My post is coming quite late, but I figured I’d send it in anyways. I want to piggy-back of the ideas of Spencer and Jesse and think more about Malthus. Reading his writing was a bit sickening in how easily he promotes the complete abandonment of the poor because in most cases, it isn’t their fault at all that they’re poor. I think a lot of his debate, as well as looking into the future, is about looking to the past as well. Because my grandfather was able to pull himself out of poverty and amass wealth, I have always lived a comfortable life. I have probably done much less in my life to work to sustain myself than most people in poverty. According to Malthus though, I deserve to have what I do because of my ancestors, and they don’t because of theirs. Should we really be held accountable for the status that we’re born into?

There is definitely a “tragedy of the commons” when it comes to child birth. Just this time, instead of talking about how many sheep we’re going to have graze on the pasture, the question is how many children you have living in the world. If everyone had 2.1 (I think it is, since some children won’t grow up to have kids) kids, we’d be at sustainable population levels and everything would continue at the current level of production.

I can’t really believe I’m saying this, but I think that that cap is actually fair. Everyone would get to have 2 kids (a much better proposition than denying the poor any). But I suppose it just might be that someone’s third child would have saved the world and we’ll never know his or her insights because we didn’t allow his or her parents to reproduce a third time.

Although I don’t think we’ll get to a child cap in the near future (China’s authoritarian laws wouldn’t fly in most places), I think that we’re going to need something, at least eventually. I do believe that there is a strict carrying capacity of the Earth. At some point, we could figure out how to cover the entire planet with agriculture, but that would still only create a limited number of food. I also don’t think we should keep pressing the limits until we get to the final, unpassable point. That would be chaos.

There are lots of quotes about working to suppress the work of skeptics such as Richard Lindzen at MIT. There are quotes celebrating the death of other skeptics. The emails give a general impression that these are biased people engaged in what sounds like tribal warfare rather than the pursuit of knowledge. They celebrate a well known skeptic, Roger Pielke Sr, resigning from his position on Chapter 6 of the IPCC 2001 report in protest because his opinion was being ignored and overruled. The people engaged in these emails are famous climatologists, like Michael Mann, Phil Jones, Keith Briffa, and James Hansen, which would be standard reading for any class on climate change.

One of the most interesting quotes is Dr. Trenberth saying “We cannot account for the current lack of warming and it is a travesty that we can’t.” This is one of the points I brought up in our discussion, the lack of warming for the past 12 years. This has not been acknowledged as anything unusual by most climatologists, and a NYT article published 6 months based on a peer-reviewed journal article argued that the current lack of warming is perfectly expected. So it was interesting to see climatologists discussing the lack of warming behind closed doors.

If we can’t account for the earth’s energy balance in the short term, how can we possibly expect to do so in the long term?

One of the biggest personal problems in challenging AGW orthodoxy for me has been the fact the majority of authorities on the subjects, including the vast majority of scientists and research institutions, endorse the IPCC position. These emails, in revealing personal biases and animosity, suppression of other viewpoints, and distortion of data, went a long ways in explaining how the majority of the scientific community could be mistaken.

For obvious reasons, it’s difficult to talk about health care reform from a Malthusian perspective. Legislation to alter the health care system, which inevitably includes discussion of mortality, evokes concerns of rationing and “death panels” that are an anathema to those who are profoundly uncomfortable with the concept of death in the first place. (The Obama Administration has worked hard to clarify that the proposed legislation would merely provide an option for end of life consultation – covering important personal questions like whether terminal patients want mind-dulling medications administered to control pain. The measure is intended to ensure quality [more humane] care by compensating doctors for time spent providing therapeutic counsel, rather than perpetuating a system which disproportionately rewards performance of procedures.) The public outcry against a reform that happens to mention end of life considerations in the same reports as economic and political policies illustrates the impracticality of infusing Malthusian ideas into a debate around health care legislation.

Despite the unworkable role of Malthus in the health care debate, climate change, poverty, homelessness, and hunger remain salient realities of the modern world that seem to hint that the theologian was on to something. Even if there is no fixed carrying capacity of the world, as resources are stretched thinly, quality of life falls. It is evident that something must be done to address the growing distress of the cramped and hungry. Restraining population growth is obvious solution, but dictating life sentences or arbitrating life choices is an untenable (or at least unwise) way of doing so. Education and infrastructure seem to provide the best means of reigning in burgeoning populations around the world. Another or an additional “solution” (though temporary) is of course to find new means of allocating resources. Big Food corporations, such as Monsanto, are perhaps poised to achieve this by replicating the Green Revolution.

“The Economist” printed an interesting briefing on the Big Food giant a couple of weeks ago (I’d give the link, but the site is down). The corporation has no shortage of critics. Its vehement protection of intellectual property rights has disturbed popular conscience: independent farmers whose livelihood has been dismantled in courtrooms because they held onto a bag of seed longer than they were supposed to provide compelling victims of corporate glut and callousness (not unwarranted). Moreover, the American Antitrust Institute recently reported that the horizontal and vertical integration (that’s worth ten points, at least…) instrumental to Monsanto’s economic strategy has stifled, not promoted, innovation. The environmental ramifications of herbicides and the somewhat unsettling notion of crop genetic modification have also garnered opponents as well. Robert Kenner, the man behind the camera of “Food, Inc.” (which sharply rebukes Monsanto and endorses a McKibben-esque Deep Economy) repudiates the notion that feeding the poorest of the world mass produced, nutritionally valueless food that will make them more prone to sickness is a viable means of sustaining our world population.

Food crises around the world have in some ways succeeded in reorienting popular opinion that an extension of the Green Revolution (the “Gene Revolution”) may be the world’s best method of combating widespread starvation. GM crops have been shown to improve yields by adjusting for environmental or land based factors of growth and by enhancing crop resistance to pests and disease. Their image as the curative response to global malnutrition has, in some ways, been fostered by Monsanto’s approach to Africa. Learning from what it purports to be the fallible policies of the pharmaceutical industry, Monsanto has freely donated many of its innovations to developing countries there, touting the ideals of global unity. (Its products, one should note, are often specifically tailored for particular crops and environments and so seed used in Africa is unlikely to end up back in the US as competition for the company’s domestic business – Monsanto is still a vigilant guardian of its intellectual property at home). The world is beginning to rely on the innovations of Big Food: “Around 90% of the world’s 12m farmers with at least a hectare planted with GM seed are smallholders in developing countries.” The obvious question is whether these scientific solutions are sufficient to long address the systemic problems of excessive population. Many are unconvinced.

In our discussions, I think Malthus is significant because he urges us to consider limits. There may be absolute limits to growth or limits to the utility of growth. Usually, growth is considered good, particularly in economics. This discourse is pervasive. Even in the context of current environmental problems like climate change and resource scarcity, where Malthusian arguments would find the most traction, the discussion centers on sustainable development, which posits that continued growth, both now and in the future, is possible. Is this possible? The prescription of meeting needs now while preserving the ability of future generations to meet their own needs is vague. It leaves the determination of the discount rate open.

That Malthusians have failed to realize their dire predictions for the world does not suggest that Malthus was wrong, that the world is without limits. Looking at non-human populations and ecosystems, there is clear evidence for carrying capacities. Humans have pushed back (in the case of food) or avoided (possibly in the case of coal) limits, but not through Malthusian politics, but through growth. We brought this up in discussion. Those concerned with limits should not disregard the benefits of growth, which brings efficiency through economies of scale and innovation.

We need to consider the existence of limits, while realizing the benefits of growth in addressing them. Malthus looses his effectiveness — and, importantly, political support — by discussing only limits. A policy of stagnation does not confront limits but merely punts them farther into the future, a method that should be at odds with Malthus’s concern for future generations. Further, it promises moderate gains for future generations with losses at present. What are the prospects of a Climate Change bill financed through the elimination of welfare, medicaid, medicare, social security, or the killing of the first born?

In realizing the positive possibilities of growth for confronting limits, the vague message of sustainable development does not seem sufficient. We need to create economic measures for the cost of reaching these limits (or, as is usually the case, if limits are uncertain then economic measures to assess the risk). The problem with growth to date is not that it is inherently bad, but that economic progress does not account for all its effects. Again though, the economics seem simple. The politics are much harder.

I think I come down sort of in the middle (which I usually hate). I think that our population is expanding pretty significantly and could exceed the “carrying capacity” of the earth, whether that is in terms of food, resources, or the environment. So I think it is necessary to perhaps create incentives for people to have fewer kids, but these incentives need to be positive incentives, such as a tax break or something like that, and not a limit on children or age (which gets into the whole rights debate).

The reason I think a positive check will be effective enough is that I don’t really see the doomsday scenarios playing out. There are still checks on population growth around the world. Europe and Japan are simply too old and are both facing negative growth rates. Affluent countries generally have low, stable growth rates. And then some places are even facing the possibility of population “crunches.” China’s one child policy has created incentives for parents to keep only male babies, and there simply aren’t enough females to go around. Combine that with the one child policy, and China’s growth looks like it could stagnate or even become negative in the nearly future as this generation competes for females (it could get more hostile than the Bunker). I can’t find the citation, but I read an article that says Africa also looks like it could be in for a population crunch because of the rapid spread of Aids, TB, malaria, etc.

So, while I do think overpopulation is something that we need to start thinking about seriously, I think contemporary Malthusians too often overlook the factors that go into global growth.

