Bad news from the World Trade Organization: Global trade crashed a whopping 12 percent last year, around 20 percent more than anticipated and the most since the end of World War II.
Pascal Lamy, the head of the WTO, used the occasion to call for the resumption of the Doha trade talks, which fell apart in 2008 and which he described as "imperative." Just yesterday, U.S. President Barack Obama promised to complete them, with unnamed officials saying the White House wants it to happen this year. But then again, Doha would need to be approved by these guys...
If I weren't Annie in Washington, but were, say, Anthea in Athens, I'd consider moving right about now. The Greek economy is cratering. Unemployment is skyrocketing. Taxes are rising. Social services are being slashed. Greece's participation in the European Union means that I can move and get a job anywhere in it, without a visa. So, I'd figure -- I'm young, childless, and college-educated. I'll try my prospects in Strasbourg for a couple years.
The problem is: I'm useful to the Greek economy. I work hard and pay taxes, but don't use much in the way of social services like healthcare. I do spend plenty of my income on things like clothes and food, though, and might even open a business if given the chance. Alas, it seems, I am leaving Greece by the thousands.
I used Eurostat to make this chart of the growth changes in the Greek population, broken down by age group. Blue bands are growing and red are shrinking. Eurostat only had data up until 2009, but I imagine we will see trends accelerate in 2010, with a veritable exodus of young members of the work force. On one hand, this might leave jobs for other workers and therefore lower unemployment somewhat. On the other, the trend just does not bode well for the Greek economy.
This weekend, the New York Times reported that Greece, in the midst of a massive economic crisis, had none other than Wall Street giant Goldman Sachs help it keep its books in the black with some creative financial maneuvers, such as selling away the rights to future lottery earnings.
[Greece] engaged in a decade-long effort to skirt European debt limits. One deal created by Goldman Sachs helped obscure billions in debt from the budget overseers in Brussels. Even as the crisis was nearing the flashpoint, banks were searching for ways to help Greece forestall the day of reckoning. In early November...a team from Goldman Sachs arrived in the ancient city with a very modern proposition for a government struggling to pay its bills.
The story is a bit less fantastic than it seems at first blush. First, Felix Salmon notes, the world has known about the investment banks' advising the Greek government for the better part of a decade. In 2003, Nick Dunbar of Risk Magazine published a long piece on the giant swap deals Goldman was engineering for Athens.
Second, Greece is hardly alone in papering over or effectively doctoring its stats. The New York Times article notes that Italy partakes in similar banker-confabulated deals and implies that others do too. France pulled a similar 9 billion euro debt maneuver, revealed in 2006. China cooks its books to boost its GDP numbers. Name any of a dozen developing nations (Zimbabwe springs to mind) and someone will have plausibly accused it of lying with statistics.
But, of course, Greece is no Zimbabwe. The ousted Greek government knew better than to amp up the creative accounting as its economy was tanking. It made a bad situation worse, imperiled Greek livelihoods, hurt its partners in the eurozone, and possibly even destabilized the euro itself.
What I can't figure out is how much the Eurocrats and eurozone finance ministers knew about these deals. The European Monetary Union has bureaucrats aplenty to keep track of the eurozone economies and prudential measures to prevent countries from over-extending themselves, debt-wise. Is the issue that they didn't know enough -- or that they didn't act?
At the Financial Times, Harvard professor Martin Feldstein argues for letting Greece take a holiday from the euro, allowing it to devalue its currency and ease its severe economic woes. It's a nice idea, but a bit pie in the sky. Barry Eichengreen explains why:
The insurmountable obstacle to exit [is] procedural. Reintroducing the national currency would require essentially all contracts -- including those governing wages, bank deposits, bonds, mortgages, taxes, and most everything else - to be redenominated in the domestic currency. The legislature could pass a law requiring banks, firms, households and governments to redenominate their contracts in this manner. But in a democracy this decision would have to be preceded by very extensive discussion.
And for it to be executed smoothly, it would have to be accompanied by detailed planning. Computers will have to be reprogrammed. Vending machines will have to be modified. Payment machines will have to be serviced to prevent motorists from being trapped in subterranean parking garages. Notes and coins will have to be positioned around the country. One need only recall the extensive planning that preceded the introduction of the physical euro.
The introduction of the euro did require extensive planning -- and extensive costs, costs Greece might not want to pay for. Let's do a bit of back of the envelope math. When the eurozone adopted the physical currency, in 2002, the French bank BNC Paribas calculated the price tag for the switch at 160 to 180 billion euros -- 188 to 212 billion euros today. Greece is about 2.5 percent of the eurozone economy -- so the government might be looking at something like a 4.7 to 5.3 billion euro cost.
That is not much. In fact, it is so little Greece might be able to afford it; the government already needs to borrow 53 billion euros to service its debt this year. But that doesn't include the dramatic cost to businesses, individuals, and banks, or the political and plenary trouble of executing such a maneuver. Alas, Feldstein's is a nice idea, but not one I see working.
ARIS MESSINIS/AFP/Getty Images
A batch of 50-peso coins, each worth about a dime, have returned to cause a headache for the Chilean mint. The coins spell the country's name C-H-I-I-E -- a typo that has recently cost the the general manager of the mint his job. The most remarkable aspect of this story, perhaps, is that the coins were released in 2008 -- but the spelling mistake was not noticed until late last year.
Here are a chart and a graph showing the PIIGS' and the United States' indebtedness -- more specifically, their public debt and 2009 deficit relative to GDP.
