Thanks Singapore!

Singer's discussion of creating a marketplace for controlling the externality of greenhouse gas emissions seemed to be a well argued position. Already companies like GE are excited about such possibilities because it could create a large demand for energy efficient products that they have been developing; there is a lot of money to be made pursuing greener technologies. Furthermore, developing nations will receive economic income from industrialized nations by virtue of trading their rights to pollute for money, which can be used to build infrastructure and develop human capital. The United States, for all its faults, has consistently led the world on innovation (assembly line, internet, hotpockets©, etc) and this seems to be another challenge that while we may have created a lot of the problem, we are also ideally situated to come up with the solutions. I also liked seeing that graph show that we aren't the worst country when it comes to per capita contributions to global warming. Thanks for that, Singapore!

As for the Stiglitz reading, something kind of struck me as strange: for someone who used to be a big deal at the World Bank, he sure rags on the IMF a lot. Perhaps there is some rivalry, like among siblings, and he needs to prove that his global economic institution is way cooler than those smelly lame IMF kids. Not that he doesn't support his arguments well about some of the poor influences that the IMF has had on resource-rich nations who are trying to avoid exploitation, he just conspicuously leaves out the World Bank much of the time when discussing destructive policies by global economic organizations...

At What Cost

Last summer I was having a conversation with one of my bosses about China’s economic growth and their increasing use of energy. He explained to me that while they do use a good amount of oil and will be increasing their oil use over the next few years, they use a great deal of coal. Additionally, he explained that coal mining accidents happen more frequently than they do in the U.S. and are not well reported. I know nothing about mining coal, but my boss explained to me that strict safety codes and modern techniques make mining coal in the U.S. a relatively safe procedure. In China, despite their growth, they continue to mine coal in many areas using old and unsafe methods. In particular, dangerous gasses can collect in the mines and sometimes cause large explosions taking the lives of many coal miners that the press fails to report (I assume government censorship is to blame for this).

This is exactly what came to mind when reading Stiglitz: “success means sustainable, equitable, and democratic development that focuses on increasing living standards, not just on measured GDP. Income is, of coarse, an important part of living standards, but so too is health…and education”. While China may be increasing her economic power, can we really call this success if she isn’t investing in her own people, if this success is seen in reserves of foreign currency and trade relations and not in the health and educational opportunities of her people? Stiglitz made some very convincing arguments to this effect. While I found his discussion of “shock treatment” versus a more gradual approach of dealing with the economic reform of various nations, it is this larger picture that seems particularly poignant.

We must be careful in our choice of measurements of the wellbeing of a nation, as Stiglitz points out. He gives an example right here in the U.S.: “between 1999 and 2004, average disposable income went up by 11 percent in real terms, but median household income—the income of the family at the center, the true middle middle-class family—fell by some $1,500, adjusting for inflation, or around 3 percent”. What is lost in measurements of GDP and mean averages are issues of equity. There are some compelling and astounding examples of such inequality right here in the U.S.

One may retort that because we enjoy a free market, each of these CEOs is providing a service that the market values at these very high salaries, but I believe that this kind of argument fails to take into consideration some deeply ingrained imperfections of markets. Surely when one takes into consideration the opportunity cost of the money spent on these salaries coupled with the very real possibility that an equally qualified candidate would accept these positions for far less pay, something must be seen as broken (for example, often times overpaying a CEO can act as an expression of the optimistic outlook of the company and its leadership and catch the eye of analysts who may in turn recommend it as a solid investment).

Unemployment to increase by one

I guess he just didn't have that Gonzales resilience...

http://www.msnbc.msn.com/id/18665386/

CEO of State

The Chinese President came to the United States about a year ago and met with our most powerful leader...then he met with the President...

While Stiglitz’s appeal for a more internationally comprehensive means of holding transnational corporations responsible for their actions around the world, this seems highly unrealistic. After all, even right here in the U.S. we have tremendous difficulty doing domestically what Stiglitz is advocating globally. Moreover, issues surrounding the sovereignty of states and their respective legal systems that arise when trying to enforce laws internationally have yet to be resolved. As for Stiglitz frustration over lobbying practices, one could argue that the reverse would be a restriction of liberty (“Liberty is to faction what air is to fire, an aliment without which it instantly expires. But it could not be less folly to abolish liberty, which is essential to political life, because it nourishes faction, than it would be to wish the annihilation of air, which is essential to animal life, because it imparts to fire its destructive agency.” – Federalist No. 10).

