50 Little Herbert Hoovers and Federal Revenue Sharing

Mark Thoma brings up a couple of related themes. The first being:

Recessions lower revenues and increase the demand for state and local services, and this pushes state and local governments into the red. Since state and local government are required to balance their budgets, this forces forcing them to either cut spending or raise taxes (most are choosing to cut spending).However, since both tax increases and cuts in spending are harmful to employment and growth, as state and local governments bring their budgets into balance it makes it more difficult for the economy to recover.

Those balanced budget requirements force state and local governments to adopt pro-cyclical fiscal policies, which has been recently dubbed the 50 Little Herbert Hoovers problem (I believe Paul Krugman coined this term). This problem is generally well known by at least the school of economists who appreciate what Lord Keynes was saying in his General Theory and one remedy for this problem is countercyclical movements in Federal revenue sharing. But let’s have Mark continue:

If the federal government steps in and helps to close the state and local budget gaps, the negative consequences can be reduced, but budget pressures at the federal level make federal help unlikely. In the worst case, states could face large federal-to-state cost shifts or cutbacks in federal payments as a result of attempts to balance the federal budget, something that cannot be ruled out. That would lower growth even more. Thus, the extent to which Congress chooses to shift costs or reduce payments to the states as a remedy to federal budget problems could be an important factor in the recovery.

My limited contribution is simply the above graph showing the ratio of Federal revenue sharing to GDP over the past half century. Note in particular that this ratio climbed during the last recession and that it reached 3.5 percent during the current one. Given the severity of the recession, some of us would have hoped for even more Federal revenue sharing. But alas – there does seem to be a tendency for some D.C. politicians to adopt Herbert Hoover economics at the Federal level.

The Western Response to the Revolt in Egypt: A Counterfactual

The reactions of US and European political leaders to the democratic uprising in Egypt is dismaying but not surprising. Democracy and human rights are fine words, but other imperatives, like western economic interests in the middle east and the alliance with Israel, carry more weight. The people of Egypt are not ready to determine their own future, our leaders say; first we need many months of oversight by a government led by the man who headed the secret police for 20 years, and then, after the protests are a dim memory, we can have a properly managed “transition”.

To evaluate a course of action, however, we need an alternative—a counterfactual policy that offers a benchmark against which actual policies can be compared. What would a positive response to the situation in Egypt look like? Here is my suggestion for an ideal western statement:

1. The recent outpouring of political protest in Egypt demonstrates that the prior policies of our countries did not actually uphold the values we claim to believe in. We supported dictators and torturers and largely ignored the democratic rights of the Egyptian people, as well as the economic suffering that was endemic in a country ruled by corrupt, unaccountable elites. It would have been better if we could have reversed course on our own, but we intend to use the current upheaval as an opportunity to reexamine our motives and actions, in order to chart a course which is both ethical and practical.

2. We call for the immediate establishment of a provisional coalition government representing all sectors of Egyptian society. We will support the process for reform they agree upon, providing only that it conforms to the fundamental elements of the Universal Declaration of Human Rights—that it respect the physical security of each individual, freedoms of speech, assembly and association, and the personal rights to conscience and faith. We share the outrage felt by most Egyptians at the denial of the most minimal degree of economic opportunity to those trapped in extreme poverty and expect to work in the years to come as colleagues in the urgent business of finding solutions. We take heart at the courage and seriousness shown by the people of Egypt, and we see rebellion for democracy as an inspiring opportunity, not a threat.

3. We know from history that there is a high likelihood that nations that undergo internal revolutions will be subjected to external attack. In that light, we offer to the people of Egypt our guarantee of the integrity of its borders, a commitment we are prepared to back with military force if necessary. Furthermore, we pledge to maintain the current level of military assistance until new arrangements can be negotiated with a future democratic government. In return, we ask for two commitments on the Egyptian side: (1) The Egyptian military should remain neutral in domestic political contests, not aligning itself for or against any particular faction. It should also refrain, during the transitional process, from any actions outside Egyptian borders. Its primary mission should be to protect the rights of all Egyptians, including peaceful demonstrators and members of minority communities. (2) The Egyptian democratic process should remain demilitarized. No political faction should be permitted to maintain a paramilitary force, explicitly or otherwise. If these commitments can be upheld, the democratic moment can be transformed into a democratic era.

