Saturday, January 31, 2004

Keynesian Economics and the Business Cycle: Or why are there no new jobs and we're about to lose the house?

Brad Delong writes about the current GDP report and the possibility that the Fed intervention has spurred a real-estate bubble. First let me state that Alan Greenspan, the chairman of the Federal Reserve Board, has done in my opinion a good and sometimes great job in minding the economy. However, the power of the Federal Reserve Chairman to affect the economy is primarily Keynesian in its nature.

The Federal Reserve Bank was established to prevent shocks and panics like those associated with the Great Depression. Over time, the role of the Federal Reserve has evolved to mulitples roles such as regulatory, monetary policy, and including the promotion of price stability. A prime example of a failure of price stability was "Stagflation" as occured in the in the 1970's and was associated with Federal Reserve monetary policy as well as the oil shocks of the period. Stagflation is a term coined to denote slow economic growth as well as rising prices.

However the "jobless recovery" (Federal Reserve Board, CSM) is still here unless the February 6th 2004 report is significantly more robust than I'm expecting.

The question is then "why?" is this happening. Keynes advocated a theory of economics that argued that uncertainty (or inefficiency) in supply and demand balances would mean that full employment would not necessarily be reached without government intervention. On the other hand, "Free Market" economists like Mark Skousen argue that government intervention is what creates boom/bust cycles:

" Fortunately, most economists now recognize that government's monetary and fiscal policies are the main source of economic and financial instability in the world today. In fact, more and more college textbooks teach up front that the economy is relatively stable at full employment; this is known as the "long-term growth model." The short-term Keynesian model is taught at the end of the textbooks, where government intervention is recognized as a destabilizing factor in the economy and the chief cause of the boombust cycle. See Roy Ruffin and Paul Gregory's Principles of Economics and N. Gregory Mankiw's Economics."

So if this is the case who is right? Well, unfortunately it seems that both Keynesian and 'Free Market' economists are correct. How can they both be correct? Well, it's quite simple. The Federal Reserve controls interest rates and monetary policy (Fiscal implementation belongs to the Treasury department). Using this power, the Federal Reserve Banking system as the "lender of last resort" can effectively prevent panics and minimize shocks to the economic system. However whenever the Federal Reserve pursues a policy that deviates from true market conditions it creates excesses that build up and cause "irrational exuberance" that may create a financial bubble and the accompanying shock of its bursting. However once the bubble has been created, the Federal Reserve does not have the power to magically wave its hand and make it disappear. It can only once again using monetary policy and setting interest rates manage to "cushion the shock".

John Cochran writes on unsustainable growth of which we saw quite allot of with the Internet bubble bursting.

" Unsustainable growth occurs when the central banks's creation of credit (often accompanied by crony capitalism) allows investment to exceed available savings. The amount and type of investment and growth are not consistent with preferences and resource availability. The process generates significant malinvestment and the possible consumption of capital. The downturn is inevitable because production has been misdirected by central bank action. "

As Christopher Farrell of Businessweek notes there is a discrepency however. The full economic "crash" never happened:

" But when the dot-com bubble burst, the investment Calvinists warned, the market collapse would take both the New and the Old Economy down with it.

" Well, it sure looks like the Internet balloon has popped... But where is the economic crash?"

So what did happen? Well the Federal Reserve intervention prevented "finanical contagion" and a crisis of confidence. This deferred the economic "crash". Why do I say deferred? Well the problem is that the excesses in the system were never wrung out. The asset liquidation as part of the business cycle (and the "Austrian school/theory of economics) hasn't been deflected - it has merely been delayed and shifted from stocks to stocks AND real estate.

As John Cochran notes:
" The recession is the corrective phase of the cycle; market forces have begun to reassert themselves. Once a crisis has begun, policymakers must walk a fine line. If market processes are not interfered with by government policies, the recession that follows the crisis will be sharp and short and will eliminate and correct the past errors and malinvestments. In other words, the economy moves on.

" If the government interferes with the market processes, however, the adjustment may be postponed, but the recession eventually will be more severe and, most likely, more prolonged...

Well that's theory. Are we seeing something like that happen? Well according to Brad Delong we are in fact seeing that now:

" The argument seems to be that when the NASDAQ crashed the Fed sharply lowered interest rates... in a highly normal, expected, and predictable fashion--raised property prices...

" And then--I think the next stage of the argument goes--a positive-feedback loop got going... the Fed's accomodation has set off a real estate bubble--and planted a ticking time-bomb in the American economy, for when the real estate bubble pops the consequences (collapsing consumption spending, large-scale foreclosures and household bankruptcies, corporate bankruptcies, et cetera) may well be dire.

Brad Delong then proceeds to ask: What is the alternative?
" But if it is true that America is embarked on an unsustainable real-estate bubble, and if that bubble is driving high consumption spending, then how, exactly, would raising interest rates help? Raising interest rates lowers the fundamental value of real estate, yes. But the key problem is the gap between the current "bubble" and the fundamental value of real estate. If that's the problem, you don't want to increase it by lowering the fundamental value of real estate, do you?"

Well what is the alternative?
Under the present economic system there are only three choices. The first is to accept that there will be an asset bubble created by Federal Reserve intervention in the aftermath of every intervention to prevent a major shock or contagion situation. The second is to drop full employment as a goal of monetary and interest rate policy. The third is to create better regulation of markets and have the Federal Reserve more closely follow "market factors" that would dictate the interest rates so as to prevent unsustainable growth. In other words, now that the excesses are in place there is no way to "wring" them out of the system. They must be played out in one fashion or another. It is only on the front end, by keeping interest rates and credit standards sufficiently rigorous that unsustainable growth is not produced in the first place. The question is not whether or not Greenspan should have raised interests after 2000 instead of dropping them, but why did Greenspan back off on raising interest rates in 1996.

What happened is that Alan Greenspan raised interest rates, the financial markets got spooked, and then he backed off. This is the mistake that Greenspan should be held accountable for. Given that he clearly perceived the dangers of unsustainable growth, why didn't he stand firm and so prevent irrational exuberance from reaching such heights? The economy needed to be cooled off but he wasn't willing to stay the course! One might argue that it was politically unacceptable to the Clinton Administration, but the independence of the Federal Reserve Board is key to the working of the economy.

Given that we are in this mess now, what is to be done? Part of the problem is that the Federal Reserve Board control of interest rates is (perceptually at least) a blunt instrument. The Federal Reserve pronouncements are attended to much too closely, and the slightest move on their part or shift in the smallest wording is cause for celebration or dismay in the financial markets. A policy intervention approach in which the intervention is more gradual and more incremental is needed. The Federal Reserve Banks change interest rates by buying or selling into the bond markets as well as setting overnight lending rates to banks. A more market style forum where the Federal Reserve can intervene as a driving force rather than setting categorical "break points" is needed badly.

Short Term Solutions to the coming Housing crash.
1. In the short run, the Federal Reserve can take the edge off the real estate bubble appreciation by forcing/advocating the tightening of lending standards. Part of a bubble bursting's sting is not just that people are speculating on an asset and inflating its price, but that they borrow money to do so. The prospect of being forced to pay it back is what drives the fear created by an asset price shock and forces a mass firesale.

2. At the same time, the Federal Reserve can work with the subsidied mortgage lending companies such as Freddie Mac / Fannie Mae to get more real home owners into the market to provide a "base" to support the speculative over-extension.

3. The Federal Reserve needs to work with HUD in order to help develop low-ROI housing nation wide. Allot of the speculation driving the demand in the real estate bubble is for high end homes. This is because high-end homes offer a much higher Return on Investment for the same capital ("dollar for dollar value"). A person can make allot more money buying and selling expensive homes then building and selling low-rent or starter homes on the same lots. By building a strong "base" into the speculative over-reach, you'd get more real home-owners into the market to keep demand up. This is because people often trade-up using the asset appreciation in their first home to finance a better one.

4. Every financial bubble and its asset speculation is typically driven by financial instruments or organizations that facilitate such speculation on the top-end of large scale investment. In this case, the instrument is REIT's or Real Estate Investment Trusts. Typically such instruments in a true asset inflation bubble become riddled with corruption and criminal evasion of regulations. After the crash typically such excesses come out into the full light of day that were ignored during boom times. We could save ourselves allot of pain later by reigning in the REIT's (and other instruments) today before they go bust. By doing so we could again blunt the economic "reset" caused by the correction deferred and magnified by Federal Reserve intervention.

The coming real estate crash is driven by the magnified correction to the economic system that was created when the Federal Reserve attempted to intervene to cushion the shock of the unsustainable growth created by its failure to rein in the economy when times were good in the 1990's. Intervention itself per se to deal with shocks and contagion do not necessarily create such deferred and magnified corrections. Only interventions that attempt to delay the reckoning of unsustainable growth created by a deviation from "true market conditions" in interest rate and monetary policy are subject to this criticism. Thus the Austrian School, 'Free Trade' economists, and Keynesian economists are correct about the value of central bank intervention depending upon the circumstances.

