Global Strategies

Krugman on "weaponized Keynesians"

As an ardent advocate of cutting our current national defense budget as part of any long-term budget reduction program (and of a substantial fiscal stimulus in the short-term), I welcome Paul Krugman’s NY Times column “Bombs, Bridges and Jobs” (here): 

A few years back Representative Barney Frank coined an apt phrase for many of his colleagues: weaponized Keynesians, defined as those who believe “that the government does not create jobs when it funds the building of bridges or important research or retrains workers, but when it builds airplanes that are never going to be used in combat, that is of course economic salvation.”

Right now the weaponized Keynesians are out in full force — which makes this a good time to see what’s really going on in debates over economic policy.

What’s bringing out the military big spenders is the approaching deadline for the so-called supercommittee to agree on a plan for deficit reduction. If no agreement is reached, this failure is supposed to trigger cuts in the defense budget.

Faced with this prospect, Republicans — who normally insist that the government can’t create jobs, and who have argued that lower, not higher, federal spending is the key to recovery — have rushed to oppose any cuts in military spending. Why? Because, they say, such cuts would destroy jobs…..

A rising Mexico?

Clyde Prestowitz has a post on his Foreign Policy blog titled “Mexico on Top” that begins (here):

Here are some interesting numbers. Mexico's economy is presently growing at 3.2 percent annually or more than twice the 1.3 percent of the U.S. economy. In the past four years, Mexico has increased spending on new infrastructure from 3.3 to about 4.5 percent of GDP. In contrast, U.S. infrastructure spending has been falling as a percent of GDP since 1960 and is now at 2 percent of GDP according to the  American Society of Civil Engineers which gives the United States a D on its recent Infrastructure Report Card.

Would you rather talk jobs? Okay, Mexico's current unemployment rate is 5.26 percent versus America's 9.1 percent official rate and closer to 16 percent comprehensive rate (including those too discouraged to look for work, those working part time who would like to work full time, etc.).

And ends:

To halt its decline, the United States clearly must address a wide range of issues many having to do purely with domestic matters. But one strong view that has been evolving here at the Cumbre is that the United States as well as Mexico and Canada would benefit enormously from the further integration of the North American economies into a true economic union that would effectively constitute one North American economy. Such an economy would be energy independent, would be the low-cost producer for supplying most manufactured goods to the North American market, would have enormous resources, a large and growing and relatively young population, and a stable political system. This union could also be designed to incorporate new members that might wish to join. Thus, one could envision that perhaps Japan, South Korea, and other Asian or Latin American countries might eventually wish to become part of this system.

Such a system would be the world's richest and most powerful for quite some time.

I agree. But we need to solve the drug related lawlessness issue. And let's send lots of our high school students for a year of study in Mexico. It could even save us educational funds.

Without high school study abroad, "NO" on future PPS bond levy

Portland Public Schools is considering another construction bond levy. PPS is now taking an online survey about the 2011 May ballot measure and ideas for the future (here, see “Latest News”). Further, Superintendent Smith reports (here, page 15):

Over the last several months, members of the Board and I have held listening sessions to hear feedback about the last bond proposal, which was narrowly defeated last May. Board members and I have met with business leaders, community members, professional organization members, architects, parents, employees, construction professionals, including individuals who publicly opposed the bond. The conversations have been frank and helpful in determining where we go next. Here is some of what we have heard:

• • Everyone we have met with believes that our schools need to be upgraded, whether they supported the last bond or not.
• • There are many different views on why the bond did not pass. Many people attributed the result to the state of the economy.
• • Everyone we have met with wants to see the next bond enjoy deeper buy-in and broader support. People shared many suggestions for the focus of the next bond, but the discussions to date have not reflected any consensus on what the next proposal should include…… 

First, I publicly opposed the construction bond measure and spent about 100 hours campaigning against it. With such a close vote in May, I think I made a difference. I’ve had no conversation with the Superintendent nor any member of the Board about either the past bond measure nor any bond measure going forward.

