theory imposes fiscal discipline by placing limits on government deficits and debt levels – clearly a structure designed to prevent free riding on the fiscal discipline of others. Maastricht was thus intended to prevent a situation like the current one in Greece. It didn’t work. Eurozone sovereign debt turned out not to be homogenous with respect to risk. Read by OutloudOpinion | 20 5 10 | Free | View In iTunes |
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Liberating NASA 5.18.10 | Let me disclose my biases up front: I did not dream of going into space as a child. I took it for granted. My father was a (genuine) rocket scientist, and I figured that just as airplanes had become commonplace over the course of his life, space travel would become commonplace over the course of mine. People first landed on the Moon while I was a teenager, and I turned to other pursuits – journalism, the Internet, startup companies. But then, decades later, I woke up and discovered that space travel was still reserved for a small corps of astronauts and cosmonauts, and a tiny group of wealthy space tourists – six so far. The space business was the preserve of a few governments, plus a number of large cost-plus contractors who lived in symbiosis with their government customers. Read by OutloudOpinion | 20 5 10 | Free | View In iTunes |
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Return to the Abyss 5.14.10 | One interpretation of financial crises is that they are, in Nassim Taleb’s phrase, “black swan” events – unplanned and unpredictable occurrences that change the course of history. But, in my new book on financial crises, Crisis Economics – which covers not only the recent crisis, but also dozens of others throughout history and across both advanced economies and emerging markets – I show that financial crises are, instead, predictable “white swan” events. What is happening now – the second stage of the global financial crisis – was no less predictable. Crises are the inevitable result of a build-up of macroeconomic, financial, and policy risks and vulnerabilities: assets bubbles, excessive risk-taking and leverage, credit booms, loose money, lack of proper supervision and regulation of the financial system, greed, and risky investments by banks and other financial institutions. Read by OutloudOpinion | 20 5 10 | Free | View In iTunes |
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Europe’s Doubting Generation 5.14.10 | The contrast between the Schuman Declaration of May 9, 1950, which launched the European unification project through the Coal and Steel Community, and the fearful bid to save Greece and rescue the euro of May 9, 2010, could not be more stark. Of course, in 1950 the Cold War was raging and recovery from World War II concentrated European minds. It was urgent to be imaginative – and the right people were in the right positions. Jean Monnet, who inspired the project, was pragmatic and daring. Robert Schuman, who presented the idea of unification to Europe’s leaders, was animated by a deep Christian faith that helped create miracles. Read by OutloudOpinion | 20 5 10 | Free | View In iTunes |
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The Struggle for Mastery of the Pacific 5.5.10 | On May 1, the Shanghai Expo began, illuminated by a huge fireworks display. The festivities will continue until the end of October. In 1970, Japan celebrated its own tremendous postwar economic growth with the Osaka Expo, as well as by launching the Bullet Train. The world watches and wonders whether China will follow Japan’s path and emerge as a fully modern yet peacefully inclined country. There are reasons to doubt that it will. China’s willingness to demonstrate its new might is not confined to land; on the contrary, China’s maritime ambitions have no end in sight. Indeed, when Admiral Timothy J. Keating, the commander of the United States Navy’s Pacific fleet, visited China in 2007, a high-ranking Chinese naval officer proposed that the two countries demarcate a “zone of control” at Hawaii, defining the limits of US naval influence and the beginning of China’s maritime sphere. The Chinese navy, it is now believed, is trying to achieve that very aim. Read by OutloudOpinion | 20 5 10 | Free | View In iTunes |
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Greek Lessons for the World Economy 5.5.10 | The $140 billion support package that the Greek government has finally received from its European Union partners and the International Monetary Fund gives it the breathing space needed to undertake the difficult job of putting its finances in order. The package may or may not prevent Spain and Portugal from becoming undone in a similar fashion, or indeed even head off an eventual Greek default. Whatever the outcome, it is clear that the Greek debacle has given the EU a black eye. Deep down, the crisis is yet another manifestation of what I call “the political trilemma of the world economy”: economic globalization, political democracy, and the nation-state are mutually irreconcilable. We can have at most two at one time. Democracy is compatible with national sovereignty only if we restrict globalization. If we push for globalization while retaining the nation-state, we must jettison democracy. And if we want democracy along with globalization, we must shove the nation-state aside and strive for greater international governance. Read by OutloudOpinion | 20 5 10 | Free | View In iTunes |
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The Powerlessness of the Powerful 5.5.10 | Elites are under siege in every corner of the world. “Tea Party” activists in exurban America rant and rage against the so-called liberal elites of New York, Washington, and Hollywood. In Europe, populist demagogues, such as Geert Wilders in the Netherlands, rant and rage against the elitist “appeasers” of Islam. In Thailand, red-shirted demonstrators from the country’s rural northeast rant and rage against the military, social, and political elites of Bangkok. The first principle of democracy is that government must be based on popular consent, even if the government is made up of parties for which many people did not vote. It is clear from the worldwide rage against elected governments that this consent is becoming dangerously threadbare. More and more people in democratic countries feel unrepresented, anxious, and angry. And they blame the elites. Read by OutloudOpinion | 20 5 10 | Free | View In iTunes |
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Can the Euro be Saved? 5.5.10 | The Greek financial crisis has put the very survival of the euro at stake. At the euro’s creation, many worried about its long-run viability. When everything went well, these worries were forgotten. But the question of how adjustments would be made if part of the eurozone were hit by a strong adverse shock lingered. Fixing the exchange rate and delegating monetary policy to the European Central Bank eliminated two primary means by which national governments stimulate their economies to avoid recession. What could replace them? The Nobel Laureate Robert Mundell laid out the conditions under which a single currency could work. Europe didn’t meet those conditions at the time; it still doesn’t. The removal of legal barriers to the movement of workers created a single labor market, but linguistic and cultural differences make American-style labor mobility unachievable. Read by OutloudOpinion | 20 5 10 | Free | View In iTunes |
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The Abuse of History and the Iranian Bomb 4.21.10 | Saturated with their often tragic history, Jews tend to pay great reverence to the past. But the past, especially when not handled with care, can be the enemy of the future and distort our reading of the challenges of the present. This is certainly the case with the analogy that Israeli leaders insist on drawing between the destruction of European Jewry in the Holocaust and the threat posed to the Jewish state by a nuclear-armed Iran. Holocaust Remembrance Day in Jerusalem this year again saw Israeli leaders competing with each other in feeding the gloom of the national psyche and public hysteria surrounding Iran’s intentions. Read by OutloudOpinion | 20 5 10 | Free | View In iTunes |
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The Great Escapism 4.21.10 | Barack Obama, however mixed his accomplishments to date as US president, has sought to rebrand America and reclaim its former signature asset: its ability to embody universally admired values. As popular culture is usually the way those values are transmitted, it is worth considering what it is about American cinema, music, and popular literature that makes them so compelling to many other parts of the world. After all, much of what America once monopolized in Hollywood movies and other pop-culture exports is now being reproduced locally. Bollywood competes with California in terms of glamorous stars and big production numbers; Japan and South Korea mint their own pop singers and fashion trends. Read by OutloudOpinion | 20 5 10 | Free | View In iTunes |
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All for One Tax and One Tax for All? 4.21.10 | When the next full-scale global financial crisis hits, let it not be said that the International Monetary Fund never took a stab at forestalling it. Recently, the IMF proposed a new global tax on financial institutions loosely in proportion to their size, as well as a tax on banks’ profits and bonuses. The Fund’s proposal has been greeted with predictable disdain and derision by the financial industry. More interesting and significant are the mixed reviews from G-20 presidents and finance ministers. Governments at the epicenter of the recent financial crisis, especially the United States and the United Kingdom, are downright enthusiastic, particularly about the tax on size. After all, they want to do that anyway. Countries that did not experience recent bank meltdowns, such as Canada, Australia, China, Brazil, and India, are unenthusiastic. Why should they change systems that proved so resilient? Read by OutloudOpinion | 20 5 10 | Free | View In iTunes |
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Another Failed British Experiment 4.21.10 | British politics has always been something of an experimental laboratory for the industrialized world. In the 1970’s, Britain was where the preeminent postwar model of how to manage the economy collapsed. That model had been based politically on the creation of consensus, and economically on Keynesian demand management. Today, the equivalent collapse has been of the “regulation-lite” regime in which a party that styled itself as “New Labour” accepted a powerful role for markets – particularly for largely deregulated financial markets. In the 1960’s, Keynesian policies delivered the illusion that everyone was benefiting, with high levels of employment and significant wage growth. Britain was the coolest place on earth, boasting the Beatles and the Rolling Stones and the pastel fashions of Carnaby Street. Read by OutloudOpinion | 20 5 10 | Free | View In iTunes |
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The Making of China’s Trade Deficit 4.21.10 | China registered a monthly trade deficit of $7.2 billion in March 2010, its first since April 2004. And yet, at around the same time, the United States Congress issued its loudest call ever to classify China as an exchange-rate manipulator, accusing Chinese leaders of maintaining the renminbi’s peg to the dollar in order to guarantee a permanent bilateral trade surplus. China’s March trade deficit indicates, first of all, that it is incorrect to claim that Chinese economic growth depends mainly on exports. Exports are an important part of the Chinese economy, and any global market fluctuation or external shock will certainly have an impact on overall growth. But, like any other large economy, China’s economy is driven by domestic consumption and investment. Read by OutloudOpinion | 20 5 10 | Free | View In iTunes |
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Why China is Right on the Renminbi 4.21.10 | After a period of high tension between the United States and China, culminating earlier this month in rumblings of an all-out trade war, it is now evident that a change in Chinese exchange-rate policy is coming. China is finally prepared to let the renminbi resume its slow but steady upward march. We can now expect the renminbi to begin appreciating again, very gradually, against the dollar, as it did between 2005 and 2007. Some observers, including those most fearful of a trade war, will be relieved. Others, who see a substantially undervalued renminbi as a significant factor in US unemployment, will be disappointed by gradual adjustment. They would have preferred a sharp revaluation of perhaps 20% in order to make a noticeable dent in the US unemployment rate. Read by OutloudOpinion | 20 5 10 | Free | View In iTunes |
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The Road to Post-Crisis Growth 4.21.10 | It is about 18 months since the financial crisis hit, and 12 months since the panic started to recede, with asset prices stabilizing and beginning to turn up. Although recovery in advanced countries remains fragile, developing countries appear to have weathered the storm. Growth in China and India is bouncing back toward pre-crisis levels, Brazil’s growth is rising after a sharp dip, and developing-country trade is rebounding from depressed levels. Reasons for this remarkable resilience abound, and they offer guidance for advanced and developing countries alike. As the crisis struck, capital flowed out of developing countries to shore up damaged balance sheets in advanced countries. Credit tightened sharply. But rapid responses by developing-country central banks, in collaboration with relatively healthy domestic banks, prevented a severe credit freeze. Read by OutloudOpinion | 20 5 10 | Free | View In iTunes |
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Heal Thyself Online 4.16.10 | An interesting phenomenon is happening to health care in the United States, quite apart from all the noise about changes to the country’s system of health insurance: individuals are starting to take charge of their own health and trying to avoid needing care in the first place. Just as people long ago moved from institutional, mainframe computers to personal computers, they are starting to make the same move from institutional to individual tools with their health – not for treating serious diseases such as cancer, to be sure, but for everyday monitoring and prevention. A variety of trends are coming together to make this happen. First, it is becoming apparent that many health problems are self-induced: too much unhealthy food and drink, too much smoking, too little sleep or exercise. There is nothing new about that insight, but now it is easier to keep track of personal behavior. Just as we can use financial software to manage our money, we can now use a variety of software tools to monitor our own behavior and bodily statistics. Read by OutloudOpinion | 20 5 10 | Free | View In iTunes |
