25/07/2011

Economic Hubris

Newspaper headlines are filled with dire warnings about the economic situation of much of the Western world. Greece, Ireland, Spain and Portugal are supposed to be on the verge of bankruptcy, threatening the very existence of the Euro, supposedly one of the great accomplishments of the post-World War II era. The United States' deficit and debt continue to spiral out of control, and the members of Congress cannot agree with the President on a plan to cut spending and raise revenue or to do something about recurring 9% official unemployment.

What is a non-economist to make of this situation? On the level of emotions, one is angry, sympathizing with the people in the streets in Athens and Madrid who are unemployed, with no financial future in sight, and asking why the people of the United States are not in the street as well. While the rich have gotten richer, the number of poor continues to grow and the middle class seems to be disappearing.

Intellectually, one is puzzled about how the dismal science of economics has gotten so far with such little results. At the same time more and more students flock to get PhDs in economics at MIT and Chicago, others are flooding MBA programs to learn the basics of an academic discipline that seems to be failing. If they are so smart, why are we getting poorer?

On a personal level, I have decided to try to put my own finances in order, seeing my remaining dollars are losing value as quickly as Republicans continue to want to lower taxes while maintaining spending for defense. Seeing that the "banks too big to fail" consider me "too small to care for," I have sought a financial advisor. My new financial advisor has a PhD in economics, but seems different from the other economics wizards. Her first question to me was: "How much do you earn and how much do you spend?"

This, to paraphrase the great line at the end of the movie Casablanca, could be the beginning of a beautiful relationship because I understand the concept. When she tells me that I shouldn't have Euros or dollars because what we are seeing is a subprime debacle on the state level, I can understand that as well based on the simple equilibrium of what goes out should equal what comes in. I was a true skeptic of voodoo economics in Reagan years, and still continue to wonder at how people and governments can spend more than they earn. Not to brag, but I have never been in debt, and shirk at the very concept of deficit spending; it doesn't make sense, and it doesn't seem to work.

Greece has been saved for the moment. The Euro continues to exist. But does anyone really believe that the debts will ever be paid back? Much literature today talks about the rise of China and its threat to the liberal post World War II American order. China, they tell us, is our enemy. I'm not so sure. It seems to me that we are our own worst enemies, and I will continue to ask simple questions of the economists until they start to give reasonable answers, or until they begin to show that they really do know more than I do. For the moment, my financial advisor makes more sense than Summers, Geithner and all the rest combined. I have seen their future, and it doesn't work.

 

July 25, 2011

 

19/07/2011

Recognition of Libyan Rebels and the Birth and Death of Nations

soudan sud.jpgFor over 350 years, since the Treaty of Westphalia of 1648, the international system has been fundamentally international, between nations. There are now over 190 countries in the world, and although non-state actors such as multinational corporations, media, armed groups, individuals like Bill Gates and supranational bodies such as the European Union and the United Nations are more and more players in the system, the basis of the world system remains the state, the highest legitimate control of violence.

All of this is fine, and what lawyers call the sovereign system. Besides the obvious challenges to this system by globalization and the actors below and above the state already mentioned, one of the system's inherent faults is its inability to deal with the birth and death of nations and recognition of authority within states. We congratulate the new state of South Sudan for coming into existence through a referendum and universally accepted legal process. It has become a member of the United Nations.

But what about Kosovo? The Western Sahara? Abkhazia? South Ossetia? These entities are recognized by certain countries, but not all. And now, the Libyan National Transitional Council (NTC) has been recognized by over 30 countries, NATO and the Arab League as the "legitimate authority" of the country. The entire international contact group co-ordinating policy on the crisis has given its benediction. The decision will allow certain countries to free up Libyan assets to the NTC, such as the United States with an estimated $30 billion held by American banks. The TNC leadership was "jubilant," it was reported by the Independent newspaper, "calling for more money to aid them in their push towards Tripoli".

There are several criteria for state recognition, including recognition by major powers. But the recognition of a government is even more political. Here is a clear example, unlike the South Sudan or even the Ivory Coast, where some major powers have decided to recognize a government for purely political reasons with little legal basis. Should we accept the justification that Colonel Gaddafi is under indictment? So is the ruler of Sudan.

