The Family Tangential [May 29]

Singer asserts that we, the wealthy, the comfortable citizens of the developed world, have taken it for granted for too long that national boundaries carry moral weight, and goes on to develop this argument through a utilitarian discussion of morality that analyzes the belief that we owe care to our countrymen, not to other nations. The argument takes place in two levels, as he says: the intuitive level and the critical level.

On the intuitive level are the instinctive moral behaviors we generally see as being “right” and “wrong,” especially considering immediate duties of obligation and of gratitude. These are usually expressed first towards those with whom we have partial relationships—our relatives, our friends, those with whom we do business or who have done us favors, acquaintances, fellow citizen.

The critical level is the internal dialogue that analyzes whether or not what we have done is actually moral—and in effect how moral we are or are not in our actions and thoughts.

The first level is important, but to paraphrase, it’s in essence a thought too short. In day to day interactions, it’s fine—more than fine. In your relations with family and friends, you expect to be partial—not even that. It’s a reality that one is partial to her intimates, and it’s rarely spoken of except when taken to extremes (nepotism, Wolfowitz).

But the extreme case presents a good example: society in general expects a distinct level of partiality regarding friends and relatives, after which point any more special consideration is considered immoral, unfair, and generally incites jealousy and unrest. This is one of the reasons why members of the armed services can’t have relationships with people higher or lower in their chain of command (and ideally don’t have relationships with equals in that same chain of command), why promoting a relative or close friend in a corporation is frowned upon by others, and why companies who throw public contests/sweepstakes don’t allow employees or their relatives to participate.

In the same way, promoting (or favoring) professionally individuals mainly or only of one’s own race or gender has become, when not flat out illegal, a passe practice. Why hasn’t favoring people of our own nationality gone out the same way (and will it)?

This summer, I went on a conference known as JASC. For the most part (with a bare handful of exceptions), half of the 72 students there were American, and the other half were Japanese. Unsurprisingly, during the month of the conference, there were disgruntled murmurs about social cliques forming based mainly on regionality (a few representatives of other Asian nations were also a part of the conference). More powerful was the lack of “professional” favoritism between us and the level of cooperation and support as we worked and traveled across the U.S. As individuals, we were all young students, and we all stood to gain immeasurably by mingling and cooperating. In groups, we were representatives of our cultures and the collective understanding those cultures created.

To some extent, a certain clannishness among people of the same nation is inevitable not necessarily because of “race” or a feeling of extended kinship, but because of the ease of communication—shared culture, shared language/dialect, shared history. In essence, cultural shorthand that makes efficient communication between members of the same nation whereas communication between citizens of two different countries that speak (nominally) the same language (re: German language nations) is awkward in comparison. It’s easier to feel compassion for someone you understand. This principle can be applied to smaller groups just as easily.

But the walls are falling, as Singer notes—nearly all of us have friends here who are international students. That’s just the first step. Many of us will be working for MNCs and multinational NGOs and government organizations requiring international collaboration. The scale of such interaction is growing—the existence of UNICEF proves that, even if the fundraising they do to prevent daily horrors falls behind the cash poured into the Red Cross for the victims of one incident.

Double-0 Economists [May 22]*

The first section of North's article on institutions and economies (transaction costs) had some interesting concepts I hadn't had a formal introduction to, so I took some time to reason this argument out. As I understand it, transaction costs include time, effort, and resources invested in research (availability of a good, reliable sellers, lowest prices, quality levels), bargaining (contracts, haggling, acceptable goods for barter), and enforcement costs (privately or via public institutions).