Just glancing at the chart, and remembering that the PIIGS are among the weakest economies in Europe, it seems that the United States isn't in great shape either. It's just on par with Spain, whose economy is struggling.
But the United States has a number of advantages that make its debt and deficit picture brighter. In the future, Washington might answer to Beijing when it comes to its debt addiction. But for now, it determines its own fiscal and monetary policy measures. Not so for the euro-using PIIGS. Washington can slash its interest rate to zero, devalue the dollar, and perform quantitative easing -- none of which the PIIGS can do. Plus, Washington has much lower debt costs; much of the country's debt is basically free, due to the dollar's status as the world's reserve currency.
In contrast, countries like Spain and Greece are mostly at the mercy of their partners in the Eurozone. At The Guardian, economist Claus Vistesen notes that there is no "systemic set-up," no playbook, for what the Eurozone should do to prevent or counter the default of one of its members.
The European Central Bank can't bail Greece out, per Europe's own rules -- the Maastricht treaty says that "the Community should not be liable for or assume the commitments of central governments, regional, local or other public authorities of another member state." Simon Johnson argues that the IMF might be the obvious player to step in, but throws cold water on the idea -- would it have enough money to bail all of the flailing PIIGS out? Would it provide the same sweetheart deals it did to Eastern European countries? Where would that leave the Eurozone?
I'm a bit more bullish on the prospect of the IMF stepping in with an emergency deal. But I think it is more likely the strongest of the big European economies, led by Germany, will eventually come around to coming together along with other partners to write a check and keep Greece afloat.
Ben Bernanke is just one easy vote away from winning a second term as the chairman of the Federal Reserve. (Meaning Janet Yellen doesn't need to pack her bags.)
Opposition to Bernanke had been brewing since last spring, steeling in the last few weeks as a string of high-profile senators -- Republicans and Democrats, among them Barbara Boxer and John McCain -- said they opposed giving the Princeton academic another term at the helm of the world's most important central bank.
To explain the nuts and bolts of the process: Several senators had threatened to filibuster Bernanke, preventing the chamber from calling an up-down vote to confirm him. Bernanke's nomination just cleared the high supermajority hurdle to end that debate, with 77 senators voting to get the motion onto the floor. Now, Bernanke needs 51 senators to say yes, which they're planning to do this afternoon.
In the final speech of debate on the nomination, Sen. Chris Dodd said, "This is not some assistant undersecretary of some other agency. This is the central bank chairman of the most important central bank in the world. [Reconfirming Bernanke] is a critically important component in continuing our path to economic recovery." Sen. Jim DeMint is now tweeting his disapproval.
Shouldn't be going on for too much longer, but interested readers can watch the Senate floor live on C-SPAN here.
Update: Bernanke was confirmed, 70-30.
Even as housing prices have dropped sharply in the United States, prices in Nairobi have seen two- and three-fold increases the last half decade.
"There is suspicion that some of the money that is being collected in piracy is being laundered by purchase of property in several countries, this one being one of them," said government spokesman Alfred Mutua. "Especially at this time when we are facing global challenges of security such as terrorism and others, it is very important for us to know who is where and who owns what." [...]
Pirates in Somalia say they invest their ransom money outside their war-torn country, including in Kenya. One pirate who gave his name as Osman Afrah said he bought three trucks that transport goods across East Africa. A second pirate, who only gave his name as Abdulle, said he's investing in Kenya in preparation for leaving the pirate trade.
"Pirates have money not only in Nairobi but also other places like Dubai, Djibouti and others," said Abdulle. "I have invested through my brother, who is representing me, in Nairobi. He's got a big shop that sells clothes and general merchandise, so my future lies there, not in the piracy industry."
My colleague Elizabeth Dickinson has argued that pirates' financing is the achilles heel, and by investing in highly visible sectors like real estate, they seem to be sticking that heel pretty far out. Also, the fact that the AP's Tom Odula was able to get not one, but two pirates to tell him about their investment strategies, suggests that these guys might be getting a little overconfident.
Hat tip: Marginal Revolution
Former Russian Finance Minister and distinguished economist Yegor Gaidar passed away at his home outside Moscow at the age of 53. Gaidar is best known as the architect of "shock therapy," the rapid privitization of the Russian economy in the early 1990s. He also served for several months as prime minister under Boris Yeltsin's presidency. He was also a longtime friend of Foreign Policy and served for many years as a contributing editor and member of our editorial board.
The tributes have begun pouring in from Gaidar's friends as well as his enemies today, but one of the most moving was a post on the American Enterprise Institute's Enterprise blog by Leon Aron, director of Russian studies at the AEI and a friend of Gaidar's. It is reprinted in full here with his permission:
Egor Gaidar, the man to whom Boris Yeltsin entrusted Russia’s free-market revolution, died yesterday. He was 53.
Every time we had dinner in D.C. or Moscow in the past seven years, he looked worse and worse. He took bad care of himself. He drank more and more. Last time I saw him in his favorite D.C. restaurant, Morton’s, he looked like an old man and, formerly a hearty eater and a gourmand, barely touched his steak.
He was deeply depressed—by the direction Russia was taking; by his inability to do anything about it; and by the vicious calumny spread by the Kremlin about Russia’s freest years, the 1990s, and about his reforms, which literally saved the country from the famine everyone expected in 1992. It will take decades to clear out the Augean stables of the monstrously irrational and wasteful Soviet economy, but the first few, heaviest shovelfuls were Egor’s.