Now, I don’t want to pretend as if all the plights in Africa are the fault of “the west” Or “others.” In fact, some of the problems in Africa created by Africans are immense and the solutions are far-fetched! It will require multiple posts to exhaust just a handful of these problems and trying to figure out solutions. You all probably have got a glimpse of some of these complications just from reading Sachs etc. Also, you may be shocked to know that there are some Africans today who are longing to go back to colonial days – a clear manifestation of how some Africans are dissatisfied with the status-quo; their governments in particular!…

Now, this may sound naïve, but the reasons why I rarely bring some of these above-mentioned views up is simply because I think (I may be wrong) it is unwise to do so. why? Because:
1. Doing so may discourage any of you brilliant minds who might have an interest in being in a position where you can help Africa.
2. It defeats the purpose of the discussion, which in essence, is to evaluate various arguments and perspectives. One does not have to believe in his/her argument; it can just be another perspective, as was evident in our discussion today.
3. I am in the west. So say if I’m in a room in Africa, full of African intellectuals, with mainly afrocentric views, then I will reason with them using the other approach, Eurocentric, if you like, so as to deconstruct their views (make the discussion more interesting), see things with a much bigger lens and at the same time learn more.

Anyway, I just think that hearing different perspectives might be useful especially to some of us who might be interested in becoming policy makers or theorists. I know very well that many people genuinely put forward theories and policies to address issues affecting society at large, but we also know that these theories could be inadequate despite their relevance.
For instance, I’m presently doing an independent study on regional organizations in Africa, and it’s interesting to note some of my findings…just 2 quick examples:
- Some of the theories on regional integration, such as the neoclassical model, the functionalist model, and the developmental model, are (just on their own) insufficient in an African context. My suggestion is that one needs a combination of all three approaches, or a whole new theory that captures the reality of the African continent.
- A similar criticism of the Theory of Optimum Currency Area…but i do not have time to elaborate on it here…

In a nutshell, I sometimes (not always) try to make compelling arguments from an African perspective not because I necessary believe in everything (that I say) but because I sometimes simply want to learn more. And I want to believe that many of you sometimes (if not always) take similar approach.

So Alex en Will, in case you were wondering whether I was cynical, dogmatic, afrocentric, you name it haha, the answer is No! so yes, Alex, you’re right I was just “suggesting it to make a point” but I am not personally in favor of it being applied. That will of course be cruel right?… Anyway, I like to think of myself as an optimist or pragmatist for lack of a better term. No doubt that there are many problems out there. But I also believe the solutions are out there. Maybe the key to the solutions is TALKING, LISTENING and then LISTENING. I have been lucky enough (blessed with the opportunity) to travel and live in various parts of the world, in different status, exposed to different perspectives, and experience. This has enabled me appreciate the satisfaction that comes from LISTENING. I love listening, although I expect to be heard too together we’ll fix the world

Ok that’s it for now. hmm interesting it says on the corner of my computer 7°C (has dropped from 14°C earlier) — I can’t believe it is Dec 4th and it still hasn’t snowed yet. hmm, is that global warming in action??

Now, I still don’t buy into the Malthusian theory!!
Look, my mom has 8 kids and I fall in the middle. Imagine if my mom had decided to stop giving birth after her third child. I wouldn’t have been in existence today and would not be contributing to this blog today. And now you expect me to endorse Malthus. Over my dead body!
Anyway, I know this is a normative question but I also think that we have better growth models or should maybe look for better ones other than the simplistic neoclassical (solow) growth model.

Also, the idea that we should leave poor and helpless babies to die from curable disease under the pretext of saving the planet is simply absurd. If we are truly concern about reducing world population, I have a much better idea, and let me know what you think about it. My idea is that we should set an upper age limit (say, 100 yrs or even 90 yrs). And who ever exceeds that age limit should be put to death and his/her wealth confiscated and distributed among the needy. Japan could be an ideal place to start off with (no offense Xue) because I’m pretty sure they’ve got a lot of old folks there ☺ This, in my opinion, is not only economically viable but is also relatively morally justifiable. Why? Well you’ll agree with me that such old folks are not part of the work force; they contribute little, if any, to the general welfare of society. And they probably even contribute more to environmental pollution because they cannot move from one place to the other without some kind of transportation (mind you they’re too old to bike). Moreover, they’ve had enough of their share of worldly life and ought to give room to others. So it’s probably cost effective to eliminate these old folks instead of babies who could become the Obamas or Madelas or Kofi Ananas of tomorrow.
We should leave people to make as much babies as they like. It’s their choice. Having few babies doesn’t necessarily mean that the world will be a better place. What if those 2or 3 babies turn out to be rebels or hooligans who pollute the world as much as 10 others do—maybe that third baby was going to be McKibben or Al Gore. One never knows.

So after reading Andrew’s comments on global warming and the responses left by others, I couldn’t help but relate this discussion to a question posed in one of my classes last year: “Is it everybody’s responsibility to recycle”? Ten students formed a human barometer. Agree on the right, disagree on the right, and somewhere in the middle…obviously in the middle. So 9 out of the ten students stood by the agree sign and one student was by the disagree sign. Some of the students by the agree sign spoke and argued in order to protect the environment everyone should recycle, it should be a collective effort because everyone has a stake in the matter. When the lonesome guy on the right was given his turn to speak he argued that you cannot expect everyone to recycle because there are so many people in this world who have more important things to worry about. A single mother in an urban city working 2 jobs to support her kids is not going to care about whether the item she is throwing out goes in one bin or the other. It is simply not a priority. This is a microcosm of the environmental problem on an international scale. The responsibility lies among the richer states to act as leaders because weaker states simply cannot devote resources energy, or time to the problem. The tension then lies with the developing states like China and India, who should take an interest in the environment, however; are not as willing to because in the short run it will hurt them financially. In addition, these developing states are doing the exact same thing we did during our industrial age so who are we to stop them?

Also, after Al Gore’s film and US IOU, I feel like people, such as has-been politicians, are trying to scare the public with terrifying statistics and pictures and in turn they are having an opposite effect because by blowing things out of proportion they take away from the seriousness of the issue. I always find my self asking is that really true? Are we really on the verge of collapse? I do think if we don’t change both domestic and international policies to work towards solving today’s pressing issues then the end is near; however, if people spent as much time getting their facts straight as they do playing around with statistics and figuring out ways to hype them up, then we would be so much closer to achieving our goals of economic and environmental stability.

Sabbs

“This [revaluation] will not be the result of foreign lobbying—indeed, China is more likely to change its policy if foreign policymakers shut up.”

Obama publicly encouraging China to revalue will make them look weak when they actually do revalue. They don’t want to appear as giving in to American pressure. It also suggests that once GDP growth gets back to 10% and exports which are vital to maintaining employment stop falling, they will allow appreciation to continue. They’ll wait until the politically and economically opportune moment to continue appreciation.

In the first article in this Jan 2008 debate over Chinese Exchange Rate policy Goldstein argues that it is in China’s interest to use a 15% devaluation stepwise appreciation against the dollar, followed by 6-8% a year after that. Given the downward pressure on the dollar from current low interest rates, the need for such an appreciation can only have grown since then. Given the paper’s presented at this forum, it sounds like the appreciation which was accelerating up until the crisis should resume as soon as the crisis abates both because the dollar will devalue globally and because Chinese growth will resume. If that’s the case, maybe the public statements are just for show.

http://www.iie.com/events/event_detail.cfm?EventID=47

To Andrew P – of course I’m interested. And I will now make an effort to tune in to your show. Everybody could learn a lot.

Personally, after weighing Andrew’s arguments and everything we’ve read so far, the specific issue of global warming has become much less of a big deal to me. For me, the point is that mankind is having *some* degrading effect on his natural environment. And time is relative. Whether or not these effects will dramatically change things a century from now or a millennium from now, and whether or not these effects will be the cause of the end of all life… is, to me, missing the crucial element of the *NOW*. This is where I agree wholeheartedly with Lomburg’s argument.

We discussed SETI very briefly in lecture (it’s the search for aliens). Well then – suppose we find them. Then what? Consider the analogous example of meeting the new neighbors in town. Do you invite them over if your Uncle, sickly, starving and abandoned, is shacked-up (literally) on your front lawn? Ok, that wasn’t a very good example…
…but the point remains that while global warming is an issue that we are good to think about *now* (seeing that it will realistically and substantially affect us sometime in the far future), THE HUMAN RACE HAS MORE PRESSING ISSUES RIGHT NOW THAN THE END OF ITS EXISTENCE.

And I guess I’m especially passionate about this because I’m from a developing country. I mentioned, at the very end of our first discussion period, that to be able to willingly devote about millions of dollars in time, resources and energy into this idea of ‘fighting global warming because it will kill all human life in the future’ IS A LUXURY. You can only worry about the entire human race AFTER you’re finished worrying about yourself. And trust me, so many many people still have to worry about themselves and their families, every day.

Disease. Literacy and Education. Economic stability. These should be the issues at the top of the list.

Ok, I’m clam now.

http://www.wattsupwiththat.com (not to say there is nothing published, there is, but this site will link you to sources and discuss most things relevant to climate change)

and of course the show I do with my friend Nate on weather and climate Sundays at 4 on WRMC (also listen in for the latest and best forecast for snowstorms this winter!!)

Gore’s movie makes a number of false claims. Indeed the movie has been ruled alarmist and false on nine counts by a British High Court.

1) More frequent and intense hurricanes and linking Katrina to GW.

