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This page will allow for a free-form discussion. Students should feel free to post whatever they like here: questions, comments, musings, &c.

66 Responses to “Course Discussion”

  1. Kiko says:

    “The new world disorder”

    My concern in this post is about “the new world disorder” that we are experiencing since August 8th 2008. The two independent variables that I will use to explain my dependant variable are the importance of the regime types of world leaders and geopolitical activities.
    Russia uses more and more his military force and countries like China are using a new system to deliver a more efficient ideological battle base on “A prosper country, a powerful army”. Yes it is scary and how about thinking that maybe the liberal optimism reigning in the 90s is maybe behind us?
    In my opinion, I see August 8th 2008 as a turning point in IPE. That day, China was hosting the Olympic Games and Russia was bombing Georgia; can we consider that as a wakening of autocracies?
    Russia and China are important world players and therefore their acts internationally matters. Their acts are not so positive at this moment because of their regime type. They are heading more towards an “authoritarian regime”. We can call it an authoritarian regime for three reasons: the lack of transparency, doubts concerning the establishment of Human Rights and the high level of corruption.
    Geopolitics is the practice of using international political power and for that reason we need stability to avoid worldwide conflicts. The problem then is that authoritarian regimes are not used to have limits in their own countries, so they cannot accept constraints by international organizations or foreign countries. Moreover, they usually act without citizens’ consensus, so therefore economical and political interests are more important than public opinion or ideology. For these two reasons the increasing importance of authoritarian regimes, have a direct affect in the increasing of geopolitical stability, in this case instability.
    Some politicians are thinking that maybe the Occident is experiencing a declining in its democratic ideologies. To this thought, Robert Kagan answers the following “Yesterday, believing the end of History was an illusion. Today, believing that the autocracies have won the game is another one”.

  2. Shawn Kilpatrick says:

    The Concept of the Division of Labor: The Linchpin of Marx’s materialist history and the cause of its downfall

    -Its clear from Marx’s “German Ideology”, where he states in no uncertain terms his vision of the inevitable progression of history towards communism, that he is chained by the very fallacies of the English economists who are the object of his intellectual rebellion.

    At this time, economics is indeed a ‘dismal science’. In the mid-19th century, the fruits of the industrial revolution in the advanced nations of western Europe is leading to massive disparities of wealth, as witnessed my Marx himself. The classical economists, beginning with Adam Smith, seemed unwittingly to provide a clear explanation as to why. First, Smith envisioned the division of labor as radically simplifying the activity of the average workman, as in his famous ‘pinmaker’ anecdote: “But in the way in which this business is now carried on, not only the whole work is a peculiar trade, but it is divided into a number of branches, of which the greater part are likewise peculiar trades. One man draws out the wire, another straightens it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head”(Wealth of Nations). This also implies that there need be someone to organize the activities of the common laborers, and provide them with the capital (food, drink, housing) to sustain them as they produce more pins. Second, the role of technology, or ‘capital’, becomes an increasingly important part of the production process, as stated in the ‘fire-engine analogy’, “In the first fire-engines, a boy was constantly employed to open and shut alternately the communication between the boiler and the cylinder, according as the piston either ascended or descended. One of those boys, who loved to play with his companions, observed that, by tying a string from the handle of the valve which opened this communication to another part of the machine, the valve would open and shut without his assistance, and leave him at liberty to divert himself with his playfellows. One of the greatest improvements that has been made upon this machine, since it was first invented, was in this manner the discovery of a boy who wanted to save his own labor.” Technological advances, even as they allow for greater production of society as a whole, render the skills of the average workman irrelevent, and subordinate his role to that of conducting increasingly simple operations. Thus, technological advancement is seen to make human capital less important, not more. Machines make up an increasingly large share of value produced, and those owners of machines, of capital, own an increasing share of the society’s total wealth.
    I have always been a fan of old silent movies, and when I think of this hypothesis of the increasing irrelevence of labor I think to Fritz Lang’s 1927 masterpiece, “Metropolis”. In Lang’s science fiction fantasy, the workers are seen to labor on vast machines under the great city, doing simple and almost meaningless tasks, while the owners of that capital, the ‘financiers’, live the high life in the great skyscrapers. Sadly, i can’t click and drage an image onto this post, but this link should give a good idea:
    In the end, the workers are inspired to revolt by capitalist subterfuge (the mayor orchestrates this, to justify a crackdown). While the mayor’s son and company struggle to prevent this by organizing a constructive dialogue to re-invent society peacefully.
    Marx states clearly that he shares this view on the progression of history towards greater materialistic contradiction between owners of capital and labor, “we have a totality of productive forces, which have, as it were, taken on a material form and are for the individual no longer the forces of the individual (labor) but of private property.” Furthermore, in the stage of development which Marx describes as ripe for communist revolution, those two classes are the only ones in existance, “in big industry and competition the whole mass of conditions of existence, limitations, biases of individuals, are fused together into the two simplest forms: private property and labor”.(German ideology)
    Even the most casual observer will observe that the course of history has long since disproven Marx’s prediction. First, industrial development does not call for less skill labored but rather more. To illustrate, in 1910 only 13.5% of American over 25 had graduated from high school, yet by 2003 that figure was 85%. (Paul Krugman, Macroeconomics). This is not just the result of increased investment in education, because there is a clear wage gap between those who receive an education and those who don’t. A college degree holder on average has a 50% higher annual wage compared to one who is simply a high school graduate (Walter Nicholson- Microeconomics and its Application). As machinery develops, and the service industry grows and diversifies, there is an increasing need for skilled workers to tend those complex machines and provide those specialized services. The vision of Fritz Lang of common laborers mindlessly throwing the switches and pulling the levers of vast thingamajigs could not be further from the present reality. Therefore, the increasing labor-capitalist dialectic which leads to communist revolution is not a historical inevitability, and grows increasingly less likely with time.

  3. Francesca Lambert says:

    As someone whose first exposure to Communism and Karl Marx’s ideas was through the character of Old Major in George Orwell’s “Animal Farm,” I found this week’s reading very interesting and illuminating on several fronts.
    First and foremost, the Marx readings effectively highlighted the discrepancies between Communism as an ideology conceived by Marx and Communism as the political system enforced in such places and times in history as post-WWII Central and Eastern Europe and Russia. Marxism can easily be criticized as idealistic – indeed, Marx envisions a communist society in which “nobody has one exclusive sphere of activity but each can become accomplished in any branch he wishes” (Marx 185) in order to eradicate the slavish, dehumanizing nature of mindless labor in which the worker is subordinate to and alienated from what he produces (Marx 186). He preaches the abolition of private property and the global cooperation of individuals, which, if history has been at all representative of human nature and human tendencies, was, is, and will always be impossible, at least on the scale envisioned by Marx. It is difficult to deny, however, the appeal of Marx’s philosophy. Having taken East and Central European Politics with Professor Kraus in the fall, it is especially disheartening to see such rhetoric and ideas used as a justification by certain politicians and leaders to ultimately impose their will upon a country’s people. The mass proletariat revolution envisioned by Marx was certainly not witnessed in this region of the world, as Moscow tightened its grip of its satellite states for its own power and security.
    While I am thus of the opinion that a communist society as envisioned by Marx is not a currently feasible possibility, I also have to disagree with Shawn’s statement that “The vision of Fritz Lang of common laborers mindlessly throwing the switches and pulling the levers of vast thingamajigs could not be further from the present reality.” Although educational statistics for the United States may seem speak somewhat favorably to advances made in our capitalist, liberal global economy, I would point to increasing discrepancies between not only between social classes but also countries themselves, to argue that the opposite is true. Lenin’s view of imperialism as the highest stage of capitalism holds true today, even if the imperial expansion is not territorial. Indeed, “Institutions like the International Monetary Fund, the Group of Seven, and the Bank for International Settlements help elites communicate their views and give those ideas their seal of approval” (Eichengreen, 1000). These organizations in turn work to create a favorable international system, a process that can lead to mixed results. I therefore look forward to learning more about this aspect of international political economy with the upcoming units on trade and the international money system.

  4. Sophie Thompson says:

    After reading an article in “The Economist” regarding the economic hardships faced by Eastern European countries formerly part of the Soviet Communist Bloc, I’m curious as to how these states are currently handling the financial crisis as well as future policies. Now faced with financial crisis across the board, as floating and pegged exchange rates and currency boards are employed throughout, will past efforts to boost individual economies through low interest rates and an absence of capital controls prove costly? Will these countries now impose more protectionist policies such as capital controls and/or tariffs to stabilize their economies? If so, will these protectionist policies hurt former Communist countries’ transitional efforts to join the European Monetary Union in the future?

  5. Melissa Segil says:

    In reading Karl Marx and Vladimir Lenin, I am continually struck by the stark contrast in philosophy between communism and capitalism. I know, of course they are very different and conflicting ideologies—this is an obvious and well-known truth. This is also why they come into conflict so frequently. But while capitalism sees the pursuit of wealth as a liberty not to be infringed upon, communism sees it as the downfall of society. Competition is practically an American ideal; the ability to create one’s own circumstances and “rise up” is the American Dream. But communism reacts in the complete opposite manner—that competition is what destroys an individual’s right to freedom in society. I am sure there are many explanations for these polar views, and reasons that one might embrace one particular mindset over the other, but I wonder why it is that these conflicting viewpoints infiltrated every aspect of life, especially during the Cold War, and encroached on everyone’s liberties in the process of two countries’ armaments. Why was the obvious contradiction allowed to continue for so long– that two countries, each working to undermine the other’s opposing philosophy, actually put their own home nations at greater and greater risk in the process of “beating” the other? Why did the United States and the USSR continue to put themselves and the world at large (not to mention putting their ideologies on the line) at such a great risk, for the sole purpose of economic philosophy? Did political ideology or economic ideology play a greater role in this conflict? I feel this conflict would be interesting to evaluate in the arena of international political economy, rather than traditional frameworks of power struggles and arms races.

  6. Chris Opila says:

    After thinking about Adam’s Smith characterization of the mercantilists with some time, I have come across a question that I am struggling to answer:

    Why was Adam Smith able to get away with his gross misrepresentation of mercantilist thought? As mercantilism was the established ideology of the day and Great Britain and the rest of the European nations instigating “mercantilist policies” – or perhaps to but it more aptly, what they called mercantilist policies – I am led to believe that there must have been some mercantilists thinkers at the time of Locke. Thus, why were these thinkers unable to mount a compelling defense of mercantilism and challenge Smith’s misrepresentation?

    I am aware that the unrest and subsequent revolution in the American colonies may have demonstrated some problems with the mercantilist system. However, this system had existed for over a hundred years. Thus, I fail to see how this system could yield to another system whose challenge was fundamentally flawed to the point that by the beginnings of the Corn Law debate of 1815 Smith’s system was considered to be the only proper set of international political economy ideas.

  7. Caitlin Arnold says:

    After reading the selections from Carl Marx, one thing that has struck me is the difference in the role of ideas within his work and the writings of Lenin. Marx seems to attribute the development of political economy almost entirely to the interests of individuals. Whenever any given social class is in power they will shape government to best fit their needs. When those needs don’t conform with the desires of the majority of the population, that majority will rise up and form a new government.
    Lenin and the Bolsheviks however, (this is mostly what I remember from a Russian history class so correct me if I’m wrong), felt that revolution would come from a small group of highly organized “professional revolutionaries”. Since the working class, or proletariat couldn’t truly know what they wanted or what actions were best the revolutionaries would have to guide them and orchestrate a revolt. In this case it would seem that ideas matter a great deal because without the ideas of the revolutionaries there is little chance of popular revolt.
    Marx was willing to take a fairly passive view of history, arguing that people’s interests would drive them inevitably towards a communist revolution. Lenin on the other hand feared that the revolution would not come quickly enough. Through the spread of ideas he hoped to speed the progress of Marx’s predicted revolution.

