A Gangster Has Many Faces
The son of Polish and Uruguayan immigrants, Edward Miguel has been interested in global economic development since he was a teenager. By the time he graduated from high school, Miguel had traveled to Eastern Europe and Latin America and witnessed firsthand the scourge of endemic poverty. “I had seen the contrast between those countries and America,” Miguel says, “and it was jarring.” These experiences stayed with him as he pursued his undergraduate degree at MIT and his doctorate at Harvard. Now a member of the economics faculty at the University of California, Berkeley, Professor Miguel is bringing a fresh perspective to the debate over reducing global poverty.
That debate typically breaks down into two camps. One side believes in the “poverty-trap” hypothesis, which says that the world’s poorest societies are incapable of providing themselves with even the most fundamental preconditions of economic growth. Their only hope is to receive a massive jolt of foreign aid that will break the cycle of poverty, plant the seeds of economic growth, and begin the process of development.
The other side argues that this theory neglects the baleful impact of bad governance. All too often, foreign assistance winds up lining the pockets of embezzlers, warlords, and thieves. Even if it does reach people in need, it provides a short-term fix that does not translate into long-term prosperity and material independence. So before we send money to the poorest corners of the globe, we need to make sure that the recipient countries have effective legal, political, and social institutions.
But what comes first? Financial aid to provide the material preconditions of development, or institutional structures to provide a stable framework for prosperity? “It’s a chicken-and-egg problem,” Miguel says, “and lots of claims are being made in the public sphere without too much evidence to back them up.” In order to evaluate the merits of these claims, “we need to better understand corruption, violence, and the motivations of the economic gangsters who are responsible for so many past development failures.”
Miguel’s approach is on display in his new book, Economic Gangsters: Corruption, Violence, and the Poverty of Nations, coauthored with his former graduate school colleague and now Columbia Business School professor Raymond Fisman. The book reads like a sort of Freakonomics for international development, analyzing a series of familiar phenomena through an unexpected lens.
The project was shaped by Miguel and Fisman’s broad interest in global poverty, but it ended up being what the authors call “a walk on the dark side of economic development.” Through their fieldwork in Africa and Asia, Miguel and Fisman came to realize that “the concurrence of violence, corruption, and persistent poverty is so pervasive that it is almost impossible to separate the study of poverty from these other social ills.” They decided to focus their research on the criminal behavior that plagues so many developing countries.
Miguel and Fisman use rainfall data to show that violence in Africa increases reliably during periods of drought and scarcity.
The result is a fascinating blend of economics and cultural anthropology. Miguel and Fisman use rainfall data to show that violence in Africa increases reliably during periods of drought and scarcity. When farmers can’t raise crops, they are more likely to turn to pillaging. An increase in pillaging can provide further disincentive for others to be productive (why build a farm if it’s going to be looted?), thus triggering a cycle of brutality. Miguel and Fisman argue that economic conditions can be as important as (if not more important than) cultural factors in stoking Africa’s bloody conflicts. Somalia, for example, is one of the least ethnically and religiously diverse countries on the planet, but it has been wracked by persistent outbursts of violence, many of which can be linked to droughts.
Fisman and Miguel identify an analogous phenomenon in Tanzania, where times of drought are highly correlated with spikes in “witch killings,” the murders of elderly women who are frail and unable to pull their own economic weight. Miguel reckons that under conditions of extreme resource scarcity these women become attractive targets for violence, making them victims of economic deprivation as much as bizarre religious fanaticism.
So if economic scarcity can spark intense violence, and if we know which events are likely to create economic scarcity, we should be able to target development assistance in ways that please both sides of the foreign aid debate. Sending a stream of money into corrupt and unstable countries is a bad idea, but critical instances (such as during droughts) exist when narrowly focused aid initiatives can help poor countries prevent bloodshed.
To be sure, Miguel stresses that culture and conscience obviously play a significant role in shaping human behavior. For example, Tanzanian witch killings occur much more frequently in villages dominated by traditional pagan religions than in Christian and Muslim areas.