Throughout it all, he continued to write complicated and important books that only a brilliant economist and economic historian could have conceived and produced, and that future generations of Russians will enjoy and appreciate. (We were fortunate to publish excerpts from his last book, The Death of an Empire, as an AEI paper.)
Following Yeltsin’s death less than three years before and that of the “godfather of glasnost,” Alexander Yakovlev, in 2005, it is almost like nature itself has conspired to make the Gorbachev-Yeltsin-Gaidar revolution an aberration and Putinism Russia’s norm. As if Dostoevsky’s Great Inquisitor was right when he told the imaginary Christ: you have come to make people free, but they don’t want to be free.
I know that this is not so, and I know, too, that deep down, Egor did not believe this. But it must have been so hard to keep faith. The last eight years have gradually killed him. He died of a broken heart.
DENIS SINYAKOV/AFP/Getty Images
The New York Times reports over the past two years a piece of land in Bossaso increased in price 66 percent, a pair of men's shoes is up 150 percent. The reason? Pirates.
It appears the massive amount of booty being swashbuckled by Somali pirates is having very real effects on the consumer market. In a sign that not much has changed in piracy over the past few centuries, the Somali pirates are spending their plunder on prostitutes, booze and drugs.
Last month alone, Somali pirates raked in over $3 million; and the E.U. reports that 11 ships are being held by pirates off the Somali coast, paydays waiting to happen. This is translating to a giant disparity on the shore, as pirates drive around in luxury SUVs and don't even bother to collect their change after buying something. People who can't afford consumer goods often use the excuse, "we are not pirates."
They're not exactly romantics, though. ''Pirates do not waste time to woo women, but instead pay them a lot,'' said Sahro Mohamed, owner of a beauty salon.
MOHAMED DAHIR/AFP/Getty Images
The Times of India reports that Indian workers in Dubai, visiting home for the Muslim holiday of Eid last week, were informed of their termination via SMS:
"It was early morning when I received a text message from my office, Al-Hamid, telling me that I need not bother returning to Dubai. My contract has been discontinued and my work permit stands terminated. It said my dues will be sent through post and my belongings will be duly returned,'' said Sajid.
The workers say at least 64 of them, all working in meltdown-hit Dubai, have received pinks slips through text messages.
The article doesn't say where the men worked or if their termination had anything to do with Dubai World's recent financial troubles, but the story is a reminder that it's not just high-level investors and owners of indoor ski slopes who are feeling Dubai's pain. Indian workers sent home $43.5 billion in remittances in 2008. So while the Emirate's change of fortune may not have systemic effects on the world economy, families throughout South Asia are going to be feeling it.
Today, as over the weekend, markets shuddered at the news that Dubai World, a state-controlled investment company, has delayed some debt payments. Investors feared that Dubai World might default or collapse, hurting its counterparties (especially fragile British banks) and perhaps even tipping the world back into recession.
But, as many commentators have noted, even if Dubai World went totally belly up, it wouldn't have anything close to systemic effects. Why? It just isn't big enough. Here's a chart of the debt on its books, in comparison with Lehman Brothers, when it declared bankruptcy.
A World Bank research paper posted today finds that countries with a high proportion of young males with low levels of secondary education are significantly more conflict-prone. The combination of these "youth bulges" and low rates of secondary education is especially likely to lead to conflict in low- and middle-income countries, the authors also report. The findings focus particularly on Sub-Saharan Africa, as "the continent with the largest youth cohorts and the lowest levels of male secondary education, scoring on average nearly 30 percentage points lower than the world average."
Countries outside of the region also call for concern. In Syria, for example, males 14 years old and younger make up nearly 20 percent of the population. Only 39.1 percent of secondary school-aged students are enrolled in school, making it the 101st lowest-ranking country of 135 surveyed. In the long run, Syria is facing declining oil production and rapid population growth - a recipe for violent unrest.
The policy implications are clear. Programs that focus on primary education, like the U.N.'s Education for All and Millennium Development Goals programs are important (after all, students have to read and write before they can pursue secondary schooling), but there must be more support for programs like the World Bank's own Secondary Education in Africa initiative.
The total cost of a secondary education in Kenya is estimated at $6,865. A 2007 Oxfam report found that on average a "war, civil war, or insurgency shrinks an African economy by 15 percent," and conflict causes the continent to lose about $18 billion a year. You do the math.
Photo: SONIA ROLLEY/AFP/Getty Images
Last week, the Hurun Report released the top two on its 2009 China rich list, a ranking of the wealthiest people on the mainland: Wang Chuanfu at $5.1 billion, whose company makes electric cars and batteries, and Zhang Yin at $4.9 billion, whose company produces recycled paper products. The rest of the list comes out this month.
A few things about these two titans and the rich list and its older versions interested me. First, as the United States' billionaires are getting fewer and poorer, China's are getting more plentiful and richer. There are now 131 dollar billionaires in China -- compared with around 350 in the United States.
Second, an exceedingly obvious point but one to marvel at: Rich people in China own companies which make things. The country remains the organ that produces the world's stuff -- batteries, cars, paper, widgets, tires, you name it. And these companies remain relatively undiversified, vertically, not horizontally. One member of the rich list, for instance, owns a company that produces pig feed. 20 years from now, he might own a conglomerate that makes pig feed, feeds it to pigs, slaughters them, and sells the meat. Then, 20 years from then, he might own a holding company which subcontracts out all of those functions to workers and producers in cheaper markets.