Transaction costs between individuals (personal exchange) involve a long term investment in research and bargaining that pay off through repeated exchanges; in this sytem, reliability is incredibly important, as is personal reputation. Between individuals, goodwill and trust in trade is of utmost importance. In North's simple personal exchange example, he claims that formal contracting doesn't exist, and there are few formal, specific rules, and by default of the personal scale, cheating is low. This means enforcement costs by public institutions are low, and enforcement privately likely equally so (ignoring hiring third parties to shake down the cheater) and publicly equal zero. Personal exchange is basically the immediate trade of goods for goods or goods for currency in this sense. I don't know that I would say overall transaction costs are low; engaging in trade with individuals does require a great deal of personal knowledge as he says, which means information costs--usually time. As we all know, time is money. A good professional or personal relationship with an individual producer is what encourages repeat transactions (that or scarcity of what the individual produces--in which case, cheating might actually be very profitable. North seems to assume that scarcity plays no role in personal transactions where division of labor plays little to no role; I disagree with that assessment).

Interdependent transaction has high transaction costs, but with public enforcement, those costs are spread to the government (legislative, judicial, and executive bodies responsible for regulating transactions, property, and bargains) and therefore the public through taxation. The individual to individual transaction doesn't spread the cost of transaction to the public, but keeps these transaction costs limited to those engaging in trade.

Stiglitz and Squire's article is more positive about globalization than I'd come to expect from Stiglitz's Making Globalization Work. On 386, I was rather disappointed to see that the authors didn't explain the statement "highly centralized state planning has failed as a development strategy." Are states featuring highly centralized economic planning necessarily unstable, uncredible (is that even a word?), and unfocused? I'll stay away from the uncompetitive--the answer is obvious, at least via the ideological practices highly centralized states have pursued in the past.

Why is privately directed investment better than state-directed investment? Diversification of portfolios. Even a virtuous state-directed investment mechanism would be limited in its ability to minimize maximum losses because of political games and staffing limitations. On the other hand, the number of potential private investors is practically limitless, and with each making individual decisions, it's likely that the country's overall risks will be diversified away. Of course, that's not really a perfect system either, but the disasterous aspects can be forestalled by mature policy, as pointed out to us time and again.

A note on natural monopolies that keeps popping up... Economists tend to agree that overall, competition is good. Great, even; we should as a matter of course try to prevent anything that weakens competition. However, natural monopolies contradict that all competition is all good. Here's that market failure thing. There are some natural monopolies, though, that may be made competitive after the heavy initial investments into infrastructure are made and have provided returns--telecommunications, railways, and utilities, all systems requiring lots of physical inputs and labor--can be broken down into smaller, discrete units of ownership eventually, much like what happened with Ma Bell. On the other hand, places where this can't be done--health, education, and the like--do require the state to step in, but only if the population believes that the individual has a right to those things.

The emphasis on the environment in this article and in "The Market Is Not Enough" sidesteps the general agreement that people in general become concerned with environmental safety when their basic needs are met and they have profited enough to gain time and energy to consider the issues. Environmental justice isn't something the truly poor think about--it requires a majority, or at least a very vocal and powerful minority, to speak up and push any sort of "progressive" agenda on environmental rights. Areas experiencing a surge of interest in environmental health are areas that have had enough growth to make the interest feasible. They may have suffered from environmental damage, but they most assuredly profited off of it in a wide scale, too. Additionally, the dichotomy of environmental health versus economic growth is a false one. Even if entrepreneurs within the country do not have the capital to invest or a labor supply with the required skillset to employ, the government can always do the dirty incentive tango to draw companies dealing in the environmental industry, which provides employment.

Murdoch and the Dow Jones (Plus the Wall Street Journal)

I've been hearing about this for weeks now, and I find it both terrifying and intriguing.

Rupert Murdoch, owner of News Corp. (which is nearly everything news related), put out a $5 billion dollar bid for Dow Jones. That means The Wall Street Journal. That's a lot of news in the hands of one man. So far the family that owns the WSJ has held out against the buyout, with 52 percent of their shares in opposition to Murdoch's offer.

Here's the Times on it, as well as the WSJ itself.

Why the Critic Is (a bit) Wrong [May 15]*

I found the latest chapter of Wolf’s Why Globalization Works to be pretty interesting reading. I’ve read two of Naomi Klein’s books, including No Logo, and been curious about what critics say. Now I know, at least, what Wolf thinks.