According to Miguel and Fisman, cultural factors also help explain why, in New York City, certain diplomats tend to rack up more parking tickets than others. The value of a parking space in Manhattan is upwards of $450 per month, and diplomats can use their “immunity” to park anywhere for free. It is not surprising that many of them accumulate scores of unenforceable parking tickets. Miguel and Fisman demonstrate that culture is a very effective predictor of unscrupulous parkers: offenders are much more likely to come from countries where government corruption is an accepted way of doing business.
So the power of economic motivation to explain human behavior depends on specific circumstances. “I am very committed to empirical data,” Miguel says, “and to basing prescriptions on research.” The war against global poverty won’t soon be won, but Miguel’s research should help us decide which battles to fight.
Obama Calls for Large, Bold Stimulus
Obama Calls for Large, Bold Stimulus
In his weekly address, President-elect Barack Obama said that the stimulus plan would make a "strategic investment" in the country. He said that his plan will invest in health care, infrastructure, and education. He also said that it would cut the taxes of 95% of Americans.
Troops in Afghanistan Celebrate New Year's
In the video, U.S. troops stationed in Afghanistan celebrate the New Year and talk about missing their families.
Lawmakers' Priorites for 2009
In this video, The Hill talks to representatives about their priorities in the early part of 2009.
South Siders Support Burris
The Fox affiliate in Chicago talked to residents of Chicago's South Side, Roland Burris's neighborhood, about Burris's Senate appointmenWhy 2009 Will be Worse than 2008 We are not out of the woods yet Jeff Taylor | January 2, 2009 Whew. Now that 2008 is in the history books, $8.5 tri
Why 2009 Will be Worse than 2008
We are not out of the woods yet
Whew. Now that 2008 is in the history books, $8.5 trillion in federal bailout money is in the pipeline, and bold leadership is set to take command, Americans can all breathe a little easier, right?
Uh, no. The unhappy fact is that 2009 is almost certain to feature more economic hardship than the year that preceded it. President-elect Barack Obama may think he has steeled himself and his administration for this outcome, but three major factors argue against Obama truly being prepared for what's to come.
Insane expectations. It was no mistake that Vice President-elect Joe Biden was dispatched to try to dampen surging overseas expectations that the Obama presidency will quickly reverse American actions around the globe. But a similar threat lurks domestically, where the federal government under Obama will be expected to correct every dislocation from the confused Bush years—all while providing free health care and full employment.
Most telling is the continued misunderstanding of the role that Obama's Treasury chief pick, Tim Geithner, has played in the Bush bailouts from his current perch at the New York Federal Reserve. Geithner has in every way possible functioned as a loyal member of Hank Paulson's Goldman Sachs army, seeking to reverse market judgements on bad investments with billions in federal cash. Why anyone would expect substantially different policy from an Obama administration with Geithner in place escapes me.
The one exception to this is at the Federal Reserve, where Ben Bernanke might end up as the poster-child for economic malaise, giving Obama license to show Bernanke the door. If nothing else, this could buy Obama time and reset the clock on his honeymoon. But otherwise, without some sort of dramatic gesture to placate the public, by late spring the euphoria over Obama's inauguration could give way to a crushing let down.
State and local implosions. The coming spring will also prove crucial as many states and localities write their budgets. These are the same entities that came hunting for roughly $200 billion in federal “stimulus” handouts via thousands of make-work projects.
The real trouble, however, lies in the hundreds of general funds, enterprise funds, pensions, and health care plans which are skirting the edge of bankruptcy right now. The nearly $3 trillion market for state and local debt remains in flux with the certitude that borrowing costs will creep up by about 50 basis points for all but the most well-insulated jurisdictions.
For many others, 2009 will bring a cruel ratcheting effect when reduced revenues from the slowing economy, coupled with increased investor and analyst wariness, combine to reduce debt ratings. This will further push up the cost of borrowing, which will then further strain revenues. Tax hikes might help, but only at the cost of further depressing business activity.
For that reason, the federal government will once again be called on to bail out insolvent operations—but this time it will be cities, counties, and maybe even a state or two.
