Archive for the ‘International Affairs’ Category.

Another Reason to Love Fracking

Anything Vladimir Putin fears can't be all bad

Whilst it is exceedingly difficult to summon up much sympathy for either Russia’s state-owned natural gas monopoly Gazprom or Russian President-elect Vladimir Putin, the dynamic rise of natural gas produced by hydraulic fracturing, or ‘fracking,” has raised alarm bells in the highest reaches of the Kremlin.

Why?

Because Gazprom’s European customers, tired of being ripped off by Gazprom, are avidly exploring the possibilities of undertaking fracking to develop their own sources of the “blue gold,” and nowhere is interest higher than in the Russian Federation’s neighbors Ukraine, Poland, Romania, Bulgaria and China.

Too Easy to Make War

Since I am on the subject today of topics my thinking has changed on over the last 30 years, I will link this post from Kevin Drum arguing that we need to make war hard again.  I have not read Rachel Maddow's book and am unlikely to, if for no other reason than style issues, but I must say that I have come around to the point Drum derives from it

If you can get past that, though, there's a deadly serious argument here that deserves way more attention than it gets. The book is, basically, a series of potted histories that explain how we drifted away from our post-Vietnam promise to make sure we never again went to war without the full backing and buy-in of the American public. Maddow's premise is that, just as the founders intended, our aim was to make war hard. Presidents would need Congress on their side. The Abrams Doctrine ensured that reserves would have to be called up. Wars would no longer unfold almost accidentally, as Vietnam did.

And for a while that was the case. ...

Maddow's argument is that we need to start rolling back these changes of the past two decades. When we go to war, we should raise taxes to pay for it. We should get rid of the secret military. The reserves should go back to being reserves. We should cut way back on the contractors and let troops peel their own potatoes. And above all, Congress should start throwing its weight around again. It's fine to criticize presidents for accreting ever more power to themselves, but what do you expect when Congress just sits back and allows it happen? Our real problem is congressional cowardice: they don't want the responsibility of declaring war, but they also don't want the responsibility of stopping it. So they punt, and war becomes ever more a purely executive function.

I am mostly in agreement with this (though I am not sure why soldiers rather than contractors should peel potatoes).  War has become way too easy -- though I would argue that Drum needs to look in a mirror a bit here.  He has been a huge supporter of Obama using executive powers to end-around Congressional opposition on things like the budget.  It's hard for him to credibly turn around and say that this same executive end-around Congress is bad in war-making.   I will be consistent and say it's bad for both.

I have not read the book, so perhaps this is covered, but I would argue that there are external factors driving this change in addition to internal factors.

The current Presidential ability to fight small wars without much Congressional backing is not entirely unprecedented.  Teddy Roosevelt did much the same thing with his gunboat diplomacy.  There were two external conditions that allowed TR to get away with this that are similar to conditions that obtain today.  One, we had a decisive economic and technological advantage over the countries we were pushing around (e.g. Columbia).  And two, there was no superpower willing to challenge us when we meddled in small countries, particularly in Latin America where the major European powers were willing to let us do whatever we wanted.

I would argue that these conditions again obtain since the fall of the Soviet Union, and allow the US to lob around cruise missiles (the gunboat diplomacy of the 21st century) with relative impunity.

Just When You Thought China Might Be Joining the Modern World

from the HuffPo via Q&O

In one of history's more absurd acts of totalitarianism, China has banned Buddhist monks in Tibet from reincarnating without government permission. According to a statement issued by the State Administration for Religious Affairs, the law, which goes into effect next month and strictly stipulates the procedures by which one is to reincarnate, is "an important move to institutionalize management of reincarnation." But beyond the irony lies China's true motive: to cut off the influence of the Dalai Lama, Tibet's exiled spiritual and political leader, and to quell the region's Buddhist religious establishment more than 50 years after China invaded the small Himalayan country. By barring any Buddhist monk living outside China from seeking reincarnation, the law effectively gives Chinese authorities the power to choose the next Dalai Lama, whose soul, by tradition, is reborn as a new human to continue the work of relieving suffering.

Update:  Maybe he will be reincarnated in Avignon:

At 72, the Dalai Lama, who  has lived in India since 1959, is beginning to plan his succession, saying that he refuses to be reborn in Tibet so long as it’s under Chinese control. Assuming he’s able to master the feat of controlling his rebirth, as Dalai Lamas supposedly have for the last 600 years, the situation is shaping up in which there could be two Dalai Lamas: one picked by the Chinese government, the other by Buddhist monks.