The only way to avoid a large scale crash at this point is to make very fast regulatory and structural changes to the economy that would help dissapate the correction to something bearable. In the absence of such regulatory and structural initiatives we may expect the correction to be worse than the original affects of the bubble deflation shock would have been. This is supported by micro-economic observations of effective "asset-stripping" when home refinance and home equity loans allow individuals to convert asset appreciation and principal payments into consumer spending without decreasing consumer debt. Keynesian style intervention by a central bank can be justified after a period of unsustainable growth, if and only if the delaying of the correction is used to introduce structural and regulatory reforms that would disappate the asset inflation bubble. This would allow the Keynesian goal of full employment to be achieved, while satisfying the criticisms of the Free Market and Austrian School about the wisdom of government intervention. Reforming the markets and introducing structural economic modernization to disappate the asset inflation are the key steps to making modern central bank intervention work.

There is ample sign that the Federal Reserve needs to take action quickly. Recently a small deletion of language suggesting that the Fed might not keep interest rates at their historical low was the cause of a market fallback. This fallback was only halted by the recent GDP announcement which led the investors to believe that Fed would use the "low" GDP growth (4% in fourth quarter) to not raise interest rates. Ironically, this mirrors the over-sensitivity and asset price falls in 96/97 that accompanied interest rate rises then (and in retrospect were signs of an already over-valued market). In fact asset valuation has risen once again to all time highs in stocks, and now also in real estate. This suggests to me along with the current extreme sensitivity of asset prices to Federal Reserve interest rates that we are already nearing a "top" in the market after which an incipient economic crash will ensue shortly. Therefore strong and quick action must be taken NOW or there will be hell to pay in the near future.

Finally, what about the jobs? An asset inflation bubble typically represents an inefficient allocation of capital in an economic system. Asset liquidation as part of the creative-destructive system of Capitalism is needed to free up that money so that it can be used to create new businesses / investments that will create greater economic wealth. Part of the reasons why the jobs aren't being created is that while the Federal Reserve is pumping money in the economy, it is being sucked back up into this speculative cycle. The cycle needs a real economic correction in order to release that money tied up in Wall Street and Trusts back into the ordinary healthy economic networks that form the "real economy" on Main Street. Taking on the regulatory and structural reforms are needed in order to "kick start" the economy back into real growth. Failure to do so will result in spectacular wealth destruction on a scale unpredented since the Great Depression.

Whew! That was a long screed!

Friday, January 30, 2004

Doubts on the Presidency: Protecting Americans or Protecting what America means?

Daniel Drezner in his weblog comes out with a thoughtful statement:

Here's my position -- I'm genuinely unsure of who I'm going to vote for. More and more, Bush reminds me of Nixon. He's not afraid to make the bold move in foreign policy. On domestic policy, Bush seems like he'll say or do anything, so long as it advances his short-term political advantage. If Karl Rove thought imposing wage and price controls would win Pennsylvania and Michigan for Bush, you'd see an Executive Order within 24 hours. Andrew Sullivan and others have delivered this harangue, so I won't repeat it.

If -- a big if -- the Democrats put forward a credible alternative, then I could very well pull the donkey lever.
[emphasis added]

This is an extraordinary statement. Dan has been no apologist for the Administration, but like many Republicans has often chosen to quietly express his dismay with the President's policies. The ultimate problem though is that the Democratic candidates are still tripping over their own feet. There's a seeming "fatal flaw" with each and every last one of them that is on prominent display. One could argue that some are fixable, but it's a hard thing to genuinely and credibly change one's approach to life perhaps even more so since it has proven successful to these gentlemen in the past.

My position is pretty simple on the topic. The first duty of a President of the United States of America, is surprisingly not the directive to protect the populace. Instead every President swears an oath of office which binds him to the duty (that is shared by all citizens) to "... to the best of my Ability, preserve, protect and defend the Constitution of the United States." So protecting individual Americans is not the President's first priority, though rightfully Americans seek a President who will protect them, but the President must as his first duty seek to protect what it means to be an American. There is a subtle but all important difference between protecting Americans as a primary obligation, and protecting what it means to be American.

Some may argue that the President is right in his actions. Others may argue that even if they disagree with his tactics, that he is a more credible Executive than his Democratic opponents. However, each American should be ready to lay down their lives if necessary to protect the way of life embodied in the Constitution. If that is our first responsibility and if it is true indeed that "More and more, Bush reminds me of Nixon.", then our first responsibility is to democratically remove a President who however seemingly capable of realizing his ambitions includes in those ambitions undermining what it means to be American.

As Benjamin Franklin observed: "They that can give up essential liberty to obtain a little temporary safety, deserve neither liberty or safety...".

Thursday, January 29, 2004

Whitewash or Hogwash? White House refuses even Kay's plea for inquiry

WASHINGTON, Jan. 28 — David A. Kay, the former chief weapons inspector in Iraq, called on Wednesday for an independent inquiry into prewar intelligence about Saddam Hussein's weapons programs, but he said he did not believe that the Bush administration had pressured intelligence analysts to exaggerate the threat.

The White House immediately turned aside the calls from Dr. Kay and many Democrats for an immediate outside investigation, seeking to head off any new wide-ranging election-year inquiry that might go beyond reports already being assembled by Congressional committees and the Central Intelligence Agency.
[emphasis added]

As reported in the NYT.

Now that's interesting. Personally my initial reaction was that while Kay had been very careful to stick to the facts in his reports of lack of Iraqi WMD, he was clearly in Bush's corner. His hyperbolic language provided a cover for the President to claim even in the SOTU that Iraq had been at least involved in "weapons of mass destruction program related activities". Which is pretty vague. It's sort of like saying if you went to a plastic surgeon for some Botox treatment you were in with the crowd trying to make the Atom Bomb. Botox is considered a biological weapons material. Bush actually earlier called the discovery of a single vial of a weak strain of Botox - yes quite similar to the kind used in cosmetic treatments - as "proof" of an Iraqi weapons programme. Now that Kay and a Senate commitee have apaprently sided with Bush on who was at fault:

The report is already being described by Senate Republicans as evidence that President Bush and his top advisors were primarily the victims, not the abusers, of faulty intelligence about Iraq. But some administration critics are calling the report a whitewash. And Senate Democrats insist its scope was so narrowly focused that it fails to present the full picture of an intelligence failure on Iraq that now appears to have bordered on the catastrophic. [emphasis added]

Now however, meek Kay who has run cover for the White House in exaggerating every possible find - a few college university chemistry department with standard off the shelf chemicals becomes a sinister "network of laboratories" supporting a chemical weapons programme - has called for an inquiry. One that he no doubt means for the blame to be shifted entirely onto the much abused Intelligence Agencies, and no blame at all placed on the politicians who put their fingers in their ears and shouted "I CAN'T HEAR YOU!!!" every time someone brought up any evidence contradicting what the politicians wanted to hear.

Yet this scape-goat of an inquiry is too much for the White House! They will brook no questioning whatsoever! In fact despite admitting that "some errors" were made, Condi Rice denies any need for a review of what went wrong whatsoever(NYT).

WASHINGTON (Reuters) - President Bush's national security adviser acknowledged Thursday some prewar intelligence about Iraq was flawed but brushed aside calls for launching an independent investigation.

That's very interesting. They won't even give in a single inch, not even at the suggestion of their tame dog Kay. Well, well, well. Personally, the oldman honestly thought that nothing could ever or would ever be pinned on ole GW Bush. Whether or not they were guilty, the oldman figured that they'd covered their tracks well enough or had a handy scape-goat ready to take the fall for the big guy that it would never ever be laid at the Administration's top door. Could it be that Bush has the equivalent of Nixon's tapes somewhere, that somewhere they've slipped up and there is some sort of incriminating evidence? Do they have something to hide? Veerrryyyy interesting. Very very interesting. The oldman will continue watching this issue closely.

Meanwhile Senator John McCain (AZ-R) splitting with many of his Republican colleagues has has called for an independent investigation as reported by the AP.

WASHINGTON - Parting company with many of his fellow Republicans, Sen. John McCain said Thursday he wants an independent commission to take a sweeping look at recent intelligence failures.

The White House has dismissed the proposal, saying the CIA is committed to reviewing the intelligence behind claims that Iraq had weapons of mass destruction. The Bush administration also argues that the weapons search is not yet complete.

Wednesday, January 28, 2004

New York Times demands Greenspan condemn Bush spending spree,

The NYT Editorial calls on Alan Greenspan in order to testify to Congress that Bush's spending is out of control. Frankly, is about time!

"The cut-taxes-and-spend Bush administration and Republican leaders in Congress
are engaging in serious economic malpractice.
The latest evidence of this was provided
on Monday by the nonpartisan Congressional Budget Office, which now expects the
federal deficit to amount to $477 billion this year. That's an alarming 4.2 percent of
gross domestic product and $100 billion more than last year's deficit, and the agency
expects the government's debt to increase by $1.9 trillion over the next decade.