  8. Louise Song says:

    I am struck by Melissa Segil’s post on the contrast between communist and capitalist ideologies and can’t help but think how strange it is that China seems to function (or seemed to function prior to the global financial crisis) using an amalgamation of their characteristics. In modern day China, the ideologies become extremely blurred where apparently capitalism can actually coexist peacefully alongside communism. The ruling Chinese Communist Party (CCP) still flaunts a communist front with hammer and sickle symbols and glorified pictures of Mao but preaches of privatization, downsizing state-owned enterprises, increasing opportunities for Foreign Direct Investment. Their transition to an almost market economy has taken over thirty years but you have to admit: it’s been looking pretty good.
    The CCP finds its legitimacy in two very opposing ways. The first is in the Chinese Nationalism that stems from a long history of China-centric pride and from the unifying Communist ideology that took hold barely a generation ago. The second form of legitimacy is in the CCP’s ability to allow China to grow economically in a capitalistic way. The Chinese public has been content to this point on both fronts. But now, with the global economy screeching to a halt, China finds itself exposed to outside shocks with high unemployment figures, slowing exports, and inflationary pressures. Will China revert back to its old protectionist policies? (In the spirit of Sophie Thompson’s earlier post on East European countries) Will we see a reversal in some of the opening? Is it possible the China will revert to some of its old command economy strategies? In February 2008, China put interim price controls on grain and food products to curb inflationary pressures. This was seen as a step backwards in China’s 30-year long push for price reform. With nothing but bad financial news in the media, it seems highly likely that reform/capitalism/opening may be put on the back-burner in the interests of pursuing growth.

  9. Chen Lou says:

    On the annual meeting of China’s Congress and the Chinese People’s Political Consultative Conference (CPPCC, it’s ridiculously long name), topics about economy dominates this huge political gathering. The annual parliamentary session is about carrying out new policies to address public concerns, legal and medical system reform, and covers almost every aspect of China’s domestic society. Although the delegates are “the handpicked cream of the Communist Party establishment,” as described by the New York Times, it is now becoming more and more pluralized and decentralized. And internet has become a vital medium for the public to raise their concerns as well as complaints.
    No one can deny that the year of 2009 will be a hard year, and the top leaders in Chinese government acknowledged this fact, addressed by Premier Wen Jiabao that China faces “unprecedented difficulties and challenges.” The country did not enjoy much of the joyfulness after the Olympics which mobilized and exhausted every people involved. When studying IPE, one of the big questions concerned us is that which is more important, politics versus economics, autonomy versus protection? Economy, especially export-oriented trade has benefited China more than any other country for the past 30 years. More importantly, economic growths, especially the increase of personal income have diverted people from the frustration about certain flaws of the government function; therefore lower the risks of social unrest. In the case of China, economy definitely serves as one of the best goals of politics. Domestically it maintains social stability, as well as strengthens the legitimacy of the Chinese Communist Party regime (some scholars have pointed out that this party no longer holds the same ideology as the one which ruled China in the Maoist era, it leans towards more like a nationalist party, or as someone says, it represents a group of elites that rules the country). Internationally, economic growth clearly gain more stakes for China to act a much more important role in the world politics.
    In the case of China, economic interests serve for political interests to stabilize the society, which resembles the political ends that both Locke and Keynes proposed that states’ role was to provide public goods. Clearly, one can argue that the public goods which Chinese government has provided are far from satisfaction. However, I do consider that social stability is viewed as the top public interest for most Chinese people.
    Again, on the domestic level, we see policy being carried out to satisfy both political and economic interests. Although details about China’s stimulus package are still unclear, it follows the classical pattern of fiscal policy, government invests on public works, as well as tax reductions on companies and households. Another thing to notice that, as for now the government has no clear signs to reorient its export-centered economic system towards building up a stronger and more independent domestic consuming market. Being an active player on the international level, China is still hesitant to take more global responsibility, as Wall Street Journal points out. I therefore suspect that this global financial crisis might not be the turning point for China to act as a world leader, as someone predicted.
    Here is the two news from Wall Street Journal and New York Times covering the annual Congress meeting in China.

  10. Mohammad Farahi says:

    In what ways was Lenin’s communism different from that proposed by Marx?

    Karl Marx’s prophecy was that the next phase in the progression of human history was communism; that capitalism had the seeds of its own destruction in itself. He was writing about industrial capitalist societies, mainly Germany and England of his time. His argument was that the estrangement of the worker from the product of his work would lead to mass revolts against the prevalent system, and thus communism, a more equalitarian and less hierarchical system as he saw it, would ensue. The difference between Marx and Lenin is that Lenin sought to apply Marx’s prophecies—essentially about an industrialist society—to an agricultural society. Russia of the early 20th century was mainly agricultural. The industrial base of the society was not developed enough to make Marx relevant. So what Lenin did was essentially fast-tracking Russia’s path to communism, by escaping the industrialization and replacing it with intelligentsia facilitated and imposed restructuring meant to be inline with his reading of Karl Marx’s ideas on communism.

  11. EY Shin says:

    I found the article by Wallerstein really interesting. While I did not find a strong connection between this article and other Marx readings that we have done, I thought some of Wallerstein’s comments were extremely novel and even dangerous. The most amusing part of the article was on page 2 when he states, “Leninism, which posed itself as the radical opponent of Wilsonianism, was in fact its avatar. Anti-imperialism was self-determination clothes in more radical verbiage. […] One of the reasons ‘Yalta’ was possible was that there was less difference in the programs of Wilson and Lenin than official rhetoric maintained.” While I believe that those two ideologies have fundamental differences in terms of their end goals, I agree with Wallerstein. Thinking about what Wilson and Lenin wanted in each country – especially in the Third World – I drew a similarity between self-determination and the uprising (revolution) of proletarian. However, since we live in a capitalist society – in which only the “fittest” survives – the society puts a constraint on the working class, the weak ones, to rise up. If Wallerstein is correct about this theory that Wilsonianism and Leninism essentially were aiming toward the same direction and Wilsonianism failed due to the creation of capitalism, would Leninism have helped the Third World (that still exists until now) develop much faster than what we have achieved during the last fifty years? I understand that this is a crazy idea, and in theory, what Marx and Lenin presented should have worked perfectly and make everyone “equal”, but we all realize that Marxism and Leninism would never function correctly.

  12. Ranaivo Rajaonson says:

    After reading Immanuel Wallerstein’s work about the rising opposition between the periphery and the developed economies, it seems to me that there is really little hope for Third World countries to strengthen their respective economies in the current globalized and interdependent international system. I also understand the lack of visibility in his predictions and his failure to give a viable solution for the periphery. In fact, looking at the current situation, we see that international institutions advocate for a very classical (actually neoclassical) liberal approach toward trade, exchange rate regimes and government intervention to develop the developing economies. It is sad to see that instead of bring in the beneficial effects that Smith had expected for countries that adopt outward oriented policies usually end up in simple resource exploitation and the creation of monopolies that destroy domestic markets. The governments in this case facilitates corruption to satisfy its own interests instead of those of the people. On that other hand, it is hard to imagine at this stage a revolution that would bring an exploited proletariat to power since only elites can start such movements and end up monopolizing the power won on popular support. Wallerstein therefore suggests very violent forms of opposition that include a complete rejection of the system and a country’s shutdown to the rest of the world in order to try to create stability. Maybe a revival of nationalism and domestic interests above all would be the key to a long term success for developing countries along with the need to adopt protectionist measures and the reliance government domestic revenues instead of foreign investment? To desperate situations, desperate measures…

  13. Nathan Williams says:

    Not to ignore the more provocative passages of Marx’s German Ideology, I found myself reflecting more and more about what he had to say about the Materialist Method. I find the perspective that consciousness or awareness of the self and society as being formed by interaction with nature fascinating. It made me think instantly of the “Tragedy of the Commons”, the sort of ecological paradox having to do with the management of common property goods developed in the writings of Garret Hardin in the 1960s.

    I’m sure most of you know how it works, but essentially it boils down to the fact that without property rights, a resource will be exploited beyond its carrying capacity and thus be wasted. (Classic example being off-shore open access fisheries, where it is individually rational for each fisherman to catch as much as he can, since he knows that each fish he doesn’t catch will be brought in by the next fisherman, even if he knows the resource faces depletion).

    How does this connect to Marx and materialism? First of all, Marx represents man as nothing more than a mere animal in the beginning, who realizes he is in a society through interaction with other men, living in and relying on the same natural environment as he. He calls us “herd-like”, thinking collectively the same individualistic things. But through interactions with nature (claims Marx), man realizes his production possibilities, his needs, and his future with a growing population, transitioning from sheep-man to enlightened man of society. Here’s the connection. Hardin uses the same story to illuminate his idea of the Tragedy of the Commons with herds of animals (sheep?) in a pasture. Moreover, his whole purpose for writing the Tragedy of the Commons was to warn against the dangers of population growth (the Earth being the Commons facing overexploitation by an exploding human population). Maybe its just me, but I feel like Hardin’s writing resonates so much with the materialism methodology explained by Marx. There is an element of “enlightened reason” against which man inevitably collides, instilling him an idea of belonging to a community rather than being an isolated unit. They both seem to arrive at the conclusion that establishing property rights is the logical result (and to Hardin, the solution to the tragedy).

    That might not be a very profound conclusion to draw, that two economists find property rights a reasonable solution to (or result of) man’s needs, however it strikes me how much Hardin seems to echo the materialist method. Marx’s penultimate purpose was not to dwell on the ecological implications of materialism (he must have had global social revolutions on his mind or something), yet Hardin had only to relook at this commons environment described by materialists for centuries and call it a tragedy to make his mark on the economic academic canon.

  14. Thao Lam says:

    Just a couple of things on my mind:

    (1) It seems like every political science professor I’ve ever encountered has a strong dislike for Adam Smith. Why, then, does he keep showing up on syllabi everywhere?

    (2) I encountered this article in The Washington Post about the effects of the famine in North Korea:


    At first glance, it seems to be more of a humanitarian crisis, but I think there are some fascinating political economy issues as well. We’ve been talking a lot about the dilemma between autonomy/security and integration/economic growth, so it’s interesting to see the tradeoffs/situation that North Korea is in. Kim Jong Il obviously has iron control over his people—“His security apparatus could, if he gave the order, shut down the markets”—but the iron control just makes the rise of these food markets even more fascinating. All this autonomy, and yet the state is completely dependent on food aid from foreign sources. The state is armed with nuclear weapons, and yet its people are malnourished, unable to live a normal life due to complications from hunger. North Korea is very much shut off from the rest of the world, and yet certain situations can be seen in such a clear light.

    North Korea is also interesting because it is considered the last bastion of communism. The rise of these markets and a tradition of bloodline elitism provide a strange contradiction. The experts say that North Korea is obviously going through a very trying time that is changing the nature of their state—just how long is the communistic society going to last? Is North Korea’s version of communism even the kind that Marx envisioned?