Flash: European Finances Still Screwed Up

As I predicted, the various highly touted European debt and currency interventions last month did squat.  This is no surprise.  The basic plan currently is to have the ECB give essentially 0% loans to banks with the implied provision that they use the money to buy sovereign debt.  Eventually there are provisions for austerity, but I wrote that I don't think it's possible these will be effective.   It's a bit unclear where this magic money of the ECB is coming from - either they are printing money (which they refuse to own up to because the Germans fear money printing even more than Soviet tanks in the Fulda Gap) or there is some kind of leverage circle-jerk game going where the ECB is effectively leveraging deposits and a few scraps of funding to the moon.

At this point, short of some fiscal austerity which simply is not going to happen, I can't see how the answer is anything but printing and devaluation.  Either the ECB prints, spreading the cost of inflation to all counties on the Euro, or Greece/Spain/Italy exit the Euro and then print for themselves.

The exercise last month, as well as the months before that, are essentially mass hypnosis spectacles, engineered to try to get the markets to forget the underlying fundamentals.  And the amazing part is it sort of works, from two days to two weeks.  It reminds me of nothing so much as the final chapters of Atlas Shrugged where officials do crazy stuff to put off the reckoning even one more day.

Disclosure:  I have never, ever been successful at market timing investments or playing individual stocks, so I generally don't.  But the last few months I have had fun shorting European banks and financial assets on the happy-hypnosis news days and covering once everyone wakes up.  About the only time in my life I have made actual trading profits.

Thought problem:  I wish I understood the incentives facing European banks.  It seems like right now to be almost a reverse cartel, where the cartel holds tightly because there is a large punishment for cheating.  Specifically, any large bank that jumps off the merry-go-round described above likely starts the whole thing collapsing and does in its own balance sheet (along with everyone else's).  The problem is that every day they hang on, the stakes get higher and their balance sheets get stuffed with more of this crap.  Ironically, everyone would have been better getting off a year ago and taking the reckoning then, and certainly everyone would be better taking the hit now rather than later, but no one is willing to jump off.  One added element that makes the game interesting is that the first bank to jump off likely earns the ire of the central bankers, perhaps making that bank the one bank that is not bailed out when everything crashes.  It's a little like the bidding game where the highest bidder wins but the two highest bidders have to pay.  Anyone want to equate this with a defined economics game please do so in the comments.

Its All About the Consumer (wink wink)

Countless regulations and laws in the US that are ostensibly consumer protection turn out to be simple power plays by government officials and well-connected corporations.

We see this yet again in Argentina, where a government takeover of the newsprint business was ostensibly justified based on "unfair" business practices by the previous owners.  Of course, the only thing the Argentine government, which recently started prosecuting private economists for disagreeing with government inflation numbers, finds "unfair" is the fact that newsprint is being sold to papers who publish unflattering articles about the government.  More here.

The same Argentine legislation defines a new crime right out of Atlas Shrugged that they call economic terrorism, which in practice will likely be interpreted as 1) businesses that do anything that the current rules do not like or 2) businesses that get just too valuable for government officials to resist grabbing them for themselves.

Greek Government Essentially in State of Default

Nice tax refund you have coming .... we think we'll keep it

The [Greek] government has decided to stop tax returns and other obligation payments to enterprises, salary workers and pensioners as it sees the budget deficit soaring to over 10 percent of gross domestic product for 2011.

For all the supposed austerity, the budget situation is worse in Greece.  Germany and other countries will soon have to accept they have poured tens of billions of euros down a rathole, and that they will have to do what they should have done over a year ago - let Greece move out of the Euro.

Government workers and pensioners simply will not accept any cuts without rioting in the street.  And the banks will all go under with a default on government debt.  And no one will pay any more taxes.  And Germany is not going to keep funding a 10% of GDP deficit.  The only way out seems to be to print money (to pay the debt) and devalue the currency (to effectively reduce fixed pensions and salaries).  And the only way to do all that is outside of the Euro.  From an economic standpoint, the inflation approach is probably not the best, but it is the politically easiest to implement.

Also From the "This Time We Really, Really Mean It" Files

Apparently European leaders are close to an agreement that countries cannot run budget deficits higher than 3% of GDP.  If you are left to wonder, "hey, didn't they already have that rule before" the answer is yes.  Everyone had to promise a really, really stern oath not to run higher deficits before joining in the Euro group.