Despite this warning from an office run by a conservative former White House
economist, Douglas Holtz-Eakin, the administration remains in denial. Not only
does President Bush insist — as he did a trillion dollars of red ink ago — that the
deficit is manageable, but he also wants to make his tax cuts permanent, even
though many of them were passed with an expiration date to keep their cost down.
That would cost the Treasury an additional $2 trillion over the next decade, the
budget office says."
[emphasis added]

It's time for a national intervention folks. Greenspan is like the trusty Dad who can't bring himself to believe his son is wildly out of control. Meanwhile, Bush and co. are the sons living it up on a prodigious buying binge with the national credit card. Only of course, in this scenario the son can fire the dad. Hmmm.... maybe we fire the son? Maybe? We'll see in November!!!

Comments enabled ...

It's a somewhat amusing jest that perhaps nobody is reading this weblog but me. That's entirely possible. Given the vastness of information on the net, there's no real reason why one more "amateur" pundit should make any particular impact. It wasn't ego that led me to writing this blog. It was more ... one could call it consternation. After spending the better years of my life dedicated to the discovery of pragmatic truth and practical perfection, it felt disturbing to tune back into "planet earth" - a world of misdirection, half-lies, and deceptions made up whole cloth and embroidered with confusing ambiguities. It wasn't that the world confused me. The most confusing thing was that people were confused by the world. It is if one is watching one's fellow citizens be befuddled by a silly carnie shell game, and seeing their money taken from them.

That sense of outrage mixed with slight chagrin led me to begin writing. What's the point of truth if no one is willing to test their ideas? What is the point of rationality and reason if the very presumptions and assumptions we use as our premises are riddled with holes poked by doubt and ambiguity? No wonder why people can't tell what is going on, and in that vacuum the unscrupulous move into the void with their every step rationalized by gilded lies. There's a reason why we tell children not to take candy from strangers. An equally good rule in life is that if someone tells you that it isn't going to hurt, it probably will hurt like hell. The third rule in life one should follow in the oldman's handbook of hopeful cynicism is that if anyone tells you that it's for your own good, it's probably for their's.

Is that delightfully optimistic enough for you? On the contrary, my experience has found that the more skeptical I am of other human beings the more happy I am myself. Not only am I fooled less often, my own actions gain a clarity and confidence of purpose that would be impossible if I went around doing something as foolish as actually believing what people said. Even people who have no intention of lying will often confabulate (tell tall tales) in order pretend to know more than they do. Others will quite honestly argue from ignorance or prejudice that black is white, and that B is A, because they heard it somewhere. As P.T. Barnum once said, no one ever lost any money underestimating the public's intelligence. Some dishonest souls will loudly sell you a bill of goods and then shrug when you call upon them to explain the shortfall in the case they argued so passionately before. They were passionate certainly- about taking you in. The older I get, the more I long for the code of Hammurabi. There's this neat clause in there supported by Persian culture: public lying is a death penalty offense. If only we could get that kind of values back into the mainstream! (Now my Republican roots are really showing)

This sort of deception does not arouse in me existential doubt however. Remember? I've spent my whole life harshly testing myself as much as possible against a variety of academic, conflict-oriented, personal, and organizational challenges. I know how to win. I know how to prevail amidst doubt and uncertainty. I know how to call my own fouls. This sort of confidence is rare in a world where people first take as an assumption that we should believe in what others tell us, and then test truth by examining their credibility. Instead I believe in myself, and then test the truth by examining how well I stand up to the harshest rigors I can contrive to face.

A Neo-Darwinian ethical "survival of the fittest" epistomology is what I call it. My dad would have called it being harder on yourself than anyone else, and then demanding high standards. So I don't know if anyone is listening, besides those friends and family I've clued in to where I'm wasting copious amounts of my free time. It doesn't matter. Like always I'm doing this for me. This is another chance for me to become better than I am - in writing, in argumentation, and in ideas.

But I was curious if anyone WAS reading at all, so I enabled comments. We'll see. Right now it's even odds no one ever comments. ;-)

The Big Chill, a fluke or a forewarning?

Right now, things are cold out there. It's not that it's particularly cold compared to winter's of memory, but there's a pattern musing on the edge of the oldman's mind. The unprecedented (in modern times) heat wave in Europe this past summer that killed thousands of lives; the longest recorded stretch of time in Oklohoma without twisters (tornadoes); and now the artic blast that has frozen half the USA. The oldman had allot of time to think about it today as he drove through the teeth of a blizzard. There seems to be a pattern of extreme weather this past year, including the California fires, that while individually has precendent altogether raises some neck hair on the oldman's intuition.

Paul Epstein also has thoughts on the matter, in his op-ed in the NYT.

Normally, water circulates in the North Atlantic like this: Cold, salty water at the top sinks; that sinking water acts as a pump, pulling warm Gulf Stream water north and thus moderating winter weather. But now, fresh water from the thawing ice and heavier rain is accumulating near the ocean's surface; it's not sinking as quickly. (The tropics are faced with the opposite phenomenon. According to Dr. Ruth Curry and her colleagues at the Woods Hole Oceanographic Institution, the tropical Atlantic is becoming saltier; as warming increases, so does evaporation, which leaves behind salt.) The "freshening" in the North Atlantic may be contributing to a high-pressure system that is accelerating trans-Atlantic winds and deflecting the jet stream — changes that may be driving frigid fronts down the Eastern Seaboard. The ice-core records demonstrate that the North Atlantic can freshen to a point where the deep-water pump fails, warm water stops coming north, and the northern ocean suddenly freezes, as it did in the last Ice Age. No one can say if that is what will happen next. But since the 1950's, the best documented deep-water pump, between Iceland and Scotland, has slowed 20 percent.

Why now? After all, the planet's previous periods of global warming resulted from changes in the earth's tilt toward the sun, and recent calculations of these cycles indicate that our hospitable climate was not due to have ended any time soon. But because of the warming brought by the buildup of carbon dioxide, mainly from the burning of fossil fuels, the equations have changed. We are entering uncharted waters. It's something for New Yorkers to ponder as they bundle up.

The problem is that the atmospheric and metereological conditions don't respond linearly. It isn't as if one can put out one change, and then measure conditions to see how they will react. Changes in the environment often take years to have any significant impact, but this doesn't mean that the impacts are minor. Small incremental changes can over time suddenly result in a massive reactionary change. Think of earthquakes. Over time the crust of the earth moves in small increments, rubbing tectonic plates up against each other. This compaction builds up tremendous energy. Then one day it all cuts loose. Similarly often earthquakes are quiescent for decades or even centuries, but swell up and blow their tops in a matter of mere weeks or even days.

Not exactly pleasant thoughts to be thinking!

Tuesday, January 27, 2004

Another rant on economics,

Note: This is another posting that originally went on Dan Drezner's website responding to a followup Dan did on outsourced jobs. Why pick on Dan so much? Well, to be fair Dan is a thoughtful intelligent writer which is what attracted me to his website so much. However, Dan makes no bones about "taking on" writers such as Krugman who he feels fall short in their arguments. Well, Dan is an unabashed proponent of "free-trade" but hasn't really told the other side of the story. So I am. That's all there is to it. If Dan weren't able to put together a half-way decent argument, I wouldn't bother rebutting them. So in a way, it's sort of a compliment. ;-)

Oh boy!

Where to begin? First comparing the automation and then information revolutions to the outsourcing (manufacturing or intellectual) is like comparing apples and oranges. Why? Because the automation and information technology allowed the savings in profits to be reinvested directly back into the same national economy. Outsourcing contains the possibility of "leakage" to another economy. In addition, there is the question of production infrastructure - it's not just jobs moving but the factories, research centers, and the demand economy for skilled labor moving overseas.

For outsourcing to result in a net gain is a subtle argument. You see, a company pays less to have a worker overseas do the job for less. But unless they pay the worker a negative amount of money, they can't actually make more money in absolute retail pricing (without raising prices). What they do is convert the labor costs to profits.

Now this money they pay to these workers, plus the money that would go into building the facilities and the stimulus on the education system for producing skills for these workers, clearly is being injected into a foreign economy.

For there to be a net benefit to the domestic economy there must be a ROI argument. That is the company must get a better return on investment of capital, and being able to spend the same amount of capital to get a better return (because of higher profit margins) they produce more wealth. And this created wealth must be greater than the loss due to price-competition and "leakage" in production infrastructure and outright labor costs to the other country, for it to be beneficial to the domestic country.