4. While Egypt is not a heavily indebted country, in most years it has been paying 2-3% of its GDP in debt service to foreigners. For a poor country this is a significant burden. For instance, it is more than half of Egypt’s total public spending on education. Essentially all of this debt was acquired during the period of dictatorship. While some of the credit may have been used to benefit the population, a substantial part of it found its way into the private accounts of well-connected individuals. Given this, we are prepared to begin a process of identifying odious debt—debt resulting from loans that lack legitimacy in their origination or which creditors had reason to know was intended for corrupt purposes. We will convene a body of Western and Egyptian specialists to sift through these debts and compile a list of those that should be written off. At this point, based on what we currently know, we expect that odious debt will constitute the majority of the total. While we recognize that, after years of selling and reselling these loans in international markets, it will not be easy to devise a fair basis for assigning the costs of the writedown, nonetheless we will not use this as an excuse to limit or delay it. We hope that a systematic process for writing off Egypt’s odious debt can serve as a model that can be applied to other democracies.

5. We know all too well that our past promises in the realm of foreign aid have fallen far short. We have given less than we said we would, and much of our aid was tied to purchases of our products or policies we were essentially bribing countries to support. We could announce today that all this has changed, but we would not be believed, and rightfully so. With this in mind, we pledge to work with a democratic Egypt in the international effort to construct a new, fairer and more reliable system of economic cooperation based on the principle of global public finance, the use of taxes on international transactions to finance the Millennium Development Goals and similar objectives. We see the revolution in Egypt as a call not only for the end of political repression, but also for the end of extreme poverty. These should be goals for all people everywhere.

Does Economics Explain The Current Arab Uprising?

Some days ago I posted on the political economic roots of the Egyptian uprising, and I think that michael perelman is correct in putting all that in a broader framework of international political economic domination by the US. However, the degree of importance of economic factors in the broader uprising in many Arab countries now seems to me to be not as strong as one might think.

I do see two clear areas where one can see economic factors. The first has to do with oil. No Arab country that is a major oil exporter (or earns the vast majority of its export earnings from oil) is seeing an uprising, or even any noticeable hints of one, unless one counts the continuing rumblings and instability in Iraq, and Algeria is a borderline case as a somewhat significant oil exporter that has had riots. Oil prices have risen, and it would appear that most of the leaders of the countries exporting lots of oil have been clever enough to sufficiently distribute the rising earnings from this so as to tamp down any incipient unhappiness about dictatorship or monarchy or excessive friendliness with the US.

The other obvious shock has been the spike in food prices, with the massive drought due to an unprecedented heat wave in Russia, Ukraine, and Kazakhstan last summer playing the leading role in this, with something on the order of a 10% decline in world wheat production resulting. Egypt is the world's largest importer of wheat, and pretty much all the other Arab countries with demonstrations or riots are also importers of food to some extent, and almost all of wheat in particular. So, there we have a neat story. Those with rising foreign earnings from oil exports have not had political upheavals (except maybe Algeria), while those more strongly dependent on food imports and thus suffering shocks that especially impact the poorer parts of their populations have almost all had uprisings.

Beyond those two fairly clear cut matters, all else is very murky. This can be seen by considering the two reasonably large, non-oil exporting and mostly Sunni Arab, states that have not had actual demonstrations or riots, although both have had rumors and threats of same: Morocco and Syria.

It is hard to find much in common between them. Both have lower per capita GDPs than either Tunisia or Egypt, the countries with the most serious riots and demonstrations. Both have greater inequality as measured by official Gini coefficients than Egypt (who has the lowest Gini of any Arab nation), although Morocco has slightly greater inequality than Tunisia (Gini of 40.9 with Tunisia at 40.0, while Syria is at 37.0 and Egypt at 34.0). However, Morocco has had a higher growth rate than either Tunisia or Egypt, while Syria has had a lower one than either of those countries.

Furthermore, Morocco and Syria are probably at opposite ends in terms of foreign policy and internal politics. Like Jordan, Morocco is a near-absolute monarchy, whose king is a descendant of the Prophet Muhammed and which has very friendly relations with the US, and less hostile relations with Israel than many Arab states, although has not had a peace treaty like Egypt or Jordan. Ba'athist Syria is Arab nationalist socialist (indeed was unified officially with Egypt a half centry ago in the failed United Arab Republic), and very anti-US and anti-Israel, while being friendly with Iran.