In contrast, the 10 richest people in the United States (in descending order: Bill Gates, Warren Buffet, Larry Ellison, assorted Waltons, Michael Bloomberg, and Charles and David Koch) run diversified companies which trade in finance, technology, information, and real estate.
I also took a bit of interest in the producer of the Hurun Report -- one Rupert Hoogewerf. He's a Luxembourgian alumnus of the accounting firm Arthur Andersen who produced Forbes' China rich list between 1999 and 2003. At that point, it seems that Forbes fired him, possibly due to "public doubts and questions of the accuracy and authority of the wealth ranking year after year," according to state paper China Daily. It added: "It is understood that he received no compensation settlement from Forbes."
The official line is that Forbes simply decided to have a Shanghai editor manage the production of the list. But I like the idea of list-maker Hoogewerf going rogue. Does make you wonder about the accuracy of those lists, though...
While speaking in Turkey, IMF Director Dominique Strauss-Kahn became the latest world leader to fall victim to an attack by shoe:
The Fund’s managing director was addressing students on the campus of Bilgi University when a student took aim with a white trainer, chanting “get out of the university, thief IMF.”
Television footage showed security guards shielding Mr Strauss-Kahn and hustling the bearded student, who wore a white t-shirt and sleeveless jacket, out of the room.
Mr Strauss-Kahn later shrugged off the protest. “It is important for us to have an open debate. I was glad to meet students and hear their views. This is what the IMF needs to do, even if not everyone agrees with us. One thing I learned, Turkish students are polite. They waited until the end to complain,” he told reporters.
With this incident, Strauss-Kahn joins the motley crew of shoe-attack survivors that now includes George W. Bush, Wen Jiabao, Indian Home minister P. Chidambaram, and (possibly) Mahmoud Ahmadinejad. The shoe-chucking innovator Muntazar al-Zaidi was released from jail in Iraq this month.
So, readers, who do we think will be next?
BULENT KILIC/AFP/Getty Images
European leaders are starting to follow suit; Britain's five largest banks have agreed to publish the pay of their key staff members, and will spread bonus payments over three years. French president Sarkozy has announced a set of even tougher and more broadly applied regulations.
Of course, not everyone thinks that bonus reforms are the way to go. Nobel prize-winning conomist Robert F. Engle III says
We shouldn't ban bonuses, but restructure the way they're paid so they're more commensurate with the risk the company is taking....What's important is we give the banking system the right incentives to figure this out. When companies get too big and too complex to fail, they would face a higher tax rate, which would go into a rescue fund. The banks are not excited about it, they would rather go back to business as usual."
The extraordinary efforts by governments and central banks to prevent the global economy from collapsing over the past year seem to have worked. Growth is picking up again, and optimism is in the air. The question now on many people's minds here at the G-20: Is it time for an exit strategy?
Not yet, according to China. Despite a recent bout of optimism, including from U.S. Treasury Secretary Timothy Geithner earlier today, Chinese officials said this evening that the international economy remains "quite fragile" and that Beijing isn't ready to support the unwinding of the various stimulus measures that governments have put in place to counteract the effects of the financial crisis.
As the recovery has gained momentum, some analysts have expressed concerns that governments under budget and political pressures would begin dismantling their costly stimulus programs too early.
"We believe it is still too early to talk about an exit strategy because the world economy is not out of the woods and the U.S. economy is still on a downward trend," said Department of International Cooperation official Ma Xin in a press conference here in Pittsburgh. "If we pull out or wind down the policies completely we may undermine people’s confidence."
John Kirton, a political scientist at the University of Toronto and an expert on the G-8 and the G-20, said in an interview that his biggest worry was that the major economies would unwind their stimulus measures too soon. His hope is that world leaders will issue a "strong, unified message" on staying the course after several countries, notably Japan and Germany, recently indicated they would begin dialing their stimulus measures back.
Chinese officials also responded to questions about one of the hot-button issues hanging over this summit, the ongoing depreciation of the U.S. dollar, which has lost 11 percent in value against a basket of major currencies since January. China, which now holds at least $2 trillion dollars in reserves, has made increasing noises in recent months about its desire to eventually move away from the dollar as a global reserve currency.
Geithner had to reiterate
in his press conference today that "a strong dollar is very important
in the United States." He added that he expected the dollar to remain
the world's main reserve currency for "a very long time."
Xie Duo of the People's Bank of China said that Beijing supported "the stability of major reserve currencies," which he sees as an important condition for the health of the world economy. Nonetheless, he said, "Most experts realize that the composition of the reserve currencies is flawed," and "it is reasonable for politicians to voice their criticisms of the current system."
Earlier today, former Alaska governor and Republican vice-presidential hopeful Sarah Palin gave a speech to a group of investors in Hong Kong, for which the brokerage firm CLSA allegedly paid her $300,000.
Former McCain foreign-policy adviser Randy Scheunemann and a bevy of other veteran Republican aides reportedly prepped Palin for the speech, which Politico and other outlets have suggested implies she's prepping herself for 2012.
No reporters were allowed into the private event, but some investors passed good information on to Bloomberg News (which dryly notes that Palin first got a U.S. passport in 2007). The Wall Street Journal also seems to have some inside sources. Washington Wire offers a number of lengthy quotes.
Let's take a look.
The foreign-policy sections were something of a snooze -- some gentle urging for China to become more responsible on human rights, some criticism of its treatment of ethnic minorities and aiming of arms at Taiwan, some commentary on the trade and currency imbalances, some criticism of the United States for utilizing China as a "lender of first resort."
Regarding economics and the recession, though, Palin got a lot more interesting.