Thirdly, market liberalism in "free-trade" has some seriously contradictory arguments. One argument they make is that foreign investment is the way to help third world countries develop. Indeed, it is a way to do that since the transfer of jobs, facilities, an education demand economy, and other aspects of production infrastructure cause a nation to develop. However, the citizens of the other nation will soon become more educated and capable of doing better work. So they will start competing for information tech, knowledge, and creative type jobs. Market liberalists also claim (correctly) that competition reduces prices. This is correct. Even if one were not to factor in the lower cost of living factor, the basic laws of economics dictate that a greater supply relative to the same demand leads to a downward pricing pressure. Thus this "outsourcing" job transfer overseas would lead to downward labor wages *across the board* in the more "advanced" domestic economy.
Thus a "rising tide" would NOT lift all boats! This would be reflected in practice by a largening discrepency in incomes - which we are seeing.

If a pie grows, but your cut of it shrinks, you can end up with a smaller slice of pie than if the pie had stayed the same size but your cut of it had stayed the same too. You do the math.

Finally, the "outsourcing" argument does nothing to address the concern of simply being "outcompeted". Once these massively populated nations have modern social infrastructures, manufacturing capacity, and educated populaces what's to stop them from simply beating our pants off in a straight up contest? Unless you "magically" believe that the laws of market competition have ceased to apply to nations, one cannot assume that the direction of the flow of profits from global productivity increases will necessarily continue to flow to the United States. The world may get richer - but the US may get poorer. Market distorting factors such as inequities in intellectual property protection, working environment standards, government subsidy of education, etc. will only exacerbate this problem.

In other words, we're all in big trouble because the professors like Dan have missed the forest for the trees.

Getting our asses whooped by India and China, failed economic modernization

Here at Dan Drezner's website, Dan argues that outsourcing fears are overblown. In it he quotes somebody who argues that the "jobless" recovery is just a "cyclical" (temporary) adjustment instead of a permanent loss by quoting somebody (yes, it's confusing- I know) that says:

Some point to the jobless recovery as evidence of offshoring's impact, but the lack of jobs is just as likely the result of booming productivity and the economy's (until recently) anemic pace. "I think people are confusing the business cycle with long-term trends," says Daniel Griswold, an economist at the Cato Institute. "People are looking for someone to blame. They say, 'Aha, it's because our jobs are moving to India.' If you look at the late 1990s, though, all these globalizing phenomena were going on." In other words, it wasn't that offshoring practices changed; it was that the economy slowed.

Here is the body of my rebuttal on his comments section:

First of all, I'm amazed that Dan here wants to treat the issue as if all the authoratative comment is pro-trade, that the job losses are cyclical rather than structural, and that criticisms of "free-trade" are all protectionist or pandered for partisan advantage.

Here is a link to a book arguing that the losses are structural and not cyclical. Here is Peter Drucker's book, arguing that the knowledge economy is here and he's also argued that America is already being outcompeted by India and China. Here is Tony Blair, acknowledging what anyone who works at a research university knows: there are literally several dozen scientific researchers from China for every single new American graduate student.

Also India has highly protective domestic corporation laws, that put strong limits on foreign investment. In addition, China has massive intellectual rights problems. Even if one were to buy the argument that outsourcing jobs to China doesn't eliminate US jobs, it's still a terrible policy because the Chinese get to effectively steal US trade secrets to produce brand name imitations or knockoffs of their own. This "patent piracy" is rampant in China as any US exec who does business there can tell you.

"Free-trade" market liberalism without an equal playing field in foreign capital investment and intellectual property rights protection is a suicide pact!

The primary hypothesis being bandied about is that manufacturing and now hitech services outsourcing to India and China is "okay" or even "good" because US brand name merchandising forces repatriation to corporations here in the US leading these corporations to spend money, and then through "trickle-down" economics this eventually leads to the creation of compensatory jobs.

This proposal is dependent upon several assumptions 1) That the US will remain the knowledge-capitol of the world 2) That US brand-name merchandising allows repatriation of profits (and therefore the lob losses are cyclical and not structural) and 3) that intellectual property rights and foreign capital investment rules are an "even" playing field so that the other nations can't steal US R&D and then set up shop with protected companies that the US companies can't get at.

Well as it turns out, every single one of these assumptions is either wrong or soon about to be proved wrong.

Okay, wake up people. It's not just about a few jobs going and new ones replacing them. It's about the US being displaced completely as the commercial and innovative center of world capitalism by being sheer outcompeted by India and China. Now unless you happen to have a "magical" belief that no matter what the US will remain "on top" and that profits will disproportionately always flow to the US mainland, and that capitalistic market competition doesn't apply to countries the same as it does to companies, then the only logical conclusion is that this country is in serious trouble.


Read more about it at Oldman's posting "Are we exporting America?" and "Economic decline of America".

UPDATE: Ignatius of the WaPo and the WaPo Editorial weigh in on the dollar problem and the "jobless economy" respectively. Read the WaPo Editorial for a counter-argument but my opinion is still that this "cyclical shift" argument ignores the dangers of simply being outcompeted rather than just being outsourced.

Ignatius has some nice comments including:
Discussing the falling dollar at a panel of the World Economic Forum here, a former U.S. senator said the greenback's decline was just a blip. The abiding fact was that for more than a century, in good times and bad, the world's investors have been in love with the American economy. And that ardor continues today.

Yes, responded a Chinese economist, but "love affairs always end."

Monday, January 26, 2004

Ashcroft condemns "evil chemistry", is "evil physics" next?

Look no matter what anyone says, John Ashcroft is not some scary creepy enemy of the Constitution of the United States of America. He's just a slightly unhinged but otherwise morally upstanding law&order Republican from Missouri with fundamentalist religious values. This isn't to say that I agree with his pushing of "Patriot" Acts I&II, but let's say there's a case for him simply being a parochially self-righteous but sincere man rather than a religious bigot as some have accused.

Sometimes though I wonder about GW Bush's judgement in appointing him to head the Justice Department as Attourney General, clearly a compensating sincecure for his electoral loss to Carnahan's widow Jean, instead of appointing somebody who oh, might for instance actually have some real experience in the courts. The fact that he sometimes spouts off inane comments, rather like Rumsfeld off his lease, only increases my doubt on the purely competency angle in the wisdom of his appointment.

Here's the AP story where Ashcroft condemns "evil science".

VIENNA, Austria - Even if weapons of mass destruction are never found in Iraq, the U.S.-led war was justified because it eliminated the threat that Saddam Hussein might again resort to "evil chemistry and evil biology," Attorney General John Ashcroft said Monday. [Emphasis added]

Yes, Ashcroft has just formally condemned "evil chemistry and evil biology". Next he'll be condemning "evil physics". Maybe you can tell the evil scientists from the "good" scientists because the "bad ones" wear black labcoats instead of the usual white labcoats. That could be the start of a whole new trend. Imagine a new professional society - the IAES: The International Association of Evil Scientists. Instead of having their professional conferences in Rio or Australia or San Diego like normal scientists, they could have them in North Korea, Cuba, Iran, and Yemen. Imagine the association newsletter titles: "Evil Scientist of the World Prize goes to Weaponization of Smallpox". Just think too, they could get Dr. Evil in order to be the first world President of the International Association of Evil Scientists.

Frankly, this sort of Keystone cop behavior in the Bush Administration severely undermines my confidence on their seriousness about the War on Terrorism.

For another thing, why is John Ashcroft, the Attorney General for the United States of America, speaking out on this topic? His portfolio is the Justice Department and prosecution of Federal crimes inside the legal system. Whether or not the invasion of Iraq was justified or not, it is not John Ashcroft's place or expertise in order to say. The fact that he's weighing in must be the result of some short-circuit sparked in his overly moralistic brain where he figures he get's to say what's right or wrong about anything. I can find no other plausible reason for the Attorney General speaking out on what should be an issue for Congress, the public, and the Executive branch in order to decide. So yeah, he is a little unhinged!

Sunday, January 25, 2004

Sunday Confessions I

The oldman has been traveling the last few days and pitching in with some family friends to help out relatives. It's been funner than I ever imagined it would be. As a youth, the oldman was a somewhat distant surly teenager who often felt bothered when family members tried to drag him away from his obsessive self-training regimine for boring family stuff. Now the oldman recognizes this bizarre activity for what it is: love and caring. The oldman has always been old, being something of an "old soul" as some quaint old people once put it when encountering his younger incarnation. Now things are different. With time has come seasoning, both in acumen in the various joys / pitfalls of human nature and also in the living of a fulfilled life.

My youth was filled with an unrelenting focus on private measures of achievement and introspective journeys of intellectual investigation in all manner of sciences heathen and cutting edge. Dad was a workaholic, what he didn't throw into work he filled his hours with book studies and private tinkering with cars, electronics: you name it he did it. It wasn't until he passed away tragically that some old resentments died and I realized how much I loved him. It's a cliche that you don't appreciate what you have until you've lost it, but it's too true.

It's not like the memories of Dad's fits of anger, his frustration with my lack of interest in worldly success, or my uneasiness at whenever he simply tried too hard to get something across to me and it fell flat disappeared. Not a single fault vanished into dreamy nostalgia. He'd grown up fatherless, and while it was always known by me I never really tried to understand him. I had never given him credit for how obviously hard he had tried. My critical faculties were all too ready to fault him for his failings, and my pride was all too ready to disregard his advice in the face of my relentless search for excellence beyond human recognition or fame. Never once did I try to understand him.