Of course, these promises meant nothing as there was no penalty for breaking the promise, and so the EU is proposing a new enforcement mechanism

Governments whose debts exceeded three percent of their GDP would be cited by the European Court of Justice, after which a super-majority of 85 percent of European governments would have to agree to impose some sort of sanction against the offending country.

I am not clear if the 85% is of the whole EU  (which would require a vote of 23 of the 27 members) or of just the Euro zone (which would require 15 of the 17 countries that use the Euro as currency).  Either way, I disagree with Drum and can't see how there is any hope at all here.  I am left with a number of questions

  • What is the likelihood that European countries will adopt this Constitutional provision and precedent for reduced sovereignty?  Don't treaty changes have to be unanimous?
  • Even if ratified, does anyone imagine the penalties will be high?  Imagine Greece today if such penalties exist.  How much are they going to worry about fines when they are already bankrupt?  And what will be the optics of the EU adding new costs to countries that are in financial crisis?  If a country in the future is doing things to endanger the euro from too much debt, the last thing the EU is going to be able to do is add to that country's burdens -- in fact, it is doing the opposite now, sending huge checks to all these countries
  • How are they every going to get the votes when this comes up?  Again, think about today.  Would Italy, Belgium, Spain, Ireland, etc. vote to sanction Greece, when they know they are next?

I just can't see this going anywhere.  And I would be surprised if the folks involved do either.  My guess is that they hope this will settle the bond markets so they can kick the can down the road.  Sure, we will have to deal with this all over again the first, inevitable time a country breaches the 3%, but that is later and right now they will accept a few years, even a few months, of survival.

Final Indicator, if You Needed One, of a Looming China Crash

Here is what I remember from the late 1980's - just about every technocratic pundit of the leftish bent, and a number on the right, all hailed Japan as the government economic planning model the US should follow.  One fawning essay after another lauded Japan's MITI and its top-down approach to economic investment.

Practically within hours of when these editorials peaked, the Japanese economy began to crumble.  We know now that MITI and other Japanese officials were creating gross distortions and misallocations in the economy, and inflating an economic bubble with gobs of cheap credit.  These distortions have still not been entirely cleared from the Japanese economy 20 years later, and the country experienced what was called "the lost decade" which may become the lost two decades.

For over a year, it has appeared to me (and many other observers more knowledgeable than I) that China was headed for a crash for many of the same reasons as Japan.  I am now sure this is true, as today Andy Stern (formerly of the SEIU) writes an essay lauding the Chinese top-down state-planned economic model.

The current debates about China's currency, the trade imbalance, our debt and China's excessive use of pirated American intellectual property are evidence that the Global Revolution—coupled with Deng Xiaoping's government-led, growth-oriented reforms—has created the planet's second-largest economy. It's on a clear trajectory to knock America off its perch by 2025....

There is no doubt that China will pass the US in total economic size -- it has three times more people than we do.  But their success is clearly due to the small dollops of free enterprise that are allowed in a statist society, and advances are made in spite of, not because of, the meddling state.

Exactly how much economic progress had China made before its leaders brought in the very free market ideas Stern says are dead?  None, of course.  To read China as a triumph of statism and as the death nell of capitalism, when in fact it is one of the greatest examples in history of the power of capitalist ideas and how fast they can turn around a starving and poverty-stricken country, is just willful blindness.

I will include just one other excerpt

While we debate, Team China rolls on. Our delegation witnessed China's people-oriented development in Chongqing, a city of 32 million in Western China, which is led by an aggressive and popular Communist Party leader—Bo Xilai. A skyline of cranes are building roughly 1.5 million square feet of usable floor space daily—including, our delegation was told, 700,000 units of public housing annually.

Meanwhile, the Chinese government can boast that it has established in Western China an economic zone for cloud computing and automotive and aerospace production resulting in 12.5% annual growth and 49% growth in annual tax revenue, with wages rising more than 10% a year.

My first thought on reading this was that Houston used to look exactly like this, with cranes all over the place building things, until we had an Administration that actively opposed expansion of domestic oil production.  My second thought is that this reads so much like the enthusiast essays written by leftists when they used to visit the Soviet Union and came back telling us Russia was so much superior to the US -- just look at the Moscow subway!

The emergence of hundreds of millions of people in China and India from poverty is exciting as hell, and at some level I don't blame Stern for his excitement.  But I fear that what he is seeing is the US housing bubble on steroids, a gross misallocation of capital and resources driven by a few technocrats who think they can manage a billion person economy from their office in Beijing.