  15. Avery says:

    In a recent class, we discussed the trade-offs between a protected economy and one that is open to trade. One of the characterizations of an economy which is open to trade is that it will be more ‘free’ than an economy that engages in protectionist policies, specifically in terms of negative freedom. I think it is fair to say that this characterization is a common one. It is even present in the phrase ‘free trade,’ considering it could as easily be called ‘Open trade’ or some similar formulation. I would like to call into question this characterization and suggest that in fact, ‘free trade’ exchanges one set of impositions on individual’s decision making for another.
    It seems quite clear that an open economy will have a wider variety of goods available for consumption within it than a protected economy, most likely at cheaper prices. There will also be a wider array of possible choice in terms of economic interaction with individuals in other nations. However, is this actually the case? It is certainly true that government will no longer be imposing upon its individual citizen’s economic decisions in a totally open economy. But this does not mean that there is no imposition on individual’s economic choices. The competitive nature of an open economy and the fact that it is aggregate demand and supply which determine prices rather than each individual’s desires both create their own impositions on decisions.
    In a perfectly competitive market, each individual must work to produce their products as efficiently as possible in order to sell them. This entails certain prescriptions for how this production is carried out if an individual wishes to remain in production, as they must “keep up with the Jones’s” at all times. It does not seem unfair to say that individuals’ choices in terms of how they produce goods is limited for all practical purposes by the intrinsic nature of a competitive market.
    The fact that demand and supply are determined by individuals in aggregate rather than each individual for themselves also serves as an imposition. Production and consumption will be based on the sum desires of a society, which means that each individual will have to fit their own desires to the aggregate desire. Just as direct democracy is open to all individuals but still imposes the will of the majority on every individual, so too does a totally open economy impose the economic will of the society on each individual. Each individual will play a role in determining this economic will, but will most likely not be able to act upon their specific preferences, due to the influence of every other individual in the society.
    Of course, if an open market is characterized as the “natural” state of economic affairs, then the impositions on individual’s choices discussed above are simply hardwired into human existence, much like the imposition of gravity on our choices. However, this characterization of open markets as “natural” has been called into question frequently as both an incorrect picture of ‘human nature’ and as ignorant of the role society has always played in choosing to construct free markets. Free markets as a “natural state” thus seem at best controversial. Therefore, the impositions on choice involved in a free market are certainly worth mentioning. Characterizing a free market as “freer” than a protected market carries with it the suggestion that free markets are better, at least in terms of freedom, than protected markets. A free market is not freer than a protected market; it instead has impositions stemming from different sources than the government.

  16. Colin Taylor says:

    In doing the readings on Marxism, it was noticeable that there was a huge gap, both in terms of ideas and time, in between Marx and Lenin and Wallerstein. I think that there are two major figures in between Lenin and Wallerstein that explain the difference between more orthodox, classical Marxism and modern Marxism, especially in their views of International Political Economy. The two would be the Argentine Communists Ernesto ‘Che’ Guevara and Raul Prebisch, both of whom were active in international Communist movements in the 1960’s
    Che added to Marxist thought and tactics by describing more clearly how he thought the transition to socialism would occur and how he saw a world-wide system of exploitation. His important contributions to Marxist tactics came in the form of “Foco Theory” and the idea of “the New Man.” Foco Theory describes how a small, well-trained group of revolutionaries can make a guerrilla unit that will replicate itself amongst the rural population until they are strong enough to take the cities. The “New Man” is a more detailed explanation of how individuals’ ideas and views will change in response to living in a socialist system: the New Man will be a socialist man who has more communal values than those of the capitalist man. In terms of international political economy, he built on Lenin’s ideas on imperialism and saw the class conflict as having a national component, since he saw the workers of the countries of the South as being exploited by the capitalists of the countries of the North.
    Raul Prebisch contributed more contributed more to the Marxist understanding of IPE. He developed what would be known as Dependency Theory, which explains how countries of the “Core” keep the means to produce the means of production from the countries of the “Periphery.” In addition, he explain how the fluctuations in the prices of the primary products from the Third World lead to declining terms of trade for those countries, which facilitates their exploitation. Prebisch’s work is especially important because it provides a way to explain how the countries of the periphery continue to be exploited after independence.
    The two theorists are key stepping-stones between Lenin and Wallerstein who show how Marxist ideas developed in between the time of those two theorists.

  17. Jorge Vilarrasa says:

    After finishing the readings from Karl Marx, besides the fact that i might like them more or less, in my opinion there are certain aspects of the division of labor and the union of the working class that Marx fails to address.
    From my understanding of the reading it seems to me that Marx thinks that everyone belongs to the same environment in which they are born. Being the case for example, that someone could not change activity or class, they would remain in the same place where their parents where at that point and the individual accepts this voluntarily of by fate, i did not know very well how this is decided. following this theory Marx doesn’t address the scenario where a an individual, certainly a small minority, will place and find his place in this war of classes and power.
    Also Marxism get in direct opposition with the nationalists movements that where taking place over Europe during that time period. This nationalists movements make his philosophy much harder to accomplish and be achieved. in addition to the nationalists movements at that point in history there is also a financial event that makes the proliferation of Marxism almost impossible. At this point Europe was facing the consequences of the Great Depression initiated in the US and made the citizens of those given countries shift from the constant war over power to a better coordinated attempt to bring back the economy.
    This mentioned i agree with Keynes in the sense in which the idea of the workers leading the country is a scenario with a blurry future of success. the leading class should keep driving the economy and country, but at the same time respecting and working more closely with the lowers classes so instead of abusing them they reach some sort of agreement and rules over what is and is not legal.

  18. Nicole Lam says:

    In political science, we study many case studies to discover that global organizations consistently fail. First, we learn that the League of Nations failed because countries were not willing to cooperate and help another member when threatened. Next, we study the Cold War and learn that cooperation within a global organization was impossible. Conflicts could not be resolved through negotiations within the United Nations between the United States and the Soviet Union. Instead, we see that the countries relied on alliances and deterrence strategies. Finally, we read about how the US ignored UN regulations and unilaterally invaded Iraq. In this situation, the UN did not have any power to prevent aggression. The only time global organizations were effective was during the Concert of Europe when statesmen actually established peace through negotiations within an international institution.
    International treaties have also been very ineffective. Despite signing the Nuclear Proliferation Treaty, Iraq, Iran and Pakistan are still developing their own nuclear arsenals. These states have felt the need to develop their own nuclear arsenals because treaties have failed to successfully monitor and enforce states to comply with the regulations. In addition, many countries have decided to opt out on signing the Biological and Chemical Weapons Conventions. These two cases demonstrate that international treaties have not fostered cooperation. Rather, states continue to face security threats and are forced to rely on themselves for protection.
    However, there have been cases in which international treaties were effective. The Center for Arms Control and Non-Proliferation was successful in the 1990s in encouraging Ukraine, Belarus and Kazakhstan to dismantle their WMDs. In addition, the NPT has been very effective in assisting South Africa and Ukraine to roll back on their WMDs by guaranteeing relations with the West. By signing the treaty, South Africa was alleviated from international isolation and military and economic abandonment. Similarily, Ukraine’s decision to relinquish its inherited nuclear arsenal from the Soviet Union was based on inducing itself as part of the Western, liberal community of states. However despite these success stories, the US cannot ignore the fact that Iraq, Iran and Pakistan are still producing WMDs.
    Therefore in politics, we read that international institutions and treaties are inefficent and do not produce the results that we want to see. In this week’s reading, we learn that in economics, countries also struggle to cooperate in international institutions like the WTO and abide by policies under GATT. Multilateralism has failed to provide global economic stability because great powers seek to exploit their advantages and pursue their national economic interests instead of cooperating with developing countries and promoting common interests. In addition, since under the WTO, states cannot agree on policies, they have resorted to conducting treaties among themselves. Therefore multilateralism has been diluted with regionalism.
    However, Miles Kahler cite three incidences where international cooperation was perhaps possible. The Third United Nations Conference on the Law of the Sea, the Uruguay Round and the Global Environmental Regimes have shown the countries are willing to work together towards one goal. His last example has the strongest weight. Before, developed countries chose not to cooperate with the needs of developing countries because the costs of cooperation was higher than the benefits. In these situations, the developed countries held the upper hand. But in the environmental issue, the developing countries hold greater negotiating power. Developed countries are forced to seek cooperation with developing countries in order to protect the ozone layer that they all share. Ultimately, this new multilateralism was possible in the Vienna Convention on Protection of the Ozone Layer and the Montreal Protocol on Substances That Deplete the Ozone Layer because the U.S. was willing to cooperate. This case shows that multilateralism can be possible only if a hegemon encourages it.
    In the political and economic sphere, many international organizations have failed because the US chose not to abide by the regulations. The US did not follow UN regulations with it invaded Iraq and it chose to ignore the WMDs conventions by building its own offensive arsenals to fight the war. In addition, the US so far has chosen not to destroy all its nuclear weapons despite the fact that the NPT has demanded a timetabe. Moreover, the UNCLOS III failed not because the large number of states could not make decisions together but rather because the US refused to cooperate. Kahler writes that the “failure of UNCLOS III in its final stage however could not be attributed to the impossibility of large-number multilateral governance (697).” He cites how the convention was successful in rotating representation among members of the committee and organizing a “contact group” both to give more economic decision-making power to developing countries. The main problem was that the US felt threatened by the increasing power of the developing countries and thus was unwilling “to accept the new multilateral bargain and its efforts to reassert both hierarchy and selective bilateralism as part of its strategy point to a weakness in efforts to extend multilateral governance (696).” Therefore, in many cases, the US’s actions have discouraged cooperation from other nations to submit to multilateralism and international institutions because other states feel threatened by what the US has done.
    Ultimately, the US should begin to abide my international institutions and work on multilateralism because the advantages would be greater than if the country chose to trade and govern on its own. By destroying its own nuclear programs, the US would encourage rogue nations to do the same. Everyone wins when the world is without WMDs. In addition, under a mutilateral economy, nations would not retaliate each other by raising tariffs. The US itself would find better trade options with China and Russia if it chooses to cooperate instead of undermining developing countries on the rise.

  19. Melissa Segil says:


    So I came across this article, yes over spring break- I was looking for some newspaper to cover the floor with ha…

    It’s very short and basically sums up a lot of what we have been discussing in class over the past few weeks. It seems to me that the general consensus among many is that “protectionism is bad.” People frequently cite the Great Depression as source of many economic lessons that the world has learned over the course of the past century. As this article says, the world will avoid a drastic economic collapse as we saw in the 1930s, due to trade treaties and restrictions on tariffs. I wonder, however, if this is really true. Countries seem to find other loopholes and self-help mechanisms that give them an upper hand, and leaving international trade and economics on the wayside. For example, supporting domestic products and firms does make sense, but will it come at the cost of international trade stability? I have no answer, but I think that these issues- and specifically the protectionism vs. open markets debate- will be discussed more and more by the average citizen than they have been in the past. In the light of controversial domestic stimulus packages and putting these issues in the news where the average American can access them, I think that we will see more interest in these issues that have traditionally been kept under the domain of academics and economists.