I never tried to understand the marital dynamics and his own struggles with my grandmother that drove him to the brink of distraction. I know them all too well know because after his death, it became all too clear the tensions and pressures that tormented him because now I had to deal with their aftermath. Yes, he could go into a frenzy of anger sometimes but I could always stand up to him and face him down. He never wholly lost reason. But I only saw the anger, and not the provocation - absorbed as I was in my pursuit of private achievement.

My family never really knew these many long years of my true activities. Sometimes my father complained of how "mysterious" I was. My mother complained about my distance even when I came home. Like my siblings they only saw the aftermath of my struggles. In order to cloak them and the sometimes less than legal lengths I went to pursue my avocations I allowed others including my family to think the worst of me. That I was whiling away all my time playing cards with my buddies, that my medical problems came from being unlucky and not from less innocent injuries, and that sometimes that I was even slightly crazy rather than admitting all the "crazy" things I was doing. They only saw the puzzling paradox of a highly intelligent and talented young man, who was seemingly doing nothing with his life.

In truth I cared nothing for fame, recognition, or money. For years, I lived like a monk burning with the passion for only my investigations, discipline, and pursuit of skills and knowledge. Even the slight obligations of success - mortgages, families, and careers - I denied myself to give myself a purity of contemplation and a complete freedom to take any risk necessary to prove the true validity of my ideas. Sometimes I would purposely throw away opportunities, fail deliberately tests, and walk away from ludricously lucrative wealth opportunities. It was all a trap for me, an illusion whose attachments would prevent me from pursuing the epitome of my ambitions: Arete and Excelsior. Excellence ever higher or excellence ever better. Excellence for excellence's sake, and damn all the trappings of success that would distract me from that goal.

My family could only see the scars that I explained away or the ever expanding encyclopediac base of knowledge I was accumulating in all manner of endeavours. The latter occasioned them with great confusion, for if one could know or do so much (and my attitude could be very haughty and arrogant at times) then why was there no outward manifestation? It must have driven them nuts. They undoubtedly came to their own conclusions.

But in the end it was I who didn't understand my family, most especially my father. It was after his death, that it all hit me in one terrible blow. We'd quarrelled before his passing, and the last time I'd seen him alive I'd tried to patch things up. It was only a partial reconciliation with so many things left unsaid. To myself I said that this would be the year that I came into the open and shared all that I had done and cloaked under misdirection. To myself I said, that the very next time I saw him I'd finish making up with my father and we'd have that talk I'd always been meaning to have and spend more time with him. It sounds too crazy, but that's exactly the way it happened. When I turned to go away, my mother actually told me that I should go talk to him one last time, because who knows I might never see him alive again. She actually said that. And I did try (awkwardly) to hug him, but he'd only shake my hand. It was a brilliant metaphor for the whole of our relationship.

Then he died, and there would never be a next time to explain all, to ask for all sins to be forgiven, and to forgive all. It was only then that I realized that my utter insensitivity to the opinions of others, my obsessive drive for achievements that I shared with no one, and my inhuman ambitions of achievement were all just extreme cariactures of my own father's behavior. It should have been obvious, but it wasn't. I had promised myself that I would never turn out just like my father. I had succeeded all too well: I had become far worse.

At the same time, it all came flooding in. Everything that had been opaque to my understanding was illuminated. His frustration over my outwardly achievements were the reflection of the natural frustration of an ambitious man whose oldest son seemingly ignores all opportunity for advance. His lack of ability to communicate his genuine concern and greviances were reflected in my alienation from the rest of my family. His snappishness was the mirror of my own irritability. His unending curiousity was the dual of my pursuit for knowledge and truth for their own sake.

My siblings didn't know the details, but they knew of my long rocky relationship with my father that had culminated in estrangement before his death. So they blamed me in the aftermath of his death, a blame redoubled because I was distracted by the enormity of my own culpability in piling grief on his head before his demise. I cannot say they were wrong.

Many times my siblings have misjudged me, and I have humored them knowing that to do otherwise would be to blow my double-life apart. But that time though they were dead on. My mother recently told me in half humor and half reproach that she hoped that my father would haunt me in the light-hearted guilt-tripping fashion of which only mothers are natural virtuosos. He does haunt me. A few times a month now I dream of him. These are not chain-rattling dreams. He looks quite healthy and well. However they are not fuzzy dreams of nostalgia either. In them, he is just himself as he always is. He is still quintessentially himself. It is me who is overcome by remorse. It is me who reaches out to him. His flaws have not faded from my mind, but I no longer blame him for them because I finally understood the context from which his frustrations stemmed. I hope he continues to haunt me. Sadly, this is all I have of him now.

Also I admit to myself the ultimate truth, which is that I never had anything to fear from him. It was only my hurt feelings, childish resentments and snubbed pride nursed over the years that had stood between us at the end. I had traveled too far from that young boy in order for them to dominate my thinking, yet they did. He had changed too. He had mellowed over the years and tried for quite a while to make ammends. But I wouldn't forgive him for past slights and actual misdeeds. I had by my own measure completely outgrown the insecure young boy that had been overawed by my father's seeming wide-ranging expertise at anything he put himself to. I could admit that my own epic quest for excellence had been inspired by no other than trying to live up to the standard my father had set. Yet my heart was still too petty to reconcile fully with him before his demise.

The only balm is that before the end I told him how much I respected him. Not loved, but at least respected. I still remember the look of surprise on his face, as if I'd told him something he never expected to hear. That should have been a warning sign to me, a rebuke of how I had disregarded him over the years. It is a small thing to set against the look of pain and even moisture I'd brought to his eyes the day I'd shouted in frustration that he'd never given me a single good piece of advice. I'd never meant it how it came out, but I was always frustrated because being so competent my father couldn't understand how what worked for him didn't ever end up working for me. I remember thinking smugly at the time, that good at last I've finally gotten through to him. Now I'd give anything to take it back.

Such is life however. We make our beds and then we lie down in them. The greatest punishment we bear is to simply live with what we have done. We make our choices and then we have to live with them. So I have borne every coldness and every rebuke silently since my father's funeral, thinking of each time he himself swallowed the insult that I this sharper than a serpent's tooth child had given him. It is the least I can do. There are other things he has asked of me over the years in the event of his passing, and however ridiculous now after his passing I have followed them to the letter as intelligently as I can manage. I always had responded flippantly to them, saying "Sure Dad." They have taken on new importance now. Having failed him in life, I can hardly fail him in his death.

A great debt to the rest of my family I owe also, who while not as hurt as my father was by my turning away from him were hurt as well in more ways than I can say. It is time to drop the masks and facades, and to stand up and be counted. Whether they approve of what I have done and what I intend to do, is irrelevant. They deserve to know the real me, and have of me my best that before I have always reserved solely for my own personal vision of striving. It is not complete yet, but soon I think it will start to become apparent.

Once my father asked me that if I ever achieved anything great, that just to thank him in it and that would be enough. I bitterly regret now how contemptuously I disregarded any need to try to make my father proud of me. Whatever I shall do good or ill, he will never know of it. Now that I finally move out from the shadows ever so slowly to prove my worth, I will never have the chance to gain his forgiveness or make him proud. That is my punishment. This is my Sunday confession.

Saturday, January 24, 2004

No Child Left unBothered - an Update

The White House continues to stand by its increasingly controversial policy act called "No Child Left Behind" (NCLB). However NCLB is accruing critics from across the political spectrum, as Republican politicians are beseiged by educators complaining that NCLB sets unrealistic standards and interferes with local schools (LAT).

WASHINGTON — President Bush's much-heralded education reform plan, his first domestic policy accomplishment and one of his most important, is in danger of becoming as much a liability as an asset in his reelection campaign, observers from both political parties say.

The 2002 law, known as the No Child Left Behind Act, has come under fire from school officials around the country as they labor to comply with its tough requirements and find the federal government is providing less money than the law promised.

"This is a big, big problem," said one House Republican, who spoke privately about being inundated with complaints from educators in his district. "The goals and requirements are just not attainable. It is going to hurt the president politically among school people, people who are elected to school boards, community leaders."

Read more about it at Oldman's posting "No Child Left Behind?".

Wednesday, January 21, 2004

More Iraqi turmoil, killings intimidate or silence free voices

The new face of imminent Iraqi democracy is looking a little rough around the edges. That's putting it mildly since a series of killings targeting academics speaking out on issues has intimidated intellectual freedom of speech in the new Iraq. The LAT reports that academics admit that the campaign of intimidation has been successful.

Mayah, whose friends said he was 54, was a longtime pro-democracy activist who had been jailed by Hussein after calling for elections in 1996. He had received anonymous death threats for several weeks, friends and family said, and began traveling with a bodyguard.