Some attribute the lack of uprisings in Syria, although there have been rumblings put down by security forces, to the population favoring the foreign policy of the regime. Could be. In the case of Morocco, the current king is relatively young and still relatively new in office, and viewed as a reformer compared to his autocratic and long-serving father. Again, there have been rumblings, but nothing too noticeable. It may be that the Moroccan population is cutting a relatively popular new and young king some slack.

Other Arab states that have had demonstrations or riots have had more dramatic political problems or issues, although there is no pattern, beyond the intense cases of Tunisia and Egypt. So, Yemen is the poorest by far, with serious demonstrations; Jordan has a 70% Palestinian population possibly unhappy over policy with Israel and a weak economy; Algeria has had long conflicts with Islamists and a past of a military resisting the results of an election; Lebanon it is a matter of Sunnis rising up to protest the coming to power of Shi'i Hezbollah, and Iraq is just an ongoing mess from the overthrow of Sunni rule by the US invasion (and it is an oil exporter anyway, so not properly in these groups). However, aside from the much greater poverty of Yemen, most of these countries are not all that different in the major economic variables than the two without demonstrations: Morocco and Syria. So it is probably these other political factors that are the source of the greater calm in those two compared to the others.

Reagan and Carter

Today is the centennial of Ronald Reagan, being wildly praised by Republicans, conservatives, and others, even as some point out that many things being said about him now are myths in one form or another. I shall add to this with a few points regarding things that he has been credited with, which were actually due to his much-maligned predecessor, Jimmy Carter, although it is debatable whether or not all of these were ultimately good things.

Before piling on the debunking, let me note that not all that Reagan did was bad. I applaud his willingness to negotiate with Gorbachev when he came to power. I also applaud his willingness to back off the next round of his tax cuts in August, 1982, thus allowing for an easier monetary policy, when the incoming Mexican finance minister arrived threatening a default, which allowed for a recovery from that very deep recession (and thus for his "morning in America" 1984 campaign after 8% GDP growth in 1983). He also discretely held off many more conservative initiatives that he supposedly supported and were pushed for by some of his backers.

Anyway, two things that Reagan receives praise for are the decline in inflation during his presidency and his support of the Mujaheddin rebellion against Soviet rule in Afghanistan, usually placed into the list of things that more generally led to the fall of the Soviet Union, which he widely gets credit for, even though it happened during the presidency of his successor.

Anyway, I am not a monetarist, but maybe I am enough of one to believe that if the Fed really cracks down hard with a super tight monetarist policy, it will eventually reduce inflation while also bringing about at least a nasty recession. That was indeed what Paul Volcker did after being appointed Fed Chairman by Jimmy Carter, with the Fed-induced recession having a lot to do with Carter's failure to be re-elected. Indeed, it was the 1982 deal that brought an end to this super monetarist policy that certainly played a major role in the reduction of inflation, although it was Carter, not Reagan, who initiated it by appointing Volcker.

Also, it was Carter in 1979, who made the crucial decision to aid the Mujaheddin against the Soviets after they conquered Afghanistan. That also is arguably a mixed bag in that of course this would eventually lead to the Taliban controlling Afghanistan and al Qaeda using it for a base to attack the US, etc. Indeed, it was during Carter's presidency that the crucial decision to send Osama bin Laden to Pakistan to assist the Mujaheddin was made by Saudi intel with the concurrence of the CIA, although I doubt Carter was involved with that specific decision, despite his rep for micro-managing, although that reportedly had more to do with who got access to the WH tennis court.

An Excellent Analysis of Empire: Reflecting on Cairo

The United States, like Germany, came late to the empire business. It did not aspire to informal Empire, but rather went to great lengths to undermine the existing empires to open them up for US business. Eric Louw tells the story very well:

Louw, P. Eric. 2010. Roots of the Pax Americana: Decolonization, Development, Democratization and Trade (Manchester: Manchester University Press).