Who are these people behind the NTC? And on what basis have they become "the legitimate authority" of the country? There has been no election, no referendum, and no selection process beyond a certain group deciding recognition. But, as I have already noted, the international system has great difficulty with the birth and death of nations and the recognition of legitimate authority within countries.

July 20, 2011

 

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13/07/2011

When and if Negotiation is Possible

President Obama is busy negotiating with the Republican leadership in the US Congress. The issue at hand is that the American debt ceiling is fixed by law, and if not raised by August 2 the United States will default on its debts. In other words, Uncle Sam needs to borrow more money now.

The Republican leaders recognize the problem, but in an election year, they want to get something for their votes. Having promised to put the American fiscal house in order, the Tea Party followers are not going to let this moment pass even if it means taking the country to the brink of going under, or even going under.

In return for their votes on raising the debt ceiling, the Republicans are asking for major cuts in the US budget, particularly in favorite Democratic social programs such as Social Security and Medicare. (Heaven forbid they consider drastic reductions in military spending!) If the President is to win on raising the debt ceiling and eventually closing tax loopholes if not raising taxes for the wealthy and corporations, then he will have to bite the bullet on reducing certain favorite Democratic programs. That's what negotiations are all about. No side wins 100%, as in favorite American sports such as basketball, baseball and football. Each side must give a little. There should be no winners and losers in a true negotiation.

While we watch the playing out of the negotiations and the different tactics by both sides, it is helpful to remember that the basis of negotiations involves the ability to compromise and work toward the general good. Negotiating should be done in good faith, with both sides willing to compromise in the interest of all. Whether it be in the Middle East, Bern or Geneva, the ability to empathize and reach consensus is at the heart of all diplomacy and politics. This is not at all evident if one follows closely "negotiations" between Armenia and Azerbaijan on Nagorno Kharabak, Russia-Georgia on South Ossetia and Abkhazia, Algeria-Morocco on the Western Sahara, Turkey-Armenia on "genocide" or Moldova on Transnistria. A wise diplomat once told me that there are no frozen conflicts (the elegant term is protracted conflicts), there are only frozen solutions. Not to be negative, celebrations are taking place for the newly independent country of South Sudan after years of struggle and finally some form of compromise,

But still, I wonder how and if the members of the American government will compromise on the deficit and debt issues in the interests of all.

 

08/07/2011

The Silly Season and News Cycles

"Summertime and the livin' is easy," that great song from the musical Porgy and Bess tells us. Indeed, many people who have jobs have the double luxury of having a paid vacation during the summer. For them, it is a time to disconnect from the daily grind, to pursue one's favorite hobbies, to somehow "get away" from it all.

But, life does go on for those less fortunate, and certain problems will not go away as we pack our bathing suits for the beaches. Friends coming back from a holiday in Greece tell of the dissonance between the normal tourist activity and the tensions and anxieties of the local population, not to speak of the "inconveniences" of strikes. Unemployment, debt problems will not be solved on the beaches of Crete, Ibiza or Lisbon.

News cycles continue. Papers have to be sold; television, internet news continue to function. What to report if most policy makers have gone on vacation? The DSK trial in the US and now France is going strong. But, the sensational news about the victim has overshadowed serious discussion about what actually happened in the hotel suite and the behind-the-scenes behavior of DSK. The initial victim has become the principle target of questioning and now another type of victim, and the supposed victim of the US judicial system has become a hero. Neither are victims and neither are heroes, and I am still dubious about DSK. Sorry, the recent revelations have not changed my opinion.

As the summer news cycles search for ways to call our attention away from the tennis courts and swimming pools, the mounting pressure on the international community to recognize a Palestinian state is growing - the fall meeting of the UN General Assembly is approaching. Israel is rumored to be preparing a surgical strike on Iran with US approval. And the discussions in the United States about the debt ceiling continue to remain puerile and belie the seriousness of the problem and the future of the country.

 

Summertime and the livin' is easy, for some.

 

July 7, 2011