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The Eternal Life of America’s Megabanks 4.16.10 | The world economy faces a major problem: the largest banks in the United States remain “too big to fail,” meaning that if one or more of them were in serious trouble, they would be saved by government action – because the consequences of inaction are just too scary. This problem is widely acknowledged, not just by officials but by bankers themselves. In fact, there is near unanimity that fixing it is a top policy priority. Even Jamie Dimon, the powerful head of the very large JP Morgan Chase, emphasizes that “too big to fail” must end. Read by OutloudOpinion | 20 5 10 | Free | View In iTunes |
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India’s Wary Rise 4.12.10 | Some countries are naturally at ease with the concept and the reality of strategic power. Such was clearly the case of France under Louis XIV, the Sun King in the seventeenth century, and such is the case today of China, whose leadership is comfortable with the balance-of-power games of classical Europe. India is clearly in a different category. In economic terms, India’s confidence has been boosted by the way the Western world now looks at it with a mixture of respect and greed: “What kind of deals can I strike with such an emerging market, whose population will soon be the largest of any country in the world?” Read by OutloudOpinion | 20 5 10 | Free | View In iTunes |
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The Dear Leader Nuclear Weapons Company 4.12.10 | US President Barack Obama and Russian President Dmitri Medvedev just signed a major new nuclear arms control treaty in Prague. The world’s great nuclear powers will meet this month in Washington and next month at the United Nations to discuss additional cuts. This is good news for everyone, everywhere. But neither the US-Russia agreement, nor the coming global nuclear arms talks, will have much impact on today’s most perilous threat: the nuclear honeymoon between an Iran determined to acquire a nuclear weapons capacity and a North Korea willing to sell Iran much of that capacity for hard currency. Today, more than 6,000 North Koreans work in Iran and neighboring areas of the Middle East. Many are engaged in construction and the apparel business as low-wage workers. But in Iran and Syria, there are also a growing number of specialist workers. Indeed, when Israel attacked a nuclear facility in Syria in September 2007, it was revealed that North Koreans were involved in developing the site in cooperation with the Syria National Technical Research Center. Read by OutloudOpinion | 20 5 10 | Free | View In iTunes |
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The Return of Industrial Policy 4.12.10 | British Prime Minister Gordon Brown promotes it as a vehicle for creating high-skill jobs. French President Nicolas Sarkozy talks about using it to keep industrial jobs in France. The World Bank’s chief economist, Justin Lin, openly supports it to speed up structural change in developing nations. McKinsey is advising governments on how to do it right. Industrial policy is back. In fact, industrial policy never went out of fashion. Economists enamored of the neo-liberal Washington Consensus may have written it off, but successful economies have always relied on government policies that promote growth by accelerating structural transformation. Read by OutloudOpinion | 20 5 10 | Free | View In iTunes |
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The Health of American Politics 4.9.10 | When the United States Congress approved President Barack Obama’s plan to extend health-care coverage to nearly all Americans, it marked the most important social legislation the country had seen since the 1960’s. While Republican opposition remains strong, the law was a major domestic political victory for Obama. Its enactment also has broader implications, because, like Obama’s election in 2008, it addresses questions about the health of America’s political system. After all, it was once widely asserted that an African-American without a political machine could not become president. Read by OutloudOpinion | 20 5 10 | Free | View In iTunes |
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No Time for a Trade War 4.7.10 | The battle with the United States over China’s exchange rate continues. When the Great Recession began, many worried that protectionism would rear its ugly head. True, G-20 leaders promised that they had learned the lessons of the Great Depression. But 17 of the G-20’s members introduced protectionist measures just months after the first summit in November 2008. The “Buy America” provision in the United States’ stimulus bill got the most attention. Still, protectionism was contained, partly due to the World Trade Organization. Continuing economic weakness in the advanced economies risks a new round of protectionism. In America, for example, more than one in six workers who would like a full-time job can’t find one. Read by OutloudOpinion | 20 5 10 | Free | View In iTunes |
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The IMF Does Europe 4.2.10 | With the International Monetary Fund playing a central role in the eurozone’s blueprint for a bailout of Greece, the multilateral lender has come full circle. In its early days after World War II, the IMF’s central task was to help Europe emerge from the ravages of the war. Once upon a time, the Fund had scores of programs across the Continent (as Rong Qian, Carmen Reinhart, and I illustrate in new research on “graduation” from sovereign debt crises.) But, until the financial crisis, most Europeans assumed they were now far too wealthy to ever face the humiliation of asking the IMF for financial assistance. Welcome to the new era. Europe has become ground zero for the biggest expansion of IMF lending and influence in years. Several large Eastern European countries, including Hungary, Romania, and Ukraine, already have substantial IMF loan programs. Now, the eurozone countries have agreed that the Fund can come into Greece and, presumably, Portugal, Spain, Italy, and Ireland, if needed. Read by OutloudOpinion | 20 5 10 | Free | View In iTunes |
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Women for Integration 3.23.10 | The past decade has proven again and again that empowering women worldwide holds the key to solving many seemingly intractable issues that have otherwise stymied policymakers. Poverty in the developing world seemed ineradicable until micro-lenders saw millions of low-income, destitute women as potential entrepreneurs. Involving African women in decision-making about crop production turns out to enable environmentally sustainable farming practices. Runaway population growth becomes controllable when women have access to literacy and business opportunities as well as to contraception. Could the tensions and conflicts surrounding the issue of immigration in Europe be yet another issue for which the empowerment of women holds a solution? Read by OutloudOpinion | 20 5 10 | Free | View In iTunes |
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Taking Hope in the Long View 3.23.10 | In the United States, we sit in the midst of 10% unemployment. In some countries, fiscal policy is crippled by legitimate fears that more deficit spending will trigger government-debt crises. In many other countries, fiscal policy is crippled by confusion between short-term cyclical and long-term structural deficits. Meanwhile, banking policy is crippled by populist reaction against more bailouts, and monetary policy by a strange mindset among central bankers that fears inflation even as wage growth continues to drop. As R.G. Hawtrey said of such people’s predecessors in the Great Depression, they are “crying ‘Fire! Fire!’ in Noah’s flood.” Read by OutloudOpinion | 20 5 10 | Free | View In iTunes |
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Is the Euro Overvalued? 3.23.10 | An American traveler in Paris or Berlin is continually struck by how high prices are relative to those in the United States. A hotel room, a simple lunch, or a man’s shirt all cost more at today’s exchange rate than they would in New York or Chicago. To bring the cost of those goods and services down to the level in the US would require the euro to fall relative to the dollar by about 15%, to around $1.10. It is easy to jump from this arithmetic to the conclusion that the euro is overvalued, and that it is likely to continue the decline that began last December. But that conclusion would be wrong. Looking ahead, the euro is more likely to climb back to the $1.60 level that it reached in 2008. Read by OutloudOpinion | 20 5 10 | Free | View In iTunes |
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Renminbi and Reality 3.23.10 | The exchange rate of the renminbi has once again become a target of the United States Congress. China-bashing, it seems, is back in fashion in America. But this round of China-bashing appears stranger than the last one. When Congress pressed China for a large currency revaluation in 2004-2005, China’s current-account surplus was rising at an accelerating pace. This time, China’s current-account surplus has been shrinking significantly, owing to the global recession caused by the collapse of the US financial bubble. China’s total annual surplus (excluding Hong Kong) now stands at $200 billion, down by roughly one-third from 2008. In GDP terms, it fell even more, because GDP grew by 8.7% in 2008. Back then, pegging the renminbi to the dollar pushed down China’s real effective exchange rate, because the dollar was losing value against other currencies, such as the euro, sterling, and yen. But this time, with the dollar appreciating against other major currencies in recent months, the relatively fixed rate between the dollar and the renminbi has caused China’s currency to strengthen in terms of its real effective rate. Read by OutloudOpinion | 20 5 10 | Free | View In iTunes |
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Who Should Lead the IMF? 3.22.10 | The International Monetary Fund, many say, has had a good crisis. As recently as three years ago, many observers thought that the Fund had outlived its usefulness and should be closed down. Since then, it has intervened in Hungary, Latvia, Iceland, and Ukraine, among other crisis-stricken countries – and has received a massive infusion of new resources. Part of the explanation for the higher esteem in which the IMF is now held is its recent display of intellectual flexibility – a rare virtue for a big, lumbering bureaucracy. It has rethought its traditional opposition to capital controls. It has suggested that central banks may want to consider higher inflation targets in order to avoid hitting the zero bound in the event of deflationary shocks. For this, it drew a stern reproach from Germany’s Bundesbank – a clear sign that it is doing something right. Read by OutloudOpinion | 20 5 10 | Free | View In iTunes |
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Less Bang for America’s Stimulus Buck 3.22.10 | The run-up to the economic crisis in the United States was characterized by excessive leverage in financial institutions and the household sector, inflating an asset bubble that eventually collapsed and left balance sheets damaged to varying degrees. The aftermath involves resetting asset values, deleveraging, and rehabilitating balance sheets – resulting in today’s higher saving rate, significant shortfall in domestic demand, and sharp uptick in unemployment. So the most important question the US now faces is whether continued fiscal and monetary stimulus can, as some believe, help to right the economy. To be sure, at the height of the crisis, the combined effect of fiscal stimulus and massive monetary easing had a big impact in preventing a credit freeze and limiting the downward spiral in asset prices and real economic activity. But that period is over. Read by OutloudOpinion | 20 5 10 | Free | View In iTunes |
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To Russia with Social Media 3.18.10 | I recently was part of a US State Department/White House delegation to Russia. Our mission was to foster US-Russian cooperation, in fulfillment of the US’s policies of “21st-century statecraft” and citizen diplomacy. That sounds high-minded, for what the Russians were most interested in was how to build their own Silicon Valley. The Russians thought that the way forward was to give tech companies some money and put them near a great university. Presto: a new silicon valley. For their part, the American delegation assumed that you could pour in some social networking and create a civil society. As for me, I went in with my usual cynical notions, born of traveling to Russia every few months for the past 20 years. Read by OutloudOpinion | 20 5 10 | Free | View In iTunes |
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Assault on the OAS 3.18.10 | These last few weeks have been unfortunate for Latin America. In addition to the massive earthquakes that struck Haiti and Chile, the region has also been shaken by a hunger-strike death in Cuba and a growing crackdown on human rights and opposition in Venezuela. Making matters worse, the region also witnessed a superficially silly but actually dangerous attempt by the ALBA countries – Cuba, Venezuela, Nicaragua, Ecuador, Bolivia, and Paraguay – to create, with the acquiescence of Mexico, Brazil, and Argentina, a regional organization excluding the United States and Canada. The hope is that this new grouping will eventually supplant the Organization of American States. Read by OutloudOpinion | 18 3 10 | Free | View In iTunes |
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The Euro Zone’s Default Position 3.12.10 | Kazakhstan may be far removed from the euro zone, but its recent economic experiences are highly relevant to the euro’s current travails. As the euro zone struggles with debt crises and austerity in its weaker members, Kazakhstan is emerging from a massive banking-system collapse with a strong economic recovery. For most of the last decade, Kazakhstan gorged on profligate lending, courtesy of global banks – just like much of southern Europe. The foreign borrowing of Kazakh banks amounted to around 50% of GDP, with many of these funds used for construction projects. As the money rolled in, wages rose, real-estate prices reached to near-Parisian levels, and people fooled themselves into thinking that Kazakhstan had become Asia’s latest tiger. Read by OutloudOpinion | 18 3 10 | Free | View In iTunes |