Disclosure:  I seldom do anything but invest in generic bond funds and US stock funds, but right now I am out of US equities and I have a number of shorts on Chinese manufacturing and real estate.

Winter is Coming

It appears the Arab Spring, unsurprisingly, is coming to an end, as Islamic hard liners take a large share of the Parliamentary seats.

The idealist in me is offended when the US supports dictators with mixed respect for individual rights.  The realist in me knows that often, when such people are removed, worse governments take their place.

How the Left Analyzes Greece

I find the Left's opinions on Greece to be fascinating.  After all, Greece is essentially the logical end result of all of their love for deficit spending, so what kind of cognitive dissonance is necessary to write about Greece on the Left?  This kind:

OK, but they're spending too much money. Surely they know they have to cut back?

Sure, but the deals on offer are pretty unattractive. Europe wants to forgive half of Greece's debt and put them on a brutal austerity plan. The problem is that this is unrealistic. Greece would be broke even if all its debt were forgiven, and if their economy tanks they'll be even broker.

But that's the prospect they're being offered: a little bit of debt forgiveness and a lot of austerity.

Well, them's the breaks.

But it puts Greece into a death spiral. They can't pay their debts, so they cut back, which hurts their economy, which makes them even broker, so they cut back some more, rinse and repeat. There's virtually no hope that they'll recover anytime in the near future. It's just endless pain. What they need is total debt forgiveness and lots of aid going forward.

I certainly agree that Greece is now in a death spiral, but this analysis is just amazing.  The only way for other countries to avoid sharing Greece's fate is to, very simply, spend within their means.  If they do, problem avoided.  If they don't, and get hooked on deficit spending, then Greece is their future, the only question is when.

So what does Drum do?  He calls the spending withing their means strategy "unrealistic" and "brutal austerity."    So he occupies a long post lamenting what a totally SNAFU'd situation Greece is in, but takes off the table the only possible approach for other counties to avoid the same fate.   And in fact advocates a strategy that will push a few others over the cliff sooner, or even cause a few to jump on their own (after all, if the punishment for spending your way into financial disaster is to get, as Drum recommends, all your debt forgiven and years of aid payments, why the hell would anyone want to be fiscally responsible?)

And it is amazing to me that he calls forgiving half their debt, the equivalent in the US of our creditors erasing about $7 trillion, as "a little bit of debt forgiveness" while cutting government spending a few percent of GDP is "a lot of austerity."

His solution, of course, is not for Greece to face up to its problems but to transfer the costs of its irresponsibility to others and then remain nearly perpetually on the dole.

His mistake is to assume Greece faces endless pain.  It does not.  History has shown that countries that are willing to rip off the bandage quickly rather than over a few decades can recover remarkably quickly if sensible policies are put in place.  Heck, the Weimar Republic, which had inflation so bad people got paid 3 times a day so their family could buy something before the money became worthless a few hours later, got its house in order in a matter of months.

Thoughts on the Greek Bailout / Debt Writedown

I am not at all a financial or Wall Street guy, but I had a few thoughts

  • I am amazed at the equity rally over this.   Writing down one country's debt, without fixing its underlying financial problem or dealing with all the other countries who have problems, seems a small win.  Particularly when this one country stretched European resources to the breaking point, and there are a lot of other lined up just behind Greece.
  • Its interesting to see how much everyone bent over backwards not to trigger payouts from credit default swaps (CDS).  If this is the wave of the future, I would be shorting sovereign debt at the same time I was writing CDS contracts on sovereign debt.    Maybe this is exactly why I am not a trader, but it strikes me that if you had an arsonist around burning down houses, while at the same time the government worked hard to let fire insurance companies avoid paying off on the fire damage, wouldn't you be shorting houses and long on fire insurance companies?
  • How smart does the UK feel right now for staying out of the common currency?  The anti-EU folks in the UK should be calling for that referendum on EU participation right now.   It would likely fail by a landslide.
  • The question that keeps nagging at me -- is it really worth as much as a trillion euros to keep Greece in the Euro?  Why?
Update:  Oh, and I left out the obvious take:  moral hazard
When sharing our kneejerk reaction to yesterday's latest European resolution, we pointed out the obvious: "Portugal, Ireland, Spain and Italy will promptly commence sabotaging their economies (just like Greece) simply to get the same debt Blue Light special as Greece." Sure enough, 6 hours later Bloomberg is out with the appropriately titled: "Irish Spy Reward Opportunity in Greece’s Debt Hole." Bloomberg notes that Ireland has not even waited for the ink to be dry before sending out feelers on just what the possible "rewards" may be: "Greece’s failure to cut spending and boost revenue by enough to meet targets set by the European Union and International Monetary Fund prompted bondholders to accept a 50 percent loss on its debt. While Ireland won’t seek debt discounts, the government might pursue other relief given to Greece, including cheaper interest payments on aid and longer to repay it, according to a person familiar with the matter who declined to be identified as no final decision has been taken."

