Saturday, February 21, 2004

Drezner to ABC: get better promo writers!

Here's ABC's This Week preview for tomorrow's show:

Democratic presidential front-runners Sens. John Kerry, D-Mass., and John Edwards, D-N.C., will go head to head on ABCNEWS' This Week with George Stephanopoulos in separate interviews airing this Sunday. (boldface added)

Anyone else see the oxymoron in this plug?

posted by Dan at 03:53 PM | Comments (14) | Trackbacks (1)

Will Nader raid the Deaniacs?

Fox News reports that Ralph Nader "will enter the 2004 race for the White House as an independent candidate." He'll announce on Meet The Press this Sunday.

This is somewhat different from Nader's 2000 race, when he was the Green Party candidate. Running as an independent will likely make it harder for Nader to get registered on all 50 state ballots plus the District of Columbia, since he won't be able to rely on the Green Party infrastructure (don't laugh, it exists) to help him out.

That said, one wonders if Nader would attract disgruntled Deaniacs -- regardless of what Dean says.

Josh Marshall provides the Democratic spin on this development. However, Wonkette's headline says the same thing, but has the triple advantage of being shorter, saucier and funnier.

UPDATE: For those on the right chuckling about this, scroll down the Politics1 blog, which suggests that former Alabama Chief Justice Roy Moore might run for President on the Constitution Party ticket.

ANOTHER UPDATE: OK, go ahead and chuckle -- Josh Chafetz says that Moore ain't running.

posted by Dan at 03:27 PM | Comments (25) | Trackbacks (0)

Friday, February 20, 2004

The Economist vs. the New York Fed on jobs

The cover of the Economist this week is on the outsourcing issue. Here's a link to their editorial. The key graf:

For the past 250 years, politicians and hard-headed men of business have diligently ignored what economics has to say about the gains from trade—much as they may pretend, or in some cases even believe, that they are paying close attention. Except for those on the hard left, politicians of every ideological stripe these days swear their allegiance to the basic principle of free trade. Businessmen say the same. So when either group issues its calls for barriers against foreign competition, it is never because free trade is wrong in principle, it is because foreigners are cheating somehow, rendering the principles void. Or else it is because something about the way the world works has changed, so that the basic principles, ever valid in themselves, need to be adjusted. And those adjustments, of course, then oblige these staunch defenders of free-trade-in-principle to call for all manner of restrictions on trade.

In this way, protectionism is periodically refreshed and reinvented.

Here's the cover story. It's worth a read, but there is one off-kilter point. At one juncture, the story says:

Although America's economy has, overall, lost jobs since the start of the decade, the vast majority of these job losses are cyclical in nature, not structural. Now that the economy is recovering after the recession of 2001, so will the job picture, perhaps dramatically, over the next year. (emphasis added)

What's weird is that the story provides a link to an August 2003 Federal Reserve Bank of New York Paper on why this economic recovery is different from other economic recoveries. Their conclusion:

We explore why the recovery from the most recent recession has brought no growth in jobs. We advance the hypothesis that structural changes—permanent shifts in the distribution of workers throughout the economy—have contributed significantly to the sluggishness in the job market.

We find evidence of structural change in two features of the 2001 recession: the predominance of permanent job losses over temporary layoffs and the relocation of jobs from one industry to another. The data suggest that most of the jobs added during the recovery have been new positions in different firms and industries, not rehires. In our view, this shift to new jobs largely explains why the payroll numbers have been so slow to rise: Creating jobs takes longer than recalling workers to their old positions and is riskier in the current uncertain environment.

How different is this recovery? Take a look at this chart:

Share of Total Employment in Industries Undergoing Cyclical Changes and in Industries Undergoing Structural Changes


As the NY Fed paper notes:

The parallels between the two most recent recoveries raise hopes that the current recovery will ultimately follow the same course as its predecessor. After about eighteen months, the 1991-92 recovery ushered in very strong employment growth and the longest economic expansion of the postwar period.

posted by Dan at 06:33 PM | Comments (23) | Trackbacks (3)

What explains the drop-off in the work force?

