-Observations From Today's Simulation-

~ Nobody likes Greenpeace. That said, Greenpeace is not particularly fond of anyone else. Except, perhaps, the bugs and animals and such things that I suppose it is trying to save from "the bad guys."
~ China needs to be schooled. Subsidies bad. How to brainwash?
~The EU, in reality, seems to be for the abolition of subsidies. It is only France, with its veto power,  that is keeping it back from this (as told to me by someone from an EU country).

Immigration / Europe

Europe is in a bit of a fix. Jobs are scarce. In some countries it is much worse than in others. Spain is particularly bad. The unemployment rate is 25%. This is creating an an outflow of young, educated people to other places. I recently had an opportunity to speak with the Spanish TA at W&L about this. She herself is one of these people, having been educated in Spain and now come to America to work and get a PhD. She told me she had recently spoken with her friends back home and they had told her they were all moving to Germany in search of work. They didn't speak the language, they didn't have a job waiting for them, but they thought anything was better than sitting and doing nothing in Spain. She said she was sad about this; what will be left of Spain when all the young people have left? Will they ever move back, or will they begin new lives somewhere else? But she also said that she is not likely to go back to Spain. If she can't find work in America she will probably join her friends in Germany. She may not like the situation but people have to work to live.
This points to an interesting immigration pattern; it will be fascinating to see how it changes Europe going into the future.

~ a lovely word used in class that I had to look up ~

exogenous [ɛkˈsɒdʒɪnəs]

adj

1. having an external origin

2. (Life Sciences & Allied Applications / Biology) Biology

a.  developing or originating outside an organism or part of an organism

b.  of or relating to external factors, such as light, that influence an organism

3. (Psychiatry) Psychiatry (of a mental illness) caused by external factors

exogenously  adv

Alamo Controversy

This is about Texas. It must be included. Connection to IPE? None. Connection to awesomeness and Texanness and the best place in the world? Definitely.

http://online.wsj.com/article/SB10001424052970203961204577269800472743824.html?mod=WSJ_hp_MIDDLENexttoWhatsNewsSecond

Globalizing Capital

Globalizing Capital, by noted economist Barry Eichengreen, is a book with a very ambitious goal.  It attempts, as its subtitle indicates, to provide a “History of the International Monetary System.” This is quite a task, but one that Eichengreen lives up to admirably.

            The book is broken up into five parts. Each represents a separate phase in the history of how our monetary system has come to its present state. It begins with the gold standard. The gold standard was in effect basically from 1717 until the Great War. Many consider it the greatest monetary union the world has ever had, only rivaled by the union of the present day. Still, gold has its problems. In order to keep money at the same value, individual countries had to impose measures on their populace that often adversely affected them. Yet at this time the populace, labor, did not have the voice nor say in government to oppose these measures.

 What finally killed the gold standard? The Great War. In the time directly after WWI, for a few years only, a floating exchange rate was in place. But because of various factors outside of the monetary systems purview it operated badly. The gold standard was resurrected. This proved to be a bad move, as it helped lead to the Great Depression.

World War II finally broke the cycle of the Depression and, at its completion, ushered in a new period of monetary policy. For the next 30 years the  world was ruled by something called the “Bretton Woods” system. It was a period of great peace and prosperity. Some thought the system would continue indefinitely. Yet in the early 70’s cracks began to show. The Bretton Woods system featured a pegged currency which the IMF would regulate, to provide for discrepancies, by using its reserves. But the technological changes that had changed the world so much by the 70’s were not compatible with a fixed exchange rate.

So, in 1973, the world agreed to let their exchange rates float. This has given rise to the present system.  What it loses in reliability and predictability it gains in ability to adapt itself to a particular situation. This is good in our fast-paced and often changing world of today.

Eichengreen writes a book both well informed and well written. While someone unknowledgeable about basic economics might have trouble grasping all the details, it provides enough background for the basic student of the discipline to understand. What Eichengreen does so well, and what I find to be the greatest strength of the book, is that he puts many things into one place. He creates a timeline, guiding the reader to exactly where we are, monetarily, today. He links great phases in monetary history into one succinct story.

