Economics
Economic Policy Archive
AA08439
Barnes, James A. OBAMA’S FIRST YEAR (National Journal, December 13, 2008)
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National Journal surveyed 129 members of Congress and 232 political insiders (party chairmen, political strategists, pollsters, lobbyists, fundraisers and media consultants) to get some insight on what they expect the first year of the Obama administration to be like. Overall, the findings “suggest that 2009 will be a year of opportunity for Obama, provided that he and his Democratic allies remain focused on the overarching task of righting the economy,” the author writes. While Obama campaigned on a theme of change, most insiders do not expect there to be a major transformative change in Washington. Some of those surveyed note that the economic crisis could provide an opportunity for the next president. “A crisis gives you the opportunity ... to energize [the public],” said Ken Duberstein, President Reagan’s chief of staff. The author suggests that Obama may have more opportunity for success with his policy proposals by linking them to economic goals.
A GUIDE TO THE HOUSING CRISIS: TEN QUESTIONS AND ANSWERS.
Century Foundation. Bernard Wasow. Web posted October 4, 2008.
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As Congress tries to work out a financial rescue plan, many people are still trying to understand how the financial institutions got into so much trouble in the first place, and why the government needs to take action to bail them out. In an issue brief Bernard Wasow answers ten crucial questions about the housing crisis. The questions include why did lenders make so many bad loans for mortgages and why are so many different banks and brokerages all over the world in hot water.
[Note: contains copyrighted material]
AA08312
Hudson, Michael WHY THE BAIL OUT OF FREDDIE MAC AND FANNY MAE IS BAD ECONOMIC POLICY (Counterpunch, posted July 14, 2008)
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The bailing out of Fannie Mae and Freddie Mac, the two semi-public mortgage packaging companies that hold trillions of dollars in U.S. mortgage debt, in effect protects the interest of the commercial banking system, representing the top one-tenth of the U.S. population, writes economist Michael Hudson, a former economic adviser to former Democratic presidential candidate Dennis Kucinich. Challenging the "myth" that Fannie Mae and Freddie Mac help make homeownership more accessible, Hudson contends that the two companies functioned in quite the opposite direction, making house prices increasingly unaffordable. "They have inflated asset prices with credit that has indebted homeowners to a degree unprecedented in history. That is why the real estate bubble has burst, after all," Hudson writes. He contends that politicians such as Chuck Schumer of New York, Chris Dodd of Connecticut and Barney Frank of Massachusetts are among the leaders of the charge to rescue the mortgage giants because they are giving priority to their main campaign contributors in the financial, insurance and real estate sectors. This "means more debt peonage for new home buyers rather than housing prices falling back to more affordable proportions," Hudson writes.
LEGACY OR COMPLACENCY?: LULA’S UNFINISHED BUSINESS IN BRAZIL.
American Enterprise Institute. August 2008.
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Brazil, South America’s most populous continental power, has strung together a few decades of sound economic policies and pluralistic governance to become an example of how a multiethnic democracy and free market economy can help millions pull themselves out of poverty. The report states that President Luiz Inácio Lula da Silva has made impressive strides during his tenure. He has demonstrated that antipoverty programs are good business and that economic growth is objectively better when the opportunity that comes with it is shared more equitably. It is hoped that he continues his efforts in the remainder of his term.
AA07410
Klein, Naomi DISASTER CAPITALISM: THE NEW ECONOMY OF CATASTROPHE (Harper's, vol. 315, no. 1889, October 2007, pp. 47-58)
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Iraq reconstruction, disaster response in post-tsunami Sri Lanka and Thailand and in post-Katrina New Orleans, and infrastructure failure such as the bridge collapse in Minneapolis are increasingly having a common theme, notes the author: governments are ceding responsibility to private interests for more and more projects that used to be in the public sphere. "It's tempting to imagine [that each new disaster] will serve as a wake-up call," writes Klein; however, in her view, disasters have become opportunities to engage in radical re-engineering, creating a "ruthlessly divided world" in which relief services are made available for those who can pay, and those who cannot are left to fend for themselves. The coastal fishing villages in Sri Lanka and Thailand that were devastated by the 2004 tsunami were never rebuilt, but have been replaced by high-end tourist resorts; in New Orleans, selected schools were split off from the public school system to become private charter schools.
The growing private-sector disaster-response business has become self-perpetuating, as governments lose the ability to perform core functions without the help of contractors. The huge profits being racked up by the disaster-response industry has led many people around the world to suspect that "the rich and powerful must be deliberately causing catastrophes" in order to exploit them. Klein believes that the reality is "at once less sinister and more dangerous -- an economic system that requires constant growth while bucking almost all serious attempts at environmental regulation generates a steady stream of disasters all on its own, whether military, ecological or financial."