The puzzle about the current employment situation is that the unemployment rate has declined even though job creation has been sluggish. The reason this has taken place is that the number of people who consider themselves in the work force has declined. No one knows why this is the case.

Tyler Cowen summarizes a Wall Street Journal story from Tuesday offering possible explanations. Go check them out.

posted by Dan at 11:10 AM | Comments (49) | Trackbacks (1)

Whither Europe's influence?

Martin Woollacott says in today's Guardian that European Union's influence is waning in the rest of the world:

The European Union will eventually get its internal affairs in order to some degree. But it will be doing so at a time when long-term trends are taking away some of the influence it once enjoyed, and some of the opportunities it might have expected as a consequence of European successes in the future.

These trends are not, in the first instance anyway, those to do with population, pensions, migration, and out-sourcing that have led to suggestions that Europe will be increasingly outpaced by America, India and China. More important is the simple fact of lost leverage in the three regions of most importance to Europe - the US, Russia and the Middle East.

When he gets to the Middle East, here's his rationale:

But it is in the Middle East that Europe's star is faintest. The reason is that, although Europeans have enjoyed no real independence of action in the region for decades, there have always been Arab hopes that there would come a moment when Europe would act as a real counterbalance to the United States and Israel.

However, in spite of European opposition to the war in Iraq and in spite of European efforts, notably those of Tony Blair, to persuade the United States to deal with the conflict between Israelis and Palestinians more evenhandedly, Arabs are shifting in their view of Europe. Many see us not only as ineffectual but as essentially American collaborators, with the presence of European troops in Iraq, and more perhaps to come, counted as proof.

Wollacott has half a point, in that those realpolitik-minded Arabs desperately want more multipolarity in the system. However, in the future, Europe's standoffishness on Iraq might cause their influence to wane among future leaders. Tom Friedman's column from yesterday makes this point. One highlight:

One major criticism of the Iraq war is that by invading Iraq, the U.S. actually created more enemies in the Arab-Muslim world. I don't happen to believe that, but maybe it's true. What the critics miss, though, is that the U.S. ouster of Saddam Hussein has also triggered the first real "conversation" about political reform in the Arab world in a long, long time. It's still mostly in private, but more is now erupting in public. For this conversation to be translated into broad political change requires a decent political outcome in Iraq. But even without that, something is stirring....

Abd al-Hamid al-Ansari, the former dean of Qatar University's law school, just published an essay, in London's widely read Arabic-language daily Al Sharq Al Awsat, which asks whether the world is better off because of the U.S. ouster of Saddam. Those who say it is worse off, he argues, see only half the picture.

"Let us imagine the world if America had listened to the French and German logic saying: Give the murderers of the Serbs and the Arabs a chance for a diplomatic solution. Would Bosnia, Kuwait and Iraq be liberated? Let us describe the situation of the Arabs, and especially of Iraq, had America listened to the European counsel that said: democracy is not suited to the Arabs, their culture is contrary to it. . . . See now how many countries are turning toward democracy. Even Afghanistan has a constitution. In Iraq [they are drafting] a new constitution and handing over the regime, and Libya has changed." (Translation by Memri.)

posted by Dan at 10:42 AM | Comments (16) | Trackbacks (1)

Thursday, February 19, 2004

A party flip-flop on trade?

Matthew Yglesias responds to my Wisconsin post with an intriguing hypothesis:

NAFTA has become unpopular among Republicans, while Democrats like it fine. It gets -5 from white evangelicals, -6 from rural whites, -4 in exurban counties, -5 among white male seniors, and a whopping -17 among white non-college married men. And that's NAFTA among Republican loyalists. The only GOP-voting groups who like NAFTA are residents of the Deep South (+1) and college-educated white married men (+10).