Unimportant Footnote:
I also disagree with Stiglitz’s description of Microsoft's practices as being monopolistic: there are certain circumstances in which monopolies arise naturally (in an environment of intellectual property protection) that are not so sinister. Despite having firefox on my computer, I use Internet explorer and no one is holding a gun to my head. I understand the DOJ has looked into Microsoft and that Stiglitz is perfectly right for bringing it up in the context he did, I just disagree with the monopoly accusations against Microsoft.

**You can't have your cake and eat it too

As the Frieden reading explains, if a country has significant capital mobility, different groups within a nation will have differing views on both the level of exchange rates as well as the flexibility of the exchange rate. While international traders and investors would like to see a high exchange rate which is not at risk of fluctuating, import-competing traded goods producers would like to see the opposite. This will lead to factions within a nation arguing over the politics of monetary policy, each hoping to serve their own interests. Frieden explains that because economies around the globe are becoming more integrated, this will become an increasingly politically charged debate. Moreover, the ‘cleavages’ between carious groups will become greater.
The Cohen reading, especially what he deems the ‘Unholy Trinity’, continues to highlight the difficulties a state may go through in handling monetary policy in an increasingly internationalized economy. As Cohen explains, a state must choose between autonomy over their monetary policy and the ability to stabilize their own exchange-rate; for a nation in a globally integrated economy, you cannot have your cake and eat it too. To complicate things further, each state at different times may have changing incentives when it comes to monetary policy and the global economy. Because an economic crisis in Mexico can spread abroad, the United States can no longer look the other way when a reckless economic policy is being pursued in other nations. Just as your neighbor setting his house on fire is hardly just his problem, the economy now suffers the problem of being a public good. Cohen explains that monetary cooperation can internalize this problem and help lead to stability. And when one state’s government stands to benefit from a policy that may hurt the overall economy, it can be a difficult problem as they are indeed an autonomous state and are not formally responsible to the global economy as much as their own countrymen. The Eichengreen reading then explains that while hegemonic stability theory might provide comfort in that a powerful nation can keep monetary policy under control, it turns out that his analysis of history gives reason to think a powerful nation, such as Britain or the U.S. aren’t completely behind the wheel, even if they want to be. At the end of the day, governments, especially democracies, are responsible to their own people and not to global economic interests and each has the right to pursue their own monetary policy, regardless if the ‘externalities’ of such policies are detrimental to other nations.

Watch your step

Stiglitz rightly points out that not all drug companies spending goes towards what many would deem the noblest causes: finding treatments and cures to life threatening diseases. Some goes towards ‘lifestyle’ drugs and other money goes towards advertising. This seems inappropriate given the serious challenges at hand. But it is really that bad?
Suppose for every dollar spent on advertising, a given drug money received $4 in profits. Would it not only help the company become more profitable but also lead to greater money set aside for research and development? A similar argument could be made the ‘lifestyle’ drugs. One could retort that drug companies may only have incentive to develop these ‘lifestyle’ drugs and more aggressive advertising, but I don’t buy into that logic. There is plenty of money to be made solving serious diseases such as malaria and HIV. Not only will people themselves buy them, but governments will spend large amounts of aid funds on these drugs, in addition to philanthropic organizations (if there was an HIV vaccine tomorrow, the Bill and Melinda Gates fund would buy plenty of them and distribute them around Africa to those who wouldn’t otherwise be able to afford them). My point is that while some behavior of drug companies may seem selfish or wrong, they may contribute to a larger good. These issues are tricky, and firmly grabbing a hold of something and declaring it wholly good or bad can be a challenge given a closer look.

Chavez to lead a "Bank of the South"?