As he drove to work Monday, his Mitsubishi sedan was stopped by unidentified men. Mayah, the bodyguard and a colleague were ordered out of the vehicle. The gunmen opened fire only on Mayah, and he died at the scene. One local media report said he was shot 32 times...

The killings of the three other Mustansiriya professors came amid anonymous notes left on campus warning members of the outlawed Baath Party that they faced execution. In the northern city of Mosul this month, the dean of a local university's political science department was slain, an attack seen as the work of Baathists against someone they viewed as a collaborator in the U.S.-led occupation.

Other killings have taken place, this time almost openly committed by Shiites taking revenge into their own hands by eliminating previous Baathist officials. While no one is likely to weep a tear for the officers of Saddam Hussein, the precedent it sets and the fact that US military officials turned a blind eye to it are establishing a precedent of politics by murder and intimidation. Political racketeering is no more desirable than organized crime and can be a mite bit more destructive to civil society. It is hard to see how fair and free elections can be conducted in this environment.

UPDATE: The CIA is not as upbeat as Bush is about the prospects for a Peaceful Iraq.

WASHINGTON - CIA officers in Iraq are warning that the country may be on a path to civil war, current and former U.S. officials said Wednesday, starkly contradicting the upbeat assessment that President Bush gave in his State of the Union address.

To be fair, the CIA got the WMD issue in Iraq wrong but since then they have been right about several issues such as the turmoil that would result from dissolving the Iraq National Army and trying to build a new one "from scratch". The CIA's cultural and political analysis sections are apparently much better than their weapons intelligence division. Not exactly comforting as we face the prospect of having to guess how advanced North Korea's state of nuclear proliferation is, but cogent enough to ring warning bells regarding Iraq political disintegration.

Tuesday, January 20, 2004

The Natives Are Restless: continued political disintegration of Iraq

The Kurds complain about US rule as reported by the Independent (UK).

21 January 2004

Iraqi Kurds, the one Iraqi community that has broadly supported the American occupation, are expressing growing anger at the failure of the United States and its allies to give them full control of their own affairs and allow the Kurds to expel Arabs placed in Kurdistan by Saddam Hussein.

Massoud Barzani, the leader of the Kurdistan Democratic Party, told The Independent in an interview that the Kurds had been offered less autonomy "than we had agreed in 1974 with the regime of Saddam Hussein".

This shocking turn of events can only be compounded by the imminent collapse of US resistance to direct election demands by southern Shiites. This is in part due to large protest marches in southern Iraq by the Shiite community. While it has been widely reported that some 30,000 protestors marched in Basra to complain about economic conditions, it hasn't been widely reported that other cities in southern Iraq have also seen economic protest marches. The final straw seems to have been the march by an estimated 100,000 Iraqis in support of their highest spiritual authority Ayatollah Ali Sistani. Jack Straw the foreign minister in Tony Blair's cabinet has already reportedly advised Washington to accede to Shiite demands rather than risk a stall of the political process [Guardian(UK)].

However if the Shiites soon take power, they are unlikely to be willing to honor any promises that Americans may have made to the Kurds. The greatest risk of the situation has always been not a pro-Saddam or pro-Baathist resistance movement, but a true general uprising motivated by the political tensions between the different ethnic and religious groups. As the case now seems to be occurring, the whole of Iraq is being pulled into highly polarized pieces whose only real factor in common is their increasing disenchantment with American occupation.

This is in stark contrast to the upbeat tone of President Bush's State of the Union speech text delivered tonight (MSNBC). In it, he claims that:

"The work of building a new Iraq is hard, and it is right. And America has always been willing to do what it takes for what is right... Today our coalition is working with the Iraqi Governing Council to draft a basic law, with a bill of rights. We are working with Iraqis and the United Nations to prepare for a transition to full Iraqi sovereignty by the end of June."

The true danger is that the Iraqi's lose patience with the process we've imposed and rise up against it. This problem can only be solved by hurrying out the door and not letting it hit us on the way out. However any imminent US withdrawal or even turn-over of the political reins might incite fractious sectarian violence and even outright civil war. Right now because of their mistakes, the Administration is between a rock and a hard place. Their only real hope is that it either doesn't go to hell in a hand basket quickly, or that Americans don't really care about that come November.

The actions of the Bush Administration so strain all credibility, that unfortunately that they lead to cynical denunciations of American motives. However as the old saying goes, never look to malice what stupidity alone can suffice as an explanation. Here the CSM reports an outraged critic of the Administration in his frustration resorting to accusations of US interference in Iraqi democracy. It is fairly clear that the handpicked Iraqi governing council has no legitimacy or support within the country of Iraq. It is also clear that the Administration would prefer a compliant puppet government over a robust if anti-American democracy. This is however the game that Americans have been gotten into by the Bush Administration, and that critics warned against. If some have in their outrage called France or Germany obstructionist or even outright enemies of the United States, then since they are democracies it is somewhat naive to underestimate the possibility of anti-American democracies even if we should be the ones promoting the democracy.

Speaking from Ajman, a coastal city in northeastern United Arab Emirates, former Iraqi UN envoy Mohammed Al Douri accuses the United States of sowing chaos in Iraq so that it could delay or prevent altogether the direct elections of a new government. A vote by the Iraqi people would probably lead to electing leaders "against the American presence in Iraq," he told The Associated Press, and such elections would threaten the US stronghold of oil wealth and strategic location.

Meanwhile, the chief of the Army Reserves admits serious errors in call-up errors and an increasingly likely future problem with personnel retentions according to the NYT.

WASHINGTON, Jan. 20 — The chief of the Army Reserve said on Tuesday that a series of mistakes in mobilizing and managing reserves for the war in Iraq had put the Army on the brink of serious problems in retaining those soldiers.

Sunday, January 18, 2004

Red Flag on North Korea

According to the wires, as reported by the CSM U.S. troops with the cooperation of South Korea are going to relocate south of Seoul. This is being touted as a diplomatic breakthrough and a concession to Seoul residents who have long complained about the U.S. housing taking up valuable residential real estate.

Under a historic plan to end the US presence in the capital dating from the 1950-53 Korean War, about 7,000 US forces and their families will be moved to an expanded facility about 45 miles south of Seoul. The move is to be completed by 2006.


Residents have long complained that the base occupies prime real estate and contributes to the city's chronic traffic congestion. Younger generations also see the foreign military presence in their capital as a slight to national pride.

However as the article notes:

Taking US forces out of the capital also removes them from the front lines of a potential North Korean attack.

The problem with this is that this move could be preparations for military conflict on the Korean Peninsula. The reason why is that in the event of a conflict, Seoul would be bombarded with artillery and be rushed by the North Korean massive infantry forces because it is so close to the demilitarized zone dividing Korea. As Stanley Kurtz notes in his excellent analysis of options on the Korean-situation:

"Yet war with North Korea would be a horror. True, the United States and South Korea would ultimately win... But in the initial stages, the North would probably kill hundreds of thousands of South Koreans. They would quickly destroy Seoul with a massive artillery barrage from hardened bunkers, and would at first overrun much of the Korean and American army with a massive land attack."

Families are of course the hardest to evacuate in case of an emergency. Soldiers on active duty could always be moved rear of the forward engagement zone of an artillery barrage by an emergency deployment order. Spouses and little kids who may be about town attending school or shopping could never be evacuated in time except with days of advance warning. Even a night-time emergency evacuation order would be a chaotic mess with some families possibly left behind as commanders moved to save as many as they could. An essential step to planning for a Korean conflict would be moving the family residencies out of the danger zone well beforehand. Forty five miles south of Seoul is about an hour's drive, and enough of a buffer zone to make evacuation less than a nightmare while remaining close enough for necessary commutes to the capitol city by any serving soldiers stationed in Korea.

It would be possible to argue that reading too much into a single relocation is alarmist, but consider that Bush Administration insiders David Frum and Richard Perle have recently sent a book to the White House advocating exactly such redeployment steps as precursors for an armed confrontation with North Korea. As reported by Stars and Stripes, the article quotes them saying:

“We fear that it is unlikely that North Korea will accept such terms. If those fears are correct, then the United States must ready itself for the hard possibility that our choices really shrink to two: tolerate North Korea’s attempt to go nuclear — or take decisive action to stop it,”

This article in Asia Times Online contains actual quotes from their book and includes this ominous note:

"Decisive action would begin with a comprehensive air and naval blockade of North Korea ... Next, we must accelerate the redeployment of our ground troops on the Korean Peninsula so they are beyond the range of North Korean artillery and short-range rockets."

Of course, military commanders would prefer to put the redeployment of hard to move units like family residences well before hand, and reserve full pullback from the front-lines as a last-minute response to imminent hostilities. North Korea has already stated that it would treat sanctions or a naval blockade as an act of war. Any imminent blockade attempt would have to be treated by the American military command as a provocative step that might generate immediate military retaliation.

This otherwise innocent seeming step of moving families back from the frontlines, while not ruling out the possibility of peace with North Korea, is certainly far more ominous sign that is being popularly reported.