There is almost nothing to back this up in the scientific literature. Global Accumulated Cyclone Energy, or ACE, has shown no trend over the last 50 years, and has been at record low levels the last two years. ACE measures the total combined energy, or intensity*frequency of all hurricanes. The only evidence to back this up (which wasn’t even available when he made the movie) is a Nature article showing a weak upwards trend in the number of the most severe hurricanes (which was counteracted by a downward trend in the number of moderate and weak hurricanes). This cannot be definitively linked to global warming.

2) Hockey stick graph

He uses the hockey stick graph to exaggerate the appearance of warming in the famous elevator scene. This graph has since been shown to be misleading. Because the graph switches from proxy data to actual thermometer data in 1900, the data after 1900 is much more precise and will show more of the year to year and decade to decade fluctuations that occur naturally. There is good evidence that during the Medieval warm period 1000 years ago global temperatures may have gotten as high or nearly as high as present. But because the proxy data covers up short term variability, this isn’t seen in the Gore graph. A general rule of statistics is not to switch sources partway through your data set. There is also evidence that the proxy data wasn’t entirely accurate.

3) Sea level rise.

Shows pictures of major cities being flooded when IPCC 2007 predictions are for only 1-2 feet, even with a warming of 3C globally. Clearly a scare tactic.

4) Melt water will run underneath the Greenland ice sheets and cause them to slide off into the sea unexpectedly.

Totally unrealistic. There is evidence that when large surface lakes suddenly drain underneath the ice there is a brief small acceleration. This could cause them to speed up somewhat, but won’t cause massive ice loss. It’s going to take at least a couple hundred years to loose the Greenland ice sheets even with a lot of warming. Best estimate with continued CO2 emissions: 400 years according to most scientific literature. Gore implies it could happen soon.

5. Linking loss of snows on Kilamanjaro to climate change.

The loss of snow on Kilamanjaro is due to the clearing of forest (ironically a much bigger environmental issue) causing drying of the air. This was known at the time he made the movie and it was ignored because of the symbolic alarming value of the symbol.

there are more but I think that’s enough for now..

Stiglitz mentions a disappearance of the Gulf Stream – this is highly unlikely and there is virtual no science behind this happening.

He also mentions 1/3 of Bangladesh being underwater by 2100, but this is based on more extreme predictions which are not generally accepted. The IPCC 2007 prediction is 1-2 feet, which of course is bad enough.

Lomborg makes a number of good points about Gore’s movie, but his point that Gore ignored increases in Antarctic sea ice is not. Antarctic sea ice is mostly controlled by currents, not temperatures. Thus it wouldn’t make much sense to look at changes in Antarctic sea ice in a discussion of global warming. Arctic ice, is however, strongly influenced by temperatures. There’s a reason people ignore Antarctic sea ice.

McKibben:

1) McKibben’s first mistake is calling Lovelock a competent observer. He’s insane and he is totally 100% unscientific and there is a large body of scientific literature contradicting him. But he’s in his 80s and I think the Gaia hypothesis is actually quite intriguing, so I’ll cut him a break.

2) The data coming back from the earth and climate has been nearly universally worse than predicted (so we should assume it will be worse than predicted in the future too).

Not even remotely true. Hansen’s 1988 temperature predictions and IPCC’s 1990 temperature predictions were way off and both have come out and admitted those predictions ‘assumed too large a climate sensitivity to CO2.’ Look at a graph vs. predicted and you’ll see what I mean. It’s that far off.

Sea ice predictions this year were way too far off. Experts asked to submit predictions to the National Snow and Ice Data center (NSIDC) for this years arctic sea ice minimum, which occurs in September, unanimously underpredicted how much ice there would be. Surveys were done all spring and revised all the way right up until July. There were 15 predictions in July, all underpredicted what would happen in September by a huge margin.

The chair of the NSIDC said in 2007 when ice melted dramatically that sea ice had entered a “death spiral.” The general idea was ice loss was accelerating. Instead sea ice which usually only fluctuates a quarter million sq km from year to year, has recovered a solid 1 million sq km from 2007 to 2009 (From 4.2 to 5.3 – a 25% recovery).

Even the most recent temperature predictions from literature up to 2005 included in the 2007 IPCC report show temperatures rising much faster than they have. Because of the decline in temperatures 06-09, especially in 2008, the 12-yr trend-line is now flat. The probability of a flat 12-yr trend-line according to the UN was less than 20%. Not a failed prediction (yet) but getting there. The leveling off of temperatures since 1998 also suggests that there is a cyclical component to global temperatures that the UN has been ignoring called the PDO. The PDO is a measure of temperatures on the Pacific ocean and influences global weather patterns. It oscillates on a ~30-yr time scale. During it’s last negative phase 1945-1975 global temperatures flat-lined or slightly declined. During its last two positive phases 1905-1945 and 1975-1998 temperatures rose dramatically. There is a background warming as well. Since the PDO has gone into a neutral-negative phase in 1998 (it’s not totally clear we are in a new negative phase yet) global temperatures have flat-lined or slightly decreased … as PDO-theory would predict!!

IPCC predictions of methane rises have been totally off. Methane in the atmosphere was predicted to rise and it has not in the last 10 years. CO2 levels haven’t risen quite as fast as predicted given the higher than expected CO2 emissions.

All of these are some quite reassuring signs about climate change I think (relative to the dire predictions).

3) Methane is leaking from Siberia at five times the predicted rate and this is bad news because methane is a very potent GH gas.

Yes, there has been some evidence of very rapid methane loss from Siberian lakes. But no one knows the total emissions of Siberian lakes and bogs. If they did perhaps they could tell us why the concentration of methane in the atmosphere hasn’t been increasing at all for the last 10 years (contrary to predicted).

4) James Hansen is the world’s top climatologist. He even provided a citation!

Not true. Hansen is as I said in the discussion, the father or ‘god’ of climate change, but certainly isn’t the top scientist. First of all climatology incorporates many different fields and there are the foremost experts in those fields. Second of all, in terms of modeling the predictions of climate change there are many more advanced modelers out there. Third, he has become more of an activist than a scientist and Hansen’s former supervisor at NASA has since said that in his time at NASA, Hansen “embarrassed the agency.”

5) The earth is as hot as it has been in a million years. No one has accurate or precise enough data to know this. We can’t even be sure this is the hottest in the past 2000 years (although it is likely). There’s strong evidence the Holocene Thermal Maximum around 10,000 years ago was warmer than present, with Arctic temperatures up to 4C warmer than present. You’ll note polar bears were around back then and did just fine. Prior to that we were in an ice age so it’s not entirely surprising we have warmed since then.

6) His information on the solar industry has become out of date in the 3 years since his article.

The solar industry hasn’t been growing 20-30% a year, it has been almost doubling some years. Also it’s no longer just Japan and Germany, the major markets now include the U.S. (esp. CA), China, Spain and many other European nations. The price of producing has been cut in half in the last five years and fell by 30% this year alone. It’s projected to fall another 60% or so in the next few years. It likely will become as cheap or cheaper than conventional electric power generation in many grids, perhaps most. Basically, we should have subsidized solar a decade ago but were too busy arguing with the Bush administration if and when the world was going to end.

My personal issues with climate change:
1) Temperatures not rising quite as predicted. Beginning of a divergence IMO.

2) The PDO has been ignored. A ~30-yr cycle between warm and cold pools in the N. Pacific. Warming occurred 1905-1945 and 1975-1998 during its last two warm periods. Cooling/flatline in temperatures occurred during its too cold periods, 1945-1975 and 1998 to present.

3) Solar activity, according to a study in Nature, was higher in the last 70 years of the 19th century than any other 70 year period in the last 10,000. There are number of obvious and less obvious ways in which the sun could influence climate.

4) The physics of CO2 will only cause 1.2C of warming if CO2 concentrations are doubled from 390 at present to 780. The rest of the predicted warming is hypothesized feed-backs which are extremely complex and which I do not believe we have a good grasp of. Mostly its cloud feed-backs. Predicted cloud cover changes in response to global warming is found by looking at what happened in the 20th century. Except there’s good evidence of cloud changes due to other factors in the 20th century, not just GW. Personally I believe in 0-2C of warming by 2100 with continued emissions.

So if anyone’s interested or disagrees I’d love to hear.. tune into our show if we get McKibben on air. Sorry most of this wasn’t cited or provide sources, I was in a rush (sorry for so long!), but I would be happy to provide them if anyone wants them.

Most significantly, the article observes that contrary to Malthusian theory the industrialized world has witnessed a pattern of falling fertility wherein “when people got richer, families got smaller; and as families got smaller, people got richer.” It goes further than this, however, noting that the Malthusian worry of unsustainable population growth is still a very real concern that can best be addressed through a combination of technological innovation and governance.

1) Questioning capital liberalism and the role of speculators in international monetary system
The case of Soros attacking the British pounds has been presented, but the implication of such speculative attack was not discussed as much in class. I am not very familiar with the case of British pounds, in terms of the economic/political damage that such successful speculative attack brought. However, I know a little bit about the Asian Financial Crisis in 1997. As “contagion” nature of short-term capital flow fully manifested itself, the South East Asian economies (both originally-problematic ones and healthy-yet-”speculated”-as-problematic ones) deeply suffered from its currency instability caused by speculators’ attack. Unlike the British economy, these were developing infant economies which depended much on continuous foreign investment. In other words, the damage from speculative attacks were greater in these economies than developed economies, even if they were at the same level of capital openness. As a result, these economies did not get back to a sustained course of growth for many years to come.
It is the speculators who attacked the economy, however it was the international monetary system with loose capital controls that set the preconditions for such attacks.