AA07411
Nellis, John PRIVATIZATION: A SUMMARY ASSESSMENT (SAIS Review of International Affairs, vol. 27, no. 2, Summer-Fall 2007, pp. 3-29)
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The author, who has worked and written on international development issues for forty years, believes that privatization has provided substantial economic benefits to strapped governments. In the last 25 years many thousands of formerly state-owned firms have been privatized in transition economies, generating over USD 400 billion in sales proceeds, but a very large number of productive entities, including many of the larger and more valuable firms in energy, infrastructure, and finance, still remain in the hands of the state. In addition, thousands of firms have been privatized by methods in which no money was raised. A large number of studies praise privatization's positive impact at the level of the firm, as well as its positive macroeconomic and welfare contributions, but public opinion in the developing world is still unfriendly to privatization.
However, in some countries that might be expected to suffer from the effects of privatization, such as in Argentina or in Mexico, the number of workers laid off was small in comparison to the entire workforce. As the percentage of respondents viewing privatization negatively rose from 55% in 2001 to 80% in 2003, it fell back to about 70% in the latest 2005 poll. When privatization goes well, it is close to invisible and taken for granted; when it goes wrong, few politicians want anything to do with it.
AA07252
Campbell, Noel; Rogers, Tammy ECONOMIC FREEDOM AND NET BUSINESS FORMATION (Cato Journal, vol. 27, no. 1, Winter 2007, pp. 23-36)
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Economic research consistently indicates that countries with more economic freedom - secure property rights, limited government intervention, low taxes, etc. - enjoy higher per capita incomes and better living conditions than countries that are economically less free. Economists argue that in less free, more politicized economies creative economic energies are channeled away from wealth-creating entrepreneurial activity and into securing political protection from market forces. Campbell, from the University of Central Arkansas, and Rogers, from North Georgia College & State University, argue that similar differences also occur between the U.S. states, some of which have significantly different economic rules and regulations. They demonstrate that economic freedom on the state level has a more powerful and direct impact on entrepreneurial activity (understood as net business formation) than other state government policies aimed to stimulate the economy. The authors argue their findings support the libertarian economic approach: instead of yielding to the temptation to "fix" the economy, state governments should focus on safeguarding property rights and leaving entrepreneurs enough room to flourish. A smaller, less active government "will do more to promote prosperity than the conventional state development model," they say.
SEARCHING FOR OIL: CHINA'S OIL INITIATIVES IN THE MIDDLE EAST. Henry Lee and Dan A. Shalmon. Faculty Research Working Paper Series, John F. Kennedy School of Government, Harvard University. March 20, 2007.
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The authors assert that China is determined to fuel its rapidly growing economy even if it has to enter into economic arrangements with "rogue" states. Some critics believe that China has an unfair advantage in the oil competition sector since it is not concerned with human rights, and it is willing to link oil investments to foreign policy. This paper identifies and unravels several of the factors and explores "China's relationship with one region: the Middle East."
AA07151
Foulon, Mark; Padilla, Christopher. IN PURSUIT OF SECURITY AND PROSPERITY: TECHNOLOGY CONTROLS FOR A NEW ERA.
(Washington Quarterly, vol. 30, no. 2, Spring 2007, pp. 83-90)
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Globalization has broken down the neat divisions between national security policy and economic policies, according to Foulon, acting undersecretary of commerce for industry and security and Padilla, assistant secretary of commerce for export administration. As a result, policies once regarded as mainly security-related like nonproliferation, defense sales, and border protection now have important implications for economic policy. Now, the authors say, traditional economic issues like foreign direct investment, tax, and visa policy, increasingly have security implications. Nowhere is this more evident than in the area of technology collaboration between U.S. companies in the areas of technology trade, research and development, and overseas manufacturing. In this new dynamic U.S. policymakers must "strike the right balance of controls, incentives, and market-based policies to allow the United States to reap the benefits of technology collaboration while minimizing its potential threats to national and economic security," the authors contend.
AA07107
Stiglitz, Joseph RICH COUNTRIES, POOR PEOPLE?
(New Perspectives Quarterly, Vol. 24 No. 1, Winter 2007, pp. 7-9)
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In an interview with the NPQ editor, Nobel Prize-winning economist Joseph Stiglitz challenges the U.S. model for globalization, which he says drives down wages in industrialized countries and imposes unfair trade practices on developing countries. He says globalization can only work if the winners share with the losers and warns about a potential protectionist backlash if the current trend continues. He prefers the "Scandinavian model" for economic development which invests heavily in education, research, technology and a social safety net, thereby giving entrepreneurs the tools and protection they need to take risks. He cautions developing countries against opening up to short-term speculative capital flows and says they should seek long-term foreign direct investment with technology transfers. He says the IMF has lost all legitimacy and needs a more democratic structure.