Incidentally, this process may have a profound impact on winnowing the field of Republican statehouse superstars who might be in a position to challenge Obama in 2012. If Sarah Palin, Bobby Jindal, or Mark Sanford watches their state circle the drain in '09, you can pretty much write them off as a serious candidate in a time of economic strife. Conversely, should a governor truly rise to the occasion by shrinking the cost of their operations while maintaining services, they would jump to the front of the line.
Addled economics. When otherwise smart people start talking about the positive effects of inflation, we've entered desperate times. Let's walk through the root cause of America's housing bubble, which is widely held to be at the epicenter of America's 2008 economic meltdown, to see why inflation can only compound our economic woes.
Why did housing prices embark on a rocket-ride straight up in recent years? Because banks created an unlimited supply of ready buyers at every price point. How did they do that? By lending money to people without the income historically required to pay back a mortgage of a given size or, in many cases, of any size. So the ongoing housing correction, or “collapse” in some quarters, represents a return to a more sane relationship between a borrower's income and their ability to borrow.
Given this reality, income will be at a premium in 2009. Rising unemployment has already started to batter income levels. But real income can also be impacted by rising inflation, which leaves fewer dollars available to pay for things like mortgages.
In effect, those pundits pushing the inflation solution do not advocate jumping off the fake-wealth-via-permissive-lending treadmill, they just want Americans to run faster to get nowhere.
Already we see that when policymakers debase the currency with zero short-term interest rates they provoke a market response. Long-term interest rates, led by the benchmark 30-year fixed mortgage, inched up last week. This is exactly what you would expect as lenders realize that the dollars they will be getting back will have less—perhaps much less—purchasing power than the ones they are lending out.
In basic terms, this is a process that has gone on for thousands of years, since the dawn of human civilization. When kings, pharaohs, or emperors try to tamper with a society's store of value, that value shifts.
Indeed, all the talk of deregulating or reregulating markets misses the simple yet essential point that the serial bailouts of 2008 were designed to avoid market consequences for bad investments. The New Year will demostrate that this was a waste of both time and resources. In 2009, market forces will punish the human hubris that peaked in 2008, setting the stage for a brighter tomorrow.
Who Saw The Housing Bubble Coming?
Who Saw The Housing Bubble Coming?
Bruce BartlettSome forecasters were prescient; financial leaders weren't.
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The current economic crisis is raising many legitimate questions about the failure of economists and financial analysts to foresee the housing bubble and warn of its collapse.
There were, in fact, many warnings dating back more than seven years--but in the euphoria of rising home prices, no one listened. As time went by and no crash occurred, many of those doing the warning lost credibility or decided that perhaps they were wrong and moved on to other issues.
I first created a folder on the housing bubble back in 2001 and began collecting material on the subject. The very first piece I filed was an article from a September 2001 issue of Forbescalled "What If Housing Crashed?" by Stephane Fitch and Brandon Copple. Read today, the article was remarkably prescient.
Federal Reserve Chairman Alan Greenspan first addressed the question of a housing bubble in testimony before the Joint Economic Committee on April 17, 2002. He dismissed the idea--or, for that matter, any comparison to the stock market, which had recently gone through a high-tech bubble--on the grounds that housing was different because of substantial transaction costs and more limited opportunities for speculation.
Greenspan also argued that there really wasn't a single national market for housing, but rather a collection of many local markets. Even if a bubble emerged in one market, he said, there was no reason to think it would spill over into other markets.
In June 2002, I filed a report by economist Ed Leamer of UCLA noting that the ratio of home prices to rent was rising rapidly and that this represented a kind of price to earnings ratio for the housing market.
Like the stock market's P/E ratio, when it rises rapidly above historical norms in a short period of time, it's is a good sign that there is a bubble--and that it could burst quickly.
But in March 2003, Greenspan continued to deny the possibility of a housing bubble. In a speech to the Independent Community Bankers of America he said that any comparison between the housing market and a stock market bubble was "rather a large stretch."
Greenspan repeated his view that one could not generalize about the national housing market from other possible bubbles in a few isolated markets. He went on to argue that there was no evidence of excess supply in newly constructed homes and that the rate of housing starts was consistent with the growth of incomes and population.