Sorry, I Forgot What Century We Lived In

From the Jerusalem Post via Radley Balko

When the severed head of a wolf wrapped in women's lingerie turned up near the city of Tabouk in northern Saudi Arabia this week, authorities knew they had another case of witchcraft on their hands, a capital offence in the ultra-conservative desert kingdom.

Agents of the country’s Anti-Witchcraft Unit were quickly dispatched and set about trying to break the spell that used the beast’s head.

Saudi Arabia takes witchcraft so seriously that it has banned the Harry Potter series by British writer J.K. Rowling, rife with tales of sorcery and magic. It set up the Anti-Witchcraft Unit in May 2009 and placed it under the Committee for the Promotion of Virtue and the Prevention of Vice (CPV), Saudi Arabia's religious police.

"In accordance with our Islamic tradition we believe that magic really exists," Abdullah Jaber, a political cartoonist at the Saudi daily Al-Jazirah, told The Media Line. "The fact that an official body, subordinate to the Saudi Ministry of Interior, has a unit to combat sorcery proves that the government recognizes this, like Muslims worldwide."

Actually, we have something similar here, we just call it "climate change" instead of witchcraft.

Greece: Where Default is, err, the Default State

One might think a line like about Greek finances was printed just this week

What followed could only be described as a comic progression of populist pandering [and] the spread to the national economy of a series of parasitic labor unions and cabals

But in fact it is describing Greek conditions circa 1944.

A while back I observed that the difference between Greek and US finances is that the US needs to return to a spending level circa 2007, while Greece has no similar default state of relative fiscal sanity it can return to.  This article in Finem Respice reinforces this premise by discussing the absolute insanity of Greek fiscal management before and after and even during WWII, which was characterized by all the exact same problems that have driven the current crisis.  Good background reading.

Greece, then as now, was dominated by an expensive public sector funded insufficiently by a tax system that did not work.  As may happen soon, Greece was not able to borrow, so all they could do was print money and inflation soared.  Only one man was able to stop the inflation, and I won't spoil the ending by the humorous way he did so.

On War

Harold Koh on what does and doesn't make for a war:

Koh, a former Yale Law School dean who wrote about the War Powers Resolution during his academic career, said the “narrow” role of U.S. warplanes in the mission doesn’t meet the definition of hostilities.

The circumstances in Libya are “virtually unique,” he said, because the “exposure of our armed forces is limited, there have been no U.S. casualties, no threat of U.S. casualties” and “no exchange of fire with hostile forces.”

With a “limited risk of serious escalation” and the “limited military means” employed by U.S. forces, “we are not in hostilities envisioned by the War Powers Resolution, Koh said.

As an outsider to the political process, it has been absolutely hilarious watching a White House full of children of the 1960's retroactively justifying Nixon's Christmas bombings of Cambodia.  It's not a war, they claim, as long as our soldiers are safe and we are mostly just killing citizens of other nations from the air.  Of course, by this definition, the Japanese attack on Pearl Harbor was not an act of war.

There are many reasons to put separation-of-powers-type scrutiny on war-making that go beyond just the risk to American lives.  In particular, killing people from other countries can radically change our relationship with other nations.  I find it ironic that that White House has deliberately put blinders on and declared that the only reason to get Congressional approval is if US soldiers are at risk, since it was Obama who lectured the nation on the campaign trail about how damaging to our world image he felt Bush's wars to be.

Mindset of a Slave

I know that this pathetic bit by Kevin Drum was done to death by blogs last week, but I was on the road and still want to get my innings.  For those who have not seen it, Drum said (in a post about Obama and Libyan war):

So what should I think about this? If it had been my call, I wouldn't have gone into Libya. But the reason I voted for Obama in 2008 is because I trust his judgment. And not in any merely abstract way, either: I mean that if he and I were in a room and disagreed about some issue on which I had any doubt at all, I'd literally trust his judgment over my own. I think he's smarter than me, better informed, better able to understand the consequences of his actions, and more farsighted. I voted for him because I trust his judgment, and I still do.