  20. Nicole Lam says:

    When we studied the WTO, I felt that the general consensus during the discussion section was that economic integration was overall a good thing. The WTO encourages the developed countries to provide favorable trade agreements with the developing nations. Developing states hold more bargaining power joining the WTO that if they did not. The benefits of economic interdependence can also be seen in the effects of regionalism and multilateralism. PTAs provide access to market expansion and further economies of scale. Lessons were learned during the Asian Financial Crisis when the most integrated economies in Hong Kong, Taiwan, and Japan were able to avoid any “domino” effect and minimize damages. Many liberalists believe that this greater economic interdependence would further promote peace between states. A state will be more hesitant to go to war with another if there are economic costs with trade partners.

    However, trade interdependence could cause future conflicts. For example, the WTO sustains asymmetrical dependence. Developing countries continue to depend on the developing countries for trade. The relationships are very similar to colonialism and imperialism, two economic ties that have brought conflict between developed and developing countries. Hence, the interdepence can cause more tension between nations. In addition, a country could perceive international trade as a zero-sum game in which it needs to increase their trade relative to another nation’s. Another nation’s relative gains may foster a potentially powerful future adversary. Moreover, cooperative economic ties between nations can be seen as creating alliances in a balance of power international structure. Economic coalitions were one of the tools used during the Cold War by the SU and the US to counter each other’s power. Regional economic blocs can spark security dilemnas in other states who in turn will also produce trade relations with their allies to balance the growing power of the other trade bloc. This security dilemna was evident when East Asian countries created ASEAN to counter the growing power of China. The smaller states felt threatened by the growing hegemon. Therefore, conomic ties are tools that countries use to enhance and block each other’s powers.

    Neo-marxists had predicted that globalized economic interdependence would cause conflicts. Lenin saw how the increased trade led capitalist states to dominate over other countries in forms of imperialism and monopoly. Lenin believed that the later state of finance capitalism would cause tensions between the imperialist states and the subordinate nations. Wallerstein confirmed this idea by establishing the dependency theory in which it states that periphery countries are enriching the core countries. This supports the Marxist idea of existing inequalities in the international system. Ultimately, Wallerstein believes that this asymmetrical relationship would cause periphery nations to use military forces to resist influence from the core state and vice-versa.

    With the growing integration, nationalism can become a problem. During the recent financial crisis, nationalism fired up in China as many Chinese people believed that it was America that caused the crisis and that China has been a victim of America’s rash actions. Mao Zedong’s ideology has returned in some fiery speeches. A recent Economist article states that China’s leftist are becoming active again in the global economy. Some are “pining for Maoist egalitarianism, state ownership and the certainty that America is an enemy.” Rambling discourse ranges from “adulation of Mao to scorn of America (it has neither history nor culture), to warning of a “white terror” if rightists (liberals) prevail. The economic crisis is entirely the West’s fault, and as it deepens the West will turn on China. Now is the time to build an aircraft-carrier. A war with America would be “lose lose”, but China should not be afraid of it.” With the increase of economic interdependence, governments may have to deal with more than they bargain for. They would have to keep an extra eye on their trading partners and be top of things in the domestic level.

  21. Kiko says:

    Travelling back home.

    I was in JFK airport waiting for my flight to go back home and suddenly I start thinking about what I’m expecting to discover back home. It is a difficult time for the Western and Eastern members of the European Union (EU). Last Thursday France experienced his second big strike in two months. If you compare to January strike, less people were doing the strike last Thursday, however more people in the streets. It is understandable because since last strike more people were laid off. In Spain, Mr. Krugman – Economics Nobel price in 2008 – told the world press that the economic situation of Spain it’s a real “disaster”.
    Even if Portugal is not very present in the world news, I’m not expecting good news. The Prime Minister (Mr. Socrates) is pointed because of a corruption scandal. At the same time, there are elections this summer in Portugal and the right wing opposition is not well-prepared. Finally the last country that I’m concerned is Belgium. Belgium experienced 196 days without any type of government this summer. The tension was between the Dutch and French speaking parties about the nature of a constitutional reform. During these 200 days, the King was the highest authority in the country. In my opinion, he is the only thing that is keeping Belgium tight for now.
    This week, the Prime Minister Mirek Topolanek (Czech Republic) has resigned from his position. It was a center-right coalition government in place and the big problem is that until June 30th, the Czech Republic is responsible for the EU presidency. We can ask ourselves: are the new Eastern Members capable to manage the pressure of supporting a difficult task as the EU presidency? Moreover new Eastern members of the EU need more money and help from Europe to try to survive during this difficult economic environment. However, we cannot forget that as new members, they are already receiving a lot of subventions and financial help; in my opinion asking for more help seem to me a little bit dishonest.
    As we can see news back home are not very excited, and some people are criticizing very hardly the role of the EU in this crisis. The future of the EU is also often mentioned. I’m sitting here near gate 2 and the next three gates that I can see from my seat are flights to Munich, Milan, Madrid and Paris. Then I start realizing that these critics do not make any sense because the real idea behind EU is Peace. After WW II, the US was willing to help Western Europe reconstruction and fight against communist expansion with the Marshall Plan. However, the condition was that Western countries gather themselves to utilize this financial help correctly among the different states and find political stability to reach peace. For that reason the major role of the Fathers of Europe (Robert Schuman, Jean Monnet, Konrad Adenaeur, etc…) was to build a strong political pillar between France and Germany (big enemies during the two wars and therefore source of instability in Europe) to develop economic relationships. This sound like Africa nowadays: reach political stability and peace before receiving some foreign investments.
    As I tried to explain in discussion last Thursday, to talk and think about Europe and the role of the EU, we have to think correctly about it. We have to know that Peace was the base to what came next; i.e. economic, political and social integration. A lot of people think only about the economic integration and when Europe faces some troubles economically speaking, they criticize it and only see the negative aspects of it.
    However, while sitting here in front on my gate and seeing these gates right next to each other and these European destinations so close one from the other, it is hard to realize that one day their were tough enemies. Nevertheless, it never crosses my mind to criticize or doubt about the future of Europe and EU, because the road they did to arrive where we are now based on the idea of Peace is huge; and overcomes the small mistakes they made. Never underestimate the power of Europe and EU; the improvement and “building” since WW II is unique in the world and needs our respect. Also never forget that EU development reached the next step after experiencing some difficult times. The EU always works to go forward and they know how to reach this next step and be stronger after difficult times. Don’t’ be surprised if you see any type of new step forward in EU “building”, after this economic crisis.

  22. Chen Lou says:

    US President Obama just had his first meeting with Chinese President Hu Jintao for the first time in London today. Obama accepted Hu’s invitation to China in the later half of the year. The two sides also decide to establish the ‘US-China Strategic and Economic Dialogue.’ According to Niall Ferguson, a professor of history at Harvard University, the two countries combined account for around 13 percent of the world’s land surface, a quarter of the global population, about a third of its gross domestic product, and over half of the global economic growth of the past six years, not mentioning the trade as well as financial ties between the two powers. During this global financial crisis, why not corporate?
    However, China, unlike Japan or Britain, is certainly not an ally of the United States. It has its own interests on security, foreign relations, sovereignty (especially on the case of Tibet and Taiwan), and economy. The governor of China’s central bank, Zhou Xiaochuan, recently proposed that the American dollar be “phased out” as the world’s default reserve currency (even though China holds nearly $10 trillion US debt). He also suggest using SDR (special drawing rights), the synthetic currency created by IMF that is used for transactions between it and its 185 member countries. (His entire article can be found at http://www.pbc.gov.cn/english/detail.asp?col=6400&id=1288)
    US Treasury Secretary Geithner responded that the dollar would remain the world’s dominant reserve currency for some time to come. China is contributing to the world economy in its own way, instead of in the US way, and this is certainly not what US wants.
    In their work “’Chimerica’ and the Global Asset Market Boom,” (I found this piece very interesting to read and provides nother perspective for us to think about the financial crisis now http://www3.interscience.wiley.com/cgi-bin/fulltext/117980453/HTMLSTART) Ferguson and Schularick point out the vulnerability of this Chimerican phenomenon, and suggest that Chinese excess savings was the driving forces of the global booming asset prices, and led to a depressed interest rates. He therefore proposes stronger tie between the two countries at least in the financial sector. As he puts down this way to Obama in 2008, “Don’t wait until April for the next G-20 summit. Call a meeting of the Chimerican G-2 for the day after your inaugural. Don’t wait for China to call its own meeting of a new “G-1” in Beijing.”
    This reminds me of our discussion in class about the back-and-forth negotiation between US and Britain in the attempt to establish a global trade regime after WWII. Is the world financial regime is really going to turn into what Ferguson calls the era of “Chimerica”? Will China accept this huge burden of responsibility? Will the corporation between US and China work efficiently? Instead G20, will the world turn in to the Group of 2: China and US, as Ferguson proposed ?

  23. Maurits says:

    Following the G20 summit, there is noticeable relief amongst developing countries for the funding pledges that have dedicated towards helping third world countries weather this latest economic cycle. Measures include $100 billion in resources for development banks to lend to poorer countries, a $19 billion short term debt facility and a $250 billion trade credit facility. The measures mark a stark improvement compared to past aid pledges by G20 members in that less aid and more FDI and short-term credit has been pledged, yet aid still remains a burdensome part of the overall stimulus package.
    Aid can address short-term issues such as the consequences of natural disasters; however, dependency upon it derails any efforts at achieving long-term sustainable economic growth and independence in developing countries. In short, aid has frequently stifled domestic innovation, crowded out domestic enterprises, led to spiraling inflation, given rise to civil conflict and rampant corruption, fostered a culture of dependency, inhibited the improvement of good governance, and enabled the trade-related Dutch Disease to take hold. As such, it is commendable of the G20 to finally recognize the deficiencies of aid, and in contrast to previous pledges such as at the Gleneagles Summit in 2005, focus more on FDI and trade-related credit rather than aid-based solutions in alleviating the financial pressures facing developing countries.
    By including less aid and introducing alternative market-based approaches, the pledged stimulus package will encourage developing countries to enforce the necessary political-economic reforms and pursue innovation in ways that will enable their domestic markets to compete in the global arena. Economic development has shown to bear little fruit unless it is preceded by or synchronized with political or institutional development. A burgeoning economy requires a transparent and accountable government and a functioning civil service to address social needs. Aid has inhibited synchronized and sustainable economic and political development.
    Moreover, developing countries should focus on securing long-term Foreign Direct Investment and adopt sustainable economic practices such as Micro finance that stimulate the creation and expansion of domestic economies through entrepreneurship. The availability of trade-credit remains an essential ingredient to helping these developing countries revitalize their domestic economies given their influential role as exporters, although, caution should be maintained in that the resulting influx of credit into unstable developing economies could lead to even greater trade-related problems such as the Dutch Disease. Moreover, this trade credit should encourage developing countries to diversify their domestic economies in ways that will improve macro-economic stability and thereby decrease their trade-vulnerability to global economic cycles. Developing countries don’t need aid, but rather they need stable, long-term FDI that will enable them to invigorate sustainable innovation and entrepreneurship that will form the basis of sound economic platforms that will help these countries weather future economic storms. These countries have an unprecedented opportunity to change their course at this time. Developing countries may well lack the foresight to make this sound decision, so, donor countries and institutions must recognize the nature of the bridge that third-world countries now have to cross, and must help developing countries make the right decisions as they try to reposition themselves towards a economically sustainable and political stable future.