In his account, the US was going to great lengths to undermine Britain's Empire, especially India, even when those powers were allies during the Second World War. He attributes Chamberlain's behavior in Munich to a justifiable fear that dependence on US support in fighting the Nazis posed a greater threat to the empire than the Nazis themselves. He shows that the US made good use of Gandhi in discrediting the British Empire.

Rather than going to the expense and trouble of maintaining a formal Empire, the US preferred finding compliant regimes in important venues. For example, the US could have kept Cuba as a colony, but it got what it needed much more cheaply by keeping friendly governments in place. In contrast, Puerto Rico, which was much smaller, would not pose much trouble as a territory controlled by the US.

The book does not seem to be intended as a radical critique. It does not discuss how this Pax (Pox) Americana proved to be a disaster, leaving people under the rule of Marcos, Mubarak, the Shah, and other such klepocrats and thugs I am anxiously waiting new chapter being written today in the streets of the Middle East.

Grover Cleveland, Obama's Percursor?

I have been thinking about presidential comparisons with Obama. The closest I could imagine was Grover Cleveland's second administration.

Cleveland was the leader of the pro-business Bourbon Democrats who opposed high tariffs, free silver, inflation, imperialism and subsidies to business, farmers or veterans. His battles for political reform and fiscal conservatism made him an icon for American conservatives. Cleveland was tight with the bankers and the railroad. Maybe he was not so much in love with them as Obama, but it is still pretty disgusting.

Here are my notes from Matthew Josephson's The Politicos:


Josephson, Matthew. 1969. The Politicos, 1865-1896 (New York: Harcourt, Brace and company).

518-9: The second Cleveland administration was intent on restoring business confidence, in part, by reestablishing the gold standard by repealing the sermon Silver Purchase Back of 1890, and the elimination of silver as a metallic basis of money.

519: Tariffs were to be reduced in order to encourage imports to raise customs revenue.

519: Gold reserves were depleted under Harrison. The government would issue bonds to purchase more gold. Bankers, such as August Belmont, J.P. Morgan, and James Stillman, together with a group of German bankers represented by Henry Villard, had the president's ear.

527: In early 1893, Austria was accumulating gold for resumption and Russia for suspected war purposes. In Interest rates were rising and bankers were withdrawing gold from the treasury at an alarming rate.

530: A financial panic morphed into a depression.

530-1: Congress did not like Cleveland, who withheld patronage from Congress, in order to wield this scarce resource. Later to get unpopular measures passed.

531: In June of 1893, Cleveland called a special session of Congress to repeal "unwise laws" relative to the currency.

540: By January 1894, and the treasury, moving on its own, announced the issue of $50 million of 5% 10-year bonds to be sold that not less than 117.223 two-year-old 3%.

540-1: The banks did little to increase the treasury's holdings of gold. They presented their legal tender for redemption, using the gold they received, we loaned the gold back to the treasury.

543: The tariff reduction bill was structured so that it presented little threat to the great trusts.

545: The final tariff bill actually produced significant tariff increases in the most significant industries.

559: By the spring of 1894, people were becoming rebellious. They were even said to have commandeered trains from the southern Pacific and the Union Pacific. The credibility of these claims was an indication of how fearful the ruling class had become.

561: Coxey's "army" was forming. Coxey was a successful businessman, whose program was to have the federal government use its credit to give jobs to the unemployed, especially for public works.

563: Attorney general Olney enrolled approximately 1000 deputy marshals to track down disturbers.
566: The police violently dispersed Coxey's demonstration to the great relief of the establishment.

566: Labor injunctions had rarely been used. Olney perfected the legal weapons by which the military and the police would protect capitalist enterprises.

567: In 1894, following the panic of 1893, employers engaged in intensive wage cutting. This time, workers' resistance became stronger, unlike earlier periods. Almost 750,000 workers engaged in strikes -- the great railroad strike being the most dramatic.

588: While Cleveland and Olney were battling the workers to protect the capitalists, the capitalists were withdrawing their gold from the treasury.

589: By the fall of 1894, the depression became more acute.

590: By August of 1894, the government had exhausted the proceeds of his recent loan and the gold reserves sank the $52 million. Secretary of the treasury, Carlyle, begged the bankers, the deposit gold in the subtreasuries in return for legal tender. The bankers grudgingly relented a bit.

592: In November, Carlisle invited public bids for a second loan, but the bankers were dissatisfied with the terms.

