Robert D. Kaplan, in this opinion piece with the New York Times brings to light the declining military influence of the United States in the Pacific - once considered "an American lake". Kaplan notes that "Asian dynamism is now military as well as economic".
I feel that this is presented as a bad thing for America, and a bad thing globally. Kaplan certainly hints at the growing danger of Asian nationalism, in contrast with 'post-national West' (e.g. my earlier post on Belgium). "Asia is marked by rivalries that encourage traditional arms races", Kaplan notes "...the Indians, Pakistanis and Chinese have great pride in possessing nuclear weapons." On the other hand, Europe has moved away from military power (see Robert Kagan's slogan "America is from Mars, Europe is from Venus"). Japan's navy is now apaprently greater than the United Kingdom's.
Kaplan writes that:
"People in countries like Germany, Italy and Spain see their own militaries not so much as soldiers but as civil servants in uniform: there for soft peacekeeping and humanitarian missions."
The above is a fair point. I am always a little dismayed by the shock people express when their soldiers are called into actual combat. War is always a terrible business. To go to war is to kill, and be killed. We aren't doing ourselves any favors by closing our eyes to these truths - it turns war into a game and will only cloud our decision to commit to war, one way or another.
There are two questions that I feel come from this article.
The first, is there a point at which this disavowal of military power becomes more than peacefully idealistic, and becomes instead dangerously irresponsibile?
The second, are we witnessing an era of permanant decline in American influence?
On a personal level, I think that the answer to the first question must be that yes, there is a point of irresponsible disengagement. I think that, despite the disaster of Iraq, there must be scope for, at the very least, humanitarian military intervention - look to Bosnia, and look at Sudan.
The answer to the second question, US influence, is more difficult. Looking at military and economic influence, it would be a stretch to characterize either as in a weak position. By any measure the US is the world leader in both. However, the weakening of the US dollar, the decline in the underlying economic stability and growth could present major problems. I feel the greatest problem will be a lack in confidence - a lack of international confidence in the US economy will become a self-fulfilling prophecy.
I would submit that this decline does not have to be permanent, and both measures of power can be reclaimed (if the US wants it). The percentage of GDP used for military spending is at record lows - this can easily be raised. The US economy can be strengthened with better domestic policy.
It comes down to a question of political will.
Sunday, September 23, 2007
US military dominance to give way to the 'Asian Century'?
Friday, September 21, 2007
News Roundup
Here are some further stories worth mentioning:
Greenspan's excerpt from 'The Age of Turbulence' [MSNBC]
Mankiw's proposal for a Climate Change Tax [NYT]
Sarkozy and Merkel clash over ECB independence [FT]
Gold Surging - up $79/oz in 30 days, up $34/oz in 7 days, up $9/oz in 1 day [Bullion Blog]
Greenspan on Daily Show
Greenspan comments intelligently on the Federal Reserve dropping rate by 1/2 point, and the impact on the market. Stewart holds back on too many gags, and asks some good questions
Stewart: "So why do we have a Fed?"
Greenspan: "That is a very fundamental question..."
I liked this question, as it touches on the apparent conflict between Greenspan's publicly declared libertarian views, and his position as the Governments most senior financial regulator.
Stewart: "So, we're not a free market then?"
Greenspan: "You are quite correct. To the extent that there is a central bank governing the amount of money in the system. That is not a free market, and most people call it regulation."
Good stuff.
EDIT: Evidently good enough for no less than Greg Mankiw to comment.
Income Inequality II: Keeping up with the Jones's
I was reminded to write the previous post when I came across this blog entry by Paul Krugman, on his NY Times blog earlier this afternoon.
It has taken up the theme of rising income inequality, and advanced it by charting its historical development over the past 100 years.
In the chart above, Krugman takes us through the progression from the "gilded age", the "great compression", "middle class america", and "the great divergence" (post 1970s).
Krugman attributes the reduction in income inequality in the "great compression" (late 1930s to middle 1940s) to FDR and the New Deal.
If this is correct, this is the first time the true impact of the New Deal to broader society has really sunk in with me. On the other hand, you can't help but note that the "great compression" corresponds with the WW2 years...
Krugman states that:
"We’re no longer a middle-class society, in which the benefits of economic growth are widely shared: between 1979 and 2005 the real income of the median household rose only 13 percent, but the income of the richest 0.1% of Americans rose 296 percent."
I haven't got the tools to assess the validity of the statistics Krugman cites (lies, damned lies etc...) but prima facie it is a powerful argument.
The conclusion is not 100% clear though. Does this signal a bad thing?
If the standard of living - which is normally what matters to the man on the street, isn't it? - has continued to rise as it has during the same period, then does it really matter if the richest among us are getting richer?
Are we more concerned in broader societal outcomes (average standard of living) or keeping up with the Jones's?
P.S. there are some interesting comments to be read after Krugman's post.
Income Inequality: the economic issue of the coming decade?
One political and economic trend that I've been meaning to talk about for quite a while has been the increase in public discussion on the issue of income inequality. The simple argument is that the gap between the wealthy and the middleclass has become increasingly divergent.