Foremost, she pinned the blame for the financial crisis on the U.S. Federal Reserve. Not the interplay of investment-bank profits, trade imbalances, the rise of securitization, the creation of zero-deposit loans, oil prices, the housing bubble, the credit rating agencies, and other commonly cited factors. Just the Fed.
"How can we discuss reform without addressing the government policies at the root of the problems? The root of the collapse? And how can we think that setting up the Fed as the monitor of systemic risk in the financial sector will result in meaningful reform?," she said. "The words 'fox' and 'henhouse' come to mind. The Fed's decisions helped create the bubble. Look at the root cause of most asset bubbles, and you'll see the Fed somewhere in the background."
She added, "The government forced lending institutions to give loans to people who, as I say, couldn't afford them." (Emphasis mine. These assertions reportedly caused two observers to walk out, saying "It's awful." Notably, the Chinese government actually does force banks to lend.)
Finally: "[Alaskans] have much in common with Hong Kong. We're both young and transient, independent and libertarian. Places that continue to show the world, the power and the resilience of the free-market system at a time when too many are questioning it." (Emphasis mine.)
It seems Palin -- whose prior public pronouncements have been somewhat ideologically incoherent -- has finally picked her strand of conservatism: libertarianism. It's a choice that makes sense. If the economy recovers well by 2012, conservatives of all stripes will have, well, several trillion reasons to talk about government spending and U.S. deficits.
But, I really think if Palin wants to establish her economic conservative credentials she should head back to the statehouse and encourage the state to go Galt -- turning Alaska into the United States' Hong Kong, a relatively tax-free, regulation-free, federal government-free zone. It would be rough. Alaska receives more federal subsidies per capita than any other state. But managing the Last Frontier without this Washington cash would demonstrate her executive prowess -- and would show that no entity should need interventionist government life-support to thrive.
But, sigh, I guess she'll probably just continue to brush-up on foreign policy and beef up her conservative credentials in more conventional ways.
Photo of Palin's resignation speech by Eric Engman/Getty Images
Nicolas Sarkozy's government is rolling out a "revolutionary" new economic indicator:
France plans to include happiness and well-being in its measurements of economic progress, French President Nicolas Sarkozy said Monday, beckoning other countries to join in a "revolution" in the way growth is tracked after the global economic crisis. [...]
France — whose growth has lagged its peers in recent decades according to standard measures — will also try to convince other governments to change their economic tracking, Sarkozy said
"A great revolution is waiting for us," he said. "For years, people said that finance was a formidable creator of wealth, only to discover one day that it accumulated so many risks that the world almost plunged into chaos."
"The crisis doesn't only make us free to imagine other models, another future, another world. It obliges us to do so," he said.
One minor quibble: Sarkozy should really give some credit to King Jigme Khesar Namgyel Wangchuck of Bhutan, the true pioneer of gross national happiness.
Skeptics can (and will) look at this new innovation as a ploy for France to "juke the stats," since its short workweek and social benefits look a lot more impressive than its GDP growth.
That aside, the transformation of Sarkozy's economic message has been pretty astounding. The president came to power promising privitization and economic modernization and was lambasted by French left-wingers for his attachment to "Anglo-Saxon" economic models. But since the economic crisis (and his own popularity crisis) he's made a habit of attacking the Anglo-Saxons for their free-market orthodoxy and consulting with market-skeptics Amartya Sen and Joseph Stiglitz on new economic indicators.
Where have you gone, Sarko l'Américain?
MICHEL EULER/AFP/Getty Images
Last week, Peter Bergen wrote an optimistic post titled "The Afghan Phoenix" over on the AfPak Channel, giving some counterfactuals to the doom and gloom over the plight of Afghanistan and the U.S. mission there. Five million refugees have returned to Afghanistan. One in six Afghans owns a cell phone. And, he notes, "You were more likely to be murdered in the United States in 1991 than an Afghan civilian is to be killed in the war today." This statistic struck me most, though: "In 2008, Afghanistan's real GDP growth was 7.5 percent. Under the Taliban the economy was in free fall."
I won't argue that Afghanistan's economy was anything other than terrible, and worsening, under the Taliban. It was and remains an impoverished country with a host of profound basic infrastructure and business development challenges -- from the lack of roads to the surfeit of bombs to the high illiteracy rate. It has a massive black-market economy. 80 percent of working-age men are involved in subsistence farming. A woefully high proportion of its population relies on the drug trade.
But I still don't find the 2008 GDP growth figure too much of a reason for optimism. Why? Afghanistan's GDP isn't growing because of booming Afghan production and consumption, or rising wages. Afghanistan's GDP is growing because of all the Americans and other foreigners -- around 65,000 troops and 200,000 nongovernmental workers -- building and buying things there (with dollars, no less), and because of the $57 billion pledged by international donors since 2002.
For an illustration of the phenomenon, see this chart of Afghan GDP in inflation-adjusted dollars, which I made with UN data. The Taliban took over in 1996, and Afghanistan's economy dwindled. The U.S. invaded in 2001, and it boomed. Afghanistan's GDP depends entirely on the armed force in charge. This isn't to say the local commerce supplying the 265,000 relatively flush foreigners in Afghanistan isn't real. But were the United States to drawdown, aid workers and military contractors and commerce would follow. My guess is that much of the GDP growth comes from service-sector jobs, not from new production.