Despite Greenspan's assurances that there was nothing alarming, it was apparent that a number of local markets, especially in California, were experiencing bubble-like conditions, with prices rising to clearly unsustainable levels. UCLA's Leamer proclaimed that a bubble definitely existed in the Los Angeles and San Francisco real estate markets in a June 2, 2003 report.
In September, economists Karl Case and Robert Shiller presented a very detailed analysis of the housing market to the Brookings Institution's panel on economic activity.
While conceding that economic fundamentals were favorable to rising home prices, they also noted that there were elements of bubble psychology in the housing market. Case and Shiller pointed to an increase in the buying of real estate for investment purposes and high expectations of housing price increases.
They also observed an increasing sense of urgency and opportunity among home buyers, who were plunging into real estate for fear of being left behind as they perceived their friends and neighbors growing richer--classic signs of a bubble.
By 2004, concerns about a housing bubble were pervasive throughout the popular media. But responsible authorities continued to throw cold water on them.
For example, in February, the Federal Deposit Insurance Corporation denied the existence of a housing bubble. It noted that there had not been a decline in national housing prices since the Great Depression. Advances in the structure of mortgage finance since that time, the FDIC concluded, made any repeat very unlikely.
The first report I have pointing to the potentially disastrous effects of a collapse in housing on financial institutions came from economist Paul Kasriel of Northern Trust on July 30, 2004. He noted that 60% of banks' earning assets were mortgage-related--twice as much as was the case in 1986.
If the housing market were to go bust, Kasriel warned, the banking system would suffer significant damage. And since the banking system is the transmission mechanism between the Fed and the economy, any serious downturn in that sector could make monetary policy impotent, thus pulling down the entire economy.
That same day, however, I received a report from Bear Stearns economist David Malpass arguing that the housing market was healthy and that much of the rise in prices simply represented a "catch-up" because they had lagged behind the rise in equity prices since the mid-1990s.
The Bear Stearns report also noted that rising household formations, declining unemployment, low interest rates, a decline in the inventory of unsold homes and the 1997 cut in capital gains taxes on owner-occupied homes as other reasons for its continued optimism.
In September, the International Monetary Fund called attention to the highly synchronized movements in housing prices internationally in its World Economic Outlook.
This suggested that there was greater liquidity in the housing finance market than others had generally assumed. The IMF further noted that interest rates were unusually low and bound to rise at some point as central banks necessarily tightened monetary policy to fend off inflation.
Indeed, the interest rate increases that had already occurred in 2004 were expected to sharply reduce the growth of housing prices in 2005, the IMF predicted.
But in October, Greenspan was still saying that the housing market was nothing to be concerned about. In a speech to America's Community Bankers, he pointed out that the vast majority of homeowners lived in their own homes--so if they sold one, they would have to buy another.
Consequently, there was little possibility of a general downturn in housing prices. While Greenspan acknowledged that there had been some increase in home buying for investment purposes, this represented only a small portion of the overall housing market. And while there was evidence of a rise in debt service ratios, he nevertheless saw household balance sheets as being in good shape.
Greenspan's view was shared by economists at the Federal Reserve Bank of New York. In December, they directly addressed the housing bubble question. Their report's bottom line? There was no bubble; housing prices were rising due to positive fundamentals and not from expectations of rapid price appreciation. And even if fundamentals turned negative, there was little likelihood that prices would drop significantly.
I published my first column on the housing bubble on Dec. 15, 2004. In hindsight, I see that I was overly impressed by the views of Alan Greenspan and the New York Fed. But I did raise red flags about loans becoming too easy, the decline in down payments and the spread of adjustable rate mortgages.
I concluded it would be "unwise to buy a house in the expectation of future price increases like those we have seen." I advised every homeowner to get out of adjustable-rate mortgages and into a fixed-rate mortgage as soon as possible.
I'm ending my discussion of this issue in 2004, but throughout the years since, a number of analysts have emerged on both sides of the housing bubble question. So I do not claim to be comprehensive in my review. I just wanted to call attention to a few of the more prominent analyses that crossed my desk when the housing bubble first caught my attention.