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States of Risk 3.12.10 | The Great Recession of 2008-2009 was triggered by excessive debt accumulation and leverage on the part of households, financial institutions, and even the corporate sector in many advanced economies. While there is much talk about de-leveraging as the crisis wanes, the reality is that private-sector debt ratios have stabilized at very high levels. By contrast, as a consequence of fiscal stimulus and socialization of part of the private sector’s losses, there is now a massive re-leveraging of the public sector. Deficits in excess of 10% of GDP can be found in many advanced economies, and debt-to-GDP ratios are expected to rise sharply – in some cases doubling in the next few years. Read by OutloudOpinion | 18 3 10 | Free | View In iTunes |
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Cars, Bombs, and Climate Change 3.12.10 | For the better part of a decade, I have upset many climate activists by pointing out that there are far better ways to stop global warming than trying to persuade governments to force or bribe their citizens into slashing their reliance on fuels that emit carbon dioxide. What especially bugs my critics is the idea that cutting carbon is a cure that is worse than the disease – or, to put it in economic terms, that it would cost far more than the problem it is meant to solve. “How can that possibly be true?” they ask. “After all, we are talking about the end of the world. What could be worse – or more costly – than that?” They have a point. If we actually face, as Al Gore recently put it, “an unimaginable calamity requiring large-scale, preventative measures to protect human civilization as we know it,” then no price would be too high to pay to stop global warming in its tracks. But are the stakes really that high? Read by OutloudOpinion | 18 3 10 | Free | View In iTunes |
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The End of an Era in Finance 3.11.10 | In the world of economics and finance, revolutions occur rarely and are often detected only in hindsight. But what happened on February 19 can safely be called the end of an era in global finance. On that day, the International Monetary Fund published a policy note that reversed its long-held position on capital controls. Taxes and other restrictions on capital inflows, the IMF’s economists wrote, can be helpful, and they constitute a “legitimate part” of policymakers’ toolkit. Read by OutloudOpinion | 18 3 10 | Free | View In iTunes |
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Japan’s Slow-Motion Crisis 3.2.10 | If you listen to American, European, or even Chinese leaders, Japan is the economic future no one wants. In selling massive stimulus packages and bank bailouts, Western leaders told their people, “We must do this or we will end up like Japan, mired in recession and deflation for a decade or more.” Chinese leaders love pointing to Japan as the prime reason not to allow any significant appreciation of their conspicuously undervalued currency. “Western leaders forced Japan to let its currency rise in the second half of the 1980’s, and look at the disaster that followed.” Read by OutloudOpinion | 8 3 10 | Free | View In iTunes |
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Is Fiscal Stimulus Pointless? 2.26.10 | The Harvard economist Robert Barro, writing in The Wall Street Journal , recently made an intelligent argument against America’s fiscal stimulus. After wading through the drivel of ethics-free Republican hacks and knowledge-free academic hacks who claim, one way or another, that the basic principles of economics make it impossible for government spending decisions to alter the flow of economic activity, reading Barro comes as a great relief. But I think that Barro misreads how his own evidence applies to our current situation. Barro writes that he “estimate[s] a spending multiplier of around 0.4 within the same year and about 0.6 over two years.... [T]he [tax] multiplier is around minus 1.1.... [Thus,] GDP would be higher than otherwise by $120 billion in 2009 and $180 billion in 2010...,” and by $60 billion in 2011. Read by OutloudOpinion | 8 3 10 | Free | View In iTunes |
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Tea Time in America 2.25.10 | Ever since the first “Tea Party” convention was held last month in Nashville, Tennessee, with Sarah Palin as one of the keynote speakers, America’s political and media establishments have been reacting with a combination of apprehension and disdain. The Speaker of the US House of Representatives, Nancy Pelosi, has called the Tea Party adherents Nazis, while the mainstream media tend to portray them as ignorant and provincial, a passive rabble with raw emotion but little analytical skill, stirred up and manipulated by demagogues to advance their own agendas. To be sure, the Tea Party’s brand of aggrieved populism – and its composition of mostly white, angry, middle-class voters – has deep roots in the United States, flaring up during times of change. But observers who have drawn comparisons to the Know-Nothings, the racist, paranoid, anti-Catholic, and anti-immigrant party that surged in the 1850’s, are reading the movement far too superficially. Read by OutloudOpinion | 8 3 10 | Free | View In iTunes |
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How Safe Are Your Dollars? 2.25.10 | Chinese officials and private investors around the world have been worrying aloud about whether their dollar investments are safe. Since the Chinese government holds a large part of its $2 trillion of foreign exchange in dollars, they have good reason to focus on the future value of the greenback. And investors with smaller dollar holdings, who can shift to other currencies much more easily than the Chinese, are right to ask themselves whether they should be diversifying into non-dollar assets – or even shunning the dollar completely. The fear about the dollar’s future is driven by several different but related concerns. Will the value of the dollar continue its long-term downward trend relative to other currencies? Will the enormous rise of United States government debt that is projected for the coming decade and beyond lead to inflation or even to default? Will the explosive growth of commercial banks’ excess reserves cause rapid inflation as the economy recovers? Read by OutloudOpinion | 8 3 10 | Free | View In iTunes |
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The Illusion of a Chinese Bubble 2.25.10 | On the eve of Chinese New Year, the People’s Bank of China (PBC) surprised the market by announcing – for the second consecutive time in a month – an increase in banks’ mandatory-reserve ratio by 50 basis points, bringing it to 16.5%. Shortly before that, China’s government acted to stop over-borrowing by local governments (through local state investment corporations), and to cool feverish regional housing markets by raising the down-payment ratio for second house buyers and the capital-adequacy ratio for developers. Read by OutloudOpinion | 8 3 10 | Free | View In iTunes |
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Corporate Political Speech is Bad for Shareholders 2.23.10 | The United States Supreme court recently struck down limits on the freedom of companies to spend money on political elections. Large, publicly traded companies in other countries also often face lax limits on their use of corporate resources to influence political outcomes, fueling fears that the interests of shareholders will trump those of other groups, such as consumers and employees. But corporate spending on politics can also hurt the interests of shareholders. Stock market listed companies control a big share of almost every country’s resources, so the free flow of corporate money into politics can have a profound impact on politicians’ preferences and choices. In particular, the influence of corporations on politicians and political outcomes can be expected to weaken the rules that protect shareholders and ensure that companies are well-governed. Read by OutloudOpinion | 8 3 10 | Free | View In iTunes |
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The Poverty of Stimulus 2.16.10 | Most economists think that macroeconomic disruptions, such as the current recession, can be understood in terms of aggregate indicators such as total employment, the price level, and the money supply. But this view is misleading, particularly in the current economic situation. Worse yet, it misleads us into counterproductive economic policies. As the economist Fischer Black explained, an economy matches a population’s desires to the available resources and production technology. When an economy is operating efficiently, expectations are largely fulfilled; desires, resources, and production technology are well matched; and people are reasonably satisfied with their plans, relations, and contracts. Read by OutloudOpinion | 16 2 10 | Free | View In iTunes |
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Climate Science or Climate Evangelism? 2.12.10 | COPENHAGEN – As George W. Bush and Tony Blair learned the hard way, the public does not take kindly to being misled about the nature of potential threats. The after-the-fact revelation that the reasons for invading Iraq were vastly exaggerated – and in some cases completely fabricated – produced an angry backlash that helped toss the Republicans out of power in the United States in 2008 and may do the same to Britain’s Labour Party later this year. A similar shift in global public opinion is occurring with respect to climate change. The process picked up momentum late last year, after hackers leaked thousands of e-mails from a top British research facility showing that some of the world’s most influential climatologists had been trying to disguise flaws in their work, blocking scrutiny, and plotting together to enforce what amounts to a party line on climate change. More recently, the United Nations’ respected advisory group, the Intergovernmental Panel on Climate Change (IPCC), has been deeply embarrassed by the revelation that some alarming predictions contained in an influential report that it released in 2007 have little or no scientific basis. Read by OutloudOpinion | 15 2 10 | Free | View In iTunes |
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The New Public Diplomacy 2.10.10 | CAMBRIDGE – The world of traditional power politics was typically about whose military or economy would win. In today’s information age, politics is also about whose “story” wins. National narratives are, indeed, a type of currency. Governments compete with each other and with other organizations to enhance their own credibility and weaken that of their opponents. Witness the contest between the government and protesters after the Iranian elections in June 2009, in which the Internet and Twitter played crucial roles, or the recent controversy between Google and China. Reputation has always mattered in world politics, but credibility has become crucial because of a “paradox of plenty.” When information is plentiful, the scarce resource is attention. Under the new conditions, a soft sell may, more than ever, prove more effective than a hard sell. Read by OutloudOpinion | 15 2 10 | Free | View In iTunes |
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The New French Fashion in Civil Rights 2.8.10 | NEW YORK – First the Swiss ban minarets. Now the French parliament wants to ban Muslim women from wearing the burqa – the full, face-covering garment worn in orthodox Arab countries, and now adopted by some orthodox non-Arabs – in public places. The hijab, the headscarf that some Muslim women wear, is already banned in French public schools, where the “ostentatious” display of any religious symbolism is forbidden. The burqa, however, is worn far more rarely in France – by about 1,900 of nearly six million Muslims, almost none of them from a traditional burqa-wearing country. The reason why French parliamentarians, ranging from Communists to conservatives, support this ban is a general consensus that wearing the burqa is “contrary to the values of the Republic.” As the French president, Nicolas Sarkozy, famously said, the burqa is “not welcome in France.” Immigrants who cover their faces have been refused French citizenship for that reason. Feminists, including some women from Muslim backgrounds, have backed the ban, because they regard the custom as degrading. A Communist member of parliament, André Gerin, warned that terrorism and extremism were “hiding behind the veil.” Read by OutloudOpinion | 15 2 10 | Free | View In iTunes |
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Chile Stays the Course 2.8.10 | BUENOS AIRES – When Sebastián Piñera – the moderately conservative tycoon who was recently elected president – takes office on March 11, Chile will experience what some political scientists consider a watershed in every successful transition to democracy: the rotation of power among political parties. After General Augusto Pinochet’s dictatorship gave way to democracy in 1990, the center-left coalition known as the Concertación won four consecutive free and fair presidential contests. After 20 years in office, it will now cede power to Piñera´s Coalición por el Cambio , composed of his center-right Renovación Nacional and the more conservative Union Demócrata Independiente . The long rule of the Concertación reflected its success. In almost all areas, from political stability to economic development to poverty alleviation, Chile has done very well over the past two decades, certainly much better than its Latin American neighbors. The rightist opposition had to solve the puzzle of defeating a coalition that had maintained Pinochet’s most successful policies (mainly the free-market, export-oriented economic model) without being tainted (as many Coalición leaders are) by links to his bloody regime. Read by OutloudOpinion | 15 2 10 | Free | View In iTunes |
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The Politics of Cosmic Catastrophe 2.5.10 | WASHINGTON, DC – One weighty decision that the world will need to make in 2010 is whether to support an idea raised by Anatoly Perminov, the head of the Russian space agency Roscosmos, to launch an unmanned mission to redirect a large asteroid that might collide with Earth after 2030. At more than 360 meters in diameter, the asteroid, Apophis, is a dozen times larger than the Tunguska space object (presumably a meteorite or comet) that devastated a large part of eastern Siberia a century ago. As far as can be determined, that object detonated on June 30, 1908, with the power of a nuclear weapon, felling 80 million trees over a 2,000-square-kilometer area. According to NASA, if Apophis hit the Earth, it could release more than 100,000 times the energy of the Tunguska event. Thousands of square kilometers could vaporize in the blast, but the whole Earth would suffer from the loss of sunlight and other effects of the dust released into the atmosphere. This danger explains why a Russian analyst has called Apophis a “space terrorist.” Read by OutloudOpinion | 15 2 10 | Free | View In iTunes |
