Thursday, June 23, 2005
Does China contradict the liberal paradigm?
The constant in U.S. policy towards a rising China for the past three administrations is encapsulated in the current National Security Strategy:
In other words, by trading with China, and by encouraging them to embrace the information revolution, the Chinese will inevitably morph into an ever-more-open society that will therefore become more benign in world politics.
There are valid reasons to doubt the second part of that logic, but I'm more concerned about the first part for now: is U.S. trade with China making the country more free?
I ask because of this Philip P. Pan front-pager in the Washington Post from last week on how Chinese President Hu Jintao is consolidating his power:
Meanwhile, Paul Mooney reports similar information about the Chinese academy in the Chronicle of Higher Education (sorry, subscription only):
As for the power of the Internet to make China more free, Rebecca MacKinnon has tirelessly covered the Chinese government's recent efforts to expand its monitoring and filtering capacities -- click here for one example.
This would all seem to suggest that our open trade policy with China ain't generating a lot of political openness on their side. By the Freedom House measures, China has been rated as "not free" for the entire history of our expanded trade relationship with them. Within that category there are some subtler trends -- in the eighties both the poliitical rights and civil liberties measures improved slightly. Both went back down after Tiannamen, and then since 1998 the civil liberties score has improved marginally.
So does China vitiate the underlying premise that an open economic relationship leads to political openness?
Well consider that even the Freedom House data and the Chronicle story suggests that economic openness can have an effect on civil liberties -- it's just that the effect is very small and trumped by Hu Jintao. See this section of the Chronicle story:
Second, remember that China is a special case because of its market size. China can get Microsoft to do what it wants, but smaller countries cannot.
Third, when questioning the utility of a certain policy, one always needs to compre it to the alternative set of options. There is no other option that would cause China to democratize any faster that a policy of openness.
Fourth, as I argued earlier this year, the effect of the information revolution on authoritarian states is not a continuous one. It is possible that repressive regimes can succeed in maintaining control for long periods of time -- but then crumble quickly. One reason for Hu's recent decision to crack down is his acute recognition of this fact.
So maybe current U.S. policy will work in the long run. The thing is, none of those points makes me feel any more sanguine about current U.S. policy in the short run.
UPDATE: David Shambaugh has an interesting piece in The Washington Quarterly on the complex triangle between the U.S., China, and Europe.
So how is moderate Islam doing?
Two years ago, then-Malaysian prime minister Mahathir Mohammed gave a controversial talk at the Organization of the Islamic Conference. The gist of it was, "We Muslims must embrace modernization -- so we can crush the Jews."
Two years later, current Malaysian PM Abdullah Ahmad Badawi is preaching the first, less offensive part of that message. The New York Times' Wayne Arnold explains:
Whether Abdullah is a Nixon going to China or a Mahathir in sheep's clothing is a question I will leave to the comments.... once they've digested those inelegant metaphors.
Wednesday, June 22, 2005
Need something more to worry about?
Foreign Affairs has a special section in their July/August 2005 issue devoted to "coping with the next pandemic." After reading Laurie Garrett's excellent introduction to the section (subscription only) about the emergence of the H5N1 avian influenza, I feel both better informed and freaked out.
Garrett also identifies the economic reasons why there isn't a booming market for flu vaccines:
Garrett also makes a very solid case for why, even in an open global economy, the U.S. government should ensure there is a domestic industry for these vaccines:
Kudos to Jim Hoge and Gideon Rose at Foreign Affairs for putting together this special section and scaring the bejeezus out of me.
Roger Cohen dreams of Eumerica
Since I'm supposed to be advancing transatlantic understanding, here's one relevant link -- in his Globalist column for the International Herald Tribune, Roger Cohen dreams of a world where the best of Europe and America are combined. I'm pretty sure both Americans and Europeans would find something to object to in his section on politics and economics, but this section might actually appeal to all:
Tuesday, June 21, 2005
What's causing the trade deficit?
Gosh darn it, if part of being a transatlantic fellow for the German Marshall Fund of the United States means going to northern Italy for the rest of this mid-June week to try and promote greater transatlantic understanding, then I have no choice but to do my duty. Blogging could be erratic over the next few days.
Talk amongst yourselves. Here's a topic -- is the a massive current account deficit a function of the sizeable budget deficit, the low U.S. savings rate, currency manipulation, or a global savings glut?
The global savings glut argument has been advanced by Ben Bernanke, who is likely to be the next Fed chairman. A quick precis of his argument: I will take issue with the common view that the recent deterioration in the U.S. current account primarily reflects economic policies and other economic developments within the United States itself. Although domestic developments have certainly played a role, I will argue that a satisfying explanation of the recent upward climb of the U.S. current account deficit requires a global perspective that more fully takes into account events outside the United States. To be more specific, I will argue that over the past decade a combination of diverse forces has created a significant increase in the global supply of saving--a global saving glut--which helps to explain both the increase in the U.S. current account deficit and the relatively low level of long-term real interest rates in the world today....