I agree that much of the “common knowledge” research reported on MNCs is pretty bogus, including the top 100 economies business. On the other hand, I think Wolf plays a little game with the rhetorical trap of reductionist argumentation as he goes into the second part of his argument, analyzing claims of brand tyrrany.

Yes, we all have a choice. That’s the fun part about shopping for clothes. But think of it this way: as a child, you have a choice between the in-group and the out-group. More than likely, especially in grade school, you badly want into the former, and would very much like to avoid the latter. The way into the first? Dress right. By “dress right,” it’s meant that your style match the in-group’s. What are they wearing? Well, at least for a while, it was Hilfigger or whatever derivative mess. So, you can choose. In-group, or something else – different brand, no brand, whatever. Yes, there is a choice. On the other hand, the brand name choice doesn’t always boil down to what product you’re buying, but the lifestyle you want to present yourself as having, and the social options that opens (or closes) to you.

That doesn’t mean you’re buying things you actually loathe and somehow you’ve blinded yourself to that—though I have met people who buy these brand names for the above reasons but privately confess to not really giving two cents either way. There is to a small extent some mutual coercion going on, or companies wouldn’t hire individuals to trawl forums and post up supportive messages, nor would they hire advertisement agencies who use “viral marketing techniques” to disseminate favorable information on products along formerly trusted person to person channels. That doesn’t mean people still don’t have the power of choice, but one should be honest about the real choices being made. Brands don’t give companies control over consumers; companies could only wish for such influence. Brands do, however, exert a powerful image, for the better or worse when it comes to the company’s bottom line.

As an aside, I’d be curious to read what Wolf keeps sourcing when he talks about the Brent Spar platform. I’d like to know if it really would have been safer over all to let the whole thing molder away in the ocean.

Wolf’s talk on FDIs “exploiting” small governments makes me think of what I mentioned in class last Thursdays. No matter what Wolf says about the power countries have versus the power companies have, it’s indisputable that companies do have a lot of political power. Otherwise the pharma lobby and the agricultural lobby in the US wouldn’t have such sway, and it would be highly unlikely that a policy like TRIPS would be holding less developed countries back from making much-needed medicines (plus, generic brands here would pop up much sooner, too, for those among us suffering the high cost of living while sick). Yes, many of these negative outcomes, including narrow EPZs, are the acts of government, but they’re the acts of government responding to what seems to attract companies to plop down much-needed factories. Are these governments necessarily the most stable in the world? No. But nor are they always the most egregiously unstable. Many of the complaints critics make might be better aimed at the governments making the poor choices contributing to some of the conditions they rail against; I think it’s those conditions, which Wolf admits, that really need to be considered—but the fact that much of the issues stem from (I hesitate to write it, but…) poor government decision making rather than direct corporate action doesn’t mean critics’ claims are as simple to dismiss as Wolf keeps making them out to be. The aim is crooked, but the thoughts aren’t all totally bent.

Usually I agree with the idea behind “Don’t let perfect be the enemy of good.” However, I’m not at all convinced by Wolf’s argument about working conditions. Okay, so these foreign investors treat their workers slightly better than domestic companies. That’s nice. That’s not good enough. I won’t trifle with the wage argument; I don’t really have a quarrel with what people are being paid. What ethical treatment concerning workers consists of doesn’t change from country to country based on working conditions. That’s a relativist argument where there should be none. In Country A, you work your 12 hours a day in a factory, have lunch in the middle, get a pat on the back and a check at the end. In Country B, you work your 8 hours a day in a factory, maybe allowed to bring food in with you to eat as you work at midday, are forced to work overtime for pay or not, get a punch in the stomach and a check at the end. In Country C, you work your 12 hours a day in a factory, may or may not get a lunch break in the middle, and get a slap in the face and a check at the end. (If you can’t tell, these are totally fabricated examples.) Most people would seriously consider A the best of all worlds here, but if you had the choice between B and C, you’d definitely work C and call that the better job. No one would disagree, really. That doesn’t change the fact that the slap is wrong. Foreign direct investor companies should be held to the same labor treatment practices everywhere (and I’m still not talking about wages, that’s a whole ‘nother kettle of fish).