593: The bankers relented, but the proceeds of the loan disappeared within 10 weeks, whereas the earlier loan took 10 months. In other words, massive withdrawals of gold occurred.

595: By January 1895, Cleveland agreed to virtually all of the banker's demands. He asked congress to agree that all new bonds would be gold bonds and that greenbacks and treasury silver notes would be converted into a national bank notes secured by government gold bonds.

596: The bankers, led by Morgan, demanded that the government make sure that the 3.75% bonds be issued abroad and that the gold be purchased with these bonds come from abroad.

599: The administration's financial bill was overwhelmingly defeated in the house in February 1895.

600: "At one psychological moment of the contest, by telephone, a call came from a treasury official who reported that there was less than $9 million in gold coin at the New York Sub-Treasury. Whereupon Morgan is said to have remarked: "Mr. President, the Secretary of the Treasury knows of one cheque outstanding for twelve million dollars. If that is presented today; it is all over." The implied threat in Morgan's words was unmistakable." [In other words, Morgan could bankrupt the government if it refused to accept his conditions.]

601: "Morgan also supervised and controlled for several months the gold reserve of the Treasury. Every banking house and exchange dealer in New York having important European connections was bound to the undertaking by being given an allotment of the syndicate's bonds at profitable rates."

The Political Economic Basis Of The Egyptian Uprising

Yesterday, Juan Cole posted on "Class Conflict in Egypt," http://www.juancole.com/2011/01/egypts-class-conflict.html. As usual, very insightful on the poltical economic foundations of this uprising. He argues that the original base of support for the Nasserist regime that took over in a coup in 1952 was rural land reform, with the rural middle class that got land still the base of the regime. However, over time with urbanization and slow growth and the rise of corruption since Mubarak took over, that base has eroded. Nasser also gained credibility for throwing out the British and standing up to other outsiders (with the US and Soviets ironically siding with him in the 1956 Suez Crisis against the UK, France, and Israel).

Real wages doubled between 1960 and 1970, when Nasser died, but stagnated after that until 2000, with nearly zero real per capita income growth and a worsening income distribution. Neo-liberal policies, including relaxation of food price controls in the 1990s, did not produce much, although growth did increase after 2000, running at a 5-6% rate. But it has not been enough to provide jobs for the many urban youth, particularly the better educated ones.

Also, since 1980 the regime has been seen as supported by outsiders, particularly the US, Israel, Britain, and France, in contrast to the Nasser period. As economic problems surged with the food price spikes in 2008 and the subsequent Great Recession in the world economy, this made for a weak foundation of support for the regime. We should expect any successor to take a more independent line, especially the moderate El-Baradei who was so badly treated by the US previously.

I must note, however, that while inequality has increased, it is not all that bad compared to many other countries, with Egypt's current Gini coefficient of 34.0 putting it in 90th place in terms of inequality in the world.

Finally, I note that the chances for Mohamed El-Baradei succeeding Mubarak (eventually anyway) have increased with him receiving the support of the Ikhwan, the Muslim Brotherhood. However, there are other more radical Islamist groups in Egypt calling for an Islamist state with Shari'a imposed as law, although they appear to be a minority on that side, even though they are more moderate than the expelled Egyptian Islamic Jihad, whose leaders include the #2 and #3 figures in al-Qaeda.

Whither Egypt?

I was last in Egypt more than a quarter of a century ago, in the early days of the Mubarak regime, before the US had seriously paid down the bill for the martyred Sadat's Camp David signing, which Mubarak upheld. That payment, probably the most serious thing that billions of US aid over three decades did for actual Egyptian citizens, was replacing the sewer system of Cairo, whose exploding flooding had triggered massive "sewage riots," although not as large as the food price riots of 1977 when Sadat attempted to remove subsidies and price controls on food under pressure from the IMF, by far the largest riots until those now occurring there.