When you look at Democratic voting blocks, union families, unsurprisingly, don't like NAFTA (-12) but all the others do. African Americans +3, Latinos +7, seculars +4, women with postgraduate degrees +13, and residents of "cosmopolitan states" +2.

Given that configuration and the increasing importance of service and public sector unions (who have no reason to fear trade) in the AFL-CIO, I wouldn't be surprised at all if over the next few years the parties wound up completing the flip on trade issues that began with Clinton's support of NAFTA and continued with Bush's steel tarrifs and farm giveaways. The current political dynamic seems to indicate a return to protectionism on the part of the Democrats, but that's masking an underlying trend in which the Democratic electorate is increasingly pro-trade and the GOP electorate increasingly anti-trade. When you consider that all the big fights in manufactured goods have really all already happened and that the future issues are going to be agriculture and textiles, which are mostly done in Republican states, you see the trend even clearer.

I have no idea where Yglesias is getting his numbers, but let's assume they're accurate. [UPDATE: Matt reveals his source] I'm still not sure he's right. I'll leave the debate to commenters [You're slagging off on your own analysis--ed. Sorry, I'm crashing on a few projects and leaving soon to give a talk at Notre Dame.]

posted by Dan at 10:33 AM | Comments (54) | Trackbacks (6)

Wednesday, February 18, 2004

Open Wisconsin thread

Given the Wisconsin primary results, two questions:

1) Does John Edwards have a chance to win?

2) Even if Edwards doesn't have a chance, will he force Kerry to adopt a more protectionist stance on trade? Say what you will about Kerry's rhetoric this campaign season -- his voting record indicates a strong predeliction in favor of an open economy. One of Edwards' few wedge issues is NAFTA. Will this force Kerry to adopt positions that he knows to be wrong?

posted by Dan at 10:17 AM | Comments (49) | Trackbacks (3)

Tuesday, February 17, 2004

Demographics and international relations

Most commentators do not mention the role of demography in international relations, in large part because the study of population can seem dry (I won't lie to you -- until a few years ago, if I saw a talk with the the word "demography" in the title, I was already bored) and because the effect of current demographic trends usually don't play themselves out for generations.

That said, Tyler Cowen links to a Nicholas Eberstadt essay in Policy Review that's worth a gander. First, Eberstadt actually justifies the failure to pay attention to demography:

By comparison with other contemporary forms of change — social, economic, political, technological — demographic changes are very slow and very regular.... And demographic change is only sharp and discontinuous in times of utter upheaval and catastrophe (circumstances, to be sure, not unfamiliar to modern Russia, China, Cambodia, and Korea — and a number of other Asian or Eurasian populations). From the standpoint of strategic demography, momentous developments can and do occur from one generation to the next, but rather less of note can be expected to take place over the course of three to five years.

That said, Eberstadt instroduces some startling facts -- and the same one that caught Tyler's attention caught mine:

Between 2000 and 2025 China’s median age is set to rise very substantially: from about 30 to around 39. According to unpd projections for 2025, in fact, China’s median age will be higher than America’s. The impending tempo of population aging in China is very nearly as rapid as anything history has yet seen. It will be far faster than what was recorded in the more developed regions over the past three decades and is exceeded only by Japan. There is a crucial difference, however, between Japan’s recent past and China’s prospective future. To put the matter bluntly, Japan became rich before it became old; China will do things the other way around. When Japan had the same proportion of population 65 and older as does China today (2000), its level of per capita output was three times higher than China’s is now. In 2025, 13.4 percent of China’s population is projected to be 65-plus; when Japan crossed the 13.4 percent threshold, its per capita gdp was approaching $20,000 a year (constant 1990 ppp dollars). One need not be a “Sino-pessimist” to suggest that China will be nowhere near that same economic marker 22 years from now....