Nowadays, currency speculation has become a legitimate way of earning living for some people. While the Gold Standard and the Bretton Woods system de facto limited short-term capital flight, the current international monetary system allows currency speculation, which can greatly undermine economic stability in this increasingly interconnected world.

2) The role of the IMF and its effectiveness.
As we learned in our class that the IMF practically “reinvented” itself to continue existing in the post-Bretton Woods system. Now the IMF is seen as the official development agency of the developed countries, along with the World Bank and other development banks. However, as many of us have heard, despite its financial and political power, the IMF’s professional expertise in the area of economic development has been questionable. Given its failures in South East Asia and many African countries, maybe it’s the time again to not only “reinvent its purpose of existence”, but also “reassess its claimed professional expertise” and “reflect on its appropriateness of existence.”

Despite the burgeoning strength of the Chinese economy, Stiglitz rules-out action on the part of China to be effective. He argues that Yuan appreciation would slow China’s growth, and hence global economic growth – he has a point, but I think that’s taking it a bit too far. The resolution of the Chimerica problem is going to no doubt hurt everybody somehow – it’s that big. Of course China should do it’s part. But Stiglitz lays the major responsibility on the United States – the solution, he says, lies in a combination of U.S expenditure cuts and a progressive income tax (tax-cuts for low income Americans, and increased tax-cuts for wealthier Americans). But of course a progressive tax will almost certainly never pass in the United States, because the wealthy have earned their wealth and damn all those who would have it taken away from them, even if it is for a national objective.

I think it’s interesting how this article looks to so many parallels between our situation with China and the Cold War with Russia. While historical analogies can be useful, they can also be dangerous. I think looking for comparisons between the two situations isn’t the most applicable now because of how different they are. Despite China’s growing military, I don’t think the military force side of the Cold War is likely to be reflected, and I just cannot imagine our economies cutting ties.

Some of the key elements of the Cold War are missing in today’s relationship with China. While the Chinese government is fairly mysterious to us, there is significantly more openness than there was with the USSR. China is basically “capitalism with American characteristics,” while the USSR feared and hated capitalism. On the American side of things, we don’t have the same ideological fear of communism, nor do we have the same fear of the Chinese taking over to the extent we feared the Soviets. Furthermore, we are so interdependent and locked into China with trade, as “global economic integration has made China ‘more willing than before to accept America’s dominance.’”

I found the last paragraph of the article most interesting. “China, far more than an economically challenged America, is roiled by social tensions. Protests are on the rise, corruption is rampant, crime is surging. The leadership is fearful of its own citizens. … Its frailties—social, political and economic—could eventually imperil both its own stability and its dealings with the outside world.” I think this internal turmoil in China is something we should worry about as a base to China’s relationship to the US. I don’t see the present China causing any major problems for us, but it is a very unstable country and maybe all of our worries will be rational with an internal change of stability?

One thing I think we should take not of in relation to our global political and economic systems is the bipolarity developing between China and the US. Questions of a G2 seem significant, and while there are debates on the stability of bipolarity, I wonder what having these two large powers could mean.

There is little doubt that China is flexing its economic muscles; “in September it bought $50 billion in IMF bonds to boost its influence in the institution and strengthen the role of non-dollar currencies” (5, Economist). In the same breath, Alhaji is correct to point to the fact that China is expanding its global economic importance as a trading partner in the African continent, among others – a fact that is hardly insignificant. That being said, however, China and the Yuan have a long way to go. Notably, China’s GDP in 2008 was $4.4 trillion, smaller than Japan’s, and less than a third of America’s. Not only would the collapse of the dollar deal a severe blow to China, which holds over $800 billion in US treasuries, but it is not clear that China seeks to make its currency convertible in the near future – a pre-requisite that must be implemented for the Yuan to become a global reserve currency.

On top of this, China’s recent economic successes have glossed over a maelstrom of social tensions that are simply waiting to erupt, as a rising power it remains conspicuously deficient of soft power, and its authoritarian government does not inspire fiscal confidence. However, there are real reasons for concern: China is actively expanding its hard/military power beyond necessary levels, and it is seeking to put a man on the moon – many have begun to wonder if an Asian Cold War is on the horizon. If indeed this is the case, however, we can rest easy – for the moment at least, America has the upper-hand.

There is so much talk about China growing economically that we forget China is a very poor nation. There are regions in China where people live off of less than $3 a day, the cost of a smoothie at the grille. I remember reading something along the lines of “we should be careful because in the future we might need China more then they will need us and then we’ll be screwed”. I think this does not capture the picture accurately because China’s economy is so dependant on us that hurting us will only hurt them. China has yet again another unspoken pact, this time with the U.S. – we’ll purchase U.S. treasury bonds with the money we receive from exports in order to keep the dollar strong. Our economies are so intertwined that we will always need each other. However, according to the article, China cannot do anything about the global imbalances their relationship creates and the responsibility lies with the U.S. Each nation will continue to do what works for them until they not only feel the pressures from the outside but actually feel the economic strain within.

It’s a long-term strategy. In the short term, you lose out on standard of living gains. But if your export sector and entire economy keeps on growing 10% a year it doesn’t matter. Plus it gives added stability for you. You can change exchange rates and domestic prices however you want, reducing risk in the market, which is good for growth.

If China’s reserves suddenly dissapeared, would we say their economic policy the past 20 years has been a failure? No they grew rapidly by fueling world consumption of their goods. It isn’t actually having the reserves that is good, it’s the process of acquiring them that has been good. Plus actually having the reserves has some benefits too even if you never “cash in.” You may get some leverage over the nation’s whose currency you hold. Especially if your economy eventually becomes larger. And you get to use them to maintain market stability.

What do you think? Am I missing something? One thing that doesn’t fit with this is China’s complaints about USD devaluation. What do they care? They already accomplished what they wanted: massive export led growth. But perhaps they want to appreciate their currency on their terms, not the U.S.’s and maybe they’re not quite ready for that.

Alhaji, I think that you were right to explore the possibility of China’s currency becoming a reserve for foreign countries and I appreciate your focus on Africa. I think that previously (for example, in the somewhat dated articles we read for class) the ability of the yuan to become a reserve currency was prohibited by capital controls. The lack of yuan-dominated bonds and the difficulty in holding yuan abroad made it impossible. But now that’s starting to change:

http://www.voanews.com/english/archive/2009-09/2009-09-08-voa8.cfm?CFID=309922002&CFTOKEN=93351708&jsessionid=0030bb3832a0bd05eed85c433f1344651d56

This article, however, serves to reinforce the idea circulated in this discussion that the Chinese seek to achieve regional hegemony and do not have any aspirations (yet) of world domination. I feel like all of this is getting increasingly like 1984 with gigantic world blocs.

Recently I’ve been thinking about what the downside of China’s position is. For me, it seems too good to be true: they are amassing huge reserves while stimulating their economy. I can criticize the lack of domestic demand developed, but since the Chinese are excellent savers, a crash in domestic prices might induce a lot of money into the market. If the US stopped cold turkey buying Chinese goods, the result would be catastrophic, but domestic savings might be able to save them (whereas from our side, the lack of Chinese goods would only hike up prices for us… and we already don’t have enough money to buy what we do). The problem is (and I would love feedback on this) is that I think the Chinese are running themselves into a hole. They have so many reserves that I don’t think that they will ever be able to feasibly do anything with them. If in desperation they wanted to cash their US dollars in, they would destroy the value of the dollar and, in doing so, the value of their reserves. And I don’t see them being able to see the reserves off slowly either, seeing as changing the system would destroy their export-market. They could create a ton of trouble for the United States and destroy its currency, but eventually we would recover, and they would have lost the one threat they had. It’s a one-time game and once they do it, it’s over. They’ll be left with nothing.

I suppose our main worry would be that the Chinese would stop needing us before we stop needing them. If they “get in bed” with Africa as Alhaji suggests as a possibility or turn to Asia primarily, we’re out of luck. No longer will we be able to fund our debt and we will finally have to find solvency. Having the dollar as the nth currency has allowed our domestic government to do whatever they want (most countries don’t have the freedom we do to run budget deficits) and I think that American life would drastically change–but then again I think it needs to. I am not a proponent of eternal debt accumulation, so maybe the Chinese moving on would bring on tough, but necessary change.

http://politicalcalculations.blogspot.com/2007/08/africa-gdp-rankings-for-2006.html

Logan starts it off by arguing we shouldn’t fear a run on the dollar because China would never try to sell its bonds (of which it has over 1T). I agree with this argument, but I disagree with the argument that “China selling its bonds would help the Fed’s process of QE.” If china sells its treasury holdings, then it has to find a buyer of these USD assets. Thus there is no net change in the amount of USD in circulation. Although, it would cause devaluation of the USD leading to inflation eventually, if China sells its USD holdings to another country, or even to domestic investors, this doesn’t increase the amount of money circulating in the domestic market. It just raises interest rates and causes a devaluation of the USD. China selling its assets would work against the Fed’s QE by lowering the demand for treasury bonds. The point of QE isn’t devaluation of the currency, it’s to get lending going by increasing bank reserves. The Fed would have to step in and buy even more. It would pose an especially interesting problem because almost all of the Fed’s balance sheet is in short term bonds. Only 300 billion of the Fed’s 2T+ balance sheet is in long term T notes. Meanwhile almost all of (until recently 100%) of China’s assets are in long term treasury bonds. So while the Fed usually buys short-term, China would be selling long-term, and the Fed would probably have to take the extraordinary step of buying even more than the original 300B of long-term notes. The Fed finished up buying the 300B of long-term bonds (which they announced the middle of March) during the auction of 7-yr notes just the other day, and I don’t think they intend to buy any more long term bonds.