That's the real issue. Foreign spending in Afghanistan is a good thing for GDP. It's less clear whether it has fostered economically meaningful development. Dollars are all well and good -- but won't do much unless they help create businesses, employment, infrastructure development, and longer-term growth. (This is why Jonathan Zasloff's plan to hand out cash to Afghans wouldn't do much more than stoke inflation.) Whether they can remains the question.
Plus, many worry the U.S. troop presence cannot foster the foreign direct investment, local economic growth, agricultural development, and security and economic paradigm the country so desperately needs. But the U.S. military is hoping so. The civil-military plan by U.S. Ambassador Karl Eikenberry and Gen. Stanley McChrystal Laura Rozen posted today mentions the Afghan economy, licit agriculture, cross-border commerce, and reconstruction dozens of times.
In the Financial Times on Wednesday, Chris Cook argues that British immigration laws are giving an unfair edge to soccer clubs with more money.
Clubs with deep pockets hire the small number of local and foreign gifted players available, while poorer clubs must make do with the remaining, potentially much weaker, local journeymen.
Not only that, he says, but the protectionist measures of allowing non-European workers only if the fit certain high-skill benchmarks also inflate wages for less-skilled Europeans, raising ticket prices.
Cook contends tougher competition would boost the English national team:
The impact of more foreign players on the elite band of players who might conceivably play for the national team is that they need to play better to keep their places in their club teams. So, they improve. The English team has markedly improved since foreign footballers started pouring into the country’s top league.
Would some British and European soccer players be pushed out of work if rules were liberalized? Probably, but a more competitive league would be worth it Cook says.
Consumers of an increasing range of products will soon feel the pain in their wallets already endured by so many fans on a Saturday afternoon, who routinely complain that they pay ever-greater sums to watch a football league dominated by just four clubs. What English football needs is fewer English footballers.
Not knowing that much about the economics of the Premiere Leage, here's a question: If teams in the lower half of the standings became much more competitive, would it increase their revenues? Higher ticket sales? More advertising?
Laurence Griffiths/Getty Images
Devastating hurricanes have left the state-run company that produces the country's supply, without the raw materials necessary to keep up with demand. In addition to which, President Raul Castro recently announced a 20 percent cut in imports, meaning a lot less goods on state-run store shelves. Cuban officials are saying they may not have sufficient TP supplies until the end of the year.
Worldwide, toilet paper is a booming business, especially in the United States where consumers use up to 50 million pounds of TP a year. It seems American bottoms have a "soft-tissue" fetish, one that's not only costly, but harmful to the environment. In order to get the fluffiest tissue, suppliers take from the world's rainforests. Earlier this year Greenpeace released a toilet-paper guide listing the more planet-friendly products.
One penny-saving option for Cuba would be to use recycled lavatory paper, a much cheaper alternative on the whole. Indeed, many countries are already using the eco-friendly alternative, even if it is a little ... rough.
For Cuba, this could be an opportunity to take that initiative one seriously brave step further to becoming a leader to an "greener" planet: Go cloth.
Chip Somodevilla/Getty Images
The Wall Street Journal's Sky Canaves reports on some of the festivities in store as China gets ready to celebrate the current government's founding:
As part of the myriad activities planned to commemorate the 60th anniversary of the founding of the People’s Republic of China on Oct. 1, the normally staid National Bureau of Statistics is letting its hair down a bit.The NBS has launched a call for submissions of writings celebrating the PRC’s big birthday as part of campaign called “Statistical Feelings: Together We Go – Celebrating the 60th Anniversary of the Founding of New China.” The campaign is intended to boost the patriotic feelings and confidence of statisticians in their work, according to the bureau’s Web site.
Excited yet? Canaves and the WSJ team translate and provide a look inside the minds and patriotism of Chinese statisticians:
So far, about a dozen entries have been posted, encompassing the genres of prose, poetry and song. One essay, submitted by an employee of the NBS industrial division, is titled “I Am Proud to Be a Brick in the Statistics Building of the PRC,” and reads like a prose poem, each paragraph leading with the title’s refrain.
A poem, “Love the Homeland, Love Statistics,” includes the following stanza:
Some mock me for doing statistics
Some loathe me and statistics
Some don’t understand what statistics are
Why is it that statistics
Put a calm smile on my face?
Because of statistics
I can solve the deepest mysteries
Because of statistics
I will not be lonely again, playing in the data
Because of statistics
I can rearrange the stars in the skies above
Because of statistics
My life is different, more meaningful
I love my life, my statistics
I have a sudden thirst for data.
PHILIPPE LOPEZ/AFP/Getty Images
This past week, Vitaliy Katsenelson wrote a great Foreign Policy web feature on the big old asset-price bubble developing in the Chinese economy, called "The China Bubble's Coming -- But Not the One You Think."
Recent news seems to bear the theory out.
The Financial Times reports:
Chinese regulators on Monday ordered banks to ensure unprecedented volumes of new loans are channelled into the real economy and not diverted into equity or real estate markets where officials say fresh asset bubbles are forming.
The new policy requires banks to monitor how their loans are spent and comes amid warnings that banks ignored basic lending standards in the first half of this year as they rushed to extend [around $1 trillion] in new loans, more than twice the amount lent in the same period a year earlier.
I feel a bit strange saying this.
But, over the past year, in the midst of the worst economic crisis since the Great Depression, I've really come to admire the Chinese central bank.
This fall, it recognized the need for massive stimulus -- and did it. Then it realized it was pushing too much money into the economy, creating bubbles and distorting the lending market -- and so it stopped. The central bank will raise reserve requirements for lenders. And presto, they'll stop lending so much. The bubble will ease, rather than popping.