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Muddling Out of Freefall 2.4.10 | NEW YORK – Defeat in the Massachusetts senatorial election has deprived America’s Democrats of the 60 votes needed to pass health-care reform and other legislation, and it has changed American politics – at least for the moment. But what does that vote say about American voters and the economy? It does not herald a shift to the right, as some pundits suggest. Rather, the message it sends is the same as that sent by voters to President Bill Clinton 17 years ago: “It’s the economy, stupid!” and “Jobs, jobs, jobs.” Indeed, on the other side of the United States from Massachusetts, voters in Oregon passed a referendum supporting a tax increase. The US economy is in a mess – even if growth has resumed, and bankers are once again receiving huge bonuses. More than one out of six Americans who would like a full-time job cannot get one; and 40% of the unemployed have been out of a job for more than six months. Read by OutloudOpinion | 15 2 10 | Free | View In iTunes |
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Turkey to the EU’s Rescue 2.4.10 | LAUSANNE – The Copenhagen Climate Change Conference was an unmitigated disaster for the European Union. Instead of the EU claiming center stage, as its leaders assumed it would, the key actors were the United States, Brazil, South Africa, India, and China. Indeed, when the accord was reached, the EU not even in the room. Copenhagen exposed the demise of Europe not only as a global power, but even as a global arbiter. So what is the EU is left with? As its “hard power” ebbs, its “soft power,” as illustrated by the Copenhagen summit, seems to be very weak. This in part arises from a failure to provide the EU with political power. The Lisbon Treaty was a compromise constitutional arrangement that would nevertheless give the EU greater weight and authority precisely for occasions such as the Copenhagen summit, when global issues are addressed. Though multiple European actors on the world stage were more than justified in the old days, this is no longer the case. With China, India, the US, Indonesia, Brazil, and other major global players speaking with one voice, Europe could no longer afford a cacophony of voices. Read by OutloudOpinion | 15 2 10 | Free | View In iTunes |
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Can Greece Avoid the Lion? 2.3.10 | ATHENS – Even as the European Union and the International Monetary Fund lay the groundwork for a giant first-round bailout, debate is swirling about whether Greece can avoid sovereign default. Some view Greece as Argentina revisited, noting the stunning parallels with the country that in 2001 set the record for the world’s largest default (in dollar terms). Others, such as Greek Prime Minister George Papandreou, see the country’s problems as difficult but manageable, and complain of interference from ill-intentioned foreign speculators. Avoiding default may be possible, but it will not be easy. One has only to look at official data, including Greece’s external debt, which amounts to 170% of national income, or its gaping government budget deficit (almost 13% of GDP). Read by OutloudOpinion | 15 2 10 | Free | View In iTunes |
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Why an American Recovery Matters 2.3.10 | MILAN – It is hard to be optimistic about America at present. With the help of crucial government support in the crisis, the US financial sector (or at least parts of it) has bounced back, while America’s real economy struggles with high unemployment, discouraged labor-force dropouts, and damaged balance sheets. So it is no surprise that the American public and the US Congress are angry. The focus of that anger has been the massive and unwise financial-sector bonuses. As a result, regulatory reforms have thus far consisted of, first, a threat to the Federal Reserve’s autonomy, and, second, a tax on bonuses. The first idea is a bad one. The latter may be politically mandatory and marginally beneficial in fiscal terms. Its effects on risk-taking are debatable. But the much-needed structural reforms to limit leverage and contain the risks that the financial system periodically imposes on the real economy – and the public purse – have only belatedly gotten off the to-do list, and the prospects of enacting them are difficult to estimate. Read by OutloudOpinion | 15 2 10 | Free | View In iTunes |
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The Treason of the Magistrates 2.2.10 | PARIS – In democracies, justice is supposed to be independent. Some prosecutors and investigating magistrates, however, conveniently forget this. Indeed many among them are deeply enmeshed in politics, pursuing agendas – and vendettas – of their own. The phenomenon of politicized prosecutors and investigating magistrates is becoming global, arising in democracies as diverse as Japan, Italy, France, Spain, Turkey, and Argentina. In all these countries, prosecutors and magistrates hurl accusations of corruption against governments and ruling parties – charges that also happen to suit the political and institutional interests of the magistrates. Japan ’s state prosecutor has, for example, accused Ichiro Ozawa, the General-Secretary of the newly elected Democratic Party of Japan, of having received illegal funds to run the DPJ’s recent campaign against the Liberal Democratic Party. That three close aides to Ozawa have been indicted only months after the DPJ’s victory strikes many Japanese as odd, given the well known corruption of the LDP when in power. Read by OutloudOpinion | 15 2 10 | Free | View In iTunes |
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Iran’s Revolutionary Echoes 2.2.10 | Iran’s continued unrest, now extending through the 30th anniversary of the revolution that toppled the Shah, raises the question of whether the Islamic Republic is about to fall. As in 1979, millions of Iranians have taken to the streets, this time to protest electoral fraud in the presidential vote last June. The cheated presidential candidates, both veterans of the revolution, instinctively thought of a replay of history. Mir Hossein Moussavi saw the green symbols of the demonstrators as representing the color of the House of the Prophet, and urged his supporters to continue their nightly rooftop chants of “God is Great!” Thus, the first slogan of the opposition invoked the religious credo of the 1979 revolutionaries. More recently, protesters chanted it during the funeral demonstrations for Grand Ayatollah Hussein Ali Montazeri in the closing days of 2009. And yet we risk being led astray by memories of 1979. It is far too soon to predict another revolution. But t he divide between Iran’s society and its government is much greater today than it was under the Shah 30 years ago. Change seems just as inevitable. Read by OutloudOpinion | 15 2 10 | Free | View In iTunes |
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Japan’s Secret Shogun 2.1.10 | With the post-general election honeymoon over, the Japanese public has become increasingly aware that Ichiro Ozawa, Secretary-General of the ruling Democratic Party of Japan (DPJ), is the puppet-master behind Prime Minister Yukio Hatoyama’s cabinet. Although he distances himself from formal policy-making within the executive branch, Ozawa in fact masterminds the entire legislative process, including the budget and appropriations. He has centralized the DPJ’s contacts with lobbyists at his office in the Diet (Parliament). He also exercises a total grip over the allocation of the DPJ’s state subsidy to individual DPJ legislators. Alas, Hatoyama controls only the narrow field of policy. Ozawa’s political style is that of his mentor, former Prime Minister Kakuei Tanaka (1972-1974), who became the longtime boss of the biggest faction of the former ruling Liberal Democratic Party (LDP) after his resignation following bribery charges. Together with other factions, Tanaka commanded a majority within the LDP and remained the party’s kingmaker and string-puller in successive LDP governments, perfecting the LDP’s quasi-social-democratic combination of export-led growth and pork-barrel wealth redistribution. Recently, Ozawa had a visit that he made to Tanaka’s tombstone televised, thereby holding himself up to the public as Tanaka’s heir. Read by OutloudOpinion | 15 2 10 | Free | View In iTunes |
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Is Russia’s Economic Crisis Over? 1.29.10 | Has Russia’s economic crisis ended? That depends on who you ask. Ask Prime Minister Vladimir Putin, or any official of his United Russia party, and you will be told, “Of course it is over.” They will even produce proof in the form of an unemployment rate that does not rise, unprecedented increases in pensions, and strong growth in construction and metal-working. Of course, all these comparisons are made with how things stood last month rather than with the country’s pre-crisis economic performance. Then there is another “miracle” that the government is starting to trumpet, one discovered in August 2009: an increase in Russia’s population. Unfortunately, in no month before or since have births outpaced deaths. Ask a member of the opposition whether the crisis has ended, and you will be told that it is only just beginning. Gazprom’s production is falling at a dizzying pace; the country’s single-industry “mono-towns” are dying. Read by OutloudOpinion | 15 2 10 | Free | View In iTunes |
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Guilty Democrats 1.28.10 | LONDON-When former Czech President Václav Havel knocked on the door of the Chinese embassy in Prague to demand the release of the writer Liu Xiaobo, I had an eerie sense of déjà vu. Thirty-three years ago, Havel helped initiate Charter 77, the landmark document that crystallized the ideals of all the dissidents-and many others-trapped behind the Iron Curtain. Read by OutloudOpinion | 28 1 10 | Free | View In iTunes |
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Africa’s Diaspora to the Rescue 1.26.10 | There is something dismally familiar about the tide of news reports concerning Africa’s increased suffering – more poverty, malnutrition, civil strife, and death – in the face of the recent global financial crisis. Almost everywhere, the media translates academic conclusions into graphic illustrations of brutality and despair in places such as Guinea and the Democratic Republic of Congo. But there is another, woefully under-reported, side to the story. African countries that were locked out of international capital markets for most of the past five decades have largely been spared the twin woes of financial turmoil and economic downturn. The continent’s economies experienced a slowdown, but not a recession. Indeed, according to McKinsey & Company, Africa was the third-largest contributor to world economic growth in 2009, after China and India. Read by OutloudOpinion | 28 1 10 | Free | View In iTunes |
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Reconstructing Haiti 1.25.10 | The horrors of Haiti’s earthquake continue to unfold. The quake itself killed perhaps 100,000 people. The inability to organize rapid relief is killing tens of thousands more. More than one million people are exposed to hunger and disease and, with the rain and hurricane seasons approaching, are vulnerable to further hazards. Even an economy as impoverished as Haiti’s is a complex system dependent on trade between rural and urban areas, transport, electricity, port services, and government functions. Haiti’s economy worked badly in the past, and was still reeling from four hurricanes in 2008 when the earthquake struck. Read by OutloudOpinion | 25 1 10 | Free | View In iTunes |
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China’s Next Mountain to Climb 1.22.10 | China is entering a complex set of transitions that will lay the foundations for the advanced-country status that it hopes to reach in the next 25 years. After three decades of sustained growth and a remarkably successful policy response to the recent global crisis, Chinese self-confidence is soaring. But the lessons that the government may draw from the crisis may not be the best guides for the long term. China faces several parallel and related challenges that are crucial for its internal development as well as its global economic relations. Among these are: ● a major microeconomic restructuring of the economy to anchor the country’s emerging middle income country status; ● a macroeconomic shift to a higher level of household income and consumption and a more rapid expansion of the middle class; ● a reversal of the country’s now rising income inequality; lowering the very high savings level relative to investment and thus reducing the current-account surplus; ● reducing the energy and carbon intensity of future growth; ● assuming greater global responsibilities. Read by OutloudOpinion | 22 1 10 | Free | View In iTunes |
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A Cool Head for the Hottest Issues 1.20.10 | Reading Barack Obama’s Dreams from My Father , the US president’s beautifully written reflections on his early life and identity, most people are struck by his cool and intellectual approach. This is not to say that he is unemotional. Obama can rage and weep. But he rarely seems to act on the basis of raw sentiment or instinctive prejudice. Pragmatic and highly intelligent, sooner or later every issue receives the full attention of his forensic curiosity. Recalling Hillary Clinton’s famous Democratic primary television advertisement, Obama, it turns out, is exactly the sort of president that most of us would want to have in the post for that 3 a.m. phone call about an international crisis. He would not be afraid to act, but he would be prepared to think first. I do not think, therefore, that Obama will be too vexed by some of the criticism he faces at the end of his first year in office, though he will undoubtedly grimace at the defeat of the Democratic candidate in the special election in Massachusetts to fill Ted Kennedy’s old seat. Obama was praised extravagantly a year ago; 12 months on, the criticism is over the top, too. Read by OutloudOpinion | 22 1 10 | Free | View In iTunes |
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The Bogey of Inflation 1.18.10 | How real is the danger of inflation for the world economy? Opinion on this matter is divided between conservative economists and official bodies like the IMF and OECD. The IMF and OECD project very low inflation rates over the next few years. But former US Federal Reserv e Chairman Alan Greenspan warns of inflationary dangers. Some bond markets, too, seem to expect sharply higher inflation. Which view is right has big implications for policy. If inflation has succeeded recession as today’s main problem, governments should withdraw their stimulus policies (money out of the economy) as soon as possible. If recession remains the problem, the stimulus policies should stay in place, or even be strengthened. Read by OutloudOpinion | 22 1 10 | Free | View In iTunes |