Read more about the oldman's views in his posting 'Damned if you do and damned if you don't, North Korea'.

UPDATE: Time Magazine argues that North Korea will never renounce nuclear weapons. Time also explores issues of Pakistani nuclear proliferation. Read more about it at the Weekly Standard's article on the nuclear technology smuggling by Pakistan.

UPDATE 2: Op-ed on North Korea in the NYT indicates that the United States is running out of time.

WASHINGTON — "Time is not on the American side," Kim Gye Gwan, vice foreign minister of North Korea, told me a few weeks ago. "As time passes, our nuclear deterrent continues to grow in quantity and quality." Those words are an indictment of United States intelligence as well as a potential epitaph on the Bush administration's failed policy in North Korea.

Saturday, January 17, 2004

Modern slavery, the faces of despair

In a moving testimonial, Kristof of the NYT performs an act that is almost heroic in its stature as he frees young slaves. However brave and moving his saving of these girls was, and it is a far better act than many people will go throughout their entire lives doing, it cannot solve the problem. Indeed, if we all collected together funds and put together a program to buy overseas sex-slaves their freedom it would only worsen the overall problem.

Q: How could buying the freedom of individual slaves actually worsen the problem?

For one thing, there's the eternal market laws of basic economic theory: supply and demand. As purchasing these girls will increase demand, it may actually stimulate "entrepreneurs" in order to go out and coerce more girls into slavery to supply the liberation movement. Also there has been no political will in order to free even a handful of these girls, much less large numbers. Kristof's act will remain an isolated bright and inspirational human act that has utterly no power to change the underlying situation that has created these problems. I've heard of other travelers or journalists when faced with this problem, cannot but help trying to save a few from a fatal end. Despite this, the problem has dragged on for years.

Q: If there's nothing we can do, then why should we worry about it?

There is something that can be done. Just nothing at the individual level. Kristof's greater motive in freeing these girls may be to bring their plight to the light of the (fickle) conscience of the developed world. These whorehouses and pimps can only operate with active police complicity. The police in turn can only act with at least a political culture that doesn't question their actions so long as they are sufficiently "discrete". The solution isn't necessarily to directly pressure the politicians on the issue of sex-slavery directly. It is to pressure the politicians in order to take steps that would modernize the country, which would gradually remove the conditions that produce such unconscionable practices.

So long as there is crushing poverty, people will always be tempted to sell young girls for money.

Q: Will development truly stamp out the problems of sex-slavery?

Unfortunately, no. Japan is a highly developed and prosperous country that is being investigated for sex-trade violations by the International Labor Organization (ILO). Organized crime and forced prostitution are linked. It is a hard thing to suggest that prostitution be legalized (as in Europe) but regulating sex-trade may result in better lives for those who voluntarily participate rather than involuntary slavery.

However, even Europe has its sex-trade problems. CNN reports that the same phenomena unfortunately occurs in Great Britain, with foreign girls coerced into prostitution by organized crime in England. It is ironic that one of the reasons that the Serbians were rightfully reviled for rape camps, now that SE Europe is "liberated" organization crime is moving in to establish "white slavery" drawing from women from SE Europe.

There are no up-to-date statistics for the size of the problem. But the Geneva-based International organization for Migration has estimated that 120,000 women and children were trafficked into the European Union each year, most of them through the Balkans.

In a grim assessment at the end of a year in which the OSCE pledged to do more to combat trafficking, the report said there had been no substantial increase in the prosecution of traffickers in southeastern Europe.

Q: Given that development alone cannot stop sexual slavery, do you suggest legalizing prostitution?

I am reluctant unlike some reform proponents to over-simplify the problem of forced prostitution. Even if prostitution were legalized, there is no reason to conclude that an underground black market would not exist. Criminals could continue to kidnap women from poor disadvantaged countries in order to provide a supply of "cheap" and "dispensable" forced labor pool that would give its proceeds directly to organized crime. The existence of hygienic legalized prostitution might decrease the demand for forced prostitution, but because it would almost certainly be more expensive there is no reason to conclude that full regulation would remove the problem.

Legalizing and regulating sex-trade workers could only be a single (highly controversial) step in solving the problem. Another solution could be strengthening illicit smuggling barriers between countries. However borders are porous and it is impossible to scrutinize every passenger deeply without creating huge delays, while many of the girls are fooled into coming "willingly" on false pretenses. Some border enforcement improvements would probably help though, such as training to spot such travelers and a network identifying known traffickers. Education could play a part, by establishing programmes informing young women and families in poor countries about the tricks that slavers use and how to report anyone who approaches them on suspicious grounds.

As Kristof discovered however, some of these women are actually sold into slavery by unscrupulous relatives. Clearly programmes targeting for intervention vulnerable households might be necessary, but also be Sisyphusian as a task. Target every poor household in a developing nation with a young pubescent woman for intervention? Only a small handful could be saved by such intervention methods. Another tack would be to encourage gradual adoption of women's rights, and to better the economic independence of women by pushing for laws that let them have their own bank accounts, credit cards, etc. For poorer women, proven programmes such as micro-lending which lends women small amounts of money to start (profitable) home businesses also would prevent women from being as vulnerable to this sort of predation. If their relatives saw them as a potential income stream to the family, they would have more incentive not to sell them into slavery.

Finally while economic development is not sufficient, it's clearly necessary to solve the problem. While developed nations do have forced sex-trade, most often it's filled with vulnerable women recruited from poorer nations with porous borders. A strong trafficking enforcement, family education, and development aid programme combination stands the best chance of success.

This is important. It's important because whenever we tell ourselves that the present economic and social order is "okay" and that it does more good than harm, we need to remember these faces of despair. It is not just one, or a few, but thousands upon thousands of lives doomed to this dark fate. It is a sign that there is something wrong with the system. If we don't fix it, the sickness that torments these young lives might spread in contagion to the rest of society and eventually bring about our own downfall. That this should be happening is a sign that something is dreadfully wrong.

Q: How bad is it?

It is a problem as serious in our time and as widely ignored as the slavery of African Americans was in a prior time. Many of the girls end up dead by HIV-AIDS which in turn spreads the sickness even more. This is pretty serious and should be considered a high priority for all civilized peoples.

18:9 The kings of the earth, who committed sexual immorality and lived wantonly with her, will weep and wail over her, when they look at the smoke of her burning,

18:10 standing far away for the fear of her torment, saying, 'Woe, woe, the great city, Babylon, the strong city! For your judgment has come in one hour.'

18:11 The merchants of the earth weep and mourn over her, for no one buys their wares any more:

18:12 merchandise of gold, silver, precious stones, pearls, fine linen, purple, silk, scarlet, all expensive wood, every vessel of ivory, every vessel made of most precious wood, and of brass, and iron, and marble;

18:13 and cinnamon, incense, perfume, frankincense, wine, olive oil, fine flour, wheat, sheep, horses, chariots, and the bodies and souls of people.

From the Book of Revelations, by John.

UPDATE: The New York Times Magazine has a story on imported sex-slaves and child-prostitutes in America. Read about it here.

Friday, January 16, 2004

Shiites throwing their weight around,

As reported by the LAT:

Bremer Denies Rift With Iraqi Cleric
BAGHDAD — The U.S. civilian administrator in Iraq, L. Paul Bremer III, repeating the Bush administration's intention to keep its deadline for transferring power to the Iraqis, brushed back reports today that he openly disagrees with a key Iraqi cleric.

The LAT reports that Shiites are continuing to pressure the United States about direct elections. The Bush Administration seems understandably reluctant to provoke a face-down with the highest spiritual authority venerated by the Shiites in Iraq.

"We are neither so stupid nor so reckless as to want to make an enemy of Ali Sistani," a senior U.S. official said.

However, if the Administration caves to Shiite demands for direct elections it could have serious consequences for U.S. credibility in the region.

Officials fear that any sign that they would be prepared to abandon that agreement, which was signed by the Governing Council, would sow mistrust of the United States' willingness to keep its word among the Iraqis who have agreed to the plan.

A reversal also could invite new demands from other ethnic groups.

Clearly at this point, the Shiites are "testing the limits" of their burgeoning and imminent dominance of Iraq's political dynamics. By making demands on issues like elections or rolling back women's rights, the Shiites are attempting to see if Washington will back down rather than provoke a confrontation with them. The United States is in a precarious situation because it already faces stiff resistance from a domestic insurgency by the Sunni minority in central Iraq. The prospect of a military clash with Shiites clashing with U.S. troops would leave the United States isolated in Iraq with about 4/5ths of the country rising up to take arms against them. On the other hand, giving in to the demands might provoke a bloody civil war as the Kurds and Sunni's feel disenfranchised by Shiite dominance and take up arms. At one extreme the U.S. uses overwhelming force to crush dissidents and impose an illegitimate government, and at the other it withdraws and leaves the governance of Iraq to fractious ethnic violence. Unless the Administration can broker an acceptable compromise that ensures ethnic and regional stability in Iraq, this situation could rapidly devolve into a true military "quagmire".