This has been a long time coming and how it will end is very far from clear. Roughly there seem to be generally three possible outcomes: 1) Mubarak maintains control following the Iranian success in suppressing street uprisings, an outcome that reportedly the Israelis are predicting and most certainly hope will come true; 2) Mubarak falls to be replaced by Mohamed El-Baradei, former director of the IAEA, whose accurate reporting of the state of nuclear weapons in Iraq led G.W. Bush to try to remove him from his position and who has returned to be surrounded in a mosque with supporters by security forces giving him Islamic cred, even though he is the main hope of the social democratic secularists; 3) Mubarak falls to be replaced by the main opposition in the parliament, who are front parties for the Ikhwan, aka "Muslim Brotherhood," with this possibly leading to more radical factions of that group coming to power, ending in a Sunni-Egyptian version of Iran. As of now, there is no way to know which of these will triumph, and there are other more complicated possible outcomes.

Regarding the economics of this, Egypt is a peculiar combination of decaying state socialism and horrendously corrupt emerging capitalism. Egypt is an ancient country that is very cynical. They have seen it all, but they have been under an increasingly repressive rule with increasing inequality and growth unable to provide jobs for a rising and technicially sophisticated generation, this despite such ameliorative policies as the longstanding price controls on food.

The situation in Egypt parallels in many ways that in such countries as Tunisia, Algeria, Yemen, Jordan, and Lebanon, all of which have been experiencing uprisings led by young Sunni Arabs, although the details vary from country to country, along with the seriousness of the uprisings. It is in Tunisia and Egypt where these uprisings seem the most serious, with real possibilities of some kind of secular social democratic outcome quite possible, which would be a dramatic breakthrough of enormous significance. Unfortunately, the US has been very slow and far behing getting aboard these movements and supporting their more progressive elements. But in the end, the outcomes in all of these countries will have little to do with the US and everything to do with the people in those countries.

I note that Juan Cole at http://www.juancole.com as usual provides very useful reporting, commentary, and links on what is going on there.

Obama Plays Bone Games With Congressional GOP in SOTU

So, in his State of the Union message, President Obama threw the Congressional GOP some bones, support for the free trade pact with Korea and future ones with Colombia and Panama, an offer to lower the corporate tax rate combined with some sort of simplification to make it revenue neutral, an offer to consider limits on medical malpractice awards, and the offer of a continued freeze on discretionary spending. These probably helped make him look "reasonable" to many listeners, although I suspect that the GOPsters will gobble them up without necessarily giving him much in return. Of course, to the extent that such bones help keep his popularity ratings up, this may given him bargaining power.

On most other items he was astoundingly vague, if sometimes uplifting and all that. He gave some vague support to his deficit commission, "as a starting point" for negotiation and discussion. The real biggie is that he seems to have backed off from specifics on what to do about social security. There were many rumors around Washington and various blogs that he was going to come out for something along the lines of the deficit commission recommendations, particularly an increase in future retirement ages. However, it looks like the polls may have gotten to him. Despite his platform (and the best efforts of Bruce Webb and I and others) he has seemed awfully open to some sort of benefits-cutting deal, and his agreement to cut payroll taxes in December has also looked unpleasantly like a foreplay of such.

However, he stayed vague. Even 67% of tea partiers reportedly support raising fica taxes rather than the retirement age or other benefit cuts in order to "put social security on a sound footing," as Obama put it, although many of us have argued that there is no need to do this, certainly not in the near future. This is a situation where for once popular opinion is arguably closer to the reality than supposedly wise experts and pundits in Washington.

In any case, Obama is making others come to him with these proposals, and let them bear the political heat for doing so. This may mean that nobody will do so, hopefully.

Michael Moore's Leaked Citibank Plutonomy Memo

I cannot copy the memo, only read it on the web. Its willingness to write so honestly about our neoliberal capitalism, it is interesting and worthy of comment. Maybe someone can figure out how to copy it.

http://www.box.net/shared/9if6v2hr9h

Notes from a Declining Empire: Introduction

Other than the ability to manipulate and control its people and to export destruction to the rest of the world, the US empire seems to be fading in the midst of an emerging mulipolar world. The US is a strong exporter of weapons, agricultural products, and intellectual property -- and little else.

Cutting back on education, health care and other services that government should provide is hardly a way to build a strong economy.

One of the symptoms of decline is the weakening of the attraction of US culture. In Asia, Korean culture seems to be in ascendance. The Wall Street Journal recently reported as a fluff piece about this phenomenon.

What is it that the US will be able to offer the rest of the world other than its culture of looting, shooting, and polluting.