And that’s all I have to say about that tonight.

The Dollar

Something that came to mind while thinking about the global reserve system's effect on the dollar (and visa versa). I read Eric Schlosser's Reefer Madness this summer during my tour of the US for the JASC conference. An interesting point it brought up was the possible effect of the 500-euro note in the unofficial economy--the ever-popular $100 bill we see in neat stacks in the briefcases of movie criminals may soon be replaced with that 500 note, which is a tidy store of value. The excerpt can be read here.

Meanwhile, the ever-present talk of airlines and Boeing make me want to watch Casino Royale again.

Venezuela and others [May 10].

So, of course we've already talked about Venezuela's pending withdrawal from the World Bank and the IMF, but the Stiglitz reading really makes it relevant. Venezuelan Finance Minister Rodrigo Cabezas that there is absolutely no question that Venezuela will honor its debts, and of course bondholders will not rashly pull out as soon as the country breaks away from its international lenders. Well, Venezuela did pay its debt back early in 2006, so it seems like there's a good case to believe them here. On the other hand, they've also negotiated to reduce repayment before using the spectre of default, and this time, again, around $21 billion is at stake because of President Chavez's announcement, a not at all insignificant amount of money.

I always get the giggles when I find online articles from the 90s; here's one on the bailout situation in South Korea in 1997. The article details the strict policies IMF forces on borrowers, including the old-school classical practices of reduced government spending and higher taxes. Something interesting to note is that at the time, unemployment was only 2.5%, a figure we could only dream of--and the IMF's policies threatened to drive it up to 7% (that's only a little less than half the unemployment that led to the premise of Koushun Tamaki's 1999 novel, Battle Royale. How much effect did the economic crisis have on the creation of that work?).

Another point mentioned in Stiglitz: debt relief for Iraq. Interestingly, Saudi Arabia has written off around 80% of the $15 billion Iraq owes them; now we're in the symbolic paper-signing stages of additional debt relief, as well as whatever concessions anyone can ring out of the country. One individual from the omniscient Rand Corporation is quoted as saying that this agreement doesn't matter, as Iraq isn't currently paying back debts anyway--unsurprising, considering it's still an occupied nation with all sorts of violence still happening on its soil. Perhaps when it can manage a stable flow of crude oil out, it will be able to take advantage of some of that debt relief (though relying solely on oil could probably prove calamitous for them, what with the ever-shifting value of it).

An article from Reuters on Stiglitz offers his criticisms of the IMF and the World Bank in a nutshell; Europe needs to stop appointing the head of the IMF, and the US needs to stop appointing the head of the World Bank. The Wolfowitz debacle, according to him, is just one more log on the fire.

Yesterday, the Prime Minister of Macedonia announced that his country will be paying back its debts to the IMF early, which could save it up to $9.4 million this year alone, according to the article. It's interesting that the IMF, whose nominal goal is to help countries develop with repayable loans manages to lend in such a manner that debt accrues through that compound interest. Of course, on a scale of hundreds of millions to billions of dollars, such a burden metastasizes rapidly, and is only worsened by any whiff of crisis that causes all the fluid capital to flow out as through a bottomless bucket.

Another comment on service industry and technology.

I'm sure Mr. Ramirez can work from home by playing baseball online with the X-Box. Which begs the question: why not just hire a thumb-jockey in India to play baseball for your team instead? He won't ask you what the A button does.

Pray this doesn't become the cinematic manual your employers follow when they want to make sure they have a lean, mean workforce.

FL [May 8]

I keep saving things as drafts instead of punching publish. Woops! Gotta stop that.


The Eichengreen article was interesting to me as someone who hasn't studied monetary exchange or bases much. From the start, I assumed the greater role of the hegemon in creating and maintaining an international monetary system would be more stick than carrot; it was interesting to note that very little of the stick approach came up in the case studies later. Mostly it was advantages to systems and side-payments. Of course, in an organized system, I still think that the hegemon's main role is to provide a credible threat to reduce the probability of less powerful countries defecting. It seems necessary that one great power, whose costs of carrying out the threat are or seem to be relatively lower than anyone else's cost of doing the same, be the one to maintain order. Any benefit, in my mind, should be something as a result of the system of exchange itself, rather than something the hegemon would be expected to maintain at a cost to itself (even if the long run returns are greater than the short run costs).