I recall that in June 2007 the NY Times Sunday Magazine had an interview with Lawrence Summers, which really struck me over the head and started me thinking.
The interview mentioned the debate between Summers and Robert Reich in the early Clinton administration.
"[Reich] argued for something that he called “industrial policy.” Since the government couldn’t avoid having a big influence on the economy, he said, it should at least do so in a way that promoted fast-growing industries and invested in worthy public projects."
Summers responded, asking:
"How could bureaucrats know which industries and projects to support with tax credits? The better solution, Summers responded, was to get the economy growing fast enough that the problems of the middle class would begin to solve themselves. And the way to do this was to slow government spending and raise taxes on the wealthy, which would bring down the Reagan-era budget deficits and, eventually, interest rates. Once that happened, the American economy would be unleashed."
So, the plan becomes raise the economy, raise up the middle class. But did it turn out that way?
Summers recently noted that that the benefits of our last stretch of economic expansion have not benefitted everyone equally. The question is now how to make globalization work for the majority of the population.
From the article,
"“I think the defining issue of our time is: Does the economic, social and political system work for the middle class?” he told me. “Because the system’s viability, its staying power and its health depend on how well it works for the middle class.”"
So how to fix things? Summers suggests a new 'social contract'.
"... I think now the challenge is, again, to protect a basic market system based on open trade and globalization, to make it one that works for everyone or for almost everyone, at a time when market forces are often producing outcomes that seem increasingly problematic to middle-class families."
And the part that worries me somewhat:
"Despite good growth over the last four years, the pay of most American workers has barely kept pace with inflation. Technology and global trade are conspiring to let highly skilled workers do more — to be more productive and to play on a bigger stage — while at the same time making millions of other workers replaceable."
So, what about the social contract? It is clear that the 10% who are most wealthy in our economy (which for better or worse includes my colleagues in finance and law) are doing very well for ourselves at the moment. But what about the other 90% of the nation. It would be naive (read: stupid) to deny the importance of the other 90% to our good fortune.
Our economy runs on all of us working - properly incentivized of course (you cannot deny the proper role of liberal markets). But what if these incentives are out of whack?
It sounds great, in theory, to leave things to the operation of pure unhindered markets. But perhaps things like a higher tax burden on the wealthiest few, a comprehensive state-managed healthcare system, subsidzed education are not prima facie excessively socialist. Perhaps this things need to be done, not for pure economic policy but in harmony with social policy.
As an amateur in these policy areas, I'd welcome any thoughts on the subject...
Sarkozy Part II: the first strike
As an update to today's earlier post, I mentioned that the real test of Sarkozy's rhetoric would come with a showdown with the unions. And of course, here is the first strike announcment, from the IHT.
"President Nicolas Sarkozy will face his first strike after five of the eight railroad unions in France called for a day of protests on Oct. 18, vowing to defend their members' right to retire at age 50."
Interestingly enough, the article notes that
"[t]he unions, however, seem to have been shaken by Sarkozy's determination. Unlike the situation in 1995 and 2003, public opinion is firmly opposed to public sector pension privileges."
October will be interesting.
Sarko's New French Revolution - Can He Deliver?
From talk of France rejoining NATO to embracing Anglo-Saxon economics and 'working to get rich', it all seems to be bursting at the seams with potential for truly sweeping reforms.
Sure. It's all very nice, but what chance does Sarkozy actually have when the wave of reform comes crashing against the very firm walls of establishment France - the unions for example. I'd love to have more faith in this - I'll believe the talk when its converted into results...
US Dollar falls to new low against Euro
I'm trying to understand the reasons behind the falling US dollar. One of the reasons that often comes up is US spending outstripping savings. This has lead to unsustainable growth, which is now 'correcting' itself. I suppose this is just another manifestation of that brilliant SNL skit "Don't Buy What You Can't Afford":
Click Here to Continue Reading Post..
Why not let a bank collapse?
When I heard that the Bank of England had decided to bail out Northern Rock, I can't say I was all that impressed. From the column of the FT's Martin Wolf we have this interpretation($):
Yes, I'll agree with that, but surely as the banks have acted irresponsibly this kind of intervention will do nothing to prevent them from continuing to do so in future?
Why not let a bank collapse? Isn't this the point of risk v. reward? You make big money by taking big risks. Remove the risk, and you wonder what these bankers were being paid to do.
Isn't the Bank of England letting Northern Rock have its cake and eat it too?
King's behavior illustrates the classic moral hazard argument - with the knowledge that their reckless behaviour will go protected by the central bank, there is no incentive to reduce their exposure to risk. The risk has, to a degree, been transferred away from the bank and back to the government - and ultimately to the man on the street.
But what about the bank's customers? The government protects the first 30,000 odd pounds worth of deposits by law. The mortgages and debt would be purchased by another bank - the loans are still good, and if bought at a discount would probably turn out to earn a tidy profit. Click Here to Continue Reading Post..