So short story: China selling its bonds would work against the Fed’s QE. And I agree given the tight control they maintain over investment, they’re not going to allow a panic on the USD by selling their assets.

Chalene brings up the theory from the Ascent of Money that Chinese buying of US treasuries kept interest rates low –> bank lending confidence –> sub-prime crisis. I’m curious about this. Even if low interest rates caused the crisis, wouldn’t the Fed have just used market operations to keep the target interest rate low? If that’s the case (is it?) then the problem was simply too low of a target interest rate which is Greenspan’s fault. However, I’m not convinced of this either. Yes low interest rates lead to more lending. But even if there were high interest rates, banks could still lend billions to people/groups that couldn’t pay it back. So I think it has more to do with the type of lending that was taking place, and the fact that firms had over-leveraged which magnified the fall when sub-prime burst. Low interest rates don’t necessarily lead to either with the right restrictions in place. Here are a few problems I would suggest instead of low interest rates:

1. Bundling of assets. Mortgages were bundled and then sold repeatedly between institutions and investors until what the bundle actually contained and an assessment of the risks was no longer possible.

2. Credit Default Swaps. Allowed banks to realize overnight returns on risky assets but do not account for systemic risk. AIG fails, they can’t fulfill their CDS obligations.

3. Overleveraging. I think we read a piece or two on this earlier in the semester. We had a particularly heightened business cycle where people did not make accurate risk assessments because everything seemed to just keep going up and up and up. If the Fed counted assets (think exploding home prices) in their calculation of inflation they would have seen much higher inflation rates and realized the business cycle was exploding. The IMF has recommended (ignored) asset prices (particularly homes) be factored into inflation equations.

Perhaps raising interest rates in 2005 or so would have helped cut short the business cycle and prevented overleveraging making the downfall easier. However, that doesn’t solve 1&2 and we haven’t done the necessary steps to solve them yet either. But I’m not sure why if 1&2 are solved low interest rates would be much of a problem. Thoughts?

Will suggests that China selling its assets would lead to inflation because it would put more USD in circulation. I agree it would lead to inflation but is this the right mechanism? I have been trying to figure this one out and I can’t figure it out but this is what I’ve come up with: If China sells its USD assets they have to find a buyer. So someone else takes the asset. There’s still the same amount of USD in circulation. There is less demand for dollars now yes. This causes a devaluation of the dollar. But there’s no more USD in circulation in the U.S. economy. China just sold its asset to someone else (at a loss presumably because they had to sell it cheap to get a buyer, raising the yield on the bond). So it just causes a devaluation of the dollar and high interest rates. It becomes harder for the U.S. to finance its debt, so it has to intentionally print money to make debt payment easier and cause inflation.

So the mechanism isn’t China sells assets —> more USD in circulation —> inflation. It’s China sells assets —> U.S. can’t finance debt —> Fed prints money —> inflation. Correct?

Also, I don’t think we can take for granted that the Fed has made sure not to print so much money that there will be inflation. (“I would assume that the Fed has this under control, and the amount that they’re printing probably isn’t enough to cause a serious jump in the inflation rate.”)

IMO The Fed faced an unprecedented disaster and took unprecedented steps the consequences of which are not known. They printed an unthinkable amount of money. They more than doubled the monetary base (M0) from less than 1T to over 2T in less than a year. It took the entire course of the Fed’s history to reach 1T on the balance sheet, now we just jumped to 2T. Personally, I don’t think this is destined to cause inflation but others disagree (note the tripling in gold prices the last year) and I don’t think it’s a safe assumption that the Fed has this under control.

I feel like China buying American debt and America spending kind of uncontrollably (given our NEGATIVE savings last year), is like a huge elephant in a small room…and of course, no one is saying anything. Thankfully, the Stiglitz article gave a brief and notable mention to the IMF for all of their soft power initiatives against the US and China who are clearly on the verge of sending the rest of the world into economic chaos (again).
I also think it is worth discussing what might happen if this viscous cycle is allowed to continue. Without having any economic background, it is near unfathomable to think of the US dollar, in this day and age, as a secondary trading currency. Yet, after reading those articles it really only seems like a matter of time. It worries me to think of the implications of the Yuan (or some combination of currencies) becoming the reserve currenc[ies] of choice, not just in terms of the future of the American economy, but in terms what that would say about American hegemony—pretty scary in my opinion. I think that while we should not expect to see total abandonment of US dollars anytime soon, we should expect for China to begin lowering their reserves (which they have already begun doing apparently), but for security reasons as well as economic reasons. Maybe it is my American naivete that is saying, “that’s not going to happen,”…but we are such an integral part of the world economy that if we were no longer a big player, that would have repercussions not isolated solely to economics, and I really do not see the benefit in that for anyone in the world.

So how about china en politics?
As far as I know, China neither seeks to export its political ideology nor meddle with the internal politics of African states and others, yet it is seeking political influence in the international arena. One proof: Taiwan is only recognized by 5 out of over 50 nations in Africa source: http://www.heritage.org/research/africa/HL1006.CFM. Bear in mind that Africa forms about 1/4th of the U.N. General assembly…think about that for a moment. What if China manages to secure all or most of the African votes (+some of Latin America) in policy making at the U.N.? then China will be the bread winner of the system, influencing policies in IMF, WHO etc. on its favor. So James, that sounds to me like a viable approach to becoming “the power house” of a “multi-polar” world while maintaining the reserve currency….

Having said that, China’s position towards Africa is not as black and white as one may think…There are many criticisms mounted against china’s approach. Some believe it’s a new wave of neo-colonialism propping up corrupt regimes etc. Moreover, china’s cheap export (mainly textiles) to the continent undermines the competitiveness of local industries etc…oh, plus its outward growth orientation (and many other caveats) might prove disastrous, just as we learned about the experience of GREAT Britain…

ok summary: China is making huge economic progress and gaining political influence in the international system. That is good. But everything is not as rosy as we might think…
In my humble opinion, I think China is ahead of the race.

Loans make printing money and government spending possible because the US does not need to print extra money out of the air but simply return money, previously in Chinese reserves, to domestic circulation. Right?

Clearly it’s not this simple and risk free. The issue of fighting the financial crisis and inflation is taken up by Paul Krugman in his article on gold standard mentalities (see IPE homepage). He argues for prioritizing the need to maintain liquidity and access to credit above fighting inflation, arguing that government should be doing more not less to fight the recession. He illustrates this point by showing how raising interest rates in the Great Depression in an attempt to prevent price increases was disastrous and misguided. His argument is well taken, but the relationship of access to credit (maintained by low interest rates) and the current crisis is not fully explored. Although most recently the problem was a credit crunch, with banks requiring huge bailouts, this was precipitated by a crisis of easy credit – the lending of mortgages to individuals who could not repay them. Going forward, is the policy needed to end the recession the same as should be implemented in the long run? Or by continuing to maintain lines of easy credit do we risk a future crisis?

But I think you can make a pretty good case for a lack of US leadership being the main cause of the failure of the New Gold Standard. First, the “empowered populace” seems pretty unpersuasive. Sure democracy is great, but how much does the populace understand that it’s the fault of the gold standard? And even if the poor are upset, won’t politicians still cater to the capitalists that are contributing to their campaigns? Second, it seems like a stabilizing US could alleviated the problems of cooperation and that stability would have made it less likely that markets would bet against banks. Finally, although bad luck might have exposed the problems of the New Gold Standard in the future, it still seems like US leadership could have kept the NGS around for longer than it actually did. If the US took leadership and provided the needed liquidity, it solves Keynes’ bad luck problem of… a lack of liquidity. And I’d imagine that there was still enough gold around to keep the supply expanding for quite some time. In the words of Will Higgins, “Thoughts?”

Why does a high inflation rate lead to a real exchange rate appreciation? How does it lead to a sharp depreciation in domestic currency?

Let me try to explain this. When prices increase in a domestic economy, two things would happen: people would start importing more because the imports would be relatively cheaper, and exports would decrease.

When the domestic price level falls, the real exchange rate will increase. This means that the domestic currency has experienced a depreciation. (With the original sum of money, you can buy less with it.)

From the screening of Niall Ferguson’s “The Ascent of Money” on Tuesday night, it got me thinking about some things.
This Chimerica (China & America) dynamic was perceived as a win-win situation for both parties. China could ride on its fabulous export-led growth sustained largely by America’s spending while American firms like Walmart could profit from low Chinese labor costs. This set into motion another reinforcing wave- China was determined to keep its export-led growth so it was willing to lend money to the US by continuing to buy her bonds. Thus the US Treasury was kept happy as her large lender- China, allowed her to keep interest rates low. As a result of this China-American interaction, there was an onset of new bank loans, derivatives and other financial assets which swept the world after 2000.
This gave the US added confidence to encourage more sub-prime loans. Thus I found it interesting that Sino-US trade in goods, services and financial assets played a role in contributing to the 2008 global recession which saw the collapse of Lehman Brothers, Bear Steins and Merril Lynch.
It made me realize that it is still better to pursue a cautionary or conservative approach towards balance of payments because tilting too much in one direction will have drastic ramifications in the long term, if not now.