Hookway, James and Wilawan Watcharasakwet. 2010. "Hungry for Drama, Chinese Viewers Send Out for Thai: The Sexy Soap Opera Actresses and Actors Are So Asian -- And So Over the Top." Wall Street Journal (3 December).
http://online.wsj.com/article/SB10001424052748704584804575644610069449980.html?mod=ITP_AHED

"What's going on, TV analysts in the region suspect, is that Asia is starting to outgrow its addiction to Hollywood hand-me-downs. For years, Asian broadcasters have been relying on such U.S. imports as the "CSI" dramas and that old standby "Baywatch" to fill out their programming schedules. Now, egged on by the popularity of South Korean singers and actors in recent years, Asian broadcasters are more comfortable using their neighbors' TV dramas or music instead of American fare. Some analysts figure the success of the Asian programs is the latest sign of Asia's rising confidence."

Bilateral Data, Multilateral World

I remember that, a few years ago, it seemed to be a full-time job explaining to people why it didn’t matter very much whether the US bought its oil from the Middle East, Venezuela, or Angola. You had to lay out the basic idea of a commodity market and the market-level basis for supply, demand and prices. Do we have to do this now for bonds?

OK, the risk premia attached to different issuers differentiate bonds in a way that doesn’t apply to oil deposits, and it does matter when demand shifts from one borrower to another, but one cannot infer global demand for a country’s debt from bilateral data.

I see this morning that Floyd Norris finds it “extraordinary” that China could be reducing its holding of Treasuries in light of its continuing large current account surplus, and its policy of keeping its currency cheap. It is true, as Norris says, that transacting through third party brokers could gum up the statistics, but even so, there’s nothing supernatural about this situation.

The overall global payments balances suggest a different possibility. China, in view of the great downside risk of the euro and the importance of its exports to the Eurozone, as well as its interest in diversifying its reserve holdings, may be ramping up its purchases of European sovereign debt. This also makes it a player in the politics of the region, which are crucial to the future global financial landscape. (I am being purposefully vague here: you can fill in the blanks yourself regarding China’s specific motives in gobbling up likely-to-be-trimmed debt from the likes of Ireland and Spain.) But buyers need sellers. This means China’s demand for US debt has been displaced to those who would otherwise have bought (no doubt at a steeper discount) the European bonds China acquired.

Thus it happens that the extraordinary becomes ordinary. China’s surplus dollars find their way back to the US via a European stopover, and the Eurozone crisis is extended for a few more months.

Media Merger Kills Off Olbermann

It is bad enough that Glenn Beck continues to pollute the airwaves on Rupert Murdoch's Fox News, having called for people to be "shot in the head" with no repercussions whatsoever. However, now we learn that Keith Olbermann is being dumped unceremoniously from MSNBC subsequent to NBC being bought out (oh, excuse me, "merged with") Comcast. Funny how the minute I saw the reports that this merger was going to happen, the first thought that came to my mind was, "they will fire Olbermann," which I then dismissed as mere paranoia. Well...

Anyway, I recognize that he has his oddities, such as going on for some time after Obama became president to end his broadcasts with how many days it had been since "President Bush declared mission accomplished in Iraq." But he was and is far superior to Beck and many others who persist without any question of their being fired on Fox and elsewhere (although we did see Juan Williams get the boot on NPR, only to have him get a huge contract from Fox and more recently the person who booted him booted herself). Someone should remove the jackass who removed Olbermann, but the trend in US media of ever larger corporations controlled by ever more conservative owners pushing to slice off the left while encouraging the right seems nearly unstoppable.

David Dreier Takes Credit for Weak Labor Market

Brian Beutler has some fun with the following absurd claim from the GOP:

Top Republicans are claiming credit for a variety of metrics showing that the economy is improving. Expect this meme to snowball, particularly as Democrats have done little, so far, to stop it. On Fox News today, House Rules Committee Chair David Dreier (R-CA) contended the GOP deserves all the credit for recent economic growth. "[W]e can get our economy growing. And we've gotten some positive numbers. I think it's in large part because we won our majority and we're pursuing pro-growth policies," he said. In December, the Department of Labor announced that unemployment had fallen from 9.7 percent to 9.4 percent. Its data suggests private sector job growth has been increasing since the fall. The GOP has controlled the House for just over two weeks, but has yet to enact any major economic legislation -- and economists agree that even enacted fiscal policy will not be immediately reflected in economic growth.