Thus, China’s rapidly graying population appears to face a triple bind. Without a broad-coverage national pension system, and with only limited filial resources to fall back on, paid work will of necessity loom large as an option for economic security for many older Chinese. But employment in China, today and tomorrow, will be more physically punishing than in oecd countries, and China’s older cohorts are simply less likely to be up to the task. The aggregation of hundreds of millions of individual experiences with this triple bind over the coming generation will be a set of economic, social, and political constraints on Chinese development — and power augmentation — that have not as yet been fully appreciated in Beijing, much less overseas.

However, the startling fact in Eberstadt's article in the increasing gender imbalance in Chinese and Indian birth rates -- a function of "1) strong and enduring cultural preference for sons; 2) low or sub-replacement fertility; and 3) the advent of widespread technology for prenatal sex determination and gender-based abortion."

Eberstadt's conclusion is sobering:

It would be cheering to think that the gender imbalances emerging in Asia’s major population centers were a vestige of backward ideas and will consequently pass away with increasing modernization. The facts to date, unfortunately, do not support such an interpretation. In both India and China over the past two decades, the nationwide sex ratio at birth has increased along with per capita income, female literacy rates, and urbanization. In China today, the more literate provinces tend in fact to have somewhat higher, not lower, sex ratios at birth; and in India it is urban, not rural, areas in which the disproportion between boys and girls is greatest. For the time being, we must live with the disturbing possibility that continuing “development” and “globalization” will heighten rather than reduce nascent gender imbalances in these two enormous countries — and the knowledge that these particular expressions of “Asian values” will have unpredictable but perhaps not inconsequential repercussions on society and politics in these ostensibly rising powers for decades to come.

Read the whole thing.

posted by Dan at 03:14 PM | Comments (64) | Trackbacks (5)

The lure of the dollar

On Friday, the Associated Press reported that the U.S. trade deficit hit an all-time high, both in terms of dollar value ($489.4 billion) and as a percentage of GDP.

To finance this deficit, the U.S. needs to run a capital account surplus roughly equal in amount. The trouble is, the dollar countinues to depreciate against other currencies, and Daniel Gross argues in Slate that there's little the U.S. government can do to halt the slide, despite the wishes of the G-7.

Combined, this appears to have stoked two mutually inconsistent concerns -- 1) Foreigners are purchasing too many American debts and assets; and 2) If the dollar continues to slide, foreigners won't want to buy our assets any more.

On the latter front, the fears seem to be overhyped, as the Financial Times reports:

Foreign investors provided a vote of confidence in US asset markets last year by increasing the amount of money they invested in the US even as the dollar fell, according to capital flow data by the US Treasury.

A monthly report released on Tuesday showed net inflows into US markets totalled $75.7bn in December last year, down from $87.5bn the month before, but still far more than the $27.7bn seen in October or the $4.2bn inflow registered in September....

Net flows into US equities rose to a strong $13.3bn in December from $8.8bn the month before compared with an average inflow of $3.1bn over the year. In the bond market, net inflows into the Treasury market slipped to $29.8bn from $33.4bn but remained well above the $22.8bn monthly average....

Michael Woolfolk, currencies strategist at Bank of New York, said the December numbers were "overwhelmingly" positive for the dollar.

"It shows that the decline in US interest rates to four decade lows has not undermined foreign appetite for US securities to the degree thought earlier" he said.

As to the first concern -- foreigners purchasing too many dollar-denominated securities -- I'll leave that to the commenters. I'd say the best analogy to that situation is the conditions that would prompt a run on a bank.

posted by Dan at 11:08 AM | Comments (25) | Trackbacks (0)

Monday, February 16, 2004

Nothing to see here

The Associated Press reports a flat denial by the woman suspected of having an affair with John Kerry:

A woman who has been the subject of rumors linking her to Sen. John Kerry denied Monday that she ever had an affair with the Democratic presidential candidate.

Breaking her silence four days after the allegations surfaced on the Internet, Alexandra Polier issued a statement to The Associated Press, saying, "I have never had a relationship with Senator Kerry, and the rumors in the press are completely false."

Kerry already has denied reports that he had an extramarital affair. On Monday, his campaign said he would have no further comment....