A small but important critique of the book that I would offer comes in its great concentration on the gold standard. Yes, this was an important part of monetary history. But with the level of detail that Eichengreen goes into the bigger picture occasionally gets obscured. Yet, this fault realized, Globalizing Capital is all in all a compact and fascinating look into the building blocks of our present International Monetary System. 

Greece --- Vacation Spot of Europe?

Greece seems to be in a bit of a bind. One bailout, two bailout, austerity. The situation rather sucks. The Greeks don't seem to be helping the matter either. Taking to the streets in demonstration because your welfare is being squeezed isn't going to solve the problem. This is unfortunate, as Greece has some of the best food ever (baklava, etc.) and certainly some of the best sights (see: Akropolis, Delphi, etc.) and the  most important to Western people's heritage. Perhaps Greece should become the backyard vacation spot of Europe? This is what some have suggested. After these massive bailouts it will practically be owned by the rest of Europe anyway. Is this bothersome? Perhaps. But Greece has been a bit of a vacation spot ever since its one "Golden Time" way back when, from which it has basked down the centuries. Perhaps Now it will be a bit more, shall we say, "user friendly."

America --- the New Minotaur?

"Improbably enough, a Greek economist named Yanis Varoufakis has been drawing attention in many of the hot spots of global finance lately, offering the Minotaur myth as a metaphor for understanding recent macroeconomic events. As Varoufakis writes in his recent book, “The Global Minotaur,” the world in which we have been living until recently functioned thanks to the voracious consumption of a different kind of beast. After World War II, the U.S. built up the infrastructure of its European allies as well as its former enemies, all of whom became trading partners. The U.S., with its great industrial and financial might, became the world’s surplus nation: its profits flowed out to its allies in the form of aid and investments. By the early 1970s, however, other countries had robust economies, and the U.S. was a debtor nation. “At that moment, certain very bright men within the American financial hierarchy made a stunning realization,” Varoufakis told me. The realization was that it didn’t matter if the U.S. was the biggest surplus or biggest debtor nation. What mattered was controlling the world’s primary currency, which would allow the United States to continue to recycle the global economic surplus. The idea was not unlike the thinking behind a casino — whichever gamblers are winning or losing, the house, which sets the terms and takes its cut, always wins.

So a new system came into being, in which a huge part of the world’s capital flows went to service debt originating in the United States. American debt, and the need to feed it, would be the modern Minotaur. The Wall Street financial houses became the handmaidens of the Minotaur. “The massive flow of capital into Wall Street gave it the impetus for financialization,” Varoufakis said, referring to the creation of derivatives and other risky financial vehicles. “And so Wall Street created a great deal of private money, with which it flooded the world and created huge bubbles, in the U.S. housing market and elsewhere.”

When that system came crashing down in 2008, Varoufakis says, “it was then only a matter of time that the euro would come into crisis.” Europe’s powerhouse economies — essentially, the northern countries — no longer had a place to sell their goods." ~ Russell Shorto, The New York Times.

This was so interesting I had to post it in its entirety. 

lol

"Today, there is nothing particularly communist about the Chinese Communist Party."~ Ray Takeyh, The Washington Post

China, Meet Mr. Lewis Turning Point

"Numerous factors underlie China’s mounting labor woes. Until now the country has been able to achieve its stunning economic growth by shifting large numbers of farmers into nonagricultural jobs. Over the past several years economists have warned that China may be reaching the so-called Lewis Turning Point — the stage at which the rural surplus labor pool effectively runs dry and wages begin to rapidly increase." ~ Michelle Dammon Loyalka, Wall Street Journal

If Not Austerity, What?

http://www.nytimes.com/2012/02/18/opinion/europes-failed-course-on-the-economy.html?_r=1&hpw

This article takes an interesting tack. It states that the current to attempts to get Greece, Italy and co. back on sound financial footing are failing because austerity is not the answer. It states that these austerity measures are, instead, worsening the financial crises in these countries, loading them with more and more debt. What the author does not do is put forth a viable alternative. He simply points out the flaws in this plan as is. So...what is a good solution? I can't answer either.