I am curious whether the hegemon's market power must exceed all "rival" countries' power together or individually/regionally. In the former case, this would create rather powerless dummies, while in the latter, the system may be slightly more collaborative. The Bretton Woods case seems to bear out the latter pattern of dominance; Britain, despite being weakened by war, still had significant influence over the formation of the IMF, even though some of their desires ran counter to what the dominant power (US) wanted.

The concept of the hegemon's influence and ability to maintain stability being something that decays over time was interesting; it seemed to me that the Krasner article didn't really discuss the issue of change, and the patterns of hegemons he set up seemed to be conceptualized as permanent. Obviously, the power equilibrium changes. Though, I think it's important to note that economic growth rather than economic collapse seems to be the more profound undermining force.

As a follow-up to my thoughts on copyrights, the encoding on the HD - DVD format has been broken. You can find the code all over the internet--all 32 digits of it. The NYT has some of the story of how Digg resisted; is it a backlash against lawyers or censorship?

And as for Cohen's writing on the Triad: all I have to say is that no one should expect any country to actively maintain an agreement that costs the country more than it benefits. Any alliance is null once it's no longer useful, and that's basically what G-7 cooperation agreements are. It's unfortunate that trade-offs must be made, but if the best alternative to a negotiated agreement is higher for a given country, it's naive to blame the regime that chooses noncooperation (after all, choosing the less beneficial option would be kinda irrational). Not to imply that regimes always make the most rational choices; we'll see how Mr. Chavez's game plays out in the years to come.

Stiglitz, Chapter 4 [May 3] (Now with 1 less error)

It's not surprising that I found this chapter particularly interesting. Anything about intellectual property turns my head, from vintners fighting over trademarks in naming new wines to Myriad's rather fascinating licensing policies. Professor Harris's Biopolitics class actually goes through much of the back material regarding patent pools and compulsory licensing when it comes to these medical advances, so I was already at least somewhat familiar with the issues here.

With stats like this [2005], it's simple to see that pharmas do have a serious influence on Congress. On a personal note, I'm glad to see that Sen. Frist is mentioned here (why yes, I did just link to that unimpeachable academic resource known as Wikipedia). The former Senator had the honor of representing my state for quite some time, and I have the much reduced pleasure of being related to him. And if all vote-buying nights are as vicious as this, I'm sure the pharmaceutical industry will keep its influence for a long time. I certainly can't say I'd definitely have the stomach to resist that treatment.

Going on a tangent from Singer's scarce mentions of copyright here... While not nearly as important as the abuses going on with patents and how that's costing people their health and their lives, I think copyright is a vital subject to go over, even--especially--on the international scene. I'm sure our CTO agrees, as the university gets letters from the RIAA on a regular basis, and has had to resort to blocking otherwise benign file-sharing software like BitTorrent and (is it true?) IRC. And then there's Google's online library debacle; this article examines Microsoft joining the dogpile action there, possibly aiming for some favor among publishers taking the digital route AND strengthening the anti-Google coalition. Part of the whole problem is that so few people know exactly what Google is doing--many think they do, while others know they're at least half in the dark. Does Google even know? The RIAA has interesting tactics it uses when dealing with "thieves," including threats, harassment, leaning on ISPs to provide data, supporting illegal and harmful DRM software (hi, Sony!), and eliminating sites promoting their hot money-makers. Nevermind the effect of Warner trying to censor Dean Gray's mashup of Green Day's (get it?) "American Idiot" album, "American Edit." (By the way, American Edit is a fantastic album, and, in my opinion, far superior to American Idiot.)

That's more or less what my thoughts are a day after reading Chapter 4. I'm sure there will be more to come later.