There were many economists who did see it coming, but there were many others of equal or greater prominence and authority who repeatedly insisted that there was nothing to worry about. Under the circumstances, ordinary investors can hardly be faulted for taking actions that unwittingly fueled the bubble and are now having disastrous consequences for themselves and the nation.
Unfortunately, it is in the nature of economic and financial forecasting that being right too soon is insignificantly different from just being wrong. And forecasters that are wrong when most of their community is also wrong never suffer for it. The trick is to be right just a little bit sooner than everyone else--but only a little bit.
Bruce Bartlett is a former Treasury Department economist and the author of Reaganomics: Supply-Side Economics in Actionand Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy. This is the first installment of his new weekly column for Forbes.com.
Candace Bushnell Hates Hedge Funds
Candace Bushnell Hates Hedge Funds
Susan LeeCultural ridicule lies ahead.
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It's been foul weather for hedge-heads. Redemptions are rampant, performance is drooping, the Securities and Exchange Commission briefly banned short-selling, and Congress summoned them to do some 'splaining.
But the really bad stuff is yet to come. Hedge funds are coming under attack from popular culture. In fact, the two uber-villains of Candace Bushnell's new book, One Fifth Avenue, are hedge-heads.
And it's not easy to be an uber-villian in Ms. Bushnell's world. Her other characters are moral sewers. They lie, steal, vandalize and cheat on their spouses right and left. Even the grande dame of One Fifth, Louise Houghton, is a murderer. But the crimes committed by the hedgies are far more serious. They are vulgar. Vulgar!!
Although Ms. Bushnell's grasp of what hedge funds actually do is weak, her knowledge of social conventions is pretty detailed. Consider the lifestyle of the two hedgies, Paul Rice and Sandy Brewer. They live in massive apartments with marble floors and 12 foot ceilings. They have tons of servants. They travel by helicopter, private jet and a Bentley with uniformed chauffeur. Their wives are tutored by an aristo-hanger-on who advises them on everything from what art to buy, how to dress and where to eat.
As for over-the-top: Paul installs an enormous aquarium along an entire wall of Louise Houghton's former ballroom and fills it with exotic fish that cost, each, over $100,000.
As you can see, some of their crimes have to do with wretched excess. Well, that's to be expected from the nouveau riche. Their other crimes however are worse: social climbing. Ms. Bushnell even sneers at Paul and Sandy's charitable activities because they're undertaken to promote social acceptability.
Well, given that we're a nation of arrivistes, we're very hard on parvenues. Americans might admire great gobs of money, but they want it to be tastefully deployed. And quietly out-of-sight. So there's much head-shaking and eye-rolling at dreadful displays.
This attitude of admiration infused with scorn is all the more bizarre because hedge-heads come close to the ideal of American capitalists. They are pretty much ruthless risk-takers who have their own skin in the game. Unlike CEOs who gobble down the bucks as their companies are bailed out by taxpayers, hedgies are compensated almost entirely on their performance.
In fact, most get the bulk of their pay comes from a performance fee. Typically they take 20% of the profit, or the increase in net asset value, made annually by their fund. Performance fees are meant to align the interests of the manager with the interests of investors--more for you, more for me. (Up to a point, that is. Some funds have high-water mark provisions that limit performance fees to profit achieved beyond the highest net asset value.)
When performance is subpar, hedge-heads suffer. Some funds even have a hurdle rate that doesn't allow fees to be collected unless managers have out-performed a specific benchmark. And there's also a nasty thing called a clawback, which requires hedge-heads to give back performance fees when the value of the fund sinks.
The other component of compensation is a management fee that is usually 2% of the portfolio. This fee can be quite handsome all by itself. Someone managing a $10 billion portfolio rakes in a management fee of $200 million--plenty to keep the Gulfstream flying. But, remember, portfolios get that large because their managers are fabulous at making money, not because investors are forced to participate.