Greatest IPE Challenge in 21st Century? Energy

This question naturally begs the question --- who are the leading actors? Well, the great nations of the world. Currently, Europe, the US and other developed countries. But also, and increasingly so recently, China, Brazil, India, and other developing countries. Indeed many forsee China, with its immense population and rapidly growing economy, as a if not the leading force in years to come. Of course the interstate organizations that play a large part in IPE will also be important. The IMF, Worldbank, and others will continue to exert influence. International corporations, already strong, may very well grow in power and reach. OPEC will continue to grow in power.  Other bodies, as yet weak or perhaps un-thought of may also very well rise to prominence in the IPE.

            What seems to be a key feature of all these “leading actors” is their dependence or relation to one thing: energy. Our world runs on energy. More particularly at this time, it runs on oil. Look around you. The room you are in, the plastic cup you drink out of the, the iPhone by your side, the shirt you are wearing, all would be impossible without oil. Plastics come from oil. Oil is used to manufacture machine parts. Oil transports these things to you. Oil is everywhere. Well, at least for now. Oil is a non-renewable resource. We use it at a rate 10,000 times faster than it can be made. The earth is only so big. Eventually, we will run out of oil. This is simply a fact.

            I believe energy will be the biggest challenge facing the leading actors in IPE in the 21^st century. There is simply no other way to think about it. Oil cannot last forever. It affects all parts of the economy, both internationally and domestically. Also, it is not distributed equally.

            Certain parts of the world contain vastly more oil than other parts (and some parts none at all). The Middle East has gigantic conventional reserves. (Conventional, meaning that it is easy to get from the ground. Not to be confused with unconventional oil, such as tar sands or shale.) Canada has large amounts, although much of this is in tar sand and so relatively hard to get out and use. Mexico has some, but a dwindling amount. Europe has very little. Russia has large amounts. Parts of South America, especially Venezuela, have large amounts (mostly unconventional). A few African countries have a good amount. The United States still has some, and a good deal of shale still to mine, but it is still a huge importer, mostly because it uses so much (as much as a third of all oil produced every year). The Middle East is certainly the winner, however, both in volume and accessibility of getting it’s oil from the ground.

            What is the issue with this? Why does it matter that these resources are distributed unevenly? Well, being human beings we have a tendency to fight when we do not get what we want. Oil will become scarcer and scarcer. The amount left will become more precious. Let’s look at the example of Iran. Iran has large amounts of oil. Iran is also a semi-nuclear dictatorship state with a long history of radical Islam. It recently stopped shipments of oil to several countries in retaliation against an embargo. Iran is an example of the dangers and potential conflicts and wars that may arise out of oil. Will the US, with its size and might, continue to allow states such as Iran to do what they wish with their resources when these wishes so go against theirs? Only the future will tell. Things will most certainly get heated.

            Not that the US will be the only nation coveting oil. China has a booming economy, as well as India, Brazil, and others. As these nations get more affluent they will want to claim more of a share of the limited energy resources (oil and others). Will this put them in conflict with the traditional power-users, the US, Europe, and others? It is certainly a possibility.

            Yet even with all these potential dangers and wars, oil cannot last forever. It must give out sometime. What will the world do then? Are there alternatives to oil? In fact, there are. But are they good, viable alternatives? That is another question. Wind, solar, fuel cells, hydro, nuclear, all these are ways to get energy from sources other than non-renewable resources such as oil, natural gas, coal, and the like. But what these resources are not is economically viable (at least not for now). In general, they are too expensive and too “spotty” to be well relied upon. The wind does not always blow, the sun does not always shine, etc. They are simply not as easy to use as pulling up to a gas station and filling up your car. But when this is not an option, we will have to find another way.

            I imagine it coming to be the “billion dollar question.” As oil reserves dwindle and an alternative becomes more necessary, it will become more and more worth people’s time to develop these “other” forms for getting energy. Eventually, it will become so worth people’s time that, well, a discovery will be made. With all the most brilliant minds at work on it, and so much money at stake, I imagine we will find viable alternatives. If not, our world will not be able to continue functioning as it does.