UPDATE: U.S. offers partial compromise but insists on the previously established transition schedule.

Administration officials insist that they will hold to the July 1 deadline, but they are exploring ways to strike a compromise with al-Sistani and his supporters.

The Shiites seem in no mood to back down however:

... an associate of al-Sistani’s, Abdel Hakim al-Safi, wrote a letter to Bush and British Prime Minister Tony Blair, accusing the coalition of seeking to deny Iraqis their legitimate aspirations.

“We know that all the excuses you used to hinder the elections are not based on reality,” the letter said.

The Shiites show their hand, and it sure ain't pretty.

Some defenders of Bush Administration policy have talked up the fact that the Shiites of southern Iraq may not want a theocracy afterall, and that maybe they won't abuse their majority status in a democracy in order to suppress the rights of others. Interestingly enough, they're not even formally in power yet but they've already started by taking away the rights of Iraqi women. The move apparently was sponsored by Conservative Shiites on the Iraqi National Council (INC) that American administrator Paul Bremer appointed and hand-picked.

From now on the women of Iraq, according to the INC which America put in power, will be subject to the medieval laws of Sharia or fundamentalist Islamic law. Previously, Iraqi women have enjoyed modern rights very similar to American women. If this is what the Shiites are doing now, and they haven't even taken over yet well no wonder why the Kurds are so skittish about being underneath the central government thumb and the Sunni's with their own history of oppressing the Shiites are so terrified of payback for all the generations of downtrodden Shiite marginalization.

And we're supposed to turn power over to these guys in less than six months?!?! Even the Administration sees now that things just aren't going according to plan in Iraq!

Read more about the problems in Iraq in my 'Democratization is more attractive in abstract', 'Mesopotamian blues', Iraqi strategy update, and What if the Middle-east is like South of the border? postings.

Thursday, January 15, 2004

No Child Left Behind?

The Federal government has been engaged in an ambitious program in order to Federally mandate the testing of schools. In schools that fail to meet standards, the students are given a voucher which their parents can use to send them to another school - including private or charter schools. Despite that this program affects virtually every school system in the country, most parents and the public don't know about how NCLB works at all.

Here is the formal Dept. of Education NCLB summary. However, as one might expect from a government bureaucracy they skim over the critical details. The act has proven quite controversial, with some like Rod Paige of the Concord Monitor Online writing in support of NCLB claiming that it provides additional funding and requires local school systems to improve in exchange for Federal money. On the other hand, the NEA has filed a lawsuit against NCLB claiming that NCLB is an unfunded Federal mandate.

Some have accused the NEA of being an obstructionist Labor union that opposes genuine reform in school systems. However, local school systems like Franklin, NH are also fighting NCLB as an unfunded Federal mandate. Specifically the article notes:

Most education officials — including Franklin’s Title I reading specialist Michelle Kreamer — say that it will cost school districts more money to implement than they receive from the federal government. US Senator Judd Gregg, R-NH, maintains that the money which comes with the law, along with the greater flexibility that the law provides for money that previously came to local school districts, will cover the implementation costs.

Kreamer told the school board that No Child Left Behind already has cost Franklin money because of its reauthorization of the so-called McKinney-Vento Act. According to Kreamer, among other provisions, the law now defines homelessness as including students who stay with relatives. It forces school districts to pay expenses such as food, transportation, school supplies, clothing, and medical expenses for “homeless” students.

If it was one school system then this might be an abberation, but in fact other schools systems in New Hampshire voted to oppose NCLB:

PLAISTOW -- School officials last night voted to join other school districts across the state in taking a stand against the federal government's imposition of new educational laws without providing enough federal money to implement them.

However, some people still hotly argue that NCLB is a fair and fully funded program. However, most of these people who argue for that are bureaucrats or politicians at the Federal level. At the local level, places like Vermont candidly acknowledge that NCLB contains "hidden" implementation costs and increases Federal control of local-state school systems. Once you get away from Washington or pundits in the pockets of idealogues, it becomes abundantly clear that NCLB is a seriously intrusive and expensive Federal mandate.

Educators of every stripe at all levels, beyond the much pilloried NEA crowd, strongly oppose this act on those grounds. Furthermore, polls conducted by the Phi Delta Kappan Proffessional Journal of Education indicate that most people do not know much about NCLB and that they generally oppose strongly the key parts of the measure.

Specifically the following findings by a PDK/Gallup poll are notable:

A total of 83% of respondents believe decisions regarding what is taught in the public schools should be made at the state level (22%) or by the local school board (61%). NCLB involves major federal intervention. (See Table 7.)

The public strongly opposes excessive Federal intervention into state-local school systems. Also:

Eighty-four percent believe the job a school is doing should be measured on the basis of improvement shown by students. NCLB requires that a specified percentage of students -- in the school as a whole and in each subgroup -- must pass a state test, and improvement is not a factor. (See Table 8.)

The public realizes that it is unfair to expect poor school districts to compete with affluent ones. The only fair way to compare progress is by improvement compared to past performance. A rich school district that has athletics, drama, Advanced Placement courses, well-adjusted kids from well-off families, foreign language, and can afford to hire better teachers (such as with Master's degrees) cannot be compared to a poor school district that can barely keep the roof from leaking.

Furthermore the public does not believe that NCLB uses the right testing method for evaluating schools:

Sixty-six percent believe a single test cannot provide a fair picture of whether a school is in need of improvement. NCLB bases this judgment on a state test administered annually in grades 3 through 8. (See Table 9.)

Is there any support for the President's NCLB program? Well interestingly enough, most parents seem to be willing to consider private schools and use a voucher system, where they are available.

Given a full-tuition voucher, 62% of respondents would choose a private school for their child, while 35% would choose a public school. The choices change if the value of the voucher drops to half the cost of tuition, with 47% choosing a public school. (See Tables 33 and 34.)


The NCLB act is pretty clearly a program that is an unfunded mandate and excessively interferes with local-state school systems. While defenders of the act point to funding that was included in the legislative measure, on the ground local school systems find that it is costing more to implement NCLB than it provides money for. In addition, supporters of NCLB tout that it gives more freedom for school systems to spend some type of Federal funds. However, this is far outweighed by the Federal government testing school systems and then mandating that they achieve unrealistic and unfair standards that the public does not support in order to get their share of Federal money.

As a conservative, I must oppose NCLB on the grounds that two classic conservative principles of:
1. Conservatives believe in localism. Conservative ideals hold that central government bureaucracies are inefficient and overly intrusive. Control of money should remain at the local levels where it can be spent the most wisely.

This theory was in fact first publicly articulated by President Richard Nixon (R) who proposed the creation of block grants. These grants have been used successfully to give control of social services back to state and local government in Welfare reform, road-construction, and many other aspects of society. Conservatives and Republicans strongly support this.

2. Conservatives oppose unfunded mandates. Federal mandates that require state or local governments to spend money to comply with new regulations are really another form of taxes. Because there is "no such thing as a free lunch". Someone always pays - usually the taxpayer!

In fact, it is no longer merely a principle. As the Heiritage Foundation has noted, Congress passed a law making unfunded mandates illegal. However as the article notes:

Few Americans have any idea that Washington forces all sorts of laws and regulations on state and local governments -- concerning everything from storm-water drainage to health care for illegal immigrants -- without giving states and localities so much as a penny to pay for them.

Unfortunately, NCLB despite the protests of its supporters is clearly an unfunded mandate. It should never have been passed, because it is illegal to try to make local school systems pay out of pocket to meet Washington testing rules. However, this hasn't stopped President GW Bush from supporting NCLB even though it may be underfunded by as much as several billion dollars.

In light of all this information, no conscientious Republican or conservative could support NCLB even though many like I encourage charter schools and a reasonable voucher system. Unlike Democrats, I do not fear the dismantling of the public education system. But as a matter of social justice and respect for the dictates of the Bible, it would unconscienceable in order to let school children have no place to go. The great danger is that if the public school system fails, some poor counties or school districts will only have ramshackle buildings with poorly trained teachers in order to instruct them. This is clearly against the American ideals of an egalitarian society and equal opportunity. So before we let the whole school system go private, we must set up a system so that it will ensure that local kids will always have a school in order use their vouchers at. Without a choice in schools within a reasonable travel distance, vouchers are just so much worthless paper.

So as people who care about the future of our country and want little kids in order to have the education they need to become healthy and happy citizens, please oppose NCLB and please do so most especially if you are a conservative!

"18:5 Whoever receives one such little child in my name receives me,

18:6 but whoever causes one of these little ones who believe in me to stumble, it would be better for him that a huge millstone should be hung around his neck, and that he should be sunk in the depths of the sea."

From the Book of Matthew

NOTE: I no longer regularly attend Church, but I still read the Bible quite a bit and believe in the values taught to me.

PS: Thanks to Beth for cluing me in on the Phi Delta Kappan source. You know who you are! We'll get together soon.