Second, if they do ask, my position stays the same: If PPS remains without a high school study abroad program (just $30,000 for a five student pilot would be enough for a starter),  I will oppose and campaign against any future construction bond levy. As I said in November, 2010 (here), and repeated in February, 2011 (here):

I’m a “no” voter, and possible “vote no” campaigner, until PPS begins creation of a high school study abroad program and until PPS has clear plans to add Mandarin immersion classes to the levels supported by parental demand. I see no good purpose in investing in an outdated school system that is not moving to meet 21^st century economic and national security needs. The school system needs to change first.

"Make Wealth Not War in Asia"

Clyde Prestowitz and I are concerned about what Defense Secretary Leon Panetta recently said. From the NY Times article “U.S. to Sustain Military Power in the Pacific, Panetta Says” (here):

Defense Secretary Leon E. Panetta said on Sunday that despite hundreds of billions of dollars in expected cuts to the Pentagon budget, the United States would remain a Pacific power even as China expanded its military presence in the region.

And:

He acknowledged that nations in the region were worried about the impact of at least $450 billion in Pentagon budget cuts over the next decade and whether the United States could afford to maintain a strong military presence in the Pacific.

“There’s no question that those concerns have been expressed,” Mr. Panetta told reporters before meeting with the defense ministers of the 10 countries that make up the Association of Southeast Asian Nations. But, Mr. Panetta said, “I’ve made clear that even with the budget constraints that we are facing in the United States,” there is “no question that in discussions within the Pentagon, and discussions in the White House, that the Pacific will be a priority for the United States of America.”

Mr. Panetta offered no specifics, although he said that the United States would maintain its “force projection” in the region — some 85,000 troops in all, largely in South Korea and Japan.

Although he did not mention it, the United States is also stepping up investments in a range of weapons, jet fighters and technology in response to China’s military prowess.

To which, Prestowitz replied in his blog post “Make wealth not war in Asia” (here):

….. No one is arguing that China is preparing to attack the United States. None of America's oil comes from the Asia-Pacific region and China is not threatening to stop selling its products into the U.S market. Washington does not seem to think that China should be in any way concerned about the presence of advanced U.S. military capabilities in its back yard, so why should Washington be concerned about China deploying similar capabilities in the same place?

Maybe some U.S. allies have concerns about how to deal with China on some issues of territorial conflict, but allies like Japan and South Korea are very big boys and quite capable of contributing a lot more to their own defense than they presently do. Assuming more responsibility in the region simply allows them to continue free riding on the U.S. security commitment while only further irritating China and spurring it to greater modernization. Moreover, deeper entanglement in Asia doesn't seem like a smart way to react to the commitment fatigue that Americans have felt toward Iraq and Afghanistan, especially at a moment when U.S. police forces are being reduced, classrooms shut, and essential infrastructure investment neglected because of rising debt and budget deficits.

In fact, the reason for the plans for an increased military presence have nothing to do with any military threat emanating from China or anywhere else in Asia. The use of the terms "increase U.S. influence in the region" is a tipoff. It's true that U.S. influence in the Asia-Pacific area has fallen dramatically over the past decade. But that is not for lack of troops or aircraft carriers in the region. It is because of the erosion of U.S. economic competitiveness. America makes little that Asians want to buy and is now also buying relatively less of what Asians make as well as providing less of the cutting edge technology they are focused on obtaining.

What Panetta, Clinton, and the White House are trying to do is to use military power (the only area in which the United States remains unquestionably competitive) to compensate for rapidly declining economic power.

It won't work. Japan's pre war Finance Minister Korekiyo Takahashi was correct when he long ago emphasized that "the consequences of an economic defeat are far more difficult to reverse than those of a military defeat." America's asian allies and friends want the United States to balance their growing economic reliance on China with U.S. military power. But military power will not for long offset economic power. Indeed, perversely, the effort to use U.S. military power to balance China's economic power will only serve more rapidly to erode U.S. economic power which ultimately is the only power that counts.