            Our world will also not be able to continue functioning as it does if it is completely polluted. The forms of energy that we are currently using are incredibly polluting. While global warming is a very hotly debated topic, it does appear that it must have some validity. It claims that as CO(2) is released into the atmosphere in large amounts (from our cars, anything that runs on oil) it is creating holes in the ozone layer that allows more sunlight in and so heats up our world. The world has purportedly gotten one degree hotter because of this, and will continue to heat up as we burn more fossil fuels. This will start melting glaciers in the arctic and so start flooding our world. While others say this is not based on fact, it is at least an issue to think about. What is not contested is the other effects of pollution. Pollution creates the smog that hangs over many cities, choking both plants and animals. Toxic waste is created from nuclear reactors. More recently, huge amounts of polluted water is being created from the new methods for mining the “shale gas” that is the last large repository of oil.  Will our world be worth living in when we finally run out of oil? Or will it be a barren landscape devoid of life as Al Gore and Wale would have us believe? There cannot be any international political economy if there is not inhabitable world.

            It will be up to the leading actors in IPE to do something about this, if something needs to be done. Me using a recyclable cup instead of a normal paper one will not do much. If we want to limit pollution, etc., we must use large-scale measures. Most importantly, we would have to get China and other developing nations on board. There are very few pollution laws in many of these countries. When you only have two dollars a day to spend on food the pollution you are creating is probably the last thing on your mind.

            The problem of energy is one that may very well tear the world apart. It is also one that can, in a way must, bring us together. We may fight over oil but to save ourselves from the effects of burning this oil we must work together. There is only one world afterall.

            International political economy, well, the economy of the entire world really, is dependant on energy. The vast majority of this energy comes from non-renewable resources, many of which are polluting. These resources are also becoming scarcer and scarcer. This will create many conflict and problems in the world in the 21^st century. For these reasons, I think energy, its availability and use, will be the greatest challenge facing the leading actors in the international political economy in the 21^st century. 

Washington, DC --- Too Casual for Old Georgie Himself?

Do individuals really have power in our "international political economy"? Or does the power lie with great corporations, nations, and governments as a whole? I would argue that individuals can definitely have an influence. That is, some individuals. Presidents, Prime Ministers, the great leaders of the greater industrial countries can certainly be said to hold a good deal of sway. The question, then, of how they should deport themselves is relevant. The modern push, at least in Western countries, seems to be toward the casual. Obama playing basketball, Bush wearing jeans. On the campaign trails find politicians kissing babies and eating at the local barbecue joint. Is this proper? Perhaps not, one scholar would argue.  Ron Chernow, author of a biography of Lincoln honored with the Pulitzer prize last year, has a different view of leadership, and how it is best "pulled off." He writes of Washington's views on leadership, saying that he realized that "They don't need to like you—much less love you—but they need to respect you."

 This was something Washington really understood. "He realized that a leader should be neither too remote nor too familiar." Washington was careful in his dress, precise in his speech, and never too fast to show his emotions. He was undoubtedly a great leader. While his style may not appeal to the current generation it may certainly give us pause for thought. Isn't an alternative to Obama's bowing to the Japanese Emperor needed? Sometimes, a more formal deportment on the international stage might do America good. 

http://online.wsj.com/article/SB10001424052970204369404577211010507347208.html?grcc=604a47345f07e5ab5368359abaacd399Z10&mod=WSJ_hps_sections_opinion

Wolf Quotes....Stiglitz

I think it is interesting that Martin Wolf quotes Joseph Stiglitz in his book Why Globalization Works. I wonder how many experts on globalization there are out there? It would seem few.

America; Central to the World Order?

http://online.wsj.com/article/SB10001424052970203646004577213262856669448.html?mod=WSJ_World_MIDDLENews

Robert Kagan writes a very interesting article arguing that the world order as it is would not survive without America at its helm. What is this world order? One dominated by democracy and the prevalence of Western values (often diffused through pop culture). Kagan points to history, saying that when Rome fell so to did the world order it had created. Opponents of Kagan say that even if, say, China or Brazil were to surpass the US this would not create a restructuring of the way our world works. Only the future holds the answer.

American power may diminish, the political scientist G. John Ikenberry argues, but "the underlying foundations of the liberal international order will survive and thrive."