Of course, I'm wary of my own oversimplification here. The Chinese economy has some very trying issues ahead of it, particularly as related to its currency, its U.S. reserves, and the quality of its economic growth. Plus, the impact of the lending spree (and its halting) obviously won't be clear for some time.
But, for the moment, this move just seems really prudent. Another way of thinking of it? Being a command economy has its advantages when there's need for a whole lot of emergency economic commands.
They may be leftists, but the current and former president of Argentina have no aversion to making money on the side.
Rory Carroll in the Guardian reports that Cristina Fernandez Kirchner, elected in 2007, and her husband Nestor, the previous president, have done pretty well for themselves:
New figures show that since Nestor and Cristina Kirchner came to power in 2003, they have presided over a remarkable sixfold increase in their own wealth.
The couple have racked up a fortune through property speculation and investments that have thrived even as the economy has faltered. Last year alone their wealth jumped 158% to £7.3m...
According to information the couple supplied to the anti-corruption office, they own 28 properties valued at $3.8m, four companies worth $4.8m and bank deposits of $8.4m. Last year they sold 16 properties, almost tripling their bank accounts, and expanded their hotel business in El Calafate, a tourist magnet. Their debts also jumped because of bank loans.
Knowing Argentina's history of corruption, the open disclosure by the first couple of their wealth is actually kind of reassuring.
But now, with Argentina fighting to avoid a recession and public debts mounting across the country, the Kirchners would do well to apply that same financial acumen to the country's problems. Otherwise, they will face increasingly tough questions about how they had so much time for their own finances when they were supposed to be focusing on those of Argentina.
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On Friday, Britons Lady Joan and Sir Edward Downes, a prominent orchestral conductor, committed suicide with barbituates provided by the Dignitas clinic in Switzerland. According to British newspapers, Joan, 74, was suffering from terminal pancreatic cancer and had but weeks to live; Edward, 85, was going blind and deaf and did not want to live without her. The couple had been together for 54 years.
The story has reignited the debate over assisted suicide in Britain -- where every family that makes that horrific trip to Zurich commits a political act.
Indeed, in a brief interview with the Evening Standard, the Downes' son said, "It is a very civilized way to end your life, and I don’t understand why the legal position in this country doesn’t allow it." He also mentioned that he and his sister rang the police themselves to inform them of the deaths.
British police are questioning them, as assisting a suicide is illegal in Britain. But the justice system is unlikely to do anything. At least 117 Britons have committed suicide in Switzerland, where it has been legal to help terminally ill people end their life since 1998. No members of their families have ever been prosecuted. Britain, in essence, turns a blind eye.
I don't have much to say about the validity of assisted suicide laws. But one thing about the story struck me.
It's an expensive way to die -- it costs 4,000 Euros for Dignitas' services, plus the cost of bringing out one's family. And, because it is so expensive, only the wealthy seem to choose to do it. The titled Downeses. Businesspeople. University professors. Doctors.
One can imagine other terminally ill patients, in extraordinary pain and with no quality of life, wishing to end their life in a manner of their choosing, but being unable to do so because of the cost.
Britain's laws, de facto, make it possible for the rich to die via assisted suicide, but impossible for the poor to do so.
It reminds me of one of the common arguments over abortion laws. Women in countries like Portugal (which has restrictive abortion laws) or states like South Dakota (where virtually no clinics provide the service) often need to travel far distances to obtain the service. Which means the rich are able, and the poor aren't.
And access to such services should be determined by law, not class.
In a fascinating feature in the new issue of the Boston Review, Oxford economist (and recent FP contributor) Paul Collier makes a radical proposal: What if instead of trying to find ways to promote economic development politely from afar, international actors considered full scale "interventions" to help poor countries jumpstart their development?
Collier, author of The Bottom Billion and the more recent Wars, Guns and Votes, argues that the two main obstacles for development in the 60 or so poorest countries are institutional inabilities to provide security or government accountability. Rather than keep trying to build these institutions first, Collier proposes that outside actors should supply them for an interim period:
Recall what the United States did last time it got serious about developing another insecure region. Its agenda was radically more ambitious then. The time was 60 years ago, and the insecure region was post-war Europe. The United States got serious because the consequences of Europe falling apart, given the neighboring nuclear Soviet Union, were so alarming. Washington brought the full range of pertinent policies to bear. There was a large aid program, the Marshall Plan. But aid was only a part of the solution. A massive security program, NATO, complemented the aid; more than one hundred thousand American soldiers were stationed in Europe for more than 40 years.
Along with Collier's admittedly provocative piece, the BR has shorter reactions from a host of aid experts: Stephen Krasner, William Easterly, Larry Diamond, Edward Miguel, Mike McGovern, and Nancy Birdsall. Collier then responds.
In contrast to Collier, Obama told allAfrica in an interview that with foreign aid he thinks "what [the U.S.] should be doing is trying to minimize our footprint and maximize the degree to which we're training people to do for themselves."
There is a lot to be said for reforming a system in which billions of U.S. foreign aid dollars go straight to contractors in Washington, but I think Collier has a point. Some countries like Somalia and the DRC are unlikely to put the pieces back together on their own. But while the idea of providing institutional strength for the bottom billion is attractive, it is still difficult to imagine how this could be implemented anytime soon.
Wathiq Khuzaie / Getty Images
I have an article up on ForeignPolicy.com today about a subject which is a bit hard to sex up but is vitally important to countries and governments and people: youth unemployment.