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A Chinese Champion of Peace and Freedom 1.18.10 | On Christmas Day last year, one of China’s best-known human rights activists, the writer and university professor Liu Xiaobo, was condemned to 11 years in prison. Liu is one of the main drafters of Charter 08, a petition inspired by Czechoslovakia’s Charter 77, calling on the Chinese government to adhere to its own laws and constitution, and demanding the open election of public officials, freedom of religion and expression, and the abolition of “subversion” laws. For his bravery and clarity of thought about China’s future, Liu deserves the 2010 Nobel Peace Prize. There are two reasons why we believe that Liu would be a worthy recipient of that prestigious award. Read by OutloudOpinion | 22 1 10 | Free | View In iTunes |
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Engineering Financial Stability 1.18.10 | The severity of the global financial crisis that we have seen over the last two years has to do with a fundamental source of instability in the banking system, one that we can and must design out of existence. To do that, we must advance the state of our financial technology. In a serious financial crisis, banks find that the declining market value of many of their assets leaves them short of capital. They cannot raise much more capital during the crisis, so, in order to restore capital adequacy, they stop making new loans and call in their outstanding loans, thereby throwing the entire economy – if not the entire global economy – into a tailspin. This problem is rather technical in nature, as are its solutions. It is a sort of plumbing problem for the banking system, but we need to fix the plumbing by changing the structure of the banking system itself. Read by OutloudOpinion | 22 1 10 | Free | View In iTunes |
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The CEO Pay Slice 1.18.10 | There is now intense debate about how the pay levels of top executives compare with the compensation given to rank-and-file employees. But, while such comparisons are important, the distribution of pay among top executives also deserves close attention. In our recent research, we studied the distribution of pay among top executives in publicly traded companies in the United States. Such firms must disclose publicly the compensation packages of their five highest-paid executives. Our analysis focused on the CEO “pay slice” – that is, the CEO’s share of the aggregate compensation such firms award to their top five executives. We found that the pay slice of CEOs has been increasing over time. Not only has compensation of the top five executives been increasing, but CEOs have been capturing an increasing proportion of it. The average CEO’s pay slice is about 35%, so that the CEO typically earns more than twice the average pay received by the other top four executives. Moreover, we found that the CEO’s pay slice is related to many aspects of firms’ performance and behavior. Read by OutloudOpinion | 22 1 10 | Free | View In iTunes |
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Iran’s Republic of Fear 1.18.10 | Iran’s clerical regime governs by a simple formula: he who is the most frightening, wins. “Victory by terrifying” is trope that is present in many of Supreme Leader Ayatollah Ali Khamenei’s speeches. Indeed, it is a reliable guide to his political philosophy. This view was not invented by Khamenei, but rather is drawn from the Koran and the Shiite tradition. The Iranian Revolutionary Guard have uniforms bearing a Koranic verse that reads, “Make ready for them whatever force and strings of horses you can, to terrify thereby the enemy of God and your enemy, and others besides them that you know not; God knows them.” Furthermore, in the Shiite tradition, the strategy of the Mahdi, the Shiite Messiah, will be to intimidate all his enemies upon his return to Earth. Read by OutloudOpinion | 22 1 10 | Free | View In iTunes |
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Rescuing Yemen 1.18.10 | Yemen has suddenly joined Afghanistan and Pakistan as a risk to global security. Indeed, it is increasingly seen as a nascent failed state and potential replacement host for Al Qaeda. The attempted bombing of a Detroit-bound airliner on Christmas Day by a young Nigerian man trained by Al Qaeda in Yemen appeared to open the West’s eyes to the country’s problems. Following that failed attack, US President Barack Obama and British Prime Minister Gordon Brown jointly pushed a conference in London to propose solutions for the previously overlooked crises in Yemen. But if the conference focuses too narrowly on Al Qaeda’s presence in Yemen, it will do more harm than good. Instead, the conference must aim to address broader issues of political and social stability within Yemen. Read by OutloudOpinion | 22 1 10 | Free | View In iTunes |
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The Risky Rich 1.18.10 | Today’s swollen fiscal deficits and public debt are fueling concerns about sovereign risk in many advanced economies. Traditionally, sovereign risk has been concentrated in emerging-market economies. After all, in the last decade or so, Russia, Argentina, and Ecuador defaulted on their public debts, while Pakistan, Ukraine, and Uruguay coercively restructured their public debt under the threat of default. But, in large part – and with a few exceptions in Central and Eastern Europe – emerging-market economies improved their fiscal performance by reducing overall deficits, running large primary surpluses, lowering their stock of public debt-to-GDP ratios, and reducing the currency and maturity mismatches in their public debt. As a result, sovereign risk today is a greater problem in advanced economies than in most emerging-market economies. Read by OutloudOpinion | 22 1 10 | Free | View In iTunes |
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Heroes Cross Swords in Sri Lanka 1.15.10 | Two celebrated heroes who, as president and army chief, helped end Sri Lanka’s long and brutal civil war against the Tamil Tigers are now crossing political swords. Whichever candidate wins Sri Lanka’s presidential election on January 26 will have to lead that small but strategically located island-nation in a fundamentally different direction – from making war, as it has done for more than a quarter-century, to making peace through ethnic reconciliation and power sharing. Sri Lanka, almost since independence in 1948, has been racked by acrimonious rivalry between the majority Sinhalese and the minority Tamils, who make up 12% of today’s 21.3-million population. Now the country is being divided by the political rivalry between two Sinhalese war idols, each of whom wants to be remembered as the true leader who crushed the Tamil Tiger guerrillas. Read by OutloudOpinion | 22 1 10 | Free | View In iTunes |
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Rethinking Poverty Reduction 1.15.10 | Last year, the United Nations Food and Agriculture Organization announced that the number of hungry people in the world increased over the last decade. In 2008, the World Bank announced a significant decline in the number of poor people up to the year 2005. But if poverty is defined principally in terms of the money income needed to avoid hunger, how can announcements such as these be reconciled? According to the World Bank’s much cited “dollar-a-day” international poverty line, which was revised in 2008 to $1.25 a day in 2005 prices, there are still 1.4 billion people living in poverty, down from 1.9 billion in 1981. However, as China has accounted for most of this decline, there were at least 100 million more people living in poverty outside China in 2005 than in 1981. Read by OutloudOpinion | 22 1 10 | Free | View In iTunes |
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Europe’s Fearful Natives 1.14.10 | A referendum in Switzerland forbids the construction of new minarets. Racial violence explodes in the southern Italian region of Calabria. An intense and controversial debate takes place in France on the issue of national identity. These events have little in common, yet they all point to a growing European trend. More than ever before in recent decades, fear is becoming the dominant force in European politics. And it is not an abstract, undefined fear: it is above all the fear of the non-European “other,” perceived by a growing numbers of “white” Europeans as a threat to our European identities and ways of life, if not our physical security and jobs. Read by OutloudOpinion | 14 1 10 | Free | View In iTunes |
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Managing China’s Crisis Management 1.14.10 | China’s “Central Economic Work Meeting,” comprising top government decision makers, recently chose to continue the expansionary fiscal and monetary policy launched in the last quarter of 2008. But it also called for greater emphasis on transforming China’s development pattern and rebalancing its economic structure. The move thus signaled the start – well ahead of other countries – of China’s “exit” from crisis-driven economic policies. Indeed, China should accelerate its change of course. While expansionary policies have succeeded in ensuring a V-shape recession, their medium and long-term effects are worrisome. Read by OutloudOpinion | 14 1 10 | Free | View In iTunes |
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Two Cheers for China’s Climate Obstruction 1.13.10 | Since the Copenhagen climate summit’s failure, many politicians and pundits have pointed the finger at China’s leaders for blocking a binding, global carbon-mitigation treaty. But the Chinese government’s resistance was both understandable and inevitable. Rather than mustering indignation, decision-makers would do well to use this as a wake-up call: it is time to consider a smarter climate policy. China is unwilling to do anything that might curtail the economic growth that has enabled millions of Chinese to clamber out of poverty. This development can be seen in the ever-expanding Chinese domestic market. In the next six months, one-quarter of young Chinese consumers intend to buy new cars – the main source of urban air pollution – up an astonishing 65% from a year ago. A poll by China Youth Daily revealed that eight of ten young Chinese are aware of climate change, but are prepared to support environmental policies only if they can continue to improve their living standards – including acquiring new cars. Read by OutloudOpinion | 13 1 10 | Free | View In iTunes |
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Sudan between Peril and Hope 1.13.10 | The future of Sudan hangs in the balance. National elections are due in April. A referendum on the future status of the south of the country is supposed to follow in 2011. Both were key ingredients of the 2005 Comprehensive Peace Agreement, which ended 20 years of civil war between north and south. Both polls hold real promise. But they also are in real doubt. Sudan’s political leaders are backtracking on the commitments under the peace agreement. Cooperation and consensus are hard to find. The terrible tragedy of the country’s western Darfur region continues unabated. It was the support of the international community that helped bring Sudanese parties together in 2005. Many key countries in Africa and the West guaranteed the agreement. Sudan urgently needs the same efforts now. Read by OutloudOpinion | 13 1 10 | Free | View In iTunes |
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Is Military Power Becoming Obsolete? 1.11.10 | Will military power become less important in the coming decades? It is true that the number of large-scale inter-state wars continues to decline, and fighting is unlikely among advanced democracies and on many issues. But, as Barack Obama said in accepting the Nobel Peace Prize in 2009, “we must begin by acknowledging the hard truth that we will not eradicate violent conflict in our lifetimes. There will be times when nations – acting individually or in concert – will find the use of force not only necessary but morally justified.” When people speak of military power, they tend to think in terms of the resources that underlie the hard-power behavior of fighting and threatening to fight – soldiers, tanks, planes, ships, and so forth. In the end, if push comes to shove, such military resources matter. Napoleon famously said that “God is on the side of the big battalions,” and Mao Zedong argued that power comes from the barrel of a gun. Read by OutloudOpinion | 11 1 10 | Free | View In iTunes |
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Can Energy Be Governed? 1.11.10 | Energy lies at the heart of the world’s most pressing global challenges. Yet at both the global and national levels, energy is poorly governed. The fiasco of the Copenhagen climate summit is just one illustration of how far the world is from being able to bring about the desperately needed transition to a system of sustainable and secure provision of energy services. The key role of energy in global problems is clear. Some two-thirds of the greenhouse-gas emissions that are causing climate change trace back to fossil fuel use. A renewed scramble for oil is raising fears of a new generation of geopolitical conflicts. Global economic instability correlates strongly with energy-price volatility. Economic development is in significant part defined by the process of overcoming energy poverty, yet 1.6 billion people still lack access to even the most basic energy services. Read by OutloudOpinion | 11 1 10 | Free | View In iTunes |
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Is Gold a Good Hedge? 12.25.09 | As I walked through the airport in Dubai recently, I was struck by the large number of travelers who were buying gold coins. They were not reacting to Dubai's financial trouble, but rather were joining the eager rush to own gold before its price rises even further. Such behavior has pushed the price of gold from $400 an ounce in 2005 to more than $1100 an ounce in December 2009. Individual buying of gold goes far beyond the airport shops and other places where gold coins are sold. In addition to buying coins minted by several governments, individuals are buying kilogram gold bars, exchange-traded funds that represent claims on physical gold, gold futures, and shares in gold-mining companies that provide a leveraged position on the future price of gold. Read by OutloudOpinion | 6 1 10 | Free | View In iTunes |