Yes, I think you have price-specie-flow right in broad terms. When Hume developed the theory of PSF in the 1750s, the bulk of currency in Britain still took the form of specie. So, then it was generally just a matter of either melting the coins for export. Thus, as a practical matter, states wouldn’t need reserves in such conditions since the currency itself was composed of the material needed for export. With specie, one can avoid the domestic monetary authority entirely.

The increasing use of tokens and notes changed things. To get gold or silver at the official rate (rather than the market rate), currency had to be taken into the central bank and exchanged. There currency which was “convertible” would then be exchanged for whatever was backing it (gold, silver, foreign currency, &c.). In that case, the monetary authority would then need reserves to maintain convertibility.

Does that answer your question?

One is just a quick question or clarification about the price-specie-flow model. This mechanism assumes that governments can ensure full convertibility and have sufficient reserves for doing so. Citizens in a country who want to buy exports buy gold with their domestic currency (contracting money supply) and exchange it for foreign currency for foreign goods. People abroad exchange their currency with their central banks for gold, and bring the gold to this country’s central bank, and exchange it for domestic currency. If the government has sufficiently deep reserves to satisfy all demand, eventually a strongly positive trade balance would have much of the domestic currency changed to gold, shipped abroad, which will lower prices and cause exports to increase, etc. etc. So, the price-specie flow depends upon governments have reserves of gold that are sufficiently large so that they can hold out until change in global price levels cause the trade balance to equilibrate and their gold reserves to fill out again. Is this correct?

The other is partly a reply to Logan that throws up a few confusing but interesting questions. The notion of “value” is very interesting in that it depends on which frame of reference we are using and differs accordingly. For example, we talked today about the ideal intnl monetary system that Keynes wanted that would have a powerful IMF strong-arming creditor nations with huge reserves to lending to debtor nations. In this way, nations can have autonomy to affect price levels, exchange rate instability would be minimized, and free trade would prevail, while capital controls would be in place to help control those discrepancies in reserves. The question of what rates the IMF would compel the nations to lend at, however, seems to be highly contentious, even if it was close to market rates, since depending on circumstances a supply of necessary funds can have very different valuations, as seen by the current crisis. The problem is that all carriers of value, like goods, services, assets, money, gold, have no clear objective value; the point of the free market is to assign values to all these carriers through the interaction of market forces. In any situation where no clear market exists, or the rules, context and conditions of the market situation are politically, or arbitrarily defined, or basically decided by a non-market based approach (i.e. no market exists for deciding how markets are structured, and so on and so forth – market in a more abstract sense of the term), then it is difficult to say what certain “carriers” are worth or even to decide obligations, strategies or issues of fairness, or even to get a right sense of scale or possible risks. So, with regards to the huge reserves China has from the US, the odd question is how the Chinese are keeping up the value of their holdings precisely by maintaining their demand and managing expectations.

It is perhaps dubious to use the market price, which occurs at the margins over transactions between some buyers and sellers, to value goods, though we lack any other measure. I.e., it doesn’t quite make sense to value all the rice in your mill by multiplying current market price by the units you possess, especially if you have 30% of total stock, and have other considerations to selling your stock including global stability and also the falling price you would certainly get if you were to release too much stock at once. As it were, prices are determined by a present market frame, but true “value” seems to come from a consideration of possible actions, their probabilities, their interactions, and the different frames that would therefore come about. This gets complicated because it comes down to more complex interactions between the decisions of different entities and could have drastically different values depending on how things turn. Any policy might be much more “value-enhancing” than felt by current conditions, only by considering the much worse frame it might have helped avoid, which it is difficult to ascertain considering that the event didn’t happen.

A good example of this is how we look at the lack of an upper limit for countries to accumulate reserves. If there is excess demand for a country’s goods, the country, rather than let prices rise, can increase money supply or increase domestic currency available to exchange for foreign currency, and thus increase foreign reserves. It seems to me that if we simplify our analysis and see countries not investing those reserves, then all the states really are doing is storing up “inflation” or “excess demand” (which also seems to have redistributional effects because the government accumulates vs. the people) or “purchasing power”, and the value of those reserves, in turn, depend on factors like how necessary they are in crisis situations, to maintain political stability, prices in the future, future ERs, etc, etc, in contrast to its current “visible” value by taking into account current ERs and price levels.

A bit long, got carried away.

So where are we headed? The BusinessWeek article by LeVine offers one possible result; to me, however, he is misstating the issue somewhat. The Yuan is not, nor could it be, the next reserve currency. Short of some unforeseen cataclysm, no country will ever reach the relative power of America following WWII, nor will its currency reach the universality of the USD. I do not think China wants to be a global hegemon following in the footsteps of the US. Rather, to quote a professor of mine in India, China wants to be the powerhouse of a unipolar Asia in a multipolar world. It seems to want to balance against US/Western power (politically, militarily, and most importantly economically), yet it still appears to want to work within the international system, according to international norms. As LeVine reports, the Chinese central bank chief Zhou Xiaochuan as wanting to replace the dollar as the international reserve currency with a basket of currencies supervised by the IMF.

What could this mean? Firstly, this hypothesized reference basket would in some ways be a more liberal system than the one we currently have (that is, decentralized)–ironic, coming from one of the world’s most authoritarian regimes. Secondly, it is not necessarily a bad thing for the US. Eichengreen shows that the transition, which he demonstrates is already underway as of July 2005, must be gradual. The Yuan must be made convertible, the ER must float, capital controls must be liberalized, all slow processes. China will not suddenly choose to dump its US debt; we do, in a matter of speaking, own the bank. Yet, if there is an inevitable transition away from the USD as the single reserve currency, America will be forced to pursue a much higher degree of fiscal responsibility.

Lastly, not to belabor the point, this transition means an evolution in the shape of the international political economy. Global governance has, and will continue to change; so must the global trade and monetary system. It will mean a decline in the relative power of the US but if approached correctly, this relative decline does not have to be an absolute fall.

http://www.economist.com/businessfinance/displayStory.cfm?story_id=14686307&source=features_box_main

In discussion we’ve talked several times about the difficult position of the United States, with our huge debt to China and the possibility of the dollar losing its status as reserve currency. We talked about what would happen if China suddenly decided to sell all of the bonds it’s holding in USD. However, i think it’s also important to note the implausibility of this ever happening. If China were to do that, the value of the dollar would fall dramatically and China would lose its biggest market. Also, the article talks about the Fed policy of quantitive easing, which is when interest rates are so low that they can’t lower them anymore and instead they try to stimulate the economy by printing more money. It makes lending/borrowing more attractive and both the US and UK are using this policy right now. I’m not sure about this, but it seems like if China were to sell bonds now it would just emphasize the monetary policy that the Fed is already using by putting more USD into circulation. So what threat does the US face from its debt to China? This is a really pertinent topic for what we’re discussing in class and it’s in the news a lot so i would be interested to hear what you guys think.

http://www.economist.com/opinion/displaystory.cfm?story_id=14699593

http://www.nber.org/papers/w13841.pdf?new_window=1

The paper says free trade and the industrialization of Europe caused improving terms of trade for the poor periphery. If I understand it, the following is why. First of all, the terms of trade always fall between the opportunity costs of the two countries for producing particular goods. Market forces determine where in the range it falls at any time. Terms of trade change when the price of a given quantity of exports changes relative to a given quantity of imports relative to the base period. A shift within the previously defined range would cause the TOT to change, but the opportunity costs of goods may change over time causing the whole range to shift and this is the key variable over long time periods in determining TOT. The rapid productivity growth of Europe in manufacturing led to a decline in the price of their products on the international market (supply and demand). Meanwhile, it created per capita GDP growth which drove demand for imports of luxury goods like coffee, tea, sugar from the periphery driving up the prices of those goods (supply and demand again). So free trade and the industrialization of Europe caused an improvement in the terms of trade for the poor periphery by giving access to markets with an increasing demand for periphery exports, and by causing the price of manufactured goods to fall.

This is why Williamson said in his lecture something along the lines of: “While the rapid industrialization of the core may have caused some deindustrialization in the periphery they were forced to SHARE their productivity gains in the form of falling terms of trade for the core, and rising terms of trade for the periphery.”

Industrialization caused the opportunity costs of primary products in the core to rise. This caused the range of acceptable terms of trade for the core to expand towards terms they previously would not have accepted. Rising opportunity cost of primary products for core nations + increased wealth –> demand for luxury imports + falling transportation costs (improves TOT for all) = dramatically improved TOT for the periphery.

Williamson, as he did in his lecture, then uses the terms of trade boom as a predictive measure of deindustrialization and finds that improved TOT correlates with deindustrialization. There is also the deleterious effect of volatile TOT on growth.

I found it remarkable after all this that Williamson still thought free trade was good for the poor periphery. When I spoke to him about it after the lecture he said the real income gains and improved TOT outweighed the cost of deindustrialization. He suggested that the real income gains be put towards education and infrastructure. I certainly can believe this in the case of a small-medium size country which could not possibly efficiently produce a wide range of products. This would include all African nations, Latin America, the ME, and SE Asia. For those countries the real income gains caused by free trade and specialization are going to far outweigh anything else. But I wonder if the U.S., China, and India might be possible exceptions considering their large domestic markets.

