In Slate, Fred Kaplan has an assessment of the National Intelligence Council's 2020 report -- about which I've blogged before. He's puzzled about a few things:

The report has received modest press attention the past couple weeks, mainly for its prediction that, in the year 2020, "political Islam" will still be "a potent force." Only a few stories or columns have taken note of its central conclusion:

The likely emergence of China and India ... as new major global players—similar to the advent of a united Germany in the 19th century and a powerful United States in the early 20th century—will transform the geopolitical landscape with impacts potentially as dramatic as those in the previous two centuries....

The trends should already be apparent to anyone who reads a newspaper. Not a day goes by without another story about how we're mortgaging our future to the central banks of China and Japan. The U.S. budget deficit, approaching a half-trillion dollars, is financed by their purchase of Treasury notes. The U.S. trade deficit—much of it amassed by the purchase of Chinese-made goods—now exceeds $3 trillion. (emphasis added)

A few minor corrections to Kaplan's essay:

1) The U.S. trade deficit is big, but it is most certainly not $3 trillion. The November trade deficit was $60.3 billion. 2004's trade deficit will be in the neighborhood of $600 billion. In 2005 it's expected to grow in size to around $670 billion (see this John Quiggin essay for more). These are all very big numbers and it's worth wondering about the macroeconomic implications -- but they're not $3 trillion. I have no idea where Kaplan got that figure, but it's just wrong.

2) I suspect one reason that the mainstream media didn't cover the trend that Kaplan stressed is that this was not new analysis. From what I can see, the NIC based their projections on a Goldman Sachs paper by Dominic Wilson and Roopa Purushothaman entitled, “Dreaming with BRICs: The Path to 2050” -- which was released in late 2003. I remember it because I referenced it in this TNR Online essay. The danger with such projections, of course, is that too often they are straight-line extapolations from recent history -- remenber, in the early eighties, it was projected that Japan's economy would be bigger than ours right now. As Arthur Chrenkoff points out when discussing potential rivals to American power:

To anyone familiar with Indonesia or Brazil to posit that these two states might as early as 15 years from now pose a challenge to the United States (even if in combination with others) might seem a wildly extravagant claim. China and India are in a much better position to eventually end the "unipolar moment", but both countries still face tremendous challenges in translating their considerable human and natural resources into sustainable and significant international reach.

I'm not saying that the NIC projections should be ignored -- but perhaps they should not be given the status of certified fact that Kaplan would like to stamp on them.

When Luiz Inácio Lula da Silva ran for president in Brazil, he took great delight in railing against the Washington Consensus, the IMF, and the United States more generally. Since he's won, however, he's pursued a somewhat different course.

How different? Raymond Colitt has a story in the Financial Times that highlights the gulf between Lula then and Lula now:

For all his charisma, even Luiz Inácio Lula da Silva, who came to power as the idol of Latin America's Left, found it hard to sell his orthodox economic policy at the World Social Forum in Porto Alegre, Brazil, on Thursday.

His audience of 10,000 anti-globalisation activists was already miffed at the Brazilian president's decision to attend the World Economic Forum on Friday to meet the bigwigs of capitalism they so despise.

But having to defend two years of textbook economic orthodoxy and cosy relations with the International Monetary Fund was too much for disenchanted supporters at an event launched as a challenge to Davos, Switzerland, five years ago.

As a former union leader who in the late 1970s took on big business and a military dictatorship, Mr Lula da Silva was quick to snap back at his hecklers. “That noise comes from those . . . who don't have patience to hear the truth,” he retorted, in reference to spontaneous jeering.

The Economist reports on a proposed new museum in the state of Nevada:

Nevada is the only state in the union where brothels are legal, but prostitution is by no means a hallowed trade. Brothels are usually seedy affairs, tucked discreetly away from churches, town halls and the like (or so somebody we met in a bar once told us). But Lance Gilman, who owns both the Wild Horse bordello and the trademark for the Mustang Ranch, is building a sex village—complete with museum and souvenir shop.

George Flint, head of the Nevada Brothel Association, insists that a trip to the Mustang Ranch could be “just as important as driving to Mount Rushmore”. The businesslike Mr Gilman insists that a house of ill repute is nothing of the kind. Brothels are part of Nevada's history, and nowadays they are respectable businesses....