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The Rising Sons of North Africa 12.24.09 | The role played by Libyan ruler Muammar al-Qaddafi's son, Saif al-Islam, in gaining the release of the Lockerbie bomber Abdelbaset Ali al-Megrahi, and Egyptian President Hosni Mubarak's state visit to Washington accompanied by his son, Gamal, suggest that dynastic successions are underway in both countries. They are not alone. Mubarak and Qaddafi, along with Tunisia's Zine el-Abidine Ben Ali and Abdelaziz Bouteflika of Algeria, are among the world's oldest and longest-serving heads of state. All four face the ticklish problem of succession, and speculation has been mounting for some time of possible attempts to keep power in the family. Read by OutloudOpinion | 6 1 10 | Free | View In iTunes |
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Is Sadness a Disease? 12.24.09 | Sadness is one of the small number of human emotions that have been recognized in all societies and in all time periods. Some of the earliest known epics, such as The Iliad and Gilgamesh, feature protagonists' intense sadness after the loss of close comrades. Likewise, anthropological work across a great range of societies clearly describes emotions of sadness that develop in response to frustration in love, humiliation by rivals, or the inability to achieve valued cultural goals. Even primates display physiological and behavioral signs after losses that are unmistakably similar to sadness among humans. There is little doubt that evolution designed people to have a propensity to become sad after such situations. Read by OutloudOpinion | 6 1 10 | Free | View In iTunes |
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Insecure Securities 12.23.09 | Once upon a time, stocks were risky and collateralized securities were safe. That time is over, as the breakdown of the American mortgage securitization market has shown. For years, hundreds of billions of new mortgage-backed securities (MBSs) and collateralized debt obligations (CDOs) generated from them were sold to the world to compensate for the lack of savings in the United States and to finance American housing investment. Now virtually the entire market for new issues of such securities - all but 3% of the original market volume - has vanished. Read by OutloudOpinion | 6 1 10 | Free | View In iTunes |
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Will Russia Save the West? 12.23.09 | Rapid changes in the global economy and international politics are raising, once more, an eternal issue in Russia: the country's relations with Europe, and with the Euro-Atlantic region as a whole. Of course, Russia partly belongs to this region. Yet it cannot and does not want to join the West wholeheartedly - at least not yet. Meanwhile, this choice looks very different now compared to just a few years ago. It is becoming obvious that the Euro-Atlantic world, whose economic and political model seemed so triumphant 20 years ago, is now lagging somewhat behind China and other Asian countries. So is Russia, where, despite encouraging talk about innovation-based development, the economy continues to de-modernize as corruption has been allowed to metastasize, and as the country relies increasingly on its natural-resource wealth. Indeed, it is Asia that has turned out to be the true winner of the Cold War. Read by OutloudOpinion | 6 1 10 | Free | View In iTunes |
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South Korea's G-20 Challenge 12.22.09 | On January 1, South Korea takes over the G-20 chairmanship from the United Kingdom. Korea is not the first emerging market to chair the G-20, but it is the first to do so since the global financial crisis. And it is the first to do so since the G-20 emerged as the steering committee for the world economy. G-20 chairs can have considerable influence. They coordinate the group's work. They organize its meetings. Like most committee chairs, they have significant agenda-setting power. Read by OutloudOpinion | 6 1 10 | Free | View In iTunes |
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China's Excess-Capacity Nightmare 12.22.09 | Back in 1958, the year of China's ill-fated “Great Leap Forward,” Chairman Mao had big plans for the steel industry. While production had been just over five million tons in 1957, he expected the country to catch up with or even surpass the United States by 1962, producing 80-100 million tons per year, and to reach 700 million tons per year by the mid-1970's, making China the undisputed world leader. All this was to be accomplished using small “backyard steel furnaces” operated by ordinary people with no particular technical expertise. Today, Mao's dream of catching up with the rest of the world has been realized, albeit a bit behind schedule, not only in steel making, where annual capacity has reached 660 million tons, but in many other sectors as well. In 2008, China ranked first in steel (about half of world production), cement (also about half), aluminum (about 40%), and glass (31%), to take just a few examples. The country topped the US in auto production in 2009, and remains second only to South Korea in shipbuilding, with 36% of global capacity. Read by OutloudOpinion | 6 1 10 | Free | View In iTunes |
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Afghanistan's Customary Anguish 12.22.09 | When the problems riddling Afghan society are listed - violence, insecurity, corruption, religious fundamentalism - one dominating factor is usually left out: the influence of customary law. In Afghanistan, there are three principal legal references: constitutional law, the Koran, and the system of customary law known as Farhang, the most dominant and strictest version of which is called Pashtunwali (the way of the Pashtuns). Read by OutloudOpinion | 6 1 10 | Free | View In iTunes |
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Investment Strategy after the Crisis 12.21.09 | Investors have been hit hard by the current crisis. Lessons are being learned and investment strategies revised. The central lesson for investors seems to me to be that not all components of risk are static, but rather evolve in ways that are not yet fully understood - and that government regulation cannot fully address. For that reason, the ability of markets to self-correct should play a role as well, which requires that investment strategies attempt to take the possibility of systemic risk into consideration. Read by OutloudOpinion | 6 1 10 | Free | View In iTunes |
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In Regulation We Trust? 12.19.09 | From next year, on swearing allegiance to the Queen, all members of Britain's House of Lords - and I am one of them - will be required to sign a written commitment to honesty and integrity. Unexceptionable principles, one might say. But, until recently, it was assumed that persons appointed to advise the sovereign were already of sufficient honesty and integrity to do so. They were assumed to be recruited from groups with internalized codes of honor. No more. All peers must now publicly promise to be honest. Only one had the guts to stand up and say that he found the new procedure degrading. The trigger for imposing this code of conduct was a scandal over MPs' expenses, which rocked Britain's political class for much of 2009. Read by OutloudOpinion | 21 12 09 | Free | View In iTunes |
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Who Should Be Bailed Out? 12.19.09 | As governments around the world develop policies to deal with failing financial institutions, they should be sure to pick their beneficiaries wisely. In particular, they should study and avoid the mistakes made in the AIG bailout in late 2008. A United States Special Inspector General recently issued a report criticizing the US government for failing to insist that AIG's counterparties in the market for financial derivatives bear some of the costs of bailing out the company. Indeed, bailouts of failed institutions should never extend the government's safety net to such counterparties. The AIG bailout was one of the largest in history, with the US government injecting more than $100 billion into the company. The bailout was brought about by AIG's large losses on derivative transactions with financial institutions, mostly sophisticated players such as Goldman Sachs and Spain's Banco Santander. Read by OutloudOpinion | 21 12 09 | Free | View In iTunes |
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Mexico's War of Choice 12.19.09 | Three years ago this month, Mexican President Felipe Calderón donned military fatigues and declared a full-scale war on drugs, ordering the Army into Mexico's streets, highways, and villages. Back then, Calderón received broad support, both domestically and from abroad, for what was viewed as a brave, overdue, and necessary decision. Tangible results were predicted to come soon. Moreover, George W. Bush's administration quickly promised American support - the so-called Mérida Initiative, signed in February, 2007 - and public-opinion polls showed that Calderón had, in one fell swoop, left behind the travails of his close and questioned electoral victory, gaining the trust of the Mexican people. But today, things look very different. Read by OutloudOpinion | 21 12 09 | Free | View In iTunes |
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Listen to Me! 12.19.09 | Last week, I wrote a 140-character hotel review on Twitter: “Galleria Park Hotel SF rejects noise complaint from ill-trained guest: 'Next time, ask for an interior room, not just a quiet room.'” I was frustrated because the hotel management was not listening to me when I asked for a quiet room - or later, when I complained. Instead of training their employees to listen, they were telling me that I hadn't made the right request. And the hotel managers probably were not listening to me later via Twitter, either. Read by OutloudOpinion | 21 12 09 | Free | View In iTunes |
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The Gold Bubble and the Gold Bugs 12.16.09 | Gold prices have been rising sharply, breaching the $1,000 barrier and in recent weeks rising towards $1,200 an ounce and above. Today's “gold bugs” argue that the price could top $2,000. But the recent price surge looks suspiciously like a bubble, with the increase only partly justified by economic fundamentals. Gold prices rise sharply only in two situations: when inflation is high and rising, gold becomes a hedge against inflation; and when there is a risk of a near depression and investors fear for the security of their bank deposits, gold becomes a safe haven. Read by OutloudOpinion | 16 12 09 | Free | View In iTunes |
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Too Big to Reform? 12.14.09 | The best journalism, it is said, is the first draft of history. Too Big to Fail by Andrew Ross Sorkin is certainly worthy of that designation. As a bit player in the dramatic events that Sorkin describes (I am an independent director of Morgan Stanley in my spare time), I can confirm that he accurately captures the atmosphere of chaos and uncertainty that reigned in New York in the autumn of 2008. It was a time when the tectonic plates of the financial system seemed to be shifting beneath us. Institutions that had been seen as Rocks of Gibraltar were revealed to be smoking volcanoes, at risk of imminent dissolution into lava and ash. Even Goldman Sachs continued to exist only thanks to the kind attentions of the United States Federal Reserve. On the other side of the Atlantic, the British government found itself to be the proud owner of over 80% of Royal Bank of Scotland, which, according to some measures, had for a while been the world's largest bank. Read by OutloudOpinion | 14 12 09 | Free | View In iTunes |
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Rights for Robots? 12.14.09 | Last month, Gecko Systems announced that it had been running trials of its “fully autonomous personal companion home care robot,” also known as a “carebot,” designed to help elderly or disabled people to live independently. A woman with short-term memory loss broke into a big smile, the company reported, when the robot asked her, “Would you like a bowl of ice cream?” The woman answered “yes,” and presumably the robot did the rest. Robots already perform many functions, from making cars to defusing bombs - or, more menacingly, firing missiles. Children and adults play with toy robots, while vacuum-cleaning robots are sucking up dirt in a growing number of homes and - as evidenced by YouTube videos - entertaining cats. There is even a Robot World Cup, though, judging by the standard of the event held in Graz, Austria, last summer, footballers have no need to feel threatened just yet. (Chess, of course, is a different matter.) Read by OutloudOpinion | 14 12 09 | Free | View In iTunes |
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India Remembered 12.14.09 | “Do not forget India.” That warning made sense 10 or 15 years ago; not any longer. India is now impossible to ignore, much less forget, owing not only to its rapid economic growth, but also to the country's increasing geopolitical stature. Europeans often speak of an emerging “G-3,” implying an international system dominated by the United States, China, and the European Union. But this ambition, however legitimate, looks more presumptuous and unrealistic every day, particularly given the choices that Europe just made in naming its new “President” - Belgium's Prime Minister Herman van Rompuy - and “Foreign Minister” - the never been elected to anything Lady Catherine Ashton from Britain. How can Europe pretend to stand for an ambitious message when it picks such low-profile - indeed, practically anonymous - messengers to deliver it? Read by OutloudOpinion | 14 12 09 | Free | View In iTunes |
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Financing the Fight against Climate Change 12.9.09 | It is now generally agreed that the developed countries will have to make a substantial financial contribution to enable the developing world to deal with climate change. Funds are needed to invest in new low-carbon energy sources, reforestation and protection of rain forests, land-use changes, and adaptation and mitigation. But there is no similar agreement on where the money will come from. The developed countries are reluctant to make additional financial commitments. They have just experienced a significant jump in their national debts, and they still need to stimulate their domestic economies. This colors their attitudes. It looks like they will be able to cobble together a “fast-start” fund of $10 billion a year for the next few years, but more does not fit into their national budgets. This is unlikely to satisfy the developing countries. Read by OutloudOpinion | 10 12 09 | Free | View In iTunes |