  24. Louise Song says:

    “Protectionism thrives in economic crises as people seek scapegoats abroad for their troubles and demand protection for domestic jobs” (Editorial in the New York Times http://www.nytimes.com/2009/03/26/opinion/26thu1.html?ref=opinion). The Group of 20 gathered last week to discuss solutions on how to revive a paralyzed global economy. Much like their meeting last November, they agreed to fight a path of protectionism. However, a tally by the World Bank found that 17 of the countries imposed some kind of protectionist policy –from tariffs to tax rebates to export subsidies – in the short months following this initial agreement. Will the Group of 20 actually make good on their promise this time? Or are we looking at a downward spiral of beggar-thy-neighbor strategies?
    The current global economic situation seems to draw acute attention to what we’ve discussing in Unit II. As things seem to go from bad to worse with unemployment figures skyrocketing (as a senior, I am painfully aware of this) and economic forecasts from the IMF projecting that countries in the Euro area are yet to suffer a deeper recession, the call for collective action seems stronger than ever. The most concrete step taken last week was a $750 billion reinforcement of the resources of the monetary fund. Additionally, the Group of 20 agreed to provide $250 billion in trade credits that would help in financing cross-border trade that has significantly declined in recent months. Such commitments certainly prove a step in the right direction. We can only hope that global leaders avoid the temptation of protectionism and fight for collective action.

  25. Jessie says:

    The latest G-20 London summit on April 2nd, followed by the first G-20 held in Washington DC on 14–15 November 2008, reflects countries’ commitment to anti-protection pledge and cooperation. G20 leaders made a number of commitments on trade and cooperation hoping to relieve the current financial crisis around the world. Although there were some disagreements between some members of the G-20 summit, the G-20 leaders were able to reach some agreements: 1) Anti-protectionist pledges 2) Reinforcing trade credit, and 3) advancing the Doha talks. The emphasize on the anti-protectionist pledges ensured that countries would not induce to protectionism and the repeat of beggaring thy neighbor incident triggered by the Smoot-Hawley Tariff act of 1930. The leaders agreed to refrain from imposing new protection, but they are aware that nations will impose some sorts of protection. Therefore it’s necessary to minimize negative trade effects from protection, notify to the WTO and share information about the new protection impose. This reduces the risk of causing incident such as beggaring thy neighbor and other countries would be better informed and therefore receive less negative trade effects. A stimulus plan of providing about $1.1 trillion to reinvigorate the economy also resulted from this talk. In addition, an agreement was also reached to impose a stricter regulation on banking and hedge funds agencies in order to avoid the repeat of similar financial crisis. Although the G-20 summit did not mark a turning point in the current crisis, overall the G-20 talk was a success in addressing the current financial crisis and promoting of anti-protectionism and cooperation. More information on the G-20 London summit:
    The G-20 summit also ended with call for advancing and ending the Doha World Trade Organization talks. This can lead to devastation for developing countries because some believe that “a quick conclusion to the round would place the livelihoods of developing countries, small scale and subsistence farmers and workers at risk and subject their financial markets to the very liberalization measures that led to the reckless banking and speculative activities that have devastated the US and European economies.”  http://www.ekklesia.co.uk/node/9137
    The G-20 summit also triggered a perception that the U.S’s influence at the international community is decreasing and it is no longer a dominated force as it has been in the international stage. While the U.S is losing its influence, other major countries are gaining more power in decision making. Although the U.S still has the strongest military in the world, it is no longer the most influential actor in the international stage because military power is no longer the only deciding factor that determines a nation’s power. Today, soft-power is playing a more effective role balancing power against the U.S.
    Although the G-20 did not mark a significant shift in the path of the current financial crisis, it did result in attempts to relieve pressure of the crisis and promote international cooperation in order to overcome the crisis. Hopefully this will benefit and stimulate the economy. If it works, then we once again witness the power of the international organization and cooperation.

  26. Sophie Thompson says:

    The Economist recently featured an article regarding ways to measure the black market: http://www.economist.com/finance/displayStory.cfm?story_id=13415223&source=hptextfeature.
    The potential growth of the informal, or “shadow” economy in OECD countries due to the economic downturn experienced as a result of the ongoing financial crisis. I was surprised to hear that even in developed economies, the informal economy is growing to make up for the limiting qualities of reduced supply and fluctuating prices of goods. In previous courses, I had only heard of the expansion of black markets in nations with developing economies, where growth is unbalanced, or with overly autocratic regimes, limiting the supply, dictating the quality, and imposing price controls upon market goods. It would seem that in OECD countries, where sufficient policing forces and systems of justice exist, such a “shadow market” should not persist, and certainly should not expand. However, it seems that in many countries, both developed and developing, producers and consumers will seek alternative means of obtaining subsistence and luxury goods. The expansion of the black market poses some series of problems, most importantly of which lies in the central government’s potential failure to effectively measure the output of both the regular and shadow economies. This limits the ability of the government to effectively extract tax revenues from its citizens if they are dishonest regarding their actual incomes. The shadow economy may also distort the government’s handling of the crisis, as the allocation of relief funds to certain industries or sectors may differ depending on the their apparent output. In turn, this shadow economy poses a number of problems.

  27. Maurits says:


    The recent article linked above, written by Michael Lewis, details Iceland’s recent financial rollercoaster ride that culminated in the de facto bankruptcy of the country. Given that money specifically played such an integral role in Iceland’s ascent and descent, Iceland’s experience, in particular regarding failed attempts to deter speculative currency attacks, appears quite relevant to the current stage of this course. In the space of a mere 15 years, Iceland’s economy rapidly liberalized and Iceland transformed from a primarily fishing dependant industry to a financial prowess. Iceland developed an appetite for debt as it went on an international spending binge financed by staggering debt obligations. As a result, asset ownership by Icelanders was 50x as large in 2007 compared to in 2002. Iceland financial ascent was partly facilitated by the emergence of three key domestic banks, Kaupthing, Landesbanki and Glitnir. These banks embarked on their own foreign financial odysseys, as they racked up investments in Banks, Department Stores, Toy Shops, and Soccer Clubs amongst a plethora of other investments that consistently appeared to be vulnerable, illiquid and often toxic. As such, many European financiers struggled to understand the rationale underlying this apparently incoherent investment spree? The failure to synchronize increased regulatory oversight with the financial ascent of Iceland, led to an array of domestic problems, especially within the accounting practices of the domestic banks, which inevitably contributed to Iceland’s demise. European regulators similarly failed to question and construe these peculiar Icelandic investments when red flags had long been raised by market agents.
    Part of Iceland’s ascent had evolved as a result of the lucrative carry trade haven the country offered with interest rates fluctuating around 15% at one time and an rapidly appreciating domestic currency, the Krona. In practice, financiers borrowed Yen against 3% interest rates in Japan and subsequently harbored this money in Icelandic Krona as long as interest rates remained high and the Krona kept appreciating. However, when Iceland’s economy started to falter and the Krona took a dive, the carry trade unwound, further exacerbating the Krona’s spectacular demise as the global currency herd sought to exit Iceland and repay borrowed Yen and Swiss Francs. As the world beyond Iceland realized the country’s financial framework had transformed into one large bubble, savy hedge funds in London started betting against the country’s financial solvency, by shorting Icelandic stocks, but most intensly, by shorting the Krona in large amounts, thereby accelerating the Krona’s rapid demise.
    Perhaps most interestingly, following a tumultuous weekend in October when the Iceland’s three largest banks filed for bankruptcy in a matter of 24 hours, the government attempted to stabilize the currency by instituting a fixed exchange rate in a dire attempt to salvage the country’s financial oracle. However, well informed London hedge funds had already noticed they had the financial muscle to break down this peg given that they knew the government’s currency stabilization resources were almost exhausted and that the country could therefore not deter recurring, mass scale speculative currency attacks from these five hedge funds collectively possessing over $40 billion in working capital. In a matter of two days, these hedge funds essentially enabled the collapse and subsequent abandonment of the peg, thereby allegedly netting the five leading funds that staged these successful attacks $6 billion, however, simultaneously leading to an abrupt end to Iceland’s financial miracle. What was the government thinking in instituting a fixed exchange rate given that it was undoubtedly aware of its depleted stabilization reserves and the encroachment of savy hedge funds who had already mastered a string of smaller speculative attacks against the Krona. Iceland evidently failed to take into account Britain’s currency meltdown during the 90s following George Soros’s overwhelming speculative attack against the Bank of England. Iceland’s economic meltdown is the largest ever witnessed by any country in economic history, when accounting for the size of Iceland’s economy.

  28. Chris Opila says:

    After watching President Nixon’s speech I am struck my his promise (around the 2:56 mark) to create a new international system to maintain exchange rate stability to replace the Bretton Woods system. The Bretton Woods system was a product of a time when a consensus reigned in the international community over the government’s role in the economy. This role as promoted by Keynesian economics was the pursuit of full employment.

    Arguably such a consensus no longer exists today. Instead, the European Union through has sought to maintain the utmost exchange rate stability by creating and adopting common currency for its member states: the euro. The euro, however, has required that these states shift away from Keynesian economics and pursue low levels of inflation at the expense of higher levels of unemployment.

    The United States, however, continues to seek to minimize its levels of unemployment. The stimulus package recently passed is classic Keynesian economics. Thus, it is no wonder that this package has drawn criticism from European leaders and economists.

    My point is this. I believe that the current economic crisis represents a similar opportunity to create a stable international monetary system that were found at the end of World War II. Yet the formation of such a system, or the creation of any sort of global economic agreement (such as the increased government regulation of the financial markets desired by European nations) will have to overcome the radical differences over the governments over their role in the economy.

  29. Caitlin Arnold says:

    I must confess that I remain confused about the rationale behind local currencies. It seems to me that the primary argument is that they encourage local spending and that the discount helps pad the wages of workers who may be suffer during the financial crisis. I don’t however see how ether of these situations will be aided in the long run through the printing of local currencies.
    First is the issue of encouraging local spending. The people and organizations who print these new currencies argue that they help to keep money from moving out of the community. This only works however if people willingly exchange into the new currency, which doesn’t seem likely at a 1:1 exchange rate. After all, if an individual is supportive of local business why would they limit their resources by switching to a local currency instead of just spending dollars within the local economy. So to encourage the transition these currencies are offered at a discount rate. The printers of these new currencies hope that by offering the prospective of increased spending power they can encourage more people to buy into the local currencies.
    The point I have most trouble with here is how the effects of the supposed increase in purchasing power are different from if the local shops simply lowered their prices to compete with larger outside businesses. Since dollars are still used in the markets in question shops will have to accept both types of currency. To keep profits on an even level wouldn’t they have to increase their prices when paying in a local currency (to account for the exchange rate)? Without a price increase they will be accepting what is effectively less money for their goods and services then they would have gotten if only working in dollars. How is this different from cutting price in the first place?
    The second argument made for the distribution of local currencies is that it encourages greater spending as a whole because people are getting more money from their paychecks. In the case of the BerkShares you can exchange $95 of US money for 100 BerkShares. In theory this might be seen as a gain of $5. While this might work to promote spending in the very short run it would seem to me that it would be difficult to prevent market forces from eliminating the perceived gain in wealth. After all, aren’t you effectively spending $95 for 100 pieces of paper that each represent about 95 cents in spending power.
    Another problem with this system is the inability to exchange these local currencies for US dollars. USA Today reports around $2.3 Billion worth of BerkShares in circulation. One has to wonder where the US dollars that were spent on those BerkShares ultimately goes. Since the currency can’t be converted back into dollars the banks or individuals who do the conversions have no obligation to maintain the dollars as reserves. Are these dollars being redistributed back into the economy in the form of loans? If so might this affect future inflation rates since every dollar is potentially being spent twice (once as a BerkShare and once as normal currency?). Or is the money slipping into the pockets of the individuals who created the currency.
    While local currencies might work in theory on a very small scale, it is hard to imagine that they won’t have a negative effect in the long run. Especially as the scale of the system grows and it becomes more difficult to regulate all parties involved.