Saudi Women and Wheels

The right to drive is something we in America take for granted. There is no Constitutional amendment stating that this is a real right and we would laugh if there was. Enter, Arabia. The KSA or "Kingdom of Saudi Arabia" bands women from driving. It does not ban them formally, however, but informally. Every woman knows that to even apply for a license could mean jail time or whipping. This is now being challenged. A woman, with the aid of a lawyer, is attempting to bring a case against the state. It is crucial that this is being reported on international news channels. Without the knowledge and censure of the world this case might well be hushed up by less than honorable means. It will be interesting to see what plays out. Is Saudi Arabia finally ready to let a bit loose on its strict laws binding women to a life lived, in essence  inside the home and with the constant supervision of male relatives? Can and will it be able to stand up to the strict censure of the world if it rules unfairly in this case? Only time will tell. Suffice to say that next time I hop in my ride I will be thankful, and say a little prayer for all my fellow women who lack this ability.

Old School?

Just a note --- who says The Wizard of Oz is now a classic? Or perhaps it is now a "classic classic" --- one of those things, like War and Peace, we all know we should know but most fail to read. I maybe once saw Wizard of Oz when I was a child? It is certainly not something so much on the mind as when this was written over twenty years ago.

Jihad vs. McWorld

I was watching C-span and one of the commentators, speaking about American exceptionalism, mentioned this phrase as being the future of the world. This hit me as being the one big thing that is stopping globalism. Perhaps Samuel Huntington's Clash of Civilization will be true afterall.

Why Europe Fades

Countries that can't fight can't survive (forever). Whatever high rhetoric we may ascribe to calling for world peace, the end of wars, and one global nation, da facts, ladies and gents, haven't changed: as long as people are people they will be fighting. Because of this, individuals and states must have defenses in place to protect themselves. For women, this consists of mace. For states, it consists of armies. And states must not only have armies but must be willing to use them when the need arises. Loss of life is terrible but it is a fact of war. Enter France. France today halted all military action in Afghanistan (where they had been maintaining a presence because of the war) because four of their personnel had been killed. Yes, it is terrible that they got killed. But that is what happens when you fight. France is acting like a petulant little child, pouting because someone would dare to (!) actually kill one of their soldiers in a war-zone. Hence, Europe's slow decline. Or at least France's.  

FISH

There are fish to the right of this post. Can you imagine that we live in a world where someone probably got payed for creating something so completely useless as this little application? We truly live in a service economy.

Service Economy Much?

"In an extreme version, it is asserted that this unfair competition will virtually eliminate US manufacturing, leaving only jobs that consist primarily of flipping hamburgers at fast food restaurants." This quote is from an article written in 1988 entitled "Protectionist Trade Policies: a Survey of Theory, Evidence, and Rationale." The authors assert that as more companies go overseas to find their labor forces, industry at home will suffer. People will lose their jobs at factories and be forced into taking the only jobs left. What is interesting is not this rather mundane statement by itself but what the authors assume about the jobs that will be left when the factories pull out. They assume it will be only jobs like flipping burgers and other types of menial labor that cannot be outsourced that will be left when industry is gone. What about the service economy? This article was written in 1988. That was before computers and all that came with them ruled our lives. Many of the jobs now available in the service economy were probably not even imagined back then. What does this mean about the ability of economists to predict what will happen in the future? These guys are probably like top dog in their fields and they didn't even see the predominance of the service economy --- the economy that really now dominates in the US (and will continue to grow in the coming years).  Just a reminder that predictions are only ever that --- predictions. 