Mr Gilman is building his Mustang Ranch Village on the plot next to the Wild Horse. The driveway to the village is neatly lined with saplings and, at the end of the road, a row of foreign flags greets visitors as if they are arriving at an international institution. The museum will include a portrait of the legendary Mr Conforte [a previous owner of the Mustang Ranch] and a circular bed with a mirrored headboard from the original Mustang Ranch. Souvenirs will range from the usual T-shirts (boasting about the Mustang's “res-erection”) to more exotic oils and toys. Because Mr Gilman's girls are experts in long-lasting “make-up that doesn't run”, a Mustang Ranch cosmetics line will also be on sale. (emphasis added)

Marc Scheffler has an interesting story in Crain's Chicago Business arguing that the MacArthur Fellows Program -- a.k.a., the genius grant -- hasn't worked as advertised in the case of writers:

As part of a program widely known as genius grants, the John D. and Catherine T. MacArthur Foundation most years gives one or more authors $500,000, hoping financial freedom will help the writers produce their best work.

An examination of the program, however, reveals that most of the 31 writers chosen since 1981 as MacArthur Fellows had already hit their artistic peak. That conclusion is supported by the 14 major awards — either a Pulitzer Prize, National Book Award, National Book Critics Circle Award or PEN/Faulkner prize — and 37 minor awards the authors received before getting their MacArthur money.

Surveying book reviews, author profiles and the opinions of literary scholars, Crain's determined that 88% of the MacArthur recipients wrote their greatest works before being recognized by the Chicago-based foundation. The sheer number of books produced by the writers declined, too, after their MacArthur awards.

It would reinforce romantic notions that great art requires personal sacrifice to suggest that, half-a-million dollars in hand, writers get lazy. But something else appears to account for the failure of the MacArthur program to fulfill its promise: Writers are mostly chosen too late in their careers, average age 48, and well after the literary establishment has recognized them for excellence.

One could argue that recognizing past achievement is hardly a bad thing -- except that as Scheffler observes and MacArthur's web site announces, that isn't really the goal of the genius grant:

Although nominees are reviewed for their achievements, the fellowship is not a reward for past accomplishment, but rather an investment in a person's originality, insight, and potential. Indeed, the purpose of the MacArthur Fellows Program is to enable recipients to exercise their own creative instincts for the benefit of human society.

Of course, this begs the question -- beyond great past performances, what are the available metrics that can be used to measure genius and/or creativity?

Clearly, this is an assignment for Tyler Cowen. [UPDATE: Tyler posts hist thoughts on the matter here.]

Oh, and I look forward to the free-for-all in the comments section regarding the "Crain's determined that 88% of the MacArthur recipients wrote their greatest works before being recognized by the Chicago-based foundation" assertion.

Two stories have come out this past week on the costs and benefits of deregulation in air travel. In the Sunday New York Times, Micheline Maynard examines the debate in the United States over airline deregulation. Some groups don't like it:

[R]epresentatives of labor unions and some consumer groups, long for the stability of the time, before 1978, when the government decided fares and determined where airlines would fly. Labor unions in particular are looking for an alternative to the current situation, having been hit this decade by five airline bankruptcies, the elimination of more than 120,000 jobs and cuts of as much as 50 percent in pay and benefits.

These groups say it is time to consider reregulating airlines, or at least to start a debate about how to stabilize an industry that may be so vital to the nation's fabric that government intervention is warranted....

"Are we willing to accept the results of a free marketplace, or do we think the role of commercial aviation is such a part of our economy that we have to have government influence?" asked Patricia A. Friend, president of the Association of Flight Attendants, a labor union that represents about 75,000 airline employees. "It's a conversation I'd like to have before everyone wakes up and asks, 'What the hell happened?' "

So what are the results of that free marketplace? Read on:

Since federal restrictions on routes and fares were removed, consumers have been saving $20 billion a year on air fares, when adjusted for inflation, according to Brookings. Fares have dropped by more than 30 percent, on average, and as much as 70 percent when tickets are bought in advance, the group concluded.

At the same time, airlines have vastly expanded their networks, bringing air travel - a relatively infrequent experience [several decades ago] - to people all over the country. For example, American, the biggest airline, flew to just 50 cities in 1975; it now serves more than three times that number. Southwest, which started in 1971 with a single route in Texas, now flies to 61 cities, not counting those it serves through a code-sharing arrangement with ATA.

Read the whole thing -- the major airlines are facing a serious financial squeeze, to be sure -- but the 2001 post-9/11 government bailout worsened rather than aided their situation.