AA07106
Stern, Roger. IRAN ACTUALLY IS SHORT OF OIL
(International Herald Tribune, January 8, 2007)
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The author, an economic geographer and national security analyst at Johns Hopkins University, writes that Iran "has ensnared itself in a petroleum crisis that could drive its oil exports to zero by 2015". Iranian oil production is falling, due to sanctions, lack of maintenance and a decision by the mullahs that investing in oil production serves no short-term political benefit. Stern notes that the Tehran regime depends on its survival by diverting oil profits to a vast, inefficient welfare state, and by providing subsidized gasoline, which has created soaring domestic oil demand. Iran "burns its candle at both ends, producing less and less while consuming more and more", notes Stern, who believes that while Iran is probably guilty of deception in its nuclear program, it "may need nuclear power as badly as it claims", to free up oil for export. He believes that excessive pressure on Iran may actually allow the Tehran regime to portray its adversaries as the cause of its problems. He says that "the mullahs are doing a good job of destroying Iran's economy. They should be left alone to complete their work . . . the best policy towards Iran may be to do nothing at all."
This is a condensed version of a more technical article by Stern, "The Iranian Petroleum Crisis and United States National Security", published in the Proceedings of the National Academy of Sciences, and currently available online at http://intl.pnas.org/cgi/content/full/104/1/377
AA07018
Carbaugh, Robert; Wassell, Charles Jr. REDUCING AMERICAN DEPENDENCE ON OIL
(Challenge, vol. 49, no. 6, November/December 2006, pp. 55-77)
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The authors, both economics professors at Central Washington University, say no single policy will "solve" the U.S. oil dependence problem. They examine the pros and cons of several widely discussed solutions such as rationing coupons (both non-transferable and tradable), increased gasoline taxes, higher fuel-economy requirements, higher prices, and alternative fuels. On the demand side, they note, the policy choices create a tension between speeding up reduction in consumption and a policy-induced inefficiency or inequity. And, from the supply side, there is a trade-off between environmental concerns that would accompany increased domestic production and other oil-related external costs. Policymakers will inevitably have to choose the "lesser of two evils", they conclude. Consequently, it is essential that a comprehensive cost-benefit analysis -- including the option of a "no-action" alternative -- be conducted prior to implementing any policy options.
AA07020
van Agtmael, Antoine INDUSTRIAL REVOLUTION 2.0
(Foreign Policy, no. 158, January/February 2007, pp. 40-46)
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Economist van Agtmael says Western protectionism has been a hindrance for Western companies. Protectionist policies in a globalizing economy generally led to a false sense of security, a reluctance to streamline, and a lack of innovative thinking in industries such as steel, automobiles, electronics and cement. Meanwhile, he notes, emerging market companies are increasingly competitive, with many firms capable of attaining world class status. In 1988, there were just twenty companies in emerging markets with sales over $1 billion. Last year, there were 270, including at least 38 with sales exceeding $10 billion. This is not a simple case of unsophisticated makers of low-cost, low-tech products reaping the rewards of cheap labor, he observes -- many of these firms are high-tech, capital intensive and operate under sophisticated marketing and management strategies. This does not mean that Western economies are doomed to "lose", he emphasizes. The world economy is not a zero-sum game, says van Agtmael, and globalization should benefit any company willing to adapt and innovate to maintain a competitive edge.
AA06324
Norberg, Johan SWEDISH MODELS: THE WELFARE STATE AND ITS COMPETITORS
(The National Interest, issue 83, Summer 2006, pp. 85-91)
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Norberg says that despite Sweden 's status as the "ideal" state, things in Sweden are not as good as the advocates would like to believe. In the 1930s, he notes, the Swedish population was small and homogeneous, with high levels of trust in one another and the government -- a very unique condition that is vital to a successful cradle-to-grave welfare state. The early Swedish model, applied in a homogeneous population with a strong work ethic drove its early success in an economy centered on a small number of large industrial countries. Over time a combination of factors -- increased taxation, increased benefits, competition from globalization, and immigration -- have all changed the dynamics. Consequently, says Norberg, incentives now discourage work and creative innovation, which has decimated the work ethic and driven entrepreneurs elsewhere. To illustrate the power of incentives, he cites a study of Somali immigrants in Minneapolis ( Minnesota ) and in Sweden . The research showed that the Somalis in the Minneapolis area had double the employment rate of their counterparts in Sweden , and 800 Somalis in Minneapolis owned their own businesses, but only 38 did in Sweden.
AA06283
Kraemer, Thomas D. ADDICTED TO OIL: STRATEGIC IMPLICATIONS OF AMERICAN OIL POLICY
(Strategic Studies Institute, May 2006, 13 pp.)