Also, like most capitalists, hedge-heads view taxes as something to be aggressively avoided. Although most of them live in New York City or Connecticut, lots of their funds are domiciled in offshore tax havens. Mostly the Cayman Islands, the British Virgin Islands and Bermuda. Places that, by lucky circumstance, provide good berths for yachts and excellent golfing.
And how totally American to have a lobby group. And how totally hedgie to have its services be secret. The Managed Funds Association has a Web site but nonmembers can't get past the home page.
Of course, there're some things about hedge funds--other than gobs of money--that make outsiders uncomfortable.
For one, as noted, they're very secretive. They aren't required to make a lot of public disclosures or even private disclosures to their investors. For another, they're barely regulated by the standard government agencies. And finally, they run (or did run) with lots of leverage and short-selling.
Just a decade ago, we lionized hedgies. Their photos were all over business magazines and some people (though not many) even bought those impenetrable books written by George Soros.
But after lionization comes demonization. Candace Bushnell, who forecast the critical importance of designer shoes in her previous work, Sex and the City, is an early-warning to hedgies--a storm of ridicule lies ahead.
P.S. Feeling cranky about something? Tell me about it at: Crankonomics@gmail.com.
Susan Lee is an economics commentator for NPR's "Marketplace" and a weekly columnist for Forbes.com.
In the Hands of the Central Bankers
In the Hands of the Central Bankers
By Robert SamuelsonWASHINGTON -- They're technocrats, schooled in subjects that bore most people. They are appointed -- not elected -- to top government jobs, and what they do is not well understood. But they are enormously powerful, and in 2009, they may determine whether the global economy avoids calamity. "They" are central bankers: Ben Bernanke of the U.S. Federal Reserve; Jean-Claude Trichet of the European Central Bank (ECB); Masaaki Shirakawa of the Bank of Japan; and their counterparts in China, India, Brazil, Mexico and elsewhere.
Not since the early 1980s, when high inflation plagued many advanced economies, or perhaps the 1930s has their role been so crucial. Global economic expansion is slowing to a standstill. Economists at Deutsche Bank forecast meager 0.2 percent growth in 2009 -- the worst year since at least 1980. In 2007, world growth was almost 5 percent. Without stronger growth, the slump might feed on itself and fuel economic nationalism.
Superficially, central bankers seemed poised to deliver a revival. As if on cue, major central banks cut interest rates in November and December to spur growth and prop up their financial systems. The ECB reduced its key rate to 2.5 percent; the Bank of England went down to 2 percent, equaling the lowest rate since its founding in 1694; and many other central banks also cut rates -- China, India, Canada. As for the Fed, it's been cutting its key short-term rate from 5.25 percent in September 2007 to -- last week -- a range of zero to 0.25 percent.
With short-term rates so low, the Fed has embarked on a strategy of trying to reduce long-term interest rates by directly purchasing bonds and other securities that had been off-limits. Before the crisis, the Fed altered short-term interest rates in the hope that long-term rates on home mortgages and bonds would follow. Now, it has already announced that it may buy hundreds of billions of securities backed by mortgages and credit card, auto and small business loans.
All this bespeaks central banks' new aggressiveness. Until recently, there was little unanimity of purpose. In July, the ECB raised its key rate to 4.25 percent to prevent soaring oil prices from increasing overall inflation. "Europe was in denial (about the crisis) until Lehman's bankruptcy" on Sept. 15, says Fred Bergsten of the Peterson Institute for International Economics. But Lehman's failure -- and a parallel fall of oil prices -- changed attitudes.
In a crisis, history counsels cooperation. Its absence in the 1930s was disastrous. Consider the bankruptcy in May 1931 of Creditanstalt, then Austria's largest bank. That failure might have been prevented if Germany and France had agreed on a rescue package. They couldn't. Bank panics "spread to Hungary, Poland, Germany and Britain -- and the rest of the world," says Harvard political scientist Jeffry Frieden.
Massive "swap" lines between the Fed and 14 other government central banks represent one sign of today's cooperation. These swaps provide other central banks with dollars, which then can be lent to local banks. Companies, investors and banks in Europe, Asia and Latin America have borrowed huge amounts in dollars. As U.S. credit markets seized up, renewing their dollar loans became harder. The Fed's swaps -- roughly $500 billion in recent weeks -- substitute for scarce private credits, minimizing defaults.