Meanwhile, Matt Welch has a great piece in Reason that looks at the travel revolution that low-cost airlines have brought to Europe. The effect has transcended the airline industry:

In less than a decade, the Southwest Airlines revolution has swept through sclerotic Europe like a capitalist hurricane, leaving a fundamentally altered continent in its wake. Low-cost airlines have grown from zero to 60 since 1994 by taking Southwest’s no-frills, short-haul business model and grafting on infinitely variable pricing, aggressive savings from the contemporaneous Internet revolution, and the ripe, Wild West opportunities of a rapidly deregulating and expanding market. Europeans, fed up with costly train tickets, annoying motorway tolls, and Concorde-style prices from national “flag carriers” such as Air France and Lufthansa, have defected to the short-hoppers in droves—200 million, nearly 45 percent of the entire E.U. population, took a low-cost flight in 2003 alone.

These airline upstarts are run by swaggering young CEOs whom the European press treat like rock stars, living up (or down) to the billing by issuing manly predictions of price war “bloodbaths” and pulling off daring publicity stunts, such as Irish carrier RyanAir’s post–September 11 sale of 1 million tickets for “free” (before taxes). Their companies have been rewarded with dot-com-bubble-like stock valuations—and the volatility that comes with them—while their long-haul counterparts dodder toward cutbacks, bankruptcy, and worse. (Switzerland became the first European country to lose its national airline when Swiss Air and Sabena folded in 2001.) In less than a generation, one of the Western world’s most notoriously regulated and distorted markets has become a poster child for unified Europe’s 21st century élan.

In the process, Europeans have changed not only their travel choices but the way they behave. “We aren’t just teaching our customers about our brand,” says Stanislav Saling, the twentysomething Slovak public relations director of SkyEurope, a new Bratislava-based low-cost carrier. “We’re selling tickets to people who have never flown before, and showing them how to use the Internet.” Brits, who have led the low-cost charge with RyanAir and easyJet, are now the world’s biggest owners of foreign second homes as a percentage of population. Across the 25-country, 458-million-resident European Union, marriage between different nationalities is at an all-time high. Residents of post-communist countries, who not long ago were more than happy to take any handouts from their far richer Western neighbors, are now leveraging the low-cost revolution to compete with them instead. Old Europe’s postwar business culture, in which CEOs of highly regulated “National Champions” were virtually interchangeable with their schoolboy pals in government, has been battered by entrepreneurial mavericks of hard-to-define provenance, such as easyJet’s 37-year-old founder Stelios Haji-Ioannou, who was born in Greece, owns houses in four countries, and (as The New York Times put it in April) “feels Greek when he is in London, English when he is in Greece, and European when he is in America.”

One common theme in both of these pieces is that deregulation is not without its costs -- there's more uncertainty about the financial viability of some airlines, greater stress on airline employees as these firms are pressured to improve their productivity, and as the case of RyanAir demonstrates, a few airlines that appear to delight in irritiating their customers.

The other common theme is that these costs are dwarfed by the massive benefits that consumers have accrued in the form of lower air fares and a greater variety of travel options.

Be sure to read the Welch piece on how deregulation could go further.

The Academy Award nominations were announced this morning. You can look at the list by clicking here.

The staff here at danieldrezner.com will be hard at work with our annual Oscar predictions. This year, however, we introduce a new interactive feature -- who did work that merited a nomination at the very least but got completely shut out. [You need a catchy name for them, like the Oscars or the Razzies--ed. Hmm.... how about the Rogers?]

Looking over the nominations, the most glaring omission was the absence of Eternal Sunshine of the Spotless Mind from most of the major categories. Kate Winslet got nominated, and so did the screenplay, but Jim Carrey, director Michel Gondry, and the movie itself deserved way better treatment.

Other omissions:

1) Laura Dern for Best Supporting Actress in We Don't Live Here Anymore;

2) Paul Giamatti for Best Actor in Sideways -- try to imagine any other actor in that role [UPDATE: Washington Post readers agree!!];

3) Uma Thurman for Best Actress in Kill Bill, Vol. II;

4) For that matter, there's no way anyone watches Kill Bill Vol. II without giving the film a nod in the sound categories for the coffin sequence;

5) Anyone, for anything, for Friday Night Lights (This, by the way, is the film that conservatives should talk about when discussing liberal biases in Hollywood, and not The Passion of the Christ, which actually did collect three Oscar nominations);

6) Once again, action movies got hosed in the technical nominations -- even the "arty" action movies. How in the hell does Collateral not get nominated for Best Cinematography? Or The Bourne Supremacy for Best Editing

7) I haven't seen it yet, but I find it hard to believe that Team America: World Police does not have one song superior to "Believe" from The Polar Express

I'd have added Natalie Portman for Garden State, but she got nominated anyway for Closer, so it's no big whoop. I toyed with the idea of adding Zach Braff for Best Original Screenplay, but the guy is getting thousands of comments on his blog and gets to act with Portman, Sarah Chalke and Heather Graham -- so f*** him.