Rather than promising to enhance the U.S. military presence in the Asia-Pacific region, Panetta ought to be talking about reducing it and investing the savings in making America economically competitive. America's new slogan should be: "make wealth not war."

I do not note from Panetta any call for increased Mandarin immersion programs in K-12 education, nor a call for school districts or states to pay for high school years abroad in China.

I agree with Prestowitz as he begins his blog post:

President Barack Obama ought to call Defense Secretary Leon Panetta immediately and tell him to start talking like he's living in the 21st century -- rather than the 1950s of his youth.

Competitor: Port of Lazaro Cardenas, Mexico

As the volume of trade with Asia increases, the Port of Portland has opportunities but also increasing competition. One of those competitors for Asian goods destined for Midwest or Eastern markets is the Port of Lazaaro Cardenas in Mexico which connects to Kansas City in 36 hours by rail. The opening of the Panama Canal to larger ships will be another.

From wikipedia (here):

The Port of Lázaro Cárdenas is the largest Mexican seaport and one of the largest seaports in the Pacific Ocean basin, with an annual traffic capacity of around 25 million tonnes of cargo and 2,200,000 TEU's.

Lázaro Cárdenas is home to a deep-water seaport that handles container, dry bulk, and liquid carg.. The port handled 160,000 TEU in 2005 but is expanding to a capacity of 2.2 million TEU annually. Cargo moves to and from the port by road and rail equally, with rail service provided exclusively by Kansas City Southern Railway. The port is expected to become a major container facility due to congestion at the U.S. ports of Los Angeles and Long Beach and its relative proximity to major cities such as Chicago, Kansas City, and Houston. In preparation for the port's increased capacity, railway and highway infrastructure running north-south through the center of Mexico has been upgraded in recent years to handle the anticipated increase in volume of goods bound for the United States using this transportation corridor. If a proposed government-backed Pacific port is built at Punta Colonet, Baja California, goods flowing to US states like Arizona and Nevada could bypass the congested Los Angeles region with closer access those markets, providing increased competition with Lázaro Cárdenas.

Video: "Three American siblings in a Russian school"

China's power and the Euro crisis

The Euro crisis is giving China a chance to exercise its economic power, and it may make very assertive demands. From the NY Times article “Europe Seeks Chinese Investment in Euro Rescue” by  Liz Alderman and David Barboza (here):

…..That Europe would turn so openly to China to help stabilize the debt crisis shows how quickly the Chinese economic juggernaut has risen on the world stage. Indeed, if China comes to Europe’s aid, it will signal a new international order, with China beginning to rival the role long played by the United States as the world’s pivotal financial power.

 “This would be a tectonic shift,” said Pieter P. Bottelier, an expert on China who teaches at the School of Advanced International Studies at Johns Hopkins University. “It would be so important economically and politically.”…..

 Arvind Subramanian, a senior fellow at the Peterson Institute for International Economics in Washington, said Europe’s appeal was another sign that China was already a dominant global power…..

 “China’s power is more imminent, broader in scope and greater in magnitude than anyone imagines,” he said. “For instance, China’s currency is already having a negative effect not just on the U.S. and Europe, but on everyone else, too. And the rest of the world can’t do anything about it. If that’s not dominance, what is?”

On his The New Yorker blog, Evan Osnos gives a Chinese perspective on the domestic pressures to be more assertive in making demand in exchange for funding (here):

…..To those outside, it can sound like a hollow excuse whenever Chinese officials say they need to get the backing of their public; after all, it’s not as if the public will vote them out. But there are other measures of public support or displeasure—the Internet is one—and Chinese leaders are acutely concerned about appearing to be frittering away the national dowry. China has reason to prop up Europe (its largest trade partner), but its foreign exchange reserves of $3.2 trillion—the world’s largest—has been accrued on the backs of its people, whose standard of living remains a fraction of what exists in Europe—a fact that hardly escapes public notice. “China has all these children who can’t afford to go to school, and a huge population that lives below the poverty line. And now they’re going to pretend that they don’t exist and generously give our money to the European nations. Where is the logic in that?” another commentator named Liubin wrote.