[S]pecific trade-related factors cannot explain either the magnitude of the U.S. current account imbalance or its recent sharp rise. Rather, the U.S. trade balance is the tail of the dog; for the most part, it has been passively determined by foreign and domestic incomes, asset prices, interest rates, and exchange rates, which are themselves in turn the products of more fundamental driving forces. Instead, an alternative perspective on the current account appears likely to be more useful for explaining recent developments. This second perspective focuses on international financial flows and the basic fact that a country's saving and investment need not be equal in each period....
That inadequate U.S. national saving is the source of the current account deficit must be true at some level; indeed, the statement is almost a tautology. However, linking current-account developments to the decline in saving begs the question of why U.S. saving has declined. In particular, although the decline in U.S. saving may reflect changes in household behavior or economic policy in the United States, it may also be in some part a reaction to events external to the United States--a hypothesis that I will propose and defend momentarily.
One popular argument for the "made in the U.S.A." explanation of declining national saving and the rising current account deficit focuses on the burgeoning U.S. federal budget deficit, which in 2004 drained more than $400 billion from the national saving pool. I will discuss the link between the budget deficit and the current account deficit in more detail later. Here I simply note that the so-called twin-deficits hypothesis, that government budget deficits cause current account deficits, does not account for the fact that the U.S. external deficit expanded by about $300 billion between 1996 and 2000, a period during which the federal budget was in surplus and projected to remain so. Nor, for that matter, does the twin-deficits hypothesis shed any light on why a number of major countries, including Germany and Japan, continue to run large current account surpluses despite government budget deficits that are similar in size (as a share of GDP) to that of the United States. It seems unlikely, therefore, that changes in the U.S. government budget position can entirely explain the behavior of the U.S. current account over the past decade....
The weakening of new capital investment after the drop in equity prices did not much change the net effect of the global saving glut on the U.S. current account. The transmission mechanism changed, however, as low real interest rates rather than high stock prices became a principal cause of lower U.S. saving. In particular, during the past few years, the key asset-price effects of the global saving glut appear to have occurred in the market for residential investment, as low mortgage rates have supported record levels of home construction and strong gains in housing prices.... The expansion of U.S. housing wealth, much of it easily accessible to households through cash-out refinancing and home equity lines of credit, has kept the U.S. national saving rate low--and indeed, together with the significant worsening of the federal budget outlook, helped to drive it lower. As U.S. business investment has recently begun a cyclical recovery while residential investment has remained strong, the domestic saving shortfall has continued to widen, implying a rise in the current account deficit and increasing dependence of the United States on capital inflows.
According to the story I have sketched thus far, events outside U.S. borders--such as the financial crises that induced emerging-market countries to switch from being international borrowers to international lenders--have played an important role in the evolution of the U.S. current account deficit, with transmission occurring primarily through endogenous changes in equity values, house prices, real interest rates, and the exchange value of the dollar.
Is Bernanke correct? This argument does jibe with recent research suggesting that reducing the budget deficit doesn't have a large impact on the trade deficit. However, for critiques of this argument, see Daniel Gross' link-rich essay in Slate, as well as cogent posts by Brad Setser and this post by Brad DeLong.
My take -- this isn't an either-or question. Bernanke identifies a cause that has been underplayed by administration critics, but Bernanke himself makes it clear that he thinks domestic factors also play a role.
Much more disconcerting is this section of Bernanke's speech:
There is another danger -- the encouragement of speculative investment in housing in the U.S. and elsewhere. See the New York Times' David Leonhardt and Motoko Rich, as well as the Economist, for more on this.
Open Downing Street Memo thread
A few commenters have asked me to post something on the Downing Street Memo(s). Truth be told, I missed this story while putting together the tenure file, and I've found with stories like this that it's tough to jump in in mid-wave. The memos already have their own Wikipedia entry, their own web site, and their own blog, so I'm not sure what I can add except my own initial reaction and a place for people to vent.
[And how is that different from every other blog entry of yours?--ed. As opposed to the half-assed thoughts that make up your average blog posts, I'm only using a third of my ass on this one.]
The big bad graf that everyone is harping on is this one from the :
According to downingstreetmemo.com:
My quick reaction:
So those are my thoughts. Feel free to contribute yours.
UPDATE: Check out Tim Cavanaugh's take as well.
Monday, June 20, 2005
Whither grade inflation?
If Thoma's finding hold up, it would appear to be a classic case of economic incentives outweighing social norms.
[Why?--ed. If asked to predict the pattern of grade inflation, I would have predicted the opposite trend. In my own experience, graduate students tend to be the harshest critics of undergraduate work, folloed by junior faculty (tenure track or not), followed by senior faculty. Mostly this is because, in my field, graduate students are first trained to be critics before they have to create their own work. One way this critical edge usually plays itself out is in grading others. However, Thoma's findings would suggest that this social effect is completely swamped by straight-forward material incentives. One question I would have, however, is whether this result holds at top tier research universities.]