Singer

I was rather interested to note that Singer totally dismisses inequality in incomes as a non-problem. Last term, I was in Prof. Eastwood's Social Revolutions class, where a couple of the points we discussed time after time was the domestic political instability rooted in classes with inequal incomes. Revolutions like the Glorious Revolution, the French Revolution the Russian Revolution, and even to an extent the Iranian Revolution of '79 came after relative periods of economic prosperity (though the policies the Pahlavi Shahs put forward in Iran came at the cost of an unstable, externalities-dependent economy) where income brackets may have even begun moving closer together. While Singer was undoubtably thinking of incomes moving apart, this too plays a role; "economic crisis" is one of the precipitating factors in several theories of revolution. Incomes previously moving closer together move apart... And something like envy rears its green-eyed head. While this doesn't cause revolutions, it is a contributing factor.

Globalized Justice

In this post, Sante raises an interesting question regarding internationalized justice, and Professor Dickovick brings up Pinochet in comments below.

If it were possible to try ordinary citizens of other countries for commiting crimes against your citizens, why not members of foreign governments, as well? It would be a blow to diplomacy in international relations' current structure; what kind of changes would it take to if not eliminate the global tension that would generate, then lessen it?

Q&A, Wolf, Stiglitz, Singer [April 26th].

Carriage returns are when you skip to the next line using enter (or, like on the older keyboards, the return key). In old blogger, you had to use HTML, or your nicely spaced entry would turn into a wall of text.

A note on Jon Stewart's Interview with Friedman on The World Is Flat: that might not be such a radical idea. After all, the economic concept of the production gap between more developed nations and less developed nations states that the latter's growth rates will necessarily be higher (at least, in many cases) than those of the more developed nations, leading to a serious game of catch-up. If that has already more or less happened across the board (leaving out, say, the land-locked African nations), then the world is flat.

I was interested in Wolf's discussion of information asymmetry in Chapter 4; he lists as an "upshot" of principle-agent clashes in corporations the vulnerability of corporations to "managerial incompetence, self-seeking, deceit or malfeasance"; while this is to some degree true, these companies are often pushed out of the economy only after they've done massive damage, like Kenneth Lay's Enron scandal. Sure, the company is doing some measure of repayment now, but it's hard to say how much damage the scheming that went on did to individual investors and those affected by their creative energy policies. Along those lines, Wolf admits that getting rid of unhealthy competitors means the government needs to back off on bailing these companies out--that means fewer subsidies, as hard as that is for people whose livelihoods depend on them. Supporting failed industries weakens the collective market.

It's also information asymmetry that allows college graduates to make more money on average than laborers with no more than a high school degree or GED.

On to Stiglitz; I have to admit, all I know about Mumbai comes from emails desperately soliciting assistance with bank accounts, which is to say there are many rich widows and widowers over there. But the contrast of the events in Mumbai and Davos (as described by Stiglitz) was interesting, and the results not uncommon. I have taken classes where the blame for any harm caused by globalization is placed squarely on developing countries, and read books by "paranoid" authors like Klein who place the blame on complacent consumers and greedy corporations, and sat through lectures exhorting the necessity of 100% participation from all parties in order to even out the playing field and share the benefits of this flattening world with everyone. Though Stiglitz doesn't say so in this first chapter, the implication on page 8 about perceived wellbeing is that believers in globalization's success are, at least in part, relying on GDP to support that idea. GDP is not and never has been an indicator of individual well-being. It is simply too broad to allow that use.

Both authors agree that it is absolutely necessary that trust be developed--trust of the people in regards to each other and the government, and even the government's faith in itself to work properly; this implies, as Stiglitz points out, that a change in mindset is necessary. The U.S. has strong property rights for hard and soft assets (including ideas), which encourages investments; developing countries must develop the same if not equivalent rights and protections and shed the corrupt systems and bureaucrats that lead citizens to operate a market beyond the government's purview. And, finally, according to Singer's thoughts on the Golden Straitjacket, the government really must trust itself enough to shrink the bureaucracy as a whole and keep its hands out of the market.

Testing

Grand opening.

Do we have real carriage returns now?

Something interesting.