CHINA

Let's be honest: the US Stimulus plan did nothing. It might have even worsened the economic downturn that first hit our nation in 2008. Small government is starting to look more inviting. Yet there are still dissenters, claiming that "the spending was a good idea, it was just allocated wrong." Or "it wasn't enough, a much larger amount was needed to make any real progress." Then there are the China-groupies. China has by all accounts done much better than the US during the current global economic crisis. After suffering a relatively bad fourth quarter in 2008, China rebounded and recorded 9.2% growth in 2009. This growth has continued until relatively recently. It was the result of a 586 billion (4 trillion yuan) stimulus package passed by Chinese government in late 2008 - early 2009. But this stimulus was not without its adherent risks. It created inflation, a housing bubble, and bad debts. The effects of these problems are only now being felt. In the last quarter of 2011 China's GDP growth slowed to 8.9%. JP Morgan predicts it will fall to 7.2% in the first quarter of 2012. Barry Eichengreen of the University of California at Berkeley, Donghyun Park of the Asian Development Bank and Kwanho Shin of Korea University have predicted that China's growth will slow by at two percentage points a year starting in 2015. This is largely due to inflation, the soon-to-burst housing bubble, and China's increasing debt. Still, compared to other recession-hit nations China is doing very well. Some of these numbers would be the envy of debt-laden countries such as Greece and Italy. Does this mean the Chinese stimulus was a success? I don't think so. It may have staved off immediate calamity in 2008 but it has created problems of its own (enumerated above). These problems are not likely to go away soon and will probably continue to haunt China for years to come. Only time will tell, but the fate of the "Asian Tiger" will provide serious fodder for the debate of big verse small government, of Thatcherism vs. Obamanomics.
Sources: http://online.wsj.com/article/SB10001424052970204555904577165593145006650.html
http://blogs.wsj.com/chinarealtime/2012/01/17/developer-battle-in-shanghai-foreshadowing-fights-to-come/

2012 Global Economic Forecast

Overcast, with a chance of rain. Europe is projected to go into recession. Japan will grow at a measly 1% rate. The US will be lucky if it reaches 3% growth rate. And China? The "behemoth"? Will it pull through and save the world from a completely depressing year? Not likely. China appears to be slowing. Ah well, no silver lining.

Big-Government Fail

This past Thursday the Heritage Foundation and The Wall Street Journal published the 2012 Index of Economic Freedom. It contained grim findings:

"Rapid expansion of government, more than any market factor, appears to be responsible for flagging economic dynamism. Government spending has not only failed to arrest the economic crisis, but also—in many countries—seems to be prolonging it. The big-government approach has led to bloated public debt, turning an economic slowdown into a fiscal crisis with economic stagnation fueling long-term unemployment."

Admittedly, the Heritage Foundation and the WSJ are traditionally very conservative but I believe their findings cannot be attributed alone to their natural want to "stick to their old ideas." There is research and truth behind what they say. The expansion of government that they mention was largely part of a reaction to the global financial crisis. Governments, especially the United States, tried to fix the problem of a financial downturn by pouring billions of tax dollars into the economy. The results were minimal.

 Liberals, at their most outspoken, accuse the GOP of "not caring enough about poor people." If the above findings are correct, than the Obama and Liberal plan of spending-to-fix-the-economy has led to not more wealth for a greater number of people but more unemployment and and more poverty overall. 

One has to be smart when attempting to fulfill such overarching goals as "caring about poor people" and "eradicating poverty." Handing out welfare, in the form of stimulus packages and general big-government spending, as it seems many of the Western countries in recent years have done on a large scale, appears not to be the answer. If it were, the economy would be fixed by now. Let's hope the Index will serve as a warning and encourage our leaders to reverse their policy (or get out). Here's to Mitt Romeny 2012.... 

Who Saw the Crisis Coming? Not Stiglitz

As I read through our Stiglitz book I am hit by just how little premonition he, and it would appear the rest of the financial system, had of the impending financial crisis.  His book, Making Globalization Work, was published in 2006 --- just one year before the beginning of the crisis. Of course Stiglitz points out many problems with the world financial system and the economy, from too much liberalization to the use of old-boy politics to the overhang of debt on third-world countries but there is no real warning of a crisis. Yet Stiglitz appears to have great confidence in his ability to diagnose the problems of the world and how to fix them. It would be interesting to interview him now and ask him why, if he is so knowledgeable, could he not have foretold what was to come?

Globalization, Necessarily Linked to Financial Globalization?

"Academic research suggests the benefits of globalized finance to the real economy have been minimal and so the cost of deglobalization is likely to be minimal too, says Richard Portes, professor of economics at the London Business School. " ~ Wall Street Journal quote from article by Simon Nixon. Uh, really? This seems highly unlikely. Surely the shrinking of global finance must either signal a great reduction in general globalization or be the result of it. Only the events of coming months will tell...