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The Euro's Greek Tragedy 12.9.09 | When the euro was introduced in 1999, European countries agreed that fiscal discipline was essential for its stability. While the common currency has benefited all countries that have adopted it - not least as an anchor in the current economic crisis - the failure of euro-zone members to abide by their agreement risk could yet turn the euro into a disaster. Indeed, too many members simply behave as if there were no Stability and Growth Pact. The state of Greek public finances, for example, is “a concern for the whole euro zone,” according to European Commissioner for Monetary Affairs Joaquin Almunia. Greece's fiscal deficit is expected to reach 12.7% of GDP this year, far exceeding the SGP's 3%-of-GDP cap. Read by OutloudOpinion | 10 12 09 | Free | View In iTunes |
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Defusing Russia's Energy Weapon 12.8.09 | As winter approaches, many people in Central and Eastern Europe remember the chill caused last winter by Russia's deliberate cut-off of gas supplies. That shutdown was a harsh reminder that gas is now the Kremlin's primary political instrument as it seeks to re-establish its privileged sphere of interest in what it thinks of as Russia's “near-abroad.” If Russia is allowed to continuing imposing Moscow rules on Europe's energy supplies, the result will be costly - not only for Europe, but for Russia as well. So it is past time that the European Union stopped treating energy as a bilateral issue, with some of the larger member states trying to protect their own narrow interests at the expense of the common European good. The EU urgently needs to build a common energy policy and a single market for natural gas. Until both are established, there is a grave risk that Russia will use new blockades to continue the kind of divide-and-rule policy that the world has witnessed since Vladimir Putin came to power. Read by OutloudOpinion | 8 12 09 | Free | View In iTunes |
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Too Big to Live 12.8.09 | A global controversy is raging: what new regulations are required to restore confidence in the financial system and ensure that a new crisis does not erupt a few years down the line. Mervyn King, the governor of the Bank of England, has called for restrictions on the kinds of activities in which mega-banks can engage. British Prime Minister Gordon Brown begs to differ: after all, the first British bank to fall - at a cost of some $50 billion - was Northern Rock, which was engaged in the “plain vanilla” business of mortgage lending. The implication of Brown's observation is that such restrictions will not ensure that there is not another crisis; but King is right to demand that banks that are too big to fail be reined in. In the United States, the United Kingdom, and elsewhere, large banks have been responsible for the bulk of the cost to taxpayers. America has let 106 smaller banks go bankrupt this year alone. It's the mega-banks that present the mega-costs. Read by OutloudOpinion | 8 12 09 | Free | View In iTunes |
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The Return of Monetarism 12.8.09 | The current economic crisis highlights the need for major changes at central banks. It is time for a return to some form of moderate monetarism - but in a twenty-first-century mold. The current crisis has clearly made central bankers' jobs far more complicated. Over the last 30 years or so, many central bankers supposed that all they needed to do was keep their sights fixed on price stability. Every instrument they had at their disposal was to be used for that goal. From now on, however, central bankers will have to aim for financial stability as well. Implicitly, central banks will also have to try to ensure that a new recession does not occur. But the current institutional set-up of today's central banks is highly inadequate to meeting these challenges. Central banks will have to get additional tools for their new tasks. And that is where things get very complicated. Read by OutloudOpinion | 8 12 09 | Free | View In iTunes |
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“Neo-Ottoman” Turkey? 12.3.09 | Nowadays, the international media are obsessed with the question of who “lost” Turkey and what that supposed loss means for Europe and the West. More alarmingly, some commentators liken Turkey's neighborhood policy to a revival of Ottoman imperialism. Recently, a senior Turkish columnist went so far as to quote Foreign Minister Ahmet Davutoğlu as saying that “we are indeed neo-Ottoman.” As someone who was present when Davutoğlu made his presentation to the parliamentary faction of Turkey's ruling Justice and Development Party (AKP), I can attest to the fact that he did not use such terminology. In fact, Davutoğlu and all of us in the AKP foreign-policy community never use this term, because it is simply a mispresentation of our position. Read by OutloudOpinion | 3 12 09 | Free | View In iTunes |
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Rendezvous with Africa on Climate 12.3.09 | After a long series of preparatory meetings, the Copenhagen summit on climate change is finally upon us. With the Kyoto Protocol on carbon emissions expiring in 2012, the delegates who will gather in Copenhagen have been given the task of concluding a new international agreement. The world's countries are engaging in one of the most complex and consequential exercises in collective action that has ever had to be managed in the history of international relations. Although the responsibility of industrialized countries and emerging economies in the battle against carbon emissions is now well known, Africa's place in the climate agenda has been largely neglected. Sub-Saharan emissions, estimated at only 3% to 4% of global man-made emissions, are deemed of little interest. Yet Africa is central to the global environmental crisis in two important ways. Read by OutloudOpinion | 3 12 09 | Free | View In iTunes |
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Playing Russian Roulette with Climate Change 12.3.09 | Mounting skepticism and deadlocked negotiations have culminated in an announcement that the Copenhagen Climate Conference will not result in a comprehensive global climate deal. Disappointing? Certainly. But the Copenhagen climate summit was always meant to be a transitional step. The most important thing to consider is where we will go from here. The phrase “the day after” is most commonly associated with the word “hangover.” The absence of a binding agreement could mean a global hangover, and not just for a day. Fed up with apocalyptic predictions, people wanted a miracle in Copenhagen. So a perceived failure may cause a massive, perhaps irreversible, loss of confidence in our politicians. No surprise, then, that governments have sought to manage our expectations carefully. Read by OutloudOpinion | 3 12 09 | Free | View In iTunes |
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The Road to Prosperity and Sound Markets 11.25.09 | BERLIN - The near global financial meltdown and ensuing downturns left the Anglo-Saxon nations pondering what they should do both to set their economies on a path toward recovery and to avoid a similar crisis in the future. Some recommendations by members of Columbia University’s Center on Capitalism and Society were sent to last April’s G20 meeting. To create more jobs in the economy, I proposed that governments establish a class of banks that would acquire the lost art of financing investment projects in the business sector - the type of financing the old "merchant" banks did so well a century ago. I also renewed my support for a subsidy to companies for their ongoing employment of low-wage workers. (Singapore adopted this idea with enviable results.) Read by OutloudOpinion | 25 11 09 | Free | View In iTunes |
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Industrial Policy Returns from the Grave 11.24.09 | One of the worst responses by officials to the financial crisis and deep recession has been to revive “industrial policy.” Once again, governments are using subsidies, mandates, regulation, and capital investment to pick industrial winners and losers, rather than using a broad, even-handed approach. The new round of industrial policy is occurring in advanced economies such as the United States and the United Kingdom, which long resisted its worst excesses, France, which long promoted national “champions”, and emerging economies such as Brazil and China. For example, French President Nicholas Sarkozy plans to borrow 52 billion euros to promote what his government guesses or hopes will be “growth industries.” Even central banks, especially the US Federal Reserve, have been supporting particular firms and types of assets because of the financial crisis. Read by OutloudOpinion | 23 11 09 | Free | View In iTunes |
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Europe's Vision Free Leadership 11.23.09 | The selection of Herman van Rompuy as President of the European Union's Council of Ministers, and of Lady Catherine Ashton as the EU's foreign policy chief, surely underlines the extent to which member states are in the driver's seat in the EU. They manage its institutions in their own interest. The EU is no super-state striding bravely into a bright new dawn. French President Nicolas Sarkozy will not have to compete for the global limelight with any Brussels supremos. Germany will not be challenged to break out of its increasing introversion, no longer obliged to demonstrate its democratic post-war credentials by embracing the European cause at every turn. Britain can rest easy that its world role will remain the aspiring Jeeves of the White House. Read by OutloudOpinion | 23 11 09 | Free | View In iTunes |
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The Irresistible Rise of the Renminbi 11.23.09 | China is making a big push to encourage greater international use of its currency, the renminbi. It has an agreement with Brazil to facilitate use of the two countries' currencies in bilateral trade transactions. It has signed renminbi swap agreements with Argentina, Belarus, Hong Kong, Indonesia, South Korea, and Malaysia. Last summer, it expanded renminbi settlement agreements between Hong Kong and five mainland cities, and authorized HSBC Holdings to sell renminbi bonds in Hong Kong. Then, in September, the Chinese government issued in Hong Kong about $1 billion worth of its own renminbi-denominated bonds. Read by OutloudOpinion | 23 11 09 | Free | View In iTunes |
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Green Buildings' Bottom Line 11.23.09 | Killer typhoons in Taiwan and China. A failed monsoon in India. The United Nations Secretary General in the Arctic pleading for action on climate change, while politicians bicker over who will bear the costs. But, instead of letting that debate rage while the planet heats up, policymakers should embrace one of the cheapest ways of cutting the air pollution that lies at the root of the problem: making buildings more efficient. Read by OutloudOpinion | 23 11 09 | Free | View In iTunes |
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From Community to Security in Asia 11.23.09 | Visitors are often catalysts for change. Barack Obama's just concluded visit to Asia may be no different, for his trip left Asia and its leaders wondering just what sort of regional community they are building. The modern sense of building a pan-Asian community began with the traumatic East Asian financial and economic crisis of 1997, when all the countries of the Asia-Pacific region learned the hard way that national reforms and protections could turn out to be woefully inadequate. Soon afterwards, a consensus formed among many Asian leaders that broader cooperation and coordination was needed. Read by OutloudOpinion | 23 11 09 | Free | View In iTunes |
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Trading Our Way Out of Crisis 11.19.09 | Global trade contracted in 2009 at a rate not seen since the Great Depression, and those paying the heaviest price are those who can least afford it. So, when trade ministers from the World Trade Organization's 153 members gather in Geneva later this month, the issue of how the WTO and the global trading system can help the poorest countries will be high on the agenda. Driven largely by collapsing domestic demand and production levels, but also by a shortage of affordable trade finance, trade volumes will fall by more than 10% this year. Whether trade will recover next year is an open question. Despite some evidence that trade volumes grew over the summer, recovery has been patchy - and so fragile that a sudden shock in equity or currency markets could once again undermine consumer and business confidence, leading to a further deterioration of trade. Read by OutloudOpinion | 23 11 09 | Free | View In iTunes |
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202 |
A Tale of Two American Economies 11.19.09 | While the United States recently reported 3.5% GDP growth in the third quarter, suggesting that the most severe recession since the Great Depression is over, the American economy is actually much weaker than official data suggest. But official measures of GDP may grossly overstate growth in the economy as they don't capture the fact that business sentiment among small firms is abysmal and their output is still falling sharply. Third quarter GDP - properly corrected for these factors - may have been 2% rather than 3.5%. The story of the US is, indeed, one of two economies. There is a smaller one that is slowly recovering and a larger one that is still in a deep and persistent downturn. Read by OutloudOpinion | 23 11 09 | Free | View In iTunes |
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The Incredible Vanishing Asset 11.19.09 | Back in the late 1980's, I attended a conference on “revenue management,” or the art of pricing airline seats to get maximize yield. Too high, and you lost business; too low, and you got less than people were willing to pay. Most of the speakers were from the airline industry, which already knew the tricks. Many of the listeners were from the hotel business; they were just learning. As a customer, I felt as if I had penetrated the enemy's strategy session. Read by OutloudOpinion | 23 11 09 | Free | View In iTunes |
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Learning from the Cold War 11.18.09 | Every war is fought three times. First comes the political discussion over whether to start or enter it. Then comes the question of how to fight it. And, finally, there is consideration of what lessons should be learned from it. The Cold War, the third major conflict of the twentieth century, is no exception to this rule. All three phases can be identified, and all three triggered intense debate. Read by OutloudOpinion | 23 11 09 | Free | View In iTunes |