Polier also took issue with reports that referred to her as a former Kerry intern.

"I never interned or worked for John Kerry," she told AP over the phone.

In a separate statement, Polier's parents, Terry and Donna Polier of Malvern, Pa., dismissed the "completely false and unsubstantiated" allegations about their daughter.

"We love and support her 100 percent and these unfounded rumors are hurtful to our entire family," the statement said. "We appreciate the way Senator Kerry has handled the situation, and intend on voting for him for president of the United States."

The statement did not address purported quotes by Polier's parents in the British tabloid The Sun that were harshly critical of Kerry....

Asked Friday about the reports, Kerry told reporters: "I just deny it categorically. It's rumor. It's untrue. And that's the last time I intend" to respond to questions about it.

posted by Dan at 05:32 PM | Comments (49) | Trackbacks (1)

Europe and outsourcing

How is Europe dealing with outsourcing? This article provides an interesting clue:

IBM Corp. cornered an outsourcing contract with Dutch life assurance and pensions business Delta Lloyd Group on Monday. The seven-year deal is worth - 200 million (US$255 million), according to IBM....

European companies are increasingly turning IT operations over to large U.S. corporations such as IBM and its competitors Hewlett-Packard Co. (HP) and Electronic Data Systems Corp.

"It is an interesting time in the outsourcing industry, where you have massive companies, like IBM, that dwarf their customers," said Kirk Smith, of U.K. IT services provider LogicaCMG PLC. European companies are feeling the pull of U.S. and U.K. business models that require businesses to control the level of costs, playing into the strengths of outsourcing deals, according to Smith.

"Companies in Europe realize they have to exist in a global economy, and in doing so are turning to outsourcing," he said. "The large companies like IBM and HP are appealing because they are well-known brands with a global reach." Across Europe, businesses are outsourcing departments from IT to human resources as well as finance and accounting. "It's now really getting to the heart of business," Smith said.

Last month, Nokia Corp., the world's largest mobile phone maker, announced it had granted IBM a five-year global IT outsourcing deal valued at - 200 million. IBM will handle Nokia's IT Helpdesk operations as well as manage and develop the Espoo, Finland, company's desktop IT environment.

[Sure, that's what European firms are doing. But the European Union is cheesed off, right?--ed. Not according to this report:

A European Union delegation said Monday outsourcing was beneficial for the world economy and added it understood India's concerns about objections in western nations to shifting jobs overseas.

"It's something that is good for you (India) and good for our service industries," EU's External Relations Commissioner Christopher Patten told reporters in New Delhi.

"We have no problems with outsourcing. We are very understanding of India's concerns on the issue."...

Patten said the EU believed western outsourcing of jobs to countries like India, Mexico and China, where labour costs are lower and goods can be produced more cheaply, was an "an aspect of a more liberal world economy."

UPDATE: This trend of European outsourcing to the United States is consistent with this editorial by Michael Walden from two weeks ago. The highlights:

While outsourcing has captured current attention, it is not a new phenomenon. If the term is defined as jobs operated by U.S. companies in foreign countries, the current total is 10 million positions, or 7 percent of domestic U.S. employment. Further, there's been an upward trend in the number of outsourced jobs since the mid-1990s, when trade barriers were significantly reduced following the signing of the NAFTA and GATT agreements.

What is less well publicized and understood is that "insourcing" also occurs in our economy. Insourcing happens when foreign companies establish jobs in the United States.

The latest statistics show insourcing accounts for over 6.5 million jobs nationwide. Although this is less than the number of outsourced jobs, the gap has actually narrowed in the past quarter century. That is, there's been a recent trend of foreign companies adding jobs in the U.S. faster than U.S companies have increased jobs in foreign countries....

