Saturday, June 19, 2004

Blog Review: Am I giving Dan a fair shake?

As it turns out I've been especially critical of Dan Drezner's writing lately. This being the case I'd like to discuss some things I think he has done right.

Among the first of them is recognizing that the amount of foreign held debt is reaching not only epic proportions, but is being driven by other than market considerations. The coverage is good and the reasoning solid except for the attribution error problem.

It's a common error. There are a great many times when we operate mostly on habit or based on past "legacy" considerations. However whenever we discuss the actions of others we are often tempted to impute to them some sort of internal rational justification for their behavior.

Why can't the Chinese central bank be buying US treasuries "just because"? Just because they started doing it for export related reasons and they really don't have a plan per se to get out of this situation because they just aren't planning that far in advance.

There's an old saying: "If a man owes you a little money, that's his problem. If a man owes you a lot of money, that's your problem."

This seems to be the attitude of our own central bank, that the risk being undertaken by debt that is not worth its financial risk because of monetary policy driven by internal politico-economic reasons is the problem of the buyer. Caveat emptor. However this proposes a massive problem of debt default or a crisis of confidence which would be everyone's problem. Other than attributing some sort of planning or rationality to the whole process, Dan's article is pretty good.

The second article that I think Dan did a pretty good job on is his suggestions for a cabinet reshuffle. It's not an orginal idea but personally I couldn't really suggest a better line-up (though I might just picking names out of thin air suggest someone other than McCain- for purely the reasons that his health doesn't seem good. His qualifications are sterling.) for a Bush cabinet earthquake. I personally don't think the dig at Brad was entirely necessary and that it politically won't be possible to remove Powell who is now stating that he's considering "another four years" even if I personally prefer Kenneth Dam hands down.

It's not Dam's time yet, if it ever will be. While I agree with the less than cherry estimation of Powell it's also true that Powell has the distinction of the "I told you so," factor and him putting out the rumor that he's consider staying on another four years is probably at GWB's request. Relection and all ya know. While I think Dam would make a preferable Sec. State even if for no other reason than I think that he'd be willing to travel, but Powell is the 800 lb Gorilla in the Admin right now. Bush needs Powell on board to get elected.

Hence the almost absurd shift to uber-realism in the Bush cabinet. Powell could kill Bush's relection almost single-handedly by simply resigning to "spend more time with his family" at any time. I wonder what Powell had to promise Alma though to get her on board with this. Interesting dinner table and pillow talk conversation there if anyone could ever get one of them to spill the beans.

I also liked Dan's writing about Globalization and Arabic culture.

However he may be missing an important point. As this globalization story from the Boston Globe points out, globalization as we know it generally worsens "income inequality".

This tale of the scientists and the millworker illustrates how globalization and technology are not only reshaping the US economy but also widening income inequality among workers. With traditional middle-class jobs vanishing along with factories, some economists worry that the nation's labor force is stratifying into a skilled, well-paid elite and a mass of lesser-skilled workers struggling to hold on to their standard of living.

The underlying cause: supply and demand. In a global market, said Mark Zandi, chief economist at Economy.com in West Chester, Pa., those with specialized skills benefit from the larger pool of bidders for their services. Those without must compete with low-cost workers around the world.

''We have people who are doing very well and people who aren't, and that polarization is intensifying," Zandi said. ''The distribution of income and wealth is more unequal than ever. The prospects are that it will become even more unequal."

The resistance to "necessary changes" that the article Dan cites includes precisely these kinds of income inequality generators. As such the people have resistance to "the necessity of closing large, inefficient factories;" and display "the need to protect their way of life against foreign influence". Maybe these people just don't want to modernize if it means having to get shafted by the rat race.

Now limiting income inequality is simply necessary for political stability. While we can dream of an idealistic capitalistic world where workers will accept whatever "the market distributes" in wages, the simple fact is that any political system that fails to encourage limiting income inequity is going to destabilize. Just as any ecomonic system that doesn't allow income inequity in the first place will stagnate and become highly inefficient at production. It's a classic balancing act in political economy.
While economic fairness is always a concern in the United States' egalitarian culture, the issue has taken on a new urgency in the wake of a recession that led to the loss of nearly 3 million jobs, concentrated not only in traditional middle-class occupations such as manufacturing, but also newer ones in technology sectors. Many of these job losses are permanent.

Not all economists agree that a growing income gap is cause for worry. David R. Henderson, a research fellow at the Hoover Institution, a conservative California think tank, said that the focus on income distribution tends to neglect a key characteristic of the US labor market: workers who start in lower-income groups can, and typically do, move up the ladder as they gain skills, education, and experience.

Well the problem with this is that if income inequity is too large, that will mean that fewer and fewer people from the lower income group will end up being prosperous by the ends of their lives. Sorry, but that's the implication of a consistently shrinking percentage for the economic elites. The ultimate problem is that there's been a lack of vision regarding how to generate a new economy in the political elites.

There are ways to restructure the economy to promote better income equality. One is to rexamine our education system from the beginning to end and make it both tougher, fairer, and yet more economically accessible. It's one thing to blame someone for not getting an education in order to make more money, but it's another to think such thoughts when education is becoming more costly and less applicable all the time. People are getting poorer and poorer value from their educations and such educations are becoming more and more expensive to get. This isn't sustainable.

Another track is to help encourage and create new businesses. It is politically expedient for instance to kowtow to big agribusiness. It would lower our food costs, increase production, increase wages, increase wealth, and increase occupational happiness if we instead helped organize and motivate small farmers to change their patterns of production to be more competitive. However there is no (immediate) campaign cash pay off for such efforts which is why no boondoggle pork is flowing that way.

There are many technologies that could improve our way of life and stabilize our economy by producing more jobs, but they aren't really recieving a lot of entrepeneurial interest right now because they're not "sexy". I blame it on our business schools. Ultimately however we Americans have to reinvent the engine of prosperity in a more environmentally 'sustainable' fashion if we wish to continue without marked political instability.

So overall I'd say from these articles and several others that Dan was doing a pretty good job recently.

1 Comments:

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