The staff at danieldrezner.com welcomes other glaring omissions!!

UPDATE: Do be sure to check out the Golden Raspberry nominations as well. As an added bonus, they have the a special “Worst of Our First 25 Years” list of nominations if you scroll down.

If this report by Chris Giles in the Financial Times is any indication, the official central bank purchases of the dollar -- the primary means through which the United States has financed its current account deficit in recent years -- is going to be tapering off:

Central banks are shifting reserves away from the US and towards the eurozone in a move that looks set to deepen the Bush administration's difficulties in financing its ballooning current account deficit.

In actions likely to undermine the dollar's value on currency markets, 70 per cent of central bank reserve managers said they had increased their exposure to the euro over the past two years. The majority thought eurozone money and debt markets were as attractive a destination for investment as the US.

The findings emerge from a survey of central bank reserve managers published today and conducted between September and December of last year. About 65 central banks, controlling assets worth $1,700bn, took part and the results showed a marked change in attitude over the past two years.

Any rebalancing of central bank reserve portfolios has serious implications for the global financial system as the US has become increasingly dependent on official flows of funds to finance its current account deficit, estimated at $650bn in 2004.

At the end of 2003, central banks held 70 per cent of their official reserves in dollar- denominated assets and central bank purchases of US securities had financed more than 80 per cent of the the US current account deficit in 2003....

In a further worrying sign for the greenback, 47 per cent of reserve managers surveyed said they expected the growth of official reserves to slow to less than 20 per cent over the next four years. Between the end of 2000 and mid-2004, official reserves had increased by 66 per cent.

One two caveats: this poll was taken in the fall of 2004, so we should have expected to see an actual drop-off in official purchases in the past few months. The fact that this has not happened -- yet -- does call the survey results into question. UPDATE: and second, a fact that I either missed in reading this story the first time around or was added after I read it, is the fact that, "The 65 central banks that participated control 45 per cent of global official reserves. Individually, they had up to $250bn under management." Which means that the central banks of Japan and China -- both of which have way, way more than $250bn under management -- were not included in the survey.

See Brad Setser's take on this as well.

Thanks to Andrew for the link.

One of the mantras of critics of offshore outsourcing is that countries like China and India have such large pools of low-cost, high-skilled labor that their wages will never rise enough to stop the flow of outsourced activity to those locales.

Siddharth Srivastava files a story that suggests otherwise:

India has shown the highest average salary increase in the Asia-Pacific region during 2004, beating China, Korea and Japan, according to a survey by global human resources firm Hewitt Associates. Analysts are worried, however, that such high increases in wage costs may result in the exit of business that is sought in this country for the very same reason — low overheads. What is particularly worrying is that the highest rise in wages has occurred in the Information Technology sector where India bids to be the number one player in the world due to a combined advantage of low cost and high quality manpower at its disposal. Combined with the news that the rupee has appreciated in the face of a depreciating dollar, IT firms that rely heavily on export revenue fear a resource crunch.

According to the report, India showed the highest average salary increase in Asia followed by China, Philippines and Korea. While India reported an 11.6 percent overall pay hike, in China salaries grew by 6.4-8.4 percent, 7.4-7.7 percent in Philippines and 6.4-6.8 percent in Korea for the year 2004, the survey said....

What is worrying analysts in India is that the IT industry in India witnessed the highest average salary increase at 14.5 percent though as many as 89 percent of participating companies linked salary hike to performance ratings. The rising wages coupled with an appreciating rupee in the face of high U.S. fiscal deficit and the no-tax promise by President George Bush to plug it, will end up eroding the basic comparative advantage that India enjoys vis-à-vis other low cost centers of the world such a Vietnam, China and the Philippines, which are beginning to focus on the software sector. In an interview, Vivek Paul, vice-chairman and president at Wipro’s global IT arm, has warned of an end to the low-wage culture that has been at the heart of India’s software boom.