The scorecard on job outsourcing versus job insourcing has actually moved in the favor of the U.S. in recent decades, and policy-makers must consider both when evaluating the worldwide movement of jobs.

posted by Dan at 02:35 PM | Comments (8) | Trackbacks (2)

A beacon of multilateralism

The Financial Times reports that the largest single economic entity in the world is shirking its international obligations and alienating the rest of the world -- again:

A bid by World Trade Organisation members to breathe new life into stalled global trade talks has got off to a shaky start after a series of meetings this week in Geneva between the main protagonists failed to produce any new initiatives.

In particular, European Union negotiators gave no sign of greater flexibility on phasing out farm export subsidies by a fixed date, which most WTO members see as essential to a successful conclusion of the Doha round.

"We heard the same old story," one trade diplomat said on Friday after two days of talks between the EU and the Group of 20 developing countries led by Brazil. "There wasn't anything new."....

The EU, the main user of export subsidies, has said it is prepared to consider a phase-out for commodities of interest to poorer nations, but not for all products. EU officials this week repeated their request for a list of products for consideration, but G20 nations maintain that a list is unnecessary because all the EU's subsidised exports compete with those of developing countries.

UPDATE: I see from the comments that I'm being chided for not joining the BBC in blaming the United States for this state of affairs.

Let me first stipulate that U.S. ag subsidies are an odious blight on our trade policy and should be eliminated as soon as possible.

Let me then stipulate that, as I've said before, "if the U.S. commits a venal sin with its agricultural subsidies, then the European Union, Japan, South Korea, and Scandinavia are committing mortal sins with theirs." Click here for further discussion on this topic.

And, just to make sure everyone has the same facts on this, let's reprint this Economist graph on ag subsidies:


posted by Dan at 10:27 AM | Comments (44) | Trackbacks (2)

Sunday, February 15, 2004

The New York Times tackles outsourcing

Today's Times has a round-up story on outsourcing in the aftermath of Gregory Mankiw's comments. Jagdish Bhagwati, an esteemed trade economist at Columbia, is quoted.

He also has an op-ed in today's Times as well. The good parts:

John Kerry, the presumptive Democratic presidential nominee, described executives who import services — such as using lower-paid workers in foreign countries to handle customer-service calls and Internet queries from American consumers — as "Benedict Arnold C.E.O.'s."

In objecting to moving service jobs overseas, Senator Kerry is wrong on two counts. First, his economics is faulty: the practice only adds to the overall economic pie and improves the competitiveness of American companies. In a world economy, firms that forgo cheaper supplies of services are doomed to lose markets, and hence production. And companies that die out, of course, do not employ people.

Second, Mr. Kerry is making a political error. By playing to the understandable but incorrect fears of American workers that outsourcing is "taking away" jobs from Americans, he is painting the Democratic Party into the wrong corner on trade issues.

The most interesting part is Bhagwati's point that while many blame trade for job losses, it has far more to do with technological change:

Unfortunately, the issue is further confused by claims that American jobs are being "transferred" abroad. This is usually not the case. When I came to my university 25 years ago, I got a secretary. Today, the new hires get a computer instead. In India, where a secretary costs a small fraction of what one would in New York City but a computer costs more, any Indian professor who asked for a new laptop would probably get a secretary instead. It is simply a matter of economic reality in both places. The hiring of the secretary in India should not be seen as "transferring" a job out of New York.

The fact is, when jobs disappear in America it is usually because technical change has destroyed them, not because they have gone anywhere. In the end, Americans' increasing dependence on an ever-widening array of technology will create a flood of high-paying jobs requiring hands-on technicians, not disembodied voices from the other side of the world.

For more on the technological driver behind the current creative destruction, Glenn Reynold's TCS column from last November is still salient.

The final outsourcing link of the day is the February 12th transcript from Lou Dobbs Tonight, during which Mr. Dobbs tangled with James K. Glassman on the subject. It was, to say the least, a yeasty conversation. [UPDATE: Dobbs' exchange with Bruce Bartlett is less yeasty but equally informative.]

posted by Dan at 03:47 PM | Comments (130) | Trackbacks (4)