  30. Cameron Ferrey says:

    I think Caitlin raises a number of legitimate concerns about the issues surrounding local currency. These are some initial thoughts I had while reading the story.

    The main purpose of printing local currency (and offering it at a discount vis-à-vis the USD) is to stimulate spending in the short-run – this is why you see more of these currencies pop up in times of recession/depression. It seems that the “discounted” exchange rate at which they’re offered is not really intended to increase the purchasing power of consumers (certainly not in the long run), as market forces would indeed negate such effects over time. This discount, rather, is an incentive to encourage initial adoption of the currency by consumers. Theoretically, increased consumption in the short-run does mean means higher income (GDP) in the long run – so there’s clearly a potential benefit to workers/consumers.

    I agree that there is likely little difference between offering local currency at a discount and having merchants lower their prices; both are aimed at increasing spending to bolster the economy. However, the former seems to be the more viable mechanism of the two due to the phenomenon of sticky prices. Generally speaking, firms simply don’t lower prices (including wages) in the absence of intense competition. Discounted local currency thus offers another, more workable means to the same end.

    The point of Caitlin’s that I think really hits home is that these currencies cannot be converted back into dollars. This raises a whole slew of questions and issues. First of all, as Caitlin wondered, where do the dollars paid to the banks go? My speculative assumption is that they’re loaned out or otherwise disappear as banks try to offset their losses. It’s highly likely that in the vast majority of cases there is no obligation to back the local currency. The next question is: what happens to the local currency after consumers have used it to buy goods & services? Firms are left with a form of payment that is unrecognized outside their local community. How are they to use it to buy intermediate goods and other supplies? To faraway suppliers, it’s as good as monopoly money. If banks have in fact already moved out the dollars they initially received, local firms have no way to convert the currency back into dollars, even if they’re willing to pay for this service. What about wage contracts? Do workers not retain the right to demand payment in dollars? I understand that these questions highlight the system in its worst light. Communities, after all, are not trying to abandon the dollar – they’re simply supplementing it with a more available currency. Firms, of course, still hold and use (presumably, a large majority of) dollars alongside the local currency. But what does become of the local currency? Once it reaches critical mass, how, if at all, can it ever be phased out of the local economy without (the best case scenario of) huge transaction costs in the form of widespread confusion and inconvenience? The larger the local currency and the community behind it, the harder it would be to get rid of it. Perhaps I’m missing the point, and maybe some of these currencies are meant to stay, but it seems that they favor a short-run solution in lieu of long-term viability.

  31. Michael Hodge says:

    In our discussion on the fall of the gold standard and adoption of the dollar as the global currency, we have discussed the possible consequences when the world attempts to move away from the dollar standard. If, in the future, the world shifts to a euro of Yuan standard, foreign banks will empty their dollar reserves by either converting their dollars to the new currency, which will deplete the U.S.’s foreign currency reserves, or they will use those dollars to buy American goods. The result of these actions will be twofold. First, the sudden run from the dollar will dramatically decrease the value of the dollar and deplete foreign currency reserves, which will reduce the U.S.’s ability to import and create inflation. Second, demand for U.S. products will rise, driving exports up and increasing inflation further as domestic prices rise. Ultimately, the value of the dollar will collapse as foreign reserve dollars come home to roost, creating dangerously high inflation. This is exactly what happened to England following the World War II.
    The possible responses from the treasury and Fed are limited, but, most likely, they will flood the domestic market with dollars and drive up inflation before foreign bakes can drop their dollar reserves, eliminating the purchasing power of those foreign dollars. While this will destroy the U.S.’s political reputation and severely harm the domestic economy, it will deter foreign banks from dropping the dollar.
    While this is a scary prospect and equally frightening response, we are doing it right now. Since the beginning of the current economic crisis, the treasury has given out an additional $3.5 trillion in order to support our failing economy. Due to the nature of the current crisis, domestic prices are actually falling right now because of decreased demand. However, as the economy rebounds and the $3.5 trillion dollars begins to trickle down, the value of the dollar will fall and inflation will rise. The fed can raise interest rates and buy up dollars to suppress inflation and maintain the value of the dollar. However, since two thirds of dollars in circulation are abroad, if this coincides with a run from the dollar, the Fed will be unable to fight the flow as the dollar takes a nosedive off the proverbial cliff. Additionally, with so many dollars already in circulation, as long as there is a continued decline of faith in the dollar, printing even more money will not help. With policy options exhausted, at this point, the U.S. can either stand by and watch a tidal wave of dollars smother the economy or it can take a note out of communist China’s little red book and control the exchange of the dollar and withhold convertibility to maintain foreign currency reserves. There is always the third option of abandoning the dollar in favor of a new currency (can anyone say “the United State’s Peso”?), in which case I’m rioting and/or moving to Canada. Anyway you look at it though, the future holds high unemployment, inflation, and a loss of international political-economic respect.

  32. Vincent Blais says:

    Michael brings up many great points in his post above concerning the repercussions of a possible shift away from the U.S. dollar as a reserve standard. A shift away from the dollar and a potential run on the dollar would have disastrous consequences, most notably in terms of the national price level and rampant inflation. In an attempt to quicken and exacerbate this potential disaster, Hugo Chavez, the magnanimous and outspoken ally of the American people, came to the recent Arab-South American Summit armed with a plan. This plan called for the creation of a new international reserve currency, one backed not by gold but by oil. With this plan, Chavez is attempting to undermine the dominance of the dollar, euro, and yen as international reserve currencies and replace them with a currency backed by a resource of which the U.S., Japan, and the majority of Europe do not have vast reserves. The proposal for these new “petro-dollars,” is somewhat farcical and was, by all appearances, dead on arrival. However, it represents a new challenge to the international financial leadership dominated by the U.S., Japan, and Western Europe that has already been “deeply eroded by the economic meltdown.” While this petro-dollar distraction is seemingly little more than another amusing anecdote in Chavez’s often-absurd dealings with the United States, it is a humorous illustration of a pattern of state actions that show a growing sentiment of distrust toward Western global financial leadership. This pattern of state actions should be disturbing to U.S. policymakers. In an example of this pattern, the Chinese leadership in Beijing has begun to move away from using the dollar as the sole currency of exchange for its international trading partners, most recently Argentina. Beijing has repeatedly called for a new reserve currency “comprising a basket of global currencies controlled by the International Monetary Fund.” While Chavez’s petro-dollars will most likely never be adopted as a reserve currency, they represent a global sentiment of distrust towards the U.S. and Europe and a lack of confidence in the capabilities as leaders of the international financial order. This distrust may one day lead an abandonment of the current reserve currencies. The U.S., Europe, and Japan must work together to restore this lost trust unless they want their currencies abandoned as international reserve currencies.

    Source article can be found here: http://www.huffingtonpost.com/2009/03/31/petrocurrency-chavez-seek_n_181136.html

  33. Nick Maliska says:

    Benjamin Cohen in his book “The Future of Money” argues that the number of world currencies will expand in the future. Although this argument may now carry more weight due to the present worldwide recession in which states may want more monetary policy autonomy in which to develop macroeconomic stabilization policies, I remain unconvinced.

    Cohen breaks down what determines the number of monies into a supply and demand model. The demand side is driven by market actors that are increasingly dealing in transnational trade. Due to economies of scale, these actors will demand the top international currencies that have the lowest transaction costs and largest networks causing a shrinkage in the number of currencies, which Cohen calls the Contraction Contention. Interacting with demand is supply, driven by benefits to states that keep or adopt domestic currencies. These benefits include monetary policy autonomy allowing for macroeconomic stabilization, revenue from seigniorage, and political symbolism.

    Although these are enticing benefits for states, the risks of inflation are very real in many small states. I think it is likely that we will see more currency contractions such as those in the European Union with the “sharing” of one currency or in Latin America with the “subordination” or dollarization of domestic currencies.

    In summary, Cohen fails to really make the point of why the supply will outweigh the demand factors and cause an expansion in the number of countries. It appears to me that the two forces will offset each other and there will be no substantial change in the number of world currencies. If there is a change, the ever increasing quantity of international trade would seemingly drive the market to adopt less, rather than more currencies.

    On a side note: is there a graph with the number of currencies in the world? It would be interesting to see how that number has changed over the years and could provide some incite into the future.

  34. EY Shin says:

    The concept of local currencies just amuses me. Caitlin and Cameron both present great ideas why local currencies might help the businesses and the consumers in the short run but hurt the local economy in the long run. As Caitlin mentioned that the local currencies cannot be converted back to dollars (and I think professor mentioned this in our discussion section) I was wondering the same thing that Cameron did. What do the businesses do when they have local currencies that they cannot even convert back to dollars? My guess is that they buy from the local farmers or stores to produce the product; they buy milk from local farms to make ice cream. Then, how about those businesses that have to bring in goods from other communities and sell them? They would have to pay in dollars to bring in the goods, and then receive local currencies for selling them. As long as the community is somehow connected to the “outside world” I really do not see how this local currency theory of “keeping the benefit locally” would work out. Additionally, I feel like local currencies are people with lots of time. A busy business man would not go to the bank and ask for 100 Berkshires in exchange of 95 dollars just to save 5 cents on every dollar that he spends. The opportunity cost of walking into the bank and exchanging the currency may be huge. As well, why does anyone want to exchange to the local currency when it may disappear in few days? The local currency is not backed up by anything, and when the company that issues the local currency goes bankrupted, then, the consumers have a real problem.