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In his 2006 State of the Union address, President George W. Bush proclaimed that "America is addicted to oil, which is often imported from unstable parts of the world" and that it was time for the United States to "move beyond a petroleum-based economy and make our dependence on Middle Eastern oil a thing of the past." To do this, Kraemer says, Bush established a goal "to replace more than 75 percent of our oil imports from the Middle East by 2025." However, the author notes, only 18 percent of oil imports are projected to come from the Middle East in 2025. In reality, he states, the Bush goal only results in a decrease of American oil consumption by 14 percent overall. Oil is a fungible, globally traded commodity with rising demand, explains Kraemer, so this initiative will have minimal impact on influencing America's national interests in the Middle East. However, he continues, most rehabilitation programs follow a 12-step process. The Bush plan should be considered the first stage of the process in weaning America from its addiction. It is a necessary, if not fully sufficient, step to ensuring our future energy security, he concludes.
AA06262
Elhefnawy, Nader TOWARD A LONG-RANGE ENERGY SECURITY POLICY
(Parameters, vol. 36, no. 1, Spring 2006, pp. 101-114)
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According to the author, debate on U.S. energy policy has usually been limited to arguments that the United States must preserve its access to the oil reserves of the Middle East and of Central Asia -- with a limited sense that domestic energy supplies would be highly desirable. A linear projection has oil supplies running out around 2030, he says. In the event of a new energy crisis, there may be more state failures, weapons proliferation, and resource conflict. Overall, he states, there are three major problems: first, substitutes for oil are too expensive or too unwieldy to support desired levels of economic productivity and living standards. Secondly, future improvements and relevant technologies cannot be taken for granted, particularly given the prolonged drop in the price of solar- and wind-generated energy since the 1970s. Finally, partial solutions can only provide a cushion until a more complete transition can happen. The prospect exists for an economy based on renewable energy, he asserts, because the security problems likely to result from tightening oil supplies are a basis for making the transition to alternatives -- which is widely acknowledged as inevitable in the long run, anyway.
GETTING SERIOUS ABOUT THE TWIN DEFICITS.
Menzie D. Chinn. Council on Foreign Relations (CFR). September 2005.
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This report, part of the Council's series on the Future of American Competitiveness, addresses why the United States' twin deficits constitute an important foreign policy issue. The author examines the fiscal and current account deficits and how the United States arrived at them; challenges the notion that they are sustainable; and puts forward an agenda for remedying the situation. He explains why the United States must act, lest the dollar, a primary element of U.S. economic strength and political influence in the world, be undermined.
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THE RISE OF CHINA AND ITS EFFECT ON TAIWAN, JAPAN, AND SOUTH KOREA: U.S. POLICY CHOICES. [RL32882]
Dick K. Nanto and Emma Chanlett-Avery. Library of Congress. Congressional Research Service. April 12, 2005.
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The rise of the People's Republic of China (PRC) as an economic powerhouse has brought significant changes in China's relationships with Taiwan, Japan, and South Korea. The interests of all four of these governments are being influenced by the rapid development of trade, investment, and financial flows. Relationships among them arise primarily out of the self interests of businesses and operate largely independently of government intervention (except for government regulation, ownership of enterprises, and financing). Many of these economic flows are generated by the forces of globalization that are affecting all parts of the world.
This report maintains that some of the primary concerns with respect to rising Chinese economic power and the growing trade and investment network in northeast Asia are these:
- China's so-called "peaceful rise" is occurring below the radar screen for many policymakers. China seems to be taking advantage of a "distracted America" to build relationships with other countries that could have far-reaching effects on U.S. interests and strategy.
- The growth of the Chinese economy is so rapid and broad-based that it has the potential of fundamentally altering national interests among countries.
- China is displacing the United States as the primary trading partner for many Asian countries. China's market has become so extensive that Taiwan, Japan, and South Korea have all joined the Chinese-based economic network rather than try to work against it. While the U.S. market will always be a major export destination, Japan, South Korea, and Taiwan have progressively turned toward China for imports and exports, and their companies increasingly are dividing their manufacturing processes to take advantage of lower costs in China.
- The progressively large economic and financial relationships between China and its neighbors in northeast Asia is altering the cost-benefit calculus of military action that might cause instability in the region. The economic costs of instability are rising. Each is being induced to seek stability, although the PRC is adamant in preventing Taiwan's independence.
- China's growing economy provides the resources for Beijing to modernize its military, and it is expected, before too long, to be able to tip the balance of power across the Taiwan Strait in its favor. Once that occurs, China may be willing to sacrifice external peaceful relations to accomplish other national goals - such as forced reunification with Taiwan.