There’s also the possibility of large regional trading blocs by countries with similar levels of industrialization so as to prevent deindustrialization. This would allow for some specialization based on comparative advantage and resulting real income growth, but it also wouldn’t cause total deindustrialization. But given the dependency of most of these small nations on primary product exports to core nations it might be too late anyways. Thoughts?

In addition I would point out G&I 113: “British power peaked in the 1870s, and in the decades that followed European countries and the United States moved away from free trade. The correlation was not tight or absolute: there was some revival of trade in the decades before WWI and the UK itself remained committed to open trade, …. But its capacities to manage the system and ensure openness had diminished by the turn of the century and the system ultimately reflected this shift.”

The UK still had an interest in free trade economically and politically after the 1870s.. but free trade declined because the U.S. and Europe were less willing to subordinate themselves in dependent relationships with the UK. Likewise, the U.S. still benefits from free trade agreements economically (GROWTH) and politically (making other countries dependent on us) but our ability to convince other countries into these relationships may decline. As I said in my post, at least according to Krasner and HST, the threat to free trade comes from states which may not be willing to submit to our politics anymore. Thus far openness has not declined, and if the institutional effects discussed by Keohane are correct, then hopefully it never will.

While I agree with nearly everything you’ve said, I’m not sure I agree with tying the possibility of healthcare legislation to the issue of free trade. Or did you mean universal healthcare will limit American growth and hegemony and therefore affect the trade regime? If that’s the case.. that is a whole other can of worms, and I’m not sure I agree with you. I know for a fact many here will take issue, and so I don’t think you can just state it as a fact without delving into the reasons and derailing the discussion

To begin with, there is little doubt that in recent years we have witnessed what Fareed Zakaria has called “the rise of the rest”, wherein the economic ascendancy of China, India, and Brazil, among others, have borne a considerable impact upon power distribution in our world. In short, Jason is correct to point out that the world appears to be undertaking a transition from unipolarity to multipolarity in the realm of economic leverage.

However, I have to disagree with the notion that American hegemony might be ‘frozen’ in place through the active closure of markets. Hegemony exists within a context of interstate competition; the situation of complete ‘lockdown’ described by Jason isolates America from global interaction, utterly obliterating the very economic channels through which it was previously able to exercise its ‘hegemonic’ leverage. American policymakers cannot simply wish away the changing global context; they are well aware that American hegemony thrived in accordance with a particular systemic arrangement, one that was founded upon openness and economic interdependence.

Rather than simply abandoning the global stage, American policymakers will have to adapt to a world of economic multipolarity; this may result in the closure of SOME markets in favor of protectionism, but hardly ALL. It can be taken as a general rule of thumb that “states want it both ways: they want to benefit from open markets, and indeed to participate in helping to create them, but they also want to avoid the losses” (Greico and Ikenberry, 95). With this in mind, it can be argued that as our world swings towards economic multipolarity, we can anticipate (and are perhaps already witnessing) an increase in the volume of protectionist measures. After all, as observed by Krasner, “let us consider a system composed of a few very large, but unequally developed states. Such a distribution of potential economic power is likely to lead to a closed structure” (Krasner, 22).

That being said, scholars like Joseph Nye have reminded us that power and hegemony are concepts riddled with nuance. Although America’s economic hegemony may be decreasing, it remains an undisputed military hegemon, and American soft power is also unrivalled. While this may change with time, it also may not – it is unclear what hegemon will emerge in America’s stead. In other words, the world may be drifting towards economic multipolarity, but if America can retain its power in other important spheres, while mitigating its economic decline, it is likely to remain the global leader in the near future.

Moreover, it is worth noting that although American economic hegemony may be on the wane – the game is not up: “by maintaining its technological lead and continually developing new industries… a very large state [can] escape the consequences of an entirely open economic system” (Krasner, 22). The American capacity for innovation and rebirth is well known. However, a hegemon must divert a significant portion of its resources towards sustaining its global influence. For this reason, as stated by Kindleberger, “the leading state must be able to resist domestic pressures to look out for its citizens’ own interests” (Greico and Ikenberry, 112). It remains a question as to whether or not the American government will be able to avoid falling into the trap of domestic over-expenditure on welfare programs, particularly with the possibility of universal healthcare on the horizon. In the same breath, the recent public backlash against the ‘greed’ of Wall St must be channeled towards productive ends, rather than permitting misdirected regulation to stifle innovation (ie. Tobin taxes).

http://www.nytimes.com/2009/09/29/business/economy/29dollar.html?partner=rss&emc=rss

What makes this story particularly interesting, however, is the fact of lessons not learned. American citizens had a huge vested interest in their Mexican investments, and in order to not lose all their holdings, President Clinton committed some $20 billion as part of a larger $52 billion aid package. While it had the intended recitative effect, it dulled investors to an important fact: capital investment is a dangerous game and there will not always be some benevolent force to bail you out. A precedent for moral hazard is set and the game is played again only three years later, this time for much higher stakes, with the 1997 economic crash.

A second important point which i will briefly make is the relationship between trade liberalization and social stability. There were many factors leading to the uprisings in Chiapas, with trade liberalization being central. In the simplest of models, here is an example of trade liberalization undermining the benefits of capital flow liberalization.

Closing markets while you are still the hegemon might maintain your hegemonic status, but you would have a great loss of economic benefits and of political power. You might hurt other’s economies more than your own, but you would become dramatically poorer in absolute terms completely ruining your own economy. Having already exercised your threat of closure, you no longer have an economic threat to use as leverage over smaller states. HST just says that as you lose your hegemonic status, you have a reduced political benefit of openness, although modest economic benefits remain.

The real threat of closure as the hegemon (the U.S) declines is from states which had previously submitted to the political authority of the U.S. in exchange for the economic benefits of free trade may no longer be willing to do so. We may also decide the political costs of openness are too high. But the economic benefit of free trade is no less than it was in 1950 for the U.S. The economic benefit of free trade is GREATER than ever before, as trade is a larger share of GDP than ever before. This is the standard of economic benefit Krasner uses.

Even when hegemonic stability theory seems to hold true, it may be that we have one thing operating under the guise of another or at least in concert with it. Schonhardt-Bailey suggests that this is possible, with Peelites pushed by the changing interests of their constituents to support repeal of the Corn Laws but enable to support it until they developed the ideas (preserving the territorial constitution) to cover for it. Peelites were unwilling to abandon their Burkian model of a Member of Parliament as trustee rather than delegate despite their desire to support their constituents. Ideas mattered, but as a cover for interests. One studying ideas only would not understand the cause behind the idea of repeal to defend the territorial constitution.

The current round of protectionism seems fuelled mostly by domestic pressure to fight recession with support of domestic production. Obama talks about green energy and infrastructure jobs that can’t be outsourced, not because people are losing jobs to China, which has arguably been happening in some sectors for a long time, but because people are losing jobs, period, and this is a way of showing that the money spent will directly benefit them. Policy makers are spending heavily to get those jobs back and are concerned that the money will be directed to the right places (consider the backlash against A.I.G. bonuses), ideally to their constituents.

In systemic theory, international regimes are proposed as a substitute for hegemony, but they seem to function to make things “stickier” or enhance the lag already posited. Regimes are a placeholder. Keohane’s book is After Hegemony, not before or instead. With the G-20 summit, however, we see a waning hegemon actively promoting an institution, spearheading a new commitment to economic cooperation and permanently expanding the G-7 to 20 for further negotiations (see http://dealbook.blogs.nytimes.com/2009/09/25/group-of-20-agrees-on-far-tighter-financial-rules/). This last point is interesting because the US seems willing to limit its power in an international institution by including more voices, with disparate interests. Is the US motivated by maintaining relative power as a waning hegemon or is it interested in maintaining its leadership role in a changing world, despite its waning power? In all, it seems that less systemic theories are needed to explain the complicated world we observe. Ideas and interests, often conflated as Keynes argues, play too large a role to ignore.

A further consideration, it may be that the active participation of a hegemon is important for the functioning of international regimes. China, predicted at some point this century to surpass the size of the US economy, presents an alternative development model for the world. As China becomes more powerful, it is unclear whether it will seek an expanded role in current international institutions such as the G-20 and IMF or establish a unique ideological and geographical sphere of influence. If China, or any other rising state, does not wish to assume leadership in these regimes, they will be weakened. Multipolarity may lesson the importance of institutions, destroying the notion of an “international community.” This is a key prediction of the National Intelligence Council (Global Trends 2025), suggesting that hegemony plays an underlying role in international cooperation.

For example, take the discussion on hegemony and its potential policy on free trade (debated by Jason and others above). As many of my classmates have already pointed out, the hegemon can choose to behave as if maintaining its top political power is the sole purpose of existence; consequently closing the world economy. However, if we take a look at the economic cost also incurred on the domestic market of the hegemon, we begin to understand the plausibility of this argument.

Krasner points out a few reasons why hegemons look to open markets (and we can only presume that the reversal of these trends makes hegemons want to close markets). The first argument is that hegemons increase their aggregate national income. In a world where the state is still the great power, even if it faces relative decline, I have no reason to believe this wouldn’t hold true. Second, hegemons get political advantages over smaller states. But the political advantages still exist in a world where a hegemon is declining, because although with the decline the political sway decreases in effectiveness, the advantage overall still exists so long as a state maintains its power.