  35. Francesca Lambert says:

    While studying the post-war international monetary system, I was particularly intrigued by the role of the United States and the story of its rise to political-economic dominance/hegemony in the first half of the 20th century. Having studied this story before from a mostly political science standpoint, it was especially interesting to learn about the international economic factors that brought about this shift in the international distribution of power.
    As Nicole Lam pointed out in an earlier post, the study of political economy often seems to boil down to the simple matter of power. The story of the post-war order is no exception. During WWI, as Europe descended into chaos, the US took over export markets traditionally dominated by the Europeans, and this foreign demand for US goods and services created upward pressure on the dollar. The US thereby amassed gold reserves, limited the production of dollars, and maintained an undervalued currency to keep its exports attractive. Once the 1929 Great Depression hit, however, The US turned inward, passing the protectionist Smoot-Hawley Tariff 1930 – when really it needed to provide the world with liquidity, it did exactly the opposite. Indeed, the 1929 depression was so deep and so long because “the international economic system was rendered unstable by British inability and United States unwillingness to assume responsibility for…maintaining a relatively open market for distress goods; providing counter-cyclical long-term lending; and discounting in crisis” (Kindleberger 291). As the US was uncertain in its international role, the isolationism embodied by adherence to the League of Nations dominated. Meanwhile, the outbreak of WWII again harmed everyone but the United States, as Hiscox illustrated how those exogenous events (i.e. the obliteration of European markets) fostered a dramatic increase in US exports and therefore domestic export-oriented industries and interests.
    It is no surprise, then, that “the post-war economic order reflected the efforts of the United States, as an ascending hegemonic power, to build a system congenial with its interests.” (Ikenberry 60). Although Ikenberry’s article focuses on the evolution of the new set of rules and institutions, as well as shared Anglo-American norms that made negotiations possible, ultimately the United States did exercise hegemonic power in pursuing its interests, and any normative appeal it may have made to the elites in other nations or limits it may have placed upon itself in its coercive imposition of policies on the Europeans, ultimately it was clear that any international order would benefit the US’s interests. (On a side note, having just written a paper on “the 3 Is,” it was very interesting to see Ikenberry’s use and interpretation of the role of ideas, interests, and institutions to explain the shaping of political-economic policy). Indeed, at the Bretton Woods Conference in December, 1945, the UK and the US negotiated a plan for the post-war international monetary order that looked more like the US’s plan, which again isn’t surprising given the asymmetry of bargaining power. The plan required that countries have either gold or dollars – since Europe lacked both, the US started in 1948 to spread newly-printed money abroad with the Marshall Plan, wartime expenditure, and bilateral aid. The Bretton Woods system also established the GATT, which later turned into the WTO. As we remember from the Barton, et al. reading – The Evolution of the Trade Regime: Politics, Law, and Economics of the GATT and the WTO – these institutions were ultimately a way for the US and other developed nations to assert their economic and political dominance, as they sustained asymmetrical power relations, with developing countries depending on developing countries for trade, investment, and aid.
    While the picture pained above is one of US dominance, we are witnessing today a shift in the balance of power, as what Joseph Nye calls the “uni-multi-polar world” witnesses the rise of regionalism and, aptly put by Vincent Blais, a “global sentiment of distrust towards the U.S. and Europe and a lack of confidence in the capabilities as leaders of the international financial order.” It will be interesting to see how such trends and developments play out in the future.

  36. Aman says:

    There are some interesting arguments about the gold standard and the G20 summit in the discussion. First, the pro and cons of gold standard are clear – more stability vs. more monetary control during periods of shocks. Evidence also shows that the money supply and the consumerism that comes with it increased dramatically in the decades that followed. Some economists still advocate a return to the gold standard, but that is unlikely if anything. The removal of the gold standard was formalized by Nixon and ever since it has helped expedite economic growth and has kept stable inflation and a reasonable unemployment rate. The fiat money gives more control to states to take bold action at times of faltering financial atmosphere.

    The G20 summit has taken steps in the right direction by giving IMF more funding and independence, encouraging countries to implement their own stimulus plans and acting against tax havens. This may prove to be a good boost for major economies world wide.
    Still, the question of global poverty reduction remains under explored. Aid is promised to developing countries but he manner of its processing will make it very inefficient if at all effective. In all the outcome of the recent G20 summit is optimistic and will stimulate a global recovery by an increase of spending in the infrastructure and having more control accountability in the financial markets.
    “Petro-dollars” definitely seem to have no max out at the moment. And the next big race is already underway in Central Asia that are resource rich but underdeveloped. The idea of other precious/ scarce resources being as the reserve may seem implausible yet it will be interesting to see the effects of depleting energy resources not only on financial markets but directly on the way money is used and its conception. But clearly, Chavez had the words and not the idea behind it.

  37. Aman says:

    Correction: in the above paragraph line 4 —
    Evidence shows that the money supply and the consumerism that comes with it increased dramatically in the decades that followed the removal of the gold standard.

  38. Avery says:

    While power relationships are certainly important in determining state action in the international realm, I am somewhat leery of arguments which suggest that power is the motivation behind such action. Ikenberry is certainly right to suggest that “the post-war economic order reflected the efforts of the United States, as an ascending hegemonic power, to build a system congenial with its interests.” But this fails to get at the nature of these interests themselves. Realists, in general, would suggest that the desire for security is in and of itself the overriding interest of states, while others might argue that economic power is an overriding goal. However, explanations which rely solely on material interests like security and wealth, valid as they may be, miss an important aspect of US interests, mainly that they are informed not only by a desire for security and wealth, but also American ideology. Material interest may be the prime motivator of US action, but it is not the only one.
    For example, the democratic systems within the World Bank and IMF are certainly imperfect. One explanation of these imperfections is US desire for hegemony. The democratic aspects of the organizations are merely the US giving other states just enough benefits to convince them to join the organization. However, the organization of these organizations could also be seen as representative of a real tension within the United States between the ideology of democracy and free markets and the desire for security and wealth. It is easy to identify both strands of thought in US history, a history which has since its inception been largely defined by the ideas of men like Thomas Jefferson and James Madison. The American desire to transform the world, shown most famously by Wilson but more recently during the Bush administration’s efforts in the Middle East, has been present ever since Puritans formed the “City on a Hill” to serve as a symbol to the world of a better society. Of course, these sorts of efforts are in tension with US desire for wealth, aptly represented by the other early American colony at Jamestown.
    If international organizations are nothing more than the expression of power politics, and in fact change in their contours based on changes in the balance of power, than why did the US bother to create institutions in the first place? I contend that the post war order was a product of US ideological support for democratic institutions combined with a desire for hegemony which defined post war institutions. Such an argument is of course difficult to prove, but I think it is at least worth considering that American ideas provided a framework for expression of American power in the post war period. The US could have dominated Western Europe in the war the Soviet Union dominated Eastern Europe, and set up a similarly coercive system of “liberal” economies. Instead, it created NATO and the post war economic institutions. The US could have simply practiced power politics with the Soviet Union, much as the European states did during the 19th century, with great relative success. Instead, the US formed the United Nations and has continued to support the spread of law, human rights, and democracy. Of course, it has done so at best imperfectly, and often times has totally ignored these concerns. However, the fact that material interests overcomes ideology on many occasions does not mean that ideology does not matter.

  39. Amer Dastgir says:

    Reading Barton’s article on The Evolution of the Trade Regime and the motives behind the creation of the GATT/WTO trade system made me extremely sceptical about the overall interests of such blanket trade regimes and their repercussions as far as developing countries are concerned. Barton and the other authors of the article clearly state that developed countries exercise considerable power over the WTO and use their political clout to ensure that their agenda is always put forward and prioritised at the expense of the interests of developing countries. As someone who comes from a developing country, it frustrates me that such international institutions that apparently exist to promote global interests as far as trade is concerned, are actually puppets of developed countries and will only give some way to developing countries if it suits the interests of the developed countries. This whole idea of being a member of the WTO, or otherwise be excluded from the global trade market, doesn’t exactly leave developing countries with much choice as far as membership is concerned. It is a zero sum game for them, and if they refuse to be members and bow down to the will of the developed countries which strongly control the organisation, they risk being excluded from world trade, and this strongly affects developing countries which heavily depend on trade for the survival of their economies, whereas developed countries’ economies are not nearly as heavily dependent on trade. If this is the case, why is it such an issue for developed countries to allow developing countries to successfully promote their agendas at the WTO meetings? Why is the Doha Round completely deadlocked because of the developed countries’ refusal to meet the demands of the developing countries, while all the other rounds have succeeded as a result of the forced compliance of the developing countries? It makes no sense whatsoever to me, and defeats the very purpose of the existence of such organisations, if they are just deadlocked along North-South lines and benefit one side but the not the other which needs it more.

  40. Nathan says:

    To follow up on the thread on local currencies, I think I can shed at least a little light on some of the questions being raised above.
    Firstly, we have been assuming all along that the exchange between federal and local dollars is one-directional. I think I remember hearing that in discussion too. However, I’ve been reading up on the BerkShares example, and in fact, holders of BerkShare currency are free to exchange it for US Dollars at the local bank. In addition, consumers spending dollars at local businesses within the BerkShares exchange agreement can request to receive change in Berkshares, should they want to. This addresses the issue of what happens to all the money, dollars being used to buy Berkshares, and Berkshares being spent and moving up the consumption ladder away from spenders.
    Firstly, the BerkShares currency is said to be non-profit, yet it is selling its nominal currency at a 5% discount to the USD. What happens to that 5% gain? In fact, the 5% “profit” does not really exist at all. The BerkShares website provides this illuminating example: Say you want to go out to a nice dinner at a local restaurant. Since you are participating in the local currency movement, you exchange $95 for 100 BerkShares to spend on your dinner. When it arrives time to paying the bill, the meal (it was REALLY good) plus tip comes to $100. You leave your 100 BerkShares note on the table and leave. Now the restaurant owner has 100 BerkShares. He has the choice to either keep this sum in BerkShares OR to swap it for USD at the local bank (and receive $95 in return). He’s not stuck with monopoly money for when he wants to import olive oil from the Mediterranean or wine from Napa Valley. Also, workers can opt between the two currencies for when negociating wages. With over 350 businesses in Western Mass accepting BerkShares, the increase in purchasing power is real.
    So, the dollars used to buy BerkShares are not lining the pockets of the champion entrepreneurs who convinced people to buy their money. There is a real and fixed exchange rate mechanism to maintain convertibiliity between the two, and apparently, there is a promise that BerkShares are backed by hard federal money. Therefore, it seems reasonable to say that their ought to be enough confidence in the currency to prevent it from collapsing overnight, answering EY’s concern for why people would want to hold the currency in the long run.
    I don’t know if other local currencies operate under the same premises. Now that I think about it, I think it was the Ithaca Hour system that was not redeemable for USD, thus forcing business to replant their production chain in local enterprises from top to bottom.
    Its interesting to think that these local currencies come about in face of worrying economic climates, whereas in Europe, many consumers are moving up the money scale rather than down. By that I mean that more and more people – especially in eastern Europe – are buying Euros with their local (national) currencies. Their goals are not the same at all, and maybe even divergent. Rather than building a local economy, many new EU members (not yet using the Euro though) are looking to exchange their currencies for the stability and security of financial assets in Euros. I haven’t read much on this, but its interesting to see the two movements, towards local and international currencies, as reactions to the same crisis.
    FAQs on BerkShares: http://www.berkshares.org/whatareberkshares.htm#faqs

  41. Francesca Lambert says:

    In wake of our class discussion on the IMF, I thought that this article might be of some interest: http://www.theatlantic.com/doc/200905/imf-advice
    Written by Simon Johnson, former chief economist at the IMF, it takes the refreshing approach of critically deconstructing and analyzing the dynamics at play in the current economic crisis and the steps that the US should take to remedy it. It is interesting to see the advice that, according to Johnson, the IMF would give to the US if it were simply a nameless country “pulled out of a hat.”

  42. Chris Vandergrift says:

    Samuel Huntington makes a very controversial point in his article The Hispanic Challenge. He argues that Hispanic immigration will irreversibly change American in a negative manner. He claims that America was based on an Anglo-Protestant culture that included key elements such as the “English language, Christianity, religious commitments, English concepts of rule and law, including the responsibility of rules and the rights of individuals; and dissenting Prestestant values of individualism, the work ethic, and the belief that humans have the ability and the duty to try to creates a heaven on earth, a ‘city on a hill.’” He therefore implies that Hispanic population growth via immigration and higher fertility rates will destroy this Anglo-American culture and result in a culture clash.
    In his paper, he outlines why Hispanic immigration is different from other previous waves of immigration. He argues that Mexican immigration is demographically different that previous waves; People in previous waves spoke many different languages (Italian, Polish, Russian, Yiddish, Germany, Swedish, etc.) while current immigrants all speak one non-English language. Nearly all Mexican immigrants are poor, driving down wages for unskilled domestic workers and taxing the American educational and welfare systems. Huntington makes his point very clear, “There is no ‘Americano dream.’ There is only the American dream created by an Anglo-Protestant society.
    Huntington’s piece is quite interesting in the context of O’Rourke’s Globalization Backlash: Migration Policy gets Restrictive in which he argues that xenophobia does not have anything to do with immigration policy. Economic conditions such as “immigrant quality, labor markets conditions, and policy abroad were determining factors.” Is Huntington simply anti-Mexican or is the economic well-being of current Americans his primary constituency as O’Rourke might suggest? A critical issue addressed in O’Rourke’s price is whether native labor and immigrant labor are complements or substitutes in production. Sometimes immigrants might be complements such as in the case of skilled workers (i.e. programmers) from India. In the case of Mexican workers, unskilled workers are substitute for American workers and drive down wages; thus, Hispanic workers create policy that discourages immigration.