A few thoughts

  1. Leaders on the Left have a strongly arrogant belief that they are smarter than ordinary citizens, and so it is their duty to make decisions for individuals because politicians will do a much better job of running people's lives than ordinary folks would themselves.  I have always supposed that for this governing philosophy to be successful, there had to be a deep parallel desire among the rank and file of the Left to be led, to put their own life in the hands of politicians who can be better trusted to make decisions for them.  This bit from Drum seems to be evidence of that desire.
  2. I know of absolutely no one, politician or otherwise, whose judgement I would generally trust more than my own.  Seriously, this is just pathetic.  Sure there are folks whose judgement I might trust, based on long experience, over my own on narrow issues (e.g. my wife on restaurant choices or my son on who to draft for my fantasy football team).
  3. Drum completely ignores the issue of incentives (as do most folks on the Left).  Even if a politician's judgement were better than mine on a certain issue, could I trust his or her incentives to make the decision based on the same goals I might have?  In the case of Libya, Obama has any number of incentives -- his poll numbers, reelection in 2 years, pressure from members of his own party, his legacy, his image in other countries, finding consensus among his advisors, etc  -- that might affect his decision-making but which I do not share.
  4. What in God's name in Obama's pre-Presidential career provided the basis for Drum's staggering trust in his judgement?  Where have we ever, ever seen this judgement exercised in any meaningful way, particularly on an issue with this many chips on the table?  Even since he has been President, where has this judgement been evidenced?   As I have said any number of times in the last two years, having a really, really good speaking voice is not a proxy for intelligence.
  5. To the extent that Drum voted for Obama based on his foreign policy judgement, Drum's perception of Obama's judgement had to have been based in large part on campaign statements and speeches Obama has made on foreign policy.  And those statements basically said that what Obama is doing now is illegal.  How can Obama have universally good judgement if he promised to do A in the campaign and is doing not-A today.  Both A and not-A cannot simultaneously constitute good judgement.

You Thought I Was Joking About Dictator Retirement Island

Via the Guardian

Efforts appear to be under way to offer Muammar Gaddafi a way of escape from Libya, with Italy saying it was trying to organise an African haven for him, and the US signalling it would not try to stop the dictator from fleeing....

A senior American official signalled that a solution in which Gaddafi flees to a country beyond the reach of the international criminal court (ICC), which is investigating war crimes charges against him, would be acceptable to Washington, pointing out that Barack Obama had repeatedly called on Gaddafi to leave.

Quote of the Day

The President does not have power under the Constitution to unilaterally authorize a military attack in a situation that does not involve stopping an actual or imminent threat to the nation.

--  Barack Obama, December, 2007

The Dictator Retirement Island

Looking over the last 35 years of history, I want to make the following proposal:  the Dictator Retirement Island.

Here is how it works.  The US puts a sum of money in a Swiss account for the dictator.  The US moves dictator to a lush island complete with lavish lifestyle complete with personal performances from US pop stars (this seems to be a very popular activity for both dictators and US singers).  The US guards the dictator from vengeful rebel groups, human rights organizations, threats if extradition, etc.  In exchange the dictator gives up power and allows the US to impose an interim Constitution and supervise free elections.

It used to be that deposed kings/emperors/strong men could find a home in exile somewhere.  The promise of exile probably helped prevent scorched-Earth battles by dictators who know that loss of power will mean torture and death.  The German Kaiser lived in exile for 20 years in the Netherlands after WWI.

Advantages:

  • A whole lot cheaper than military action -- the first 10 minutes of our involvement in Libya when we launched a bunch of cruise missiles cost over $100 million.
  • Saves a lot of lives, both citizens and US military
  • Increases frequency of positive regime changes

Disadvantages:

  • To say the least, monetary rewards heaped on ruthless dictators are fairly unsatisfying
  • Ticks off human rights groups.  More importantly, ticks off rebel groups in home country (even giving medical care in US to deposed Shah was a huge problem for Iranian rebels)
  • Many still might not accept, even when backed into a wall.  It's the power that is compelling, not just the money and lifestyle, and most dictators are really good at denying reality

Obsessing over China?

Chinese exceptionalism, or do we just notice it because it is so large.  I clicked through to this chart from a link on Instapundit that said to note how Chinese fertility fell off the map.  When I watched the video though, what I saw was ALL the fertility rates falling at roughly the same pace, at roughly the same point.  The lesson seems to be that fertility tends to drop with increasing mortality, wealth, and technology -- which is what many of us have been saying in response to Paul Ehrlich for years.