It also seems encouraging that central bank cooperation reflects a broader political consensus. After meeting in November, the G-20 nations (the United States, the European Union, Japan, China, India and some other major nations) issued a statement forsaking protection and pledging parallel "economic stimulus" programs. Globalism, not nationalism. So far, then, so good?
Well, maybe. As Frieden points out, much of today's "cooperation" is through press releases. Countries agree on broad principles but then go their separate ways. Germany's "stimulus" program, for instance, is much smaller than the one apparently planned by the Obama administration. Countries renounce protectionism, but there are signs that China -- with a massive trade surplus -- might relax its policy of currency appreciation. By making the renminbi cheaper, China would give its exports an added price advantage. If the United States inserted "Buy American" provisions in any stimulus legislation, it too would be embracing economic nationalism.
The dangers compound the pressures on central banks to restore economic growth. There is not so much cooperation among them as shared fears grounded in widely accepted scholarly conclusions about the Great Depression of the 1930s. Government blunders, it is widely believed, worsened the slump. Lessons seem plain: Don't let panic destroy the financial system; public lenders must advance when private lenders retreat. These responses seem plausible but beg a troubling question. What if this downturn is following a different script and defeats central banks' aggressiveness?
Caroline Kennedy Would Fit Perfectly in the Senate
Caroline Kennedy Would Fit Perfectly in the Senate
By John StosselIf you Google "Caroline Kennedy Qualified," you'll come up with several hundred thousand websites. Site after site asks, "Is Caroline Kennedy Qualified?" -- to hold Hillary Clinton's Senate seat, that is.
New York Republican congressman Peter King, who wants that seat for himself, says there is "no evidence she's qualified".
New York Democratic congressman Gary Ackerman agrees: "She has name recognition, but so does J.Lo".
Zillions of people may rant that Caroline Kennedy lacks what it takes to be a senator, but I think she's qualified.
After all, what does a senator do?
In theory senators represent the people of the state that sent them to Washington. It's not at all clear what that means. It has something to do with serving the interests of those people rather than the senator's own interests. But it's long been debated whether a representative should do what constituents want or what the representative thinks they should want. Either way we have a problem. New York has 19 million people. We don't have the same interests, and we rarely want the same things. People are diverse.
What's a representative to do? If some in the state want a subsidy for their businesses or farms, and others object, how can the senator serve both groups? Polling is no help, because the minority would be unrepresented.
The idea of a senator truly representing the interests of 19 million people is ridiculous. (This holds for Wyoming's half-million as well.) We pretend that he or she can do it, but no one really believes it. It's just a game we play. The reality is something else.
Caroline Kennedy may indeed be unqualified to be a U.S. senator if she is judged by the job's theoretical duties. But so is everyone else.
On the other hand, she is qualified to perform the actual duties of a senator. Let's look at those:
Senators bloviate on anything and everything, regardless of whether they know what they are talking about. This is an important part of the job. Senators must sound as though they know how to create jobs, what kind of energy the United States should use, how to make health care affordable, how to plan education for 75 million unique children, and so on. They don't have to actually know how to do these things. They just have to sound as though they know. I know very little about Caroline Kennedy, but I'm sure she's capable of making pronouncements about how progressive polices will save the world.
Another thing senators do is cast votes to spend other people's money. Caroline Kennedy should be very good at that. She grew up in a wealthy family. Her stepfather was one of the richest men in the world. Now she's married to a wealthy businessman. She's had lots of practice spending other people's money. She'd be good at it.
All this is not to say the job of a senator is easy. Senators do have to figure out which interest groups to reward with subsidies, special tax breaks and pork in order to assure reelection. But with a little work, that's probably not hard to learn.
So by the standard of the actual duties of a U.S. senator, Caroline Kennedy is eminently qualified.
But, of course, so is virtually everyone else.