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Palestine after Abbas? 11.18.09 | A political leader's decision not to seek re-election usually triggers fervent discussion about potential heirs. Yet, President Mahmoud Abbas's withdrawal from the presidential election scheduled for January 24, 2010, has produced nothing of the kind in Palestine - not because of a dearth of leadership or a reluctance to mention possible successors, but because the presidency of the Palestinian Authority has become irrelevant. Abbas's withdrawal comes at a time when Palestinian frustration with the political process has rendered suspect the entire rationale behind the PA, established in the mid-1990's, following the Oslo Accords. The main component of the PLO's agreement with Israel was a five-year interim period during which negotiations were expected to lead to an independent Palestinian state alongside Israel. Read by OutloudOpinion | 23 11 09 | Free | View In iTunes |
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Taming the Stock Option Game 11.18.09 | Executive compensation is now a central concern of company boards and government regulators. There is an aspect to this debate, however, that deserves greater scrutiny: the freedom of executives to pick the moment when they can cash out on their equity-based incentives. Standard pay arrangements give executives broad discretion over when they sell shares and exercise options that have been awarded to them. Such discretion is both unnecessary and undesirable. Read by OutloudOpinion | 23 11 09 | Free | View In iTunes |
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Obama in Chains 11.18.09 | It is hard for international observers of the United States to grasp the political paralysis that grips the country, and that seriously threatens America's ability to solve its domestic problems and contribute to international problem solving. America's governance crisis is the worst in modern history. Moreover, it is likely to worsen in the years ahead. The difficulties that President Barack Obama is having in passing his basic program, whether in health care, climate change, or financial reform, are hard to understand at first glance. After all, he is personally popular, and his Democratic Party holds commanding majorities in both houses of Congress. Yet his agenda is stalled and the country's ideological divisions grow deeper. Read by OutloudOpinion | 23 11 09 | Free | View In iTunes |
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The Triumph of the Powerless 11.18.09 | It was early June 1989. Václav Havel had been released from jail only days before, yet he was full of what now seems an almost prophetic certainty. Thousands of his countrymen had written letters petitioning for his release, at a time when declaring solidarity with Czechoslovakia's most famous dissident was a clear and dangerous act of civil disobedience. “We Czechs are finally finding our courage,” he said, as if sensing the people's new readiness to confront the guardians of their communist police state. “Sooner or later, they will make a mistake, perhaps by beating up some people. Then 40,000 people will fill Wenceslas Square!” Read by OutloudOpinion | 23 11 09 | Free | View In iTunes |
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Turning North Korea Around 11.17.09 | Negotiations over the denuclearization of the Korean peninsula look set to resume. Sadly, they are unlikely to end soon. Talk of a “grand bargain” remains just that - talk. Trust between North Korea and the United States, South Korea, and Japan is almost non-existent. While all leaders - including North Korea's Kim Jong Il - remain committed to denuclearization in public, none appears ready to risk much in terms of domestic politics to achieve that end. So the best the world can currently hope for is revived dialogue, an agreement to freeze the North's Yongbyon nuclear plant, and perhaps a moratorium on further missile and nuclear tests. Read by OutloudOpinion | 23 11 09 | Free | View In iTunes |
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How Much is Enough? 11.17.09 | The economic downturn has produced an explosion of popular anger against bankers' “greed” and their “obscene” bonuses. This has accompanied a wider critique of “growthmanship” - the pursuit of economic growth or the accumulation of wealth at all costs, regardless of the damage it may do to the earth's environment or to shared values. John Maynard Keynes addressed this issue in 1930, in his little essay “Economic Possibilities for our Grandchildren.” Keynes predicted that in 100 years - that is, by 2030 - growth in the developed world would, in effect, have stopped, because people would “have enough” to lead the “good life.” Hours of paid work would fall to three a day - a 15-hour week. Human beings would be more like the “lilies of the field, who toil not, neither do they spin.” Read by OutloudOpinion | 23 11 09 | Free | View In iTunes |
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Obama's Vietnam Syndrome 11.16.09 | There can be no military resolution to the war in Afghanistan, only a political one. Writing that sentence almost makes me faint with boredom. As US President Barack Obama ponders what to do about the war, who wants to repeat a point that's been made thousands of times? Is there anyone on earth who does not know that a guerilla war cannot be won without winning the “hearts and minds” of the people? The American public has known this since its defeat in Vietnam. Read by OutloudOpinion | 16 11 09 | Free | View In iTunes |
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When Doctors Kill 11.13.09 | Of all the arguments against voluntary euthanasia, the most influential is the “slippery slope”: once we allow doctors to kill patients, we will not be able to limit the killing to those who want to die. There is no evidence for this claim, even after many years of legal physician-assisted suicide or voluntary euthanasia in the Netherlands, Belgium, Luxembourg, Switzerland, and the American state of Oregon. But recent revelations about what took place in a New Orleans hospital after Hurricane Katrina point to a genuine danger from a different source. Read by OutloudOpinion | 13 11 09 | Free | View In iTunes |
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The Ghost in the Recovery Machine 11.11.09 | The International Monetary Fund's October World Economic Outlook proclaimed that, “Strong public policies have fostered a rebound of industrial production, world trade, and retail sales.” The IMF, along with many national leaders, seem ready to give full credit to these policies for engineering what might be the end of the global economic recession. National leaders and international organizations do deserve substantial credit for what has been done to bring about signs of recovery since the spring. The international coordination of world economic policies, as formalized in the April 2009 G-20 statement in Pittsburgh, is unprecedented in history. Read by OutloudOpinion | 12 11 09 | Free | View In iTunes |
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214 |
The Anti-Hunger Imperative 11.11.09 | There are plenty of summits to choose from this year, but the World Summit on Food Security deserves not to be lost in the crowd. This meeting in Rome from November 16-18 provides badly needed political momentum to three linked issues that rank among the most challenging of the current era: food security, biodiversity, and climate change. Collectively, we are failing in the fight against world hunger. More than one billion people in the world today do not have enough food to meet their basic daily nutritional needs, and the situation in developing countries is getting worse. Read by OutloudOpinion | 11 11 09 | Free | View In iTunes |
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The IMF Needs Fresh Thinking on Capital Controls 11.11.09 | Why does the International Monetary Fund make it so hard for people like me to love it? The IMF has said and done all the right things since the crisis. It has acted as quickly as any international bureaucracy can to establish new lines of credit for battered emerging-market countries. It revamped its loan conditions to fit the times. Under its capable managing director, Dominique Strauss-Kahn, and distinguished chief economist, Olivier Blanchard, it has been a voice for sanity on global fiscal stimulus in the midst of much cacophony. For an institution that seemed on the verge of irrelevance not too long ago, this is quite a transformation. Read by OutloudOpinion | 10 11 09 | Free | View In iTunes |
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216 |
More Walls to Fall 11.7.09 | The German people, and the whole world alongside them, are celebrating a landmark date in history, the 20th anniversary of the fall of the Berlin Wall. Not many events remain in the collective memory as a watershed that divides two distinct periods. The dismantling of the Berlin Wall - that stark, concrete symbol of a world divided into hostile camps - is such a defining moment. Read by OutloudOpinion | 9 11 09 | Free | View In iTunes |
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217 |
The Eternal Wall 11.7.09 | Walls designed to keep people in or out - whether they are in Berlin, Nicosia, Israel, or Korea - are always the product of fear: East German leaders' fear of a mass exodus by their citizens seeking freedom and dignity; Greek and Turkish Cypriot leaders' fear of continued war; Israelis' fear of terrorism; or the North Korean leadership's fear of “abandonment” by their martyred people. To freeze a fragile status quo, to consolidate one's position, or to remain separate from others perceived as temptations or threats (or both) - such have always been the goals of politicians who build walls. Read by OutloudOpinion | 9 11 09 | Free | View In iTunes |
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218 |
South Korea's Growing Soft Power 11.7.09 | When the Association of Southeast Asian Nations met in Thailand last month, South Korea was an important presence. Quietly, South Korea has moved away from being defined by its problematic North Korean neighbor, and is becoming an important middle-ranking power in global affairs. A South Korean is Secretary-General of the United Nations; Seoul will host next year's G-20 summit; and the country has just reached a free-trade agreement with the European Union. Read by OutloudOpinion | 8 11 09 | Free | View In iTunes |
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219 |
Will Success Spoil Brazil? 11.7.09 | Brazil has been making international headlines of late, but not for traditional stories about urban violence, natural catastrophes, political corruption, or deforestation in the Amazon. At the G-20 Summit in London last April, for example, US President Barack Obama called for the world to pay heed to Brazilian President Luiz Inácio Lula da Silva, the “most popular politician on earth,” and shook hands with him, saying: “My man right here. I love this guy.” Read by OutloudOpinion | 8 11 09 | Free | View In iTunes |
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220 |
The Twilight of France's Republican Aristocracy 11.11.09 | No tumbrils have appeared in Paris's Place de la Concorde, but a revolution may be underway in France nonetheless. Recent weeks have seen the trial of former Prime Minister Dominique de Villepin and the conviction of former Defense Minister Charles Pasqua. Now even former President Jacques Chirac has learned that he is not immune from prosecution. Is France's “Republican Monarchy,” to borrow a phrase from Jean-François Revel, about to be overthrown? Read by OutloudOpinion | 5 11 09 | Free | View In iTunes |
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221 |
The Women of Europe's Dream 11.6.09 | I was born in 1945. My grandfather was a German Jew. Fortunately, none of my immediate family perished in the Holocaust. But its shadow hung over me throughout my formative years. When I began, in my teens, to meet with German contemporaries, there was an initial reticence and discomfort. But we talked and talked and talked. There was no attempt to hide the past, but there was a burning desire to make a different future. It followed that I became an ardent Europhile. Read by OutloudOpinion | 5 11 09 | Free | View In iTunes |
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222 |
Forging a European Worldview 11.3.09 | Some complain that the European Union lacks a “worldview.” In fact, the EU's problem is that it has too many of them. Europeans' common experiences and interests mean that they should have a shared view on global issues. But the sad reality is that political, social, and economic pressures tend to push EU members and citizens in opposing directions; shared histories, it seems, are an insufficient basis for shared policies. Read by OutloudOpinion | 3 11 09 | Free | View In iTunes |
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223 |
A New World Architecture 11.3.09 | Twenty years after the fall of the Berlin Wall and the collapse of communism, the world is facing another stark choice between two fundamentally different forms of organization: international capitalism and state capitalism. The former, represented by the United States, has broken down, and the latter, represented by China, is on the rise. Following the path of least resistance will lead to the gradual disintegration of the international financial system. A new multilateral system based on sounder principles must be invented. Read by OutloudOpinion | 3 11 09 | Free | View In iTunes |
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224 |
Going to the Dogs 11.3.09 | There are about 70 million dogs living in human homes in the United States. That's 10 million more dogs than children under the age of 15. The pattern in other Western nations is similar. Roughly 40% of house dogs are allowed to sleep on their owners' beds. How did dogs achieve such an intimate position in our lives? One theory is that, in the thousands of years that dogs have lived with humans, they have become attuned to human ways of thinking. Certainly dogs have a remarkable sensitivity to human behavior. Read by OutloudOpinion | 3 11 09 | Free | View In iTunes |
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225 |
The New Monetary Disorder 11.3.09 | Currency chaos is back, highlighting demands for a revised international monetary order. The rapid decline of the dollar and the pound, but also of the renminbi - now more firmly tied to the dollar than ever - is fanning tensions. Some of the ghosts of the 1930's have returned, too - in particular, the fear of unfair trade advantages caused by competitive devaluation. United States Treasury Secretary Timothy Geithner has already accused China of currency manipulation. by OutloudOpinion | 8 10 08 | Free | View In iTunes |
| Total: 225 Episodes |
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