I am probably over-reading this, but I am sensitive that there is a sort of storyline of Chinese exceptionalism -- due to their taking some sort of totalitarian third way -- that seems to be admired among certain US socialists and environmentalists and Thomas Friedman.  This hearkens back to all the admiration for the Japanese MITI-managed economy, right before their economy crashed for two decades or so.

China flourishes because it has a culture, never fully suppressed by Mao, whose people take well and quickly to capitalism -- much of the development around Southeast Asia in previous decades was led by expat Chinese.  The totalitarianism that is, depressingly, so admired by the US intelligentsia is just going to lead China into the abyss.  Already we can see bubbles emerging due to the state's forced mispricing of key economic inputs, from capital to oil.  The burden of spending on triumphalist projects like super-bridges and mega-buildings and Olympics and high speed trains is going to start appearing over the next few years.

Here is my prediction:  The Chinese are going to have a bubble burst that will rival any such economic explosion that we have seen in the last century.  I have been looking at the situation and by a number of metrics, the bubble is already huge.  I would bet against China, but the problem (as with all shorts) is timing.  Government officials, if they really dedicate themselves to the task, can extend bubbles for a long time.  Even in the US, which is less authritarian and more transparent, it can be argued that Fannie and Freddie and Barnie Frank and Alan Greenspan helped push off the reckoning by at least 5 years.   Of course, the longer you push it off, the worse it gets.  Which means the Chinese bubble is going to be a doozy.

Postscript: Here is a nice example -- admiration from US environmentalists for China gutting their economy to make arbitrary goals

It's interesting to note the dedication China has displaying in achieving its [energy efficency] target -- shutting down entire operations and even executing rolling blackouts. Surely there would have been some amount of embarrassment for the nation on the world's stage if it had missed its target, but that likely would have been minor. It's worth noting the difference in political culture: What do you think would have happened if the US had such an energy-reduction target to hit, but a sagging economy got in the way?

I can tell you with some certainty: We would have missed that mark.

Will there never be an end to Americans who take advantage of our uniquely strong speech protections to laud totalitarians?

History Repeats Itself

This was a real time warp for me: (NY Times via Cato@Liberty)

As President Obama prepares to release a review of American strategy in Afghanistan that will claim progress in the nine-year-old war there, two new classified intelligence reports offer a more negative assessment and say there is a limited chance of success unless Pakistan hunts down insurgents operating from havens on its Afghan border.

The reports, one on Afghanistan and one on Pakistan, say that although there have been gains for the United States and NATO in the war, the unwillingness of Pakistan to shut down militant sanctuaries in its lawless tribal region remains a serious obstacle. American military commanders say insurgents freely cross from Pakistan into Afghanistan to plant bombs and fight American troops and then return to Pakistan for rest and resupply.

The findings in the reports, called National Intelligence Estimates, represent the consensus view of the United States' 16 intelligence agencies, as opposed to the military, and were provided last week to some members of the Senate and House Intelligence Committees. The findings were described by a number of American officials who read the reports' executive summaries.

Perhaps someone who knows better can accuse me of making a shallow comparison, but doesn't this sound exactly like the situation that plagued the US Army in Vietnam, where enemy fighters would hide out across the border in Cambodia?  From Wikipedia:

The People's Army of Vietnam had been utilizing large sections of relatively unpopulated eastern Cambodia as sanctuaries into which they could withdraw from the struggle in South Vietnam to rest and reorganize without being attacked. These base areas were also utilized by the communists to store weapons and other material that had been transported on a large scale into the region on the Sihanouk Trail. PAVN forces had begun moving through Cambodian territory as early as 1963

Way Past Time to Open Up to Cuba

I thought we should have opened up years ago to Cuba, even when they were at their most totalitarian.  After all, 60 years is probably enough time to prove sanctions are not enough to bring Cuban leadership to their knees, and in the intervening time we have seen any number of examples of the power of trade and open interaction helping to topple bad regimes.

Unfortunately, I think we have been prevented in doing so by pure ego (we don't want to admit a failed policy we put so much bipartisan effort into) as well as Florida electoral politics  (anti-Castro votes considered swing votes in a swing state).  I don't know what to do about the latter -- we have ethanol subsidies for the same reason (ie Iowa's prominence in the presidential selection process).   However, with Cuba currently mitigating some of its worst socialist impulses, it strikes me that now is the time we can overcome the ego problem and simply declare victory.  Unfortunately, we now have a President that may want to continue punishing Cuba, this time for lowering taxes and reducing the size of government.