While largely symbolic, Chavez hints at alternative institution

http://www.msnbc.msn.com/id/18406119/

Making them an offer they cannot refuse

Perhaps the most interesting aspect of the Wolf and Singer readings for me was the issue of lost sovereignty resulting from free trade agreements and membership to the WTO. Although both point out that because a nation will always have a basic sense of sovereignty in that they can always opt out of these free trade agreements and withdraw from the WTO, this seems somewhat a false freedom. What comes to mind is how many companies, say the makers of Crest toothpaste, have the freedom to not sell their product in Wal-Mart. Well, this is true, but the consequences of not selling their product in the largest retailer in the U.S. can be a fatal blow to the company. It is this very basic reality that companies, especially smaller ones, often cite when explaining how they were put into a position with such little bargaining power that they reduce their profit margins tremendously. It is worth pointing out, for the sake of fairness, that this very pressure can lead to greater efficiency and lower cost for American consumer thereby lowering the cost of living. My point is this: when economically weaker countries are dealing with powerhouses such as the U.S. and EU, it is worth appreciating how little bargaining power they have coupled with how much they have to lose.
Another interesting topic brought up in the readings was the idea of trading with somewhat disagreeable governments (dictatorships, oppressive regimes, etc). Watching Gen. Wesley Clark in an interview back when he was running for President, I was struck by something he said with an almost matter-of-fact tone: embargos and trade barriers strengthen the very regimes one set out to weaken. While Wolf explains that the mercantilist understanding of trade as economic war is fundamentally flawed, perhaps trade can serve a purpose that normally is reserved for armed conflict. For example, Castro has long blamed hardships of Cubans on the U.S., with some success, because of the trade embargo. Furthermore, because the U.S. has nothing it can take away or restrict, it has given up much influence on policy in Cuba. If, on the other hand, we were to increase trade with Cuba, the people of Cuba would enjoy an increase in products and services from the U.S. and would put pressure on the government to avoid any policy actions that may disrupt this beneficial trade relationship. Moreover, Cubans would have a tremendous new market for their goods and services (cigars would top a long list) which would further increase the welfare of the Cuban people (comparative advantage). While Singer and Wolf may see globalization in different lights, the truth is that when the picture is not clear, data is not obvious or incomplete, and there is no consensus among experts (given the credentials of both Wolf and Stiglitz and simply the title of their respective books, this seems a reasonable assertion), we should focus on trade related policies that seem to have proven ineffective. The embargo of Cuba seems a particularly compelling argument for review, however there are others (North Korea, and to a certain degree Venezuela)

**Computer: friend or foe?

As Freeman’s analysis indicates, the theory of factor price equalization fails to perfectly explain the decline in wages of low-skilled workers in the U.S. and the decrease in low-skilled employment in Europe. Acting as a debate-referee, Freeman eventually calls the winner as only a partial, and not even primary causal role for the factor price equalizationists. What really struck me was the idea presented by Wood in the article on how a possible factor in all this is how “trade with less-developed countries induced substantial labor-saving innovation”. Having previously read this paper in Prof. Goldsmith’s social issues class, we discussed at length the relationship people may have with new technologies. Specifically, is it a substitute or a compliment to a given worker? In other words, does the computer help you do your job better, or does it simply do your job? It seems likely that most who find themselves being replaced with technologies would be the low-skilled laborers the article focuses on. Sure, one can point out that X-rays are sent to India and isn’t that replacing a doctor which would be considered a high skilled laborer, and there is some truth in that. However, these are the novel exceptions to the much more prominent issue of the many low-skilled laborers in which we could come up with a much longer list of examples (low-end textiles immediately comes to my mind).
Thomas Friedman, in discussing the concept of globalization and the debates regarding it, once wrote that debating globalization was like debating the sun rising: its going to happen regardless of opinion. One may retort that ‘well, the option of tarrifs and trade barriers makes globalization less inevitable than the sun rising’. Maybe. But as Freeman points out, there is a considerable portion of the public that is firmly in support of free trade and implementing protectionist policies would be difficult.
I also found interesting Freeman’s point about States: even in neighboring states in the U.S. opportunities and wages for low-skilled laborers have varied, which certainly casts doubt on the factor price equalization theory. I suppose my feeling towards the idea of factor price equalization would be that it a based on sound reasoning but as Freeman’s analysis points out, the data just isn’t there to confirm that this is what is happening. Perhaps the complex role of new technologies may provide better insight into the increasing hardship of low-skilled laborers.

Opening initial post for the first time ever to have been done

More genius insight to come...

http://www.cnn.com/