The point of the piece is that unemployment among under-25s has risen to frankly horrific levels in a number of European countries -- nearly 40 percent in Spain, 35 percent in parts of the Baltics, more than 20 percent in a dozen more.
Why's that so bad? Well, the obvious reason of financial hardship, for one. But there's also a plethora of economic research showing that young people suffer lasting damage from spells of joblessness -- in everything from weight gain to reduced earnings down the road. The effects aren't so pronounced or persistent in older workers.
I'll elaborate on the part of the article I found most interesting but unfortunately didn't get a chance to expand: a demographic phenomenon making the situation much worse in the ex-Soviet countries (now, emerging eastern Europe) which happen to be particularly hard-hit by the Great Recession.
These socialist governments used to encourage families to have children, keeping the birth rate and the population rising via social and economic policy. That ended when the Wall fell. Between 1989 and 1991, birth rates plummeted throughout eastern Europe, as economic uncertainty and political collapse and (in some countries) the easier availability of birth control options meant women started having smaller families.
So, say you visited a kindergarten classroom in Saint Petersburg in 1993 (so the children were born in 1988), and all its 20 desks were filled. If you returned in 1998 (for kids born in 1993), there would only be 12 kids there. That big of a phenomenon.
Fast forward to today. Those Saint Petersburgian kindergarteners from 1993 would be 21 -- in the work force or graduating from college this year. They represent a demographic peak, a blip, for the job market.
That is compounding the problem of youth unemployment -- which is happening for all sorts of reasons across Europe.
The upside? Starting soon, within a few years, as the recession lifts, there will be fewer and fewer school-leavers and other young workers in these eastern European countries, worst-hit by the recession. Which means the youth unemployment rate should drop as precipitously as it's risen.
To illustrate the point, I made a chart, above. It shows the 18-to-24 population of each country. Pretty crazy, huh?
Russian Communist Party leader Gennady Zyuganov says he enjoyed getting to meet Barack Obama along with other members of the Russian opposition this week and even saw eye-to-eye with the U.S. president on a few things. Interfax reports via Johnson's Russia List:
"I said that I had thoroughly studied the U.S. president's anti-crisis program, that I liked it, as well as that it is socially oriented and primarily aimed at supporting poor people and enhancing the state's role. I said all this to President Obama," he said.
Somehow I don't think you'll be seeing that endorsement on Whitehouse.gov.
Democratic opposition leader Boris Nemtsov, who was at the same meeting, shares his thoughts here.
In 2007, the Intergovernmental Panel on Climate Change estimated that global warming would decrease global GDP by up to 5 percent. As Waxman-Markey was being debated on the Hill, Jim Manzi over The American Scene questioned the necessity for action on global warming, noting that 5 percent was a small amount to be worried over. Nate Silver at 538.com decided to take up that challenge, seeing how many countries could be removed before reaching 5 percent of global GDP. The result is a startingly large number:
Let's see how much of the world we can destroy before getting to 5% of global GDP. The figures I'll use are IMF estimates of 2008 GDP, for all countries bit Zimbabwe where the IMF did not publish a 2008 estimate and I use 2007 instead.
Zimbabwe, indeed, is the first country on the chopping block, whose 11.7 million greedy bastards consume a whole 0.0196 percent of the world's output -- a global low of just $55 per person. After that, we get to destroy Burundi, The Congo (the larger of the two Congos -- the one that used to be called Zaire), Liberia, Guinea-Bissau, Eretrea, Malawai ... do you really me to go through the whole list? You do? ... Malwai, Ethopia, Sierra Leone, Niger, Afghanistan (big problem solved there), Togo, Guinea, Uganda, Madagascar, the Central African Republic, Nepal, Myanmar, Rwanda, Mozambique, Timor-Leste, the Gambia -- we've only used 0.27 percent of GDP to this point, by the way -- Bangladesh (which has 162 million people), Tanzania, Burkina Faso, Mali, Lesotho, Ghana, Haiti, Tajikistan, Comoros, Cambodia, Laos, Benin, Kenya, Chad, The Soloman Islands and Kyrgyzistan. Next up is India, which, while growing, still consumes only 2 percent of world GDP. Then Nicaragua, Uzbekistan, Vietnam, Mauritania, Pakistan (another problem solved), Senegal, São Tomé and Príncipe, Côte d'Ivoire, Zambia, Yemen, Cameroon, Djibouti, Papua New Guinea, Kiribati, Nigeria (another pretty big country -- we've now got only about 1.4 points of GDP left), Guyana, the Sudan, Bolivia (our first foray into South America), Moldova, Honduras, the Philippines, Sra Lanka, Mongolia, Bhutan and Egypt.
At this point, we've used up 4.4 points of GDP. Indonesia is next on the list of lowest per-capita GDPs. But unfortunately we can't quite fit them into the budget so we'll spare them, opting instead for Vanauatu, Tonga, Paragua, Morocco, Syria, Swaziland, Samoa, Guatemala, Georgia (the country -- not the place where they have Chik-Fil-A), the other Congo, and Iraq. Skipping China, we then get to Armenia, Jordan, Cape Verde, the Maldives -- and another big bunch of skips follows here since we're very low on budget -- Fiji and finally Namibia[...]
So, we'll have to settle for just these 81 countries, which collectively have a mere 2,865,623,000 people, or about 43 percent of the world's population.
Just to cement the contrast, using those same IMF stats, the average American makes almost 183 times as much as Democratic Republic of Congo resident.
Graphic from 538
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