My Speculation on North Korea

Of all the foreign policy analysts in the world, I am probably in the bottom quartile.  Or decile.  So take this for what its worth.

We have heard rumors for months, even years, that the internal situation in North Korea is desperate, or more accurately even more FUBAR'd than usual.  There have even been hints of open popular opposition to the government, definitely an unusual occurrence.  I look at the attack on the South Korean ship in the context of domestic problems.  This was Kim's "wag the dog" response.  The classic totalitarian response to domestic problems is to seek out distracting foreign adventures.  I think what we may be learning is that the domestic situation is even worse than has been supposed.

Discuss.

Government Worker Bailouts

Apparently the nations of Europe have committed their citizens to helping pay the inflated salaries of a bloated Greek public workforce to the tune of $146 billion.

The package is predicated on the Greeks getting their spending under control, which almost certainly will not happen since the bailout establishes the precedent that if Greece fails to act rationally, it will get bailed out.

It's Not Over When it's Over

So the head of the IOC declares the Olympics over, the flame is out, but there still seem to be people on the stage.  It seems that Canadians, so long without an overt sense of nationalism, have decided to use the stage to hold a pep rally for their country.   Can you imagine how unbelievably creepy, and probably scary, it would have been had the Chinese closed the Olympics in a similar China-uber-alles manner.  But since the Canadians are thought to be (mostly) harmless, I suppose its OK.

Postscript: Not 30 seconds before this started, I was lamenting the fact that Rush was not a musical act, with the silver lining that we had not seen William Shatner either, when lo and behold he rises onto the stage.

PPS: I thought the way they opened the show, with the clown fixing the broken torch, was much more consistent with the Canadian style, and more flattering in a sense than the goofy show at the end.  It is particularly funny, to me at least, to see that all the people who they have chosen so far to extol the virtues of Canada actually left the country for the US to make their fortune.  What are they selling, that Canada is a great place to be from?  They couldn't have found someone like Jim Balsillie who actually mad his fortune and reputation, you know, in Canada.

PPPS:  OK, it was only the talking quasi-celebrities I thought was odd.  Who couldn't love the giant inflatable beavers that followed?

Explain the Difference

Is there any difference between Hugo Chavez and Barack Obama in terms of how they approach the auto industry?  "Make the kind of cars I thing you should, or the government will take you over."

Mr. Chavez said his socialist government is going to apply strict quotas regarding the number and types of vehicles auto makers can produce. The president also ordered his trade minister, Eduardo Saman, to inspect the Toyota plant, saying it may not be making enough "rustic vehicles," a style of all-terrain vehicle that is much-needed in Venezuela's countryside, where they are often converted into minibuses.

"They'll have to fulfill [the quotas], and if not, they can get out," Mr. Chavez said during a televised address. "We'll bring in another company."

He said if the inspection shows Toyota isn't producing what he thinks it should and isn't transferring technology, the government may consider taking over its plant and have a Chinese company operate it. "We'll take it, we'll expropriate it, we'll pay them what it's worth and immediately call on the Chinese," Mr. Chavez said. Chinese companies, he said, are willing to make vehicles made for the countryside.

It seems like Venezuelan workers want the same deal Obama gave the UAW:

Venezuela's auto sector is in tatters amid recurring labor problems that have led to a lack of productivity. Analysts say many auto workers hope their company is nationalized so they can become de facto government workers and enjoy the extra job security that comes with that status.

By the way, this seems like a suckers play -- please put more valuable stuff in your store window so when we break in there is more to steal:

Mr. Chavez said late Wednesday the Japanese auto maker needs to transfer more new technologies and manufacturing methods from headquarters to its local unit in Venezuela.

While Mr. Chavez directed most of his criticism at Toyota, he said other auto assemblers, including Fiat SpA and General Motors, are also guilty of not sharing technology from abroad with their Venezuelan units.

The left often seems to imply that the US government is too eager to shed blood to protect American industry overseas, but in point of fact American industry has had to live with the reality for decades that foreign governments often steal billions of dollars in American-owned assets with barely a peep being heard from the US government.  For example, there is really no such thing as a Saudi or Libyan or Venezuelan or even Mexican oil industry - those are just assets paid for and built by private Western concerns and then stolen by local governments.