For the European plans to succeed, Sarkozy and others will need to find creditors willing to boost the fund, and Chinese reaction immediately gravitated to the sense that this help should not come cheap. “You want support? Fine, on these conditions,” commentator BillyBW began. “1. Recognize China’s market-economy status right away; 2. Never again mention Taiwan, Tibet, Xinjiang, and the South China Sea; 3. Allow China to purchase high technology in the fields of weaponry, aviation, information technology, pharmaceuticals, environmental protection, industrial manufacturing, etc. President Hu should learn from Kim Jong-il: Don’t hand over a dime without asking for the world in return.”

That is a Chinese wishlist beyond even the most generous quid pro quo likely to materialize. But it’s safe to assume that Chinese leaders won’t make any promises until they can secure a return on their investment that they can defend to their public. For a start, Li told the FT. European leaders can endear themselves to their potential new creditors by ending their criticisms of China’s foreign exchange policy. Chinese papers ticked off a few other demands: an increase in China’s voting quota at the I.M.F. and a recognition of its market economy status. Oh, and while they’re at it, Europeans should make it easier for Chinese companies to make direct investments on the continent. Not a bad deal if you can get it.

The co-evolution of superpowers: US, China & India

This is the sixth and last part of Tom Barnett’s recent 2011 “Brief.” It’s about the “Flow of Security.” About the last half of this video gives Barnett’s take on the relative rise (or as Barnett labels it: “How superpowers co-evolve”) of the US, China and India. Note India's rise.

All six parts of Barnett's brief are available on his blog here. I put part three on this blog here.

Four years at university in Shanghai for $10,368

In his “The Atlantic” blog post “Why Many in China Sympathize With Occupy Wall Street”, Damien Ma quotes from an essay that is circulating in the Chinese blogsphere. It’s about the inequities between rural and urban life in China. Within it, there is an interesting paragraph on the costs of university study (here):

We take the same test. The minimum score requirements for you and me are not the same. But once we're accepted, our tuition fees are again the same. Every person pays 6000RMB per year - that's for tuition only, which comes out as 24,000 RMB for all four years. Housing (1500RMB), and books (1000RMB) add up to around 4000RMB - and I'm only talking about eating cafeteria food the entire time. Four years of college comes down to 50,000 RMB. In 2003, a university in Shanghai announced that it was raising its annual tuition to 10,000 RMB due to the "campus renovation" That means 40,000 RMB for four years of tuition alone. Count in living and text book costs and a university education adds up to 66,000 RMB. For families who live in the city, 66,000 RMB isn't much. For a rural family, 66,000 RMB is a life time's worth of savings. I come from a coastal province that has been getting steady foreign investment. We were better off compared to some inner provinces, but still, after a year of hard labor, we were hard pressed to save much. A family of four who consume only the very basics can save 3000 RMB each year. That means to send one child to a four year college at 66,000 RMB a family needs to save for 22 years. That's assuming that no one gets sick. It also means that no matter how talented the second child is the family must still deprive him or her from attending college since they can only afford to send one.

 At the current market conversion rate of 1 yuan equal $US O.1571 (or $US 1 equals 6.3668 yuan), the following would be the dollar cost conversions:

One year university tuition @ 6,000 yuan equals $942.60.

Total four year expenses of 50,000 yuan equals $7,855.00

Total four year expenses of 66,000 yuan equals $10,368.00

 

Falling Incomes for College Grads

Based on the above charts, Michael Mandel asks three questions (here):

I want to ask an economic question, a political question, and a policy question.  First, no one has given me a good explanation yet of why young American college grads should have been hit so hard. Is there increased competition with young college grads around the world?  Are new college grads lower quality than their predecessors? Has information technology reduced the need for young grads? I really would like to know.

Politically, Obama captured the imagination of this group in 2008. Are young college graduates going to sit out the next presidential election in disgust?  Is there any candidate that can excite them?

Finally, if we were going to design some economic policies to help young college grads, what would they be?

I think we need answers to his first set of questions before we rush to invest more in our current public system of higher education.