As far as real GDP, we have not seen the report for the last quarter of 2010 but since the last quarter of 2009 when annualized growth was 5.0%, real GDP growth for the next 3 quarters was anemic especially in terms of the size of the GDP gap. Over the last 3 months of 2010 – employment per the payroll survey has risen by only 384,000 or just 128,000 new jobs per month. During the same period, the employment-population ratio has declined from 58.5% to 58.3%.

Simply put – the labor market has been very weak and not getting better. Brian is correct that we have yet to see any major economic legislation from the new Congress. But if David Dreier wants us to give his political party the credit for this mess – so be it!

The State Capitalist Mixed Economy of Singapore

The Heritage Foundation has just released its latest index of economic freedom around the world and has Singapore in a solid and rising second place behind Hong Kong. Fifth in real per capita income behind Qatar, Liechtenstein, Luxembourg, and Bermuda (CIA World Factbook data), Singapore is much praised by many as a "well-manicured" place with low corruption and transparent laws, although with considerable political autocracy based on the long-running rule in the country by Lee Kuan Yew and his son, the current prime minister (the father is Minister Mentor).

Despite this general perception of super laissez-faire-dom, Wikipedia labels it as I did in the title of this post. It is a curious mixture of socialism and state planning with innovative free market approaches. 60% of the GDP is produced by companies with at least partial state ownership. Nevertheless, one can start a new business in only three days, compared to a global average of 34 days. It is the first country to have congestion pricing (1992), and is now very green with limits on car ownership, given by the Certificates of Entitlement (COEs), or rights to buy a car, which in turn are auctioned off and currently selling for about 70,000 Singaporean dollars (1.3 of them to US $ roughly), or substantially more than most new cars cost. Public transport, infrastructure, and education are excellent and efficiently provided. Most housing is built by the government, with private citizens becoming owners under very strict regulations, including very active intervention in property markets to control speculative bubbles.

I just returned from a conference in this curious place, which has much to please for visitors, including diverse, high quality, and inexpensive food, as well as lively ethnic neighborhoods. However, I became aware of elements of the dark side of Singapore, which it must be said are not as bad in some other autocratic countries. Thus, political dissidents tend to get sued by the ruling family for defamation rather than thrown in prison or tortured. However, caning is widespread for many crimes and rising, doubling between 1993 and 2007. While some of the canable offenses are regular crimes, they also include illegally immigrating and engaging in illegal money lending, with Singapore receiving its lowest freedom ranking for "financial freedom" from Heritage at 60 (out of 100, Singapore's overall score is 87.2).

Unsurprisingly the darker side shows up in labor markets and income inequality. There are no reliable statistics on poverty. While I did see one beggar, they are reportedly picked up off the street and arrested. The latest Gini coefficient is 48, the same as Mexico's. Of 164 countries listed by CIA, only 27 have worse ones, 12 of those in Latin America, 11 in Africa, Bosnia and Herzegovina in Europe, and Hong Kong, Sri Lanka, and PNG worse in Asia.

In labor markets there is the largely unreported matter of indentured laborers from other countries (the unemployment rate is very low). I saw some in the backs of trucks, and I was told to avoid certain parts of Little India on Sunday because they congregate there and are reputedly engage in theft on their one day off (although some indentured domestic servants get no time off). A good source on them and their situation from 2006 can be found at http://newamericamedia.org/news/view_article.html?article_id=8a93766ff16fec2a9dfdfc2516f87482. If that does not work, just google, "indentured labor Singapore" and it is (or was) the top hit. Ironically, or perhaps unsurprisingly, Heritage praises Singapore's labor laws, ignoring this indentured labor situation while praising their lack of any restrictions on laying off workers, and giving them a 98.0 on "labor freedom" (just behind their 98.2 for "business freedom,").

So, Singapore is not what it seems in many media accounts, in many ways a progressive and innovative society that is growing rapidly economically, while also experiencing substantial inequality and repression in various forms. It is unsurprising that many commentators have seen the former communist/socialist and now Confucian Lee Kuan Yew's system as a model for the post-Mao Dengist reform movement in China.