Finally, Krasner’s makes the argument that the rate of growth increases during a hegemons rise to power. Now, this is probably the closest argument we have that could be construed as a reason why a declining hegemon would want to close markets. But I’m unconvinced for a three reasons.

First, the rate of growth relative to other countries is still positive for a declining hegemon, it’s just not increasing at an increasing rate (it helps to think of a state’s hegemony like a bell curve…) I think this also helps explain the lag the Krasner uses to prove his model. So while from 1945-1960 the US was increasing its relative power at an increasing rate, from 1960-1990 (2000? 1980? I dunno) it was still increasing its relative power overall, but at a decreasing rate. And then now we’re trying to restrict trade with China because free trade is actually decreasing our relative power.

Second, even at the point where our relative power is decreasing because of the open economy, we don’t necessarily want to close the economy to all states, just states that are rivaling us. My reason for this is that while small states might gain a relative advantage, we can use the absolute gains to keep pace with rival states. So while open trade with costa rica, canada, etc is still valuable, we’re trying to specifically limit trade with china.

Third, even if a declining hegemony wanted to close the economy, how does a state go about that? While a hegemon can become protectionist, it is still in the interest of smaller states to maintain free trade with other small once they’ve paid the transition costs.

Part of my paper is going to be on this topic, so any objections, responses, etc would be appreciated. email me at wwright@middlebury.edu

In regards to our ongoing conversations regarding the influence of economics on politics and vice versa, I think this debate begins as early as our discussions of Locke and Smith. Smith believed any type of government intervention into a market economy preserved and influenced inequality; therefore the role of government should be limited to preservation of equality of opportunity. This means governments should set their focus on the creation of infrastructure and protection of the lands in which they govern. Locke however takes the stance that governments should be there to prevent market failures (something Smith would never endorse). Politics and economics are so closely intertwined, that it’s hard to see what came first (chicken or the egg) and what is most important when it comes to policy. The Corn Law readings demonstrated the ways that each institution keeps the other in check. I think economics by itself is relatively cut-throat and “Smithian” in theory, while politics can be (sometimes and slightly) more egalitarian. I liked Schonhardt-Bailey’s description of the supply side and the demand side to political economy. I think this picture provided a sense of the give and take that occurs daily regarding policy decisions. Locke and Smith debated whether one could exist without the other, and truthfully I don’t think they could, especially not for long.

As Jason already mentioned, the hegemonic theory can be used to explain why the US would want to close certain markets, like the tyre market, given that they are no longer profitable to be kept open. However, in response to Logan’s question of whether closing markets to help the US domestically or opening them to help the international economy would be the right strategy for the US, I doubt that the US would close some markets because of a greater fear of trade retaliation from other countries.

I am inclined to believe that a fear of trade retaliation might cause the US to decide to keep some markets open even if hegemonic theory predicts that the US would be better off closing them.

What do you all think?

http://www.nytimes.com/2009/09/14/business/global/14trade.html

Not only does the article raise the issue of the importance of domestic interests in foreign economic policy, but it also raises questions about the continuing openness of the international economy and that relationship with international regimes.

This could turn out to be the first sign of the eventual closing of the international economy after hegemony. China and the US could be headed towards a trade war over tires and chicken, and that could expand to other commodities if it is not settled. Indeed, it would appear as if international regimes accounted for the “stickiness” or lag time between the US’s demise as the hegemon and the closing of the international economy. And while the WTO could conceivably work this dispute out, it’s failure to do so would indicate the power of the 2008 economic crisis as a catalyst for the closing of the international economy. Just some thoughts. I hope that made sense.

Also, here is that video i mentioned two weeks ago about social networking

http://www.youtube.com/watch?v=sIFYPQjYhv8

Enjoy!

On the other hand, this is without taking into account the idea of relative power discussed in Grieco and Ikenberry Ch 4. In the chapter, they talk about a recent study of American attitudes toward Japan: “a majority of the Americans polled in a survey responded that they would rather gain less overall if they could nonetheless gain more than the Japanese” (104). This idea seems self-destructive, especially for a declining hegemon like the US that needs to worry less about its security and more about its economic health. However, it seems to be the dominant philosophy. So according to this, a declining hegemon should close markets to preserve its position.

With the current economic situation it will be interesting to see which of the opposing policies will win out – closing markets to help the US domestically or opening them to help the international economy.

My own comment also relates to current readings int he news on the G20, and Cohen’s “The Triad and the Unholy Trinity.”

In this article, Chen points to the “Ebb and Flow” in the collective commitment of nations as that which has diminished the credibility and effectiveness of international monetary co-operation. “Episodic” patterns are predictable and unavoidable as sovereign states relate in an anarchic system. In short, for optimum benefits to e achieved (monetary or otherwise) it is necessary for all involved parties to work in concert.
Cohen hinges his piece on the incompatibility of exchange-rate stability, capital mobility and monetary policy autonomy (the “Unholy Trinity”), and concludes that in practice, there is a “direct off between exchange-rate stability and policy autonomy.”
I found such a conclusion directly reinforced in the supplementary readings, as the Financial Times reports that “Berlin has Berlin has consistently rejected any agreement that would constrain its margin of manoeuvre in economic policy and said it would only agree on a non-binding monitoring mechanism for G20 members to assess the impact of its policies.” Cohen cites several examples in international history to highlight such “Ebbs and Flows” in commitment to policy, and it may be a while before our reality closer approximates the theory.

This is an e-mail that I sent to Prof. Morrison and figured I’d share with the rest of you in case you had any thoughts:

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If you add time and expectations into the mix about opening markets and relative power then:

Would it follow that a declining hegemony (who is apparently growing less rapidly than the other countries, hence its decline) should actively CLOSE markets, in effect causing a standstill in the world economy, stopping relative gains from trade to other countries (which is loses on), in attempt to freeze the world with it (the hegemon) at the top?

I realize that had a lot of modifiers, but the central thought being a declining hegemon closes the world economy to prevent other countries to rise to its level of power.

I’m not saying that that occurs empirically, but would that fit into hegemonic theory?

Removing the agreements reflects an acknowledgment that from the hegemon that it will no longer continue in that role, but is a better option than falsely believing it is still in power when it’s actually losing group.

I am (if anything academic) an economist, so I’m thinking in terms of marginal benefit and cost. Ideally, the hegemon would open up economies up to the point where the agreements were no longer in its benefit. Eventually (in time), however, the tables turn (all good things come to an end), and the hegemon should end all the agreements that no longer benefit it. It should still have the power to do so. This action will stall the growth of its competitors. Although that may not prevent the hegemon’s expected demise, it will at least stall the gains the other country would make. And that is why declining hegemony is supposed to coincide with market closure.

Said another way, while the hegemon is in power, it should do everything it can to prevent others from rising to its level. At first this meant subjecting other countries to trade policies that helped the hegemon, but eventually, if/when the trade policies have the reverse effect, it closes trade to make it impossible for the other countries to gain from.

Of course, if the hegemon waits too long to start closure (or if there are “regional hegemons”/close seconds), the world economy will be able to function without its leadership, and closing the economy will just result in hurting itself by excluding itself from an otherwise thriving economy. I guess that would be where the US is. Even though we may be on the decline, it’s too late to try to reverse the opening of markets (the EU and China would just go around us).
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Reading about the G20 Summit and the United States attempting to close some markets (like tires for example) may give some possible credibility to this. Although there are other factors (given the widespread belief in free trade it is hard to contradict it without losing face), it seems that this might be what the US should want, even if we can’t say we do.

Let me know what you think.

1) A country usually doesn’t know what its balance of payments exactly is. In a country with free floating exchange rates, they can use the behavior of ER and the relative appreciation or depreciation of their currency to estimate how much “goods and services” they owe abroad, how much of its currency is out there. This currency abroad exerts pressure on exchange rate movements. To appreciate how this is not a sure guide, imagine a rich grandmother who buys 10 billion USD and keeps it under her mattress. ERs will not be affected by that supply until she remembers it. While improbable, different countries and entities keep USD for different reasons. Day to day movements may not reflect these supplies.

2) The government can also use its present BOP to capture the gap between inflow and outflow of currency. This is pretty complicated to me because in a free floating system, the values of exports, imports, transfers, etc, are constantly changing. It doesn’t seem that governments make a note of the amount needed to balance the account and then make up the difference. Rather, governments, usually by paying attention to the ER, can sell foreign reserves for USD to prop up the value of their currency, or expand the money supply in the country (thereby increasing supply of USD). It seems that governments can directly sell USD for foreign exchange as well. And there seems to be mechanisms whereby governments can increase the supply of USD but constrain inflation within the country, influencing only foreign exchange markets – not very clear about what these are or how they operate.

Not much time to elaborate on all these profound points but they definitely do constitute an intellectual discipline…
Hmm, I wonder what other intellectual field of study is as brand new and relevant. I think this “Godfather of the monetary mafia” deserves another title. Don’t you think so?
Finally, Cohen states that “the intended audience for (his) book is first and foremost the invisible college”…So IPE majors out there, I guess that’s your call! isn’t it?

This is the video that I brought up in the second discussion when we were talking about the spread of information. So, in case you’re interested, here it is.

“Ordering Pizza in the Future”:

http://www.youtube.com/watch?v=RNJl9EEcsoE

http://online.wsj.com/article/SB125271824237605479.html?mod=rss_com_mostcommentart

I thought it was interesting that this complaint and most opposition in general today towards free trade comes from unions, while in Smith’s time it came from the manufacturers (the tire industry didn’t join the trade complaint).