China's miracle at middle age
China's miracle at middle age
It has been 30 years since China embarked on the greatest economic experiment in human history. In that time, the country has emerged from poverty and chaos to become one of the leading economic powers. It is tempting to call China's astounding growth an economic miracle, but the trajectory of the last three decades has been the product of planning, innovation and carefully tended capitalism. Today, China confronts many of the old challenges — growth has been uneven, leaving many Chinese untouched by the fruits of success — and new ones too. The current economic crisis and new constraints imposed by energy shortages and climate change demand new thinking every bit as bold as that embraced in 1978.
Three decades ago, China's future was uncertain. The Cultural Revolution was a blight on the nation's soul and left and right battled for supremacy in the post-Mao world. On Dec. 8, 1978, the wily survivor Deng Xiaoping was named head of the Communist Party, and he told the Third Plenum that the country should embrace reform and opening. At that time, the first cautious steps included small-scale private farming, a reversal of Mao's communal agriculture and industry. Farmers' energies — and earnings — were cut loose, left for themselves to enjoy. Two years later, Deng picked Shenzhen, a then quiet fishing village in the Pearl River Delta in southern China, as the site of the first Special Economic Zone to allow foreign investment and export manufacturing. With that, the boom began.
The results have been striking. The economy has grown at an average rate of 9.8 percent since 1978; for more than half that time, growth has been in double digits. Today, China is either the third- or fourth-largest economy in the world. Annual per capita income has gone from 380 yuan in 1978 to about 19,000 yuan ($2,760) in 2007. The number of Chinese living in absolute poverty — less than $1 a day — has dropped from 800 million to more than 10 million. (Millions more live on $1 to $2 a day.) In 1978, the much-sought "four big things" consisted of a bicycle, a radio, a sewing machine and a watch. Today, almost every Chinese home has one television and 15 million families have private cars. Home ownership is on the rise and the country is filled with market watchers who match the enthusiasm (and nervousness) of investors in Tokyo, New York or London.
The process has not been smooth. There have been rear-guard battles fought by leftists who despair of the loss of socialist ideals — and the loss of perks that were once theirs by right but now often belong to successful capitalists. Corruption is rampant, environmental destruction is breathtaking — literally, for anyone who knows the murky Chinese skies — and the income disparities are some of the worst in the world. Today, the country looks with trepidation at the global slowdown, and the Chinese Communist Party, whose reformist inclinations are not evident when it comes to politics, is now focused on sustaining the growth that is the foundation of its legitimacy.
Chinese policy has been guided by two maxims. The first is Deng's famous quip that "it doesn't matter if the cat is black or white, as long as it catches mice." In other words, pragmatism, not ideology, would be China's compass. The second rule is that the country would "cross the river while feeling for the stones." An experiment of this nature is unprecedented; there is no guide.
Celebrating 30 years of progress, Chinese Communist Party leader Hu Jintao warned that the country faces difficult times. Economic growth has slowed from 11.4 percent in 2007 to 9 percent this year, and next year could drop below 8 percent, the level at which new market entrants readily find jobs. When growth dips below the 8 percent mark, officials get nervous. In his speech, Mr. Hu noted that economic development is critical to achieving "enduring peace and stability" and warned that "nothing can be done without stability."
In the face of declining exports, factory closings and massive layoffs, Beijing has adopted a 4 trillion yuan stimulus plan that aims to boost spending on much-needed domestic infrastructure. China has depended on foreign markets to fire its economic engine. Now, with overseas economies battling the downturn, China must stimulate domestic demand to generate growth.
This change is only part of a broader economic redirection. While growth and wealth have fired consumers, China is already the leading emitter of greenhouse gases, which contribute to climate change. Hundreds of thousands of Chinese die prematurely as a result of bad air and water and contaminated products. One of China's environmental officials conceded that "China's reform and opening has achieved in 30 years the economic gains of more than 100 years in the West — yet more than 100 years of environmental pollution in the West have materialized in 30 years in China."
This grim warming seems out of place amid the celebration of 30 years of growth and transformation. But Chinese officials understand the challenges ahead. If they can muster the same focus and determination to tackle these problems, we are confident that they will solve them.
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