  43. Nathan Williams says:

    In our discussion section last week, we talked about the question of citizenship and how governments ought to set qualifications for it. Here’s an interesting and hilarious approach by the government of Canada on that very topic. They have revised their policies to grant citizenship to a (seemingly small) number of people living mostly in the United States who, under previous regimes, lost their Canadian nationality because of stringent and unclear rules. The official ad campaign issued by the government is included in this article and it’s down right silly.

    Just sharing that.

  44. Nathan Williams says:

    *seemingly large, hundreds of thousands is pretty big

  45. Colin Taylor says:

    In thinking about Migration policy and Xenophobia, I remembered a point brought up during the International Migrations course I took during J-term. One of the professor’s major contentions was that restrictions on Migration were often brought about neither because of inherent xenophobia or because immigrants drive down wages, but rather because the politicians and the Media use immigrants as scapegoats for economic problems. Since the professor was Argentine, he talked about how Carlos Menem, president of Argentina in the 90’s blamed the country’s high unemployment rate on immigrants taking Argentine jobs. This worked to his benefit because it deflected the blame from him and instead implicated a group of people who cannot vote and therefore make easy targets. Of course, after a series of studies, it was found that immigrants had little effect on the unemployment rate and that the blame did indeed belong on President Menem.
    The Media also has some incentives to encourage anti-immigrant sentiment, especially in the United States. This is because they can also focus blame on a group in order to improve their ratings. Since many immigrants don’t speak English, they typically do not watch CNN, so someone like Lou Dobbs can blame problems on Mexican immigrants without losing ground in the ratings, as he would if he blamed other groups for economic and social issues.

  46. Melissa Segil says:

    I was particularly interested during our section on Thursday when we discussed immigration, worker programs, and defining citizenship. While I think it would be difficult to base immigration off of anything difficult to determine/ measure (as opposed to the very simple to determine-one’s birthplace), I feel that there should not be only one way to earn citizenship to a state. I was intrigued by the idea of gaining citizenship through a demonstration of service, or through a proclamation of values, etc. Surely there are people around the world who align themselves more closely to the ideology of a nation to which they do not belong. Surely there are many “Un-American” citizens and many very “American” non-citizens. Birthplace may play a larger role in some people’s lives than in others… I would be interested to know if there are any states that have citizenship requirements that address these issues… I do believe that some barriers to entry are neccessary to citizenship (such that a person is not running around with 15 passports), but I believe that in some cases an extension of citizenship opportunities would be beneficial to many– those with highly demanded expertise or knowledge, those with international families, students looking to continue studies abroad (for extended periods of time and hoping to work) etc. This seems to be a complicated issue but I enjoyed our debate and am interested to know more specifics about how different countries handle these issues…

  47. Japan has come up with a very interesting (if not costly) solution to the abundance of immigrant labor it is experiencing due to the economic downturn:

  48. Nathan Williams says:

    Our discussion today left us with some challenging questions, like whether we will always consume to the maximum productive capacity as Jevons claimed, or if we have to forego growth in order to protect future generations from catastrophic climate implications, among others. It reminded me of a book I’ve not read but been intending to for some time by Paul Hawkens called “Natural Capitalism” (I have a photocopy of the introduction, from which most of this post will be based). Maybe some of you have read it. Anyways, he has some really fascinating ideas on how to design and ensure a global future that is at the same time sustainable and prosperous.
    He addresses the “peak coal” idea of the climate crisis, not in saying that once fossil fuels or coal reach the point of scarcity where they become so expensive that we’ll innovate and eliminate the externalities which lead to climate change, but that natural capital (I think he coined the term) is somehow different. When Britain reached the coal peak in 1913, it meant only that a new source of energy needed to be found. With the majority of natural capital, they are actually living systems. Fisheries, forests, fresh water, fertile soil, etc, differ from oil and coal in that they are living ecosystems. “Peak wood” spells not only the depletion of a resource, but the elimination of an important part of the natural cycle, converting CO2 to oxygen, preventing erosion and buffering against weather extremes, sheltering other species, etc. There are dramatic feedback effects, externalities I guess, of depleting our natural capital that are irreversable once you reach the peak. So we can’t think of many resources in the environmental debate as being the same as coal or oil in that it is of utmost concern to the future of humankind to preserve them in some capacity.
    What he calls for then is a new industrial revolution to take into account all forms of capital, including human and natural. The last industrial revolution was SO hugely significant, in terms of productivity. What took 200 workers in 1770 could be accomplished by one spinner in a British textile plant by 1812, according to Hawkens. A similar revolution of efficiency in terms of our management of natural capital could be huge.
    The four pillars of his new economy would be built on what he calls radical resource productivity, “biomimicry”, a new economic paradigm based on service and flow, and investment in natural capital. The most interesting I think are the middle two. The “biomimicry” idea says that we can and should base our production on the constant reuse of materials in continuous closed cycles as we see it done in nature every day. Spiders can make silk as strong as Kevlar and longer lasting with only digested crickets and flies, abalone produce an innershell twice as tough as man’s best ceramics and diatoms make glass both without furnaces and relying on seawater as its main input. Trees turn sunlight, water, and air into a stiffer and stronger sugar than nylon and bind it into wood. How cool is that? If engineers can learn from these natural processes, and find ways to accomplish similar production techniques in the largest sectors of the economy, we’ll be able to continue consuming and grow as we do in our present economy without some of the huge externalities.
    The third principle is based on the idea of the service economy, wherein consumers obtain services by leasing or renting goods rather than buying them outright. Michelin already encorporates this into their business model. Instead of buying new tires, you effectively lease them. We wouldn’t buy 4 iPods because we can, and throw them away when we’re done. Apple would lease them to us and we would pay a use-fee for having it. This provides Apple an important incentive to make longer-lasting durable products so they break less often and dont have to pay for the maintenance costs (since consumers no longer own them).
    I realize I’m trying to summarize what Hawkens explains in an entire book in just a few sentences, and it’s probably not going to be very effective. But if there’s one thing thats central to all this, its that we’ve had one industrial revolution, and we can have a second one. We just have to redesign our economy to serve the needs of the environment as well as man, rather than only the latter. What that looks like is an awfully complex question, but Hawken’s takes a stab at it. Utopian or not, I think as climate change becomes more palpable to the developed world, his ideas might gain some traction.

  49. Jessie Liu says:

    I just want to comment on Japan’s new policy regarding immigration and unemployment. Japan is offering $3,000 for a plane ticket home to some foreigners who have lost their jobs, mostly Latin Americans with factory works. Since the current economics crisis has caused the nation’s manufacturing sector to slump and push unemployment rate up to 4.4 percent, in order to decrease the unemployment rate, rather than trying to stimulate the economy, Japan decided to sent off those unemployed workers. I think the major issue here is not about unemployment during the economic crisis, it is more about the reaction and treatment that Japanese government initiated toward those Brazilians. The fact that once they accepted the offer to go home, they are not allowed to return is a bit extreme. I think for Brazilians, it is considered discrimination. On the other hand, Japan has always been an isolated island with homogeneous population even with large number of Chinese and Korean immigrants. The exclusiveness of Japanese culture has not decreased over the years of globalization. Although those Brazilians has worked and lived in Japan for numbers of years, they are still considered inferior population or outsiders. Often these migrants are trapped in relatively low-wage jobs and poor quality housing, and face numerous difficulties in obtaining medical and public services. Even if their children were born in Japan, they are still considered foreigners. Recent migrants are testing the willingness of Japanese society and Japanese government to move toward a multicultural society. Unfortunately there has been much resistance to diversity. In addition, Japan has one of the world’s lowest fertility rates. The population rate is declining. With its aging population, Japan will face a serious shortage of labor very soon. The U.N has projected that the nation will need 17 million immigrants by 2050 to maintain the current productive economy. But with this policy and strict immigrant laws, foreign born workers are still scarce in Japan. If Japan were continued to be competitive in the world market, Japan would have to open up its border to immigrants and liberalize its immigration policy. This case is extremely similar to the Mexican immigrants in the United States. Mexican immigrants also encountered problem of assimilation and are often trapped in low-wage labor jobs. However Mexicans in the United States have much more access and opportunity to assimilate to the American culture and become American citizens if they make effort to. However, foreigners in Japan would often encounter much more difficulties in assimilation because both government and people do not want foreigners to become part of their culture and country. Because of this cultural bias, Japan will encounter a serious problem of labor shortage in the coming decades.

  50. Francesca Lambert says:

    In the past few weeks, I have very much enjoyed getting to the portion of the course where we examine more contemporary issues in IPE, like global warming and globalization. It is interesting to see the roles of and interactions between international, multilateral institutions, non-governmental organization, and domestic special interests in influencing the international trade regime.
    Several weeks ago, when we studied the formation of the GATT/WTO and the post-war multilateral world order, it was evident that the developed “great powers” had exclusive say in how the trade regime would be structured and ordered. Now, looking at the three main institutions that govern globalization (the IMF, the World Bank, and the WTO) it is clear that they still mainly serve the interests of the developed world, even though efforts are being made (most recently during the Doha Rounds) to give more weight to the voice of the developing countries. Recent discontent with such negative effects of globalization as environmental degradation and supposedly increasing levels of poverty and income inequality bred by globalization have generated considerable protest and debate. Indeed, the opponents and proponents are many, as are their arguments for and against it. Although I was already somewhat familiar with many of these views, the article that really caught my attention was “Two cheers for sweatshops: they’re dirty and dangerous. They’re also a major reason Asia is back on track.” The article essentially points out that boycotting sweatshop products, which is a popular call to action among anti-globalization activists, actually harms those very people that such a boycott would claim to help; indeed, “the simplest way to help the poorest Asians would be to buy more from sweatshops, not less.” In fact, it would seems as though sweatshops actually generate the wealth needed to solve the initial problems they create by increasing the wealth of the country and offering a precarious escape from abject poverty. Sweatshops, however, must be improved in terms of safety, environmental standards, etc. The most important point of the article then, is that these reforms must be made through certain channels, and certainly not through boycotts, which would actually be counter-productive. While this argument makes perfect sense, we in the West often feel morally repulsed by the very existence of such labor practices and standards, and Krugman points out that such self-righteous demands for labor standards stem from our guilt in his article “In Praise of Cheap Labor.”
    Krugman closes his article with an incisive and concise point: “And as long as you have no realistic alternative to industrialization based on low wages, to oppose it means that you are willing to deny desperately poor people the best chance they have of progress for the sake of what amounts to an aesthetic standard—that is, the fact that you don’t like the idea or workers being paid a pittance to supply rich Westerners with fashion items.”

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