Globalization

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A

"All in the familia," The Economist 4/21/2001

Sarah Anderson & John Cavanagh, “Ten myths about globalization” The Nation 12/6/1999

1. increased trade means more jobs at higher wages – look who loses jobs – NAFTA cost jobs in electronics and textiles – textiles employes women and people of color
2. as trade spurs growth, governments invest more in environment
3. FDI raises living standards – need labor protection
4. free trade is consumers’ best friend
5. globalization lifts all boats - inequality
6. what’s good for GM is good for you
7. It OK for sweatshops, that’s how the US developed
8. Immigrants are a drain on US economy
9. trade equals democracy
10. superior productivity will protect US workers from globalization

 “Anti-capitalist Protests: Angry and effective,” The Economist 9/23/2000

• WTO ministerial meeting in Seattle 11/99 –
• Had some impact – Starbucks will import “fair trade” coffee beans /
• World Bank now describes poverty as powerlessness, voicelessness, vulnerability, fear plus economic…  

"A voice for the poor," The Economist 5/4/2001

Charlene Barshefsky, “The middle east belongs in the world economy,” NYT 2/22/2003

• when people criticize IMF and WTO for fairness, sustainability, and balance between growth and social reform, they miss real advantage of trade – stable peace
• Middle East countries have small level of non oil trade with US, most not in WTO that has 145 members
• In 1980 the Muslim countries controlled 13% of world exports – today it is 3%

Nick Beams, "Globalization: The Socialist Perspective," World Socialist Web site 6/5/2000

Jack Beatty, "Do as we say, not as we do," The Atlantic Monthly Feb 2002

Jagdish Bagwati, “The capital myth: the difference between trade in widgets and dollars,” Foreign Affairs M/J 1998

• ·        capital flows characterized by panics – this is difference

• ·        SA devastated in 1980s, Mexico in 1994, Asia in 1998

• ·        Also look at track r4ecord – Kapan, China no convertability, Europe protected after WWII

• ·        Why moving toward globalization – ideology – power of markets, lack of confidence in G

• ·        Wall-Street Treasury Complex

Jagdish Bhagwati, A Moral imperative, Unesco

1. globalization is buzzword – battleground for two groups – ant-globalists (amoral) and globalists
2. it means freeing of trade (benign), freeing of capital (not benign), victory of capitalism over communism (bad for those who look for alternative to capitalism), inequality and slow growth ()

“Bridging the Globalization Gap” Foreign Affairs J/F 2001

Titles

1.      The Great Divide in the Global Village

• Mainstream economics says globalization is good – but evidence is different – world looks more like a gated community rich countries keep immigrants out and agriculture in – Washington consensus is markets will work OK – need institutions – look at what mobility can do – US and Europe inequality diminish after 1880 in US – but before it widened – capital –most not go to really poor – look at N & S in US – 1780-1860 – S declined – immigrants not want to go there – voter intimidation, segregated housing, very unequal schools – south in 1860 – development hindered by death rate – where high in tropics not value life  - not protect property – colonial era followed by “liberation” – loss of capital – human capital was HUGE – modernization and structural change threaten power elites – demorcy not adewquate – sovereignty allows us to rig the rules and allow abuse of people in poor countries- need institutins for poor countries  - European history not one of free markets – was mercantilistic – like Asian success stoies – Europe’s success was political – strong state and competition among states – malarial climates, acces to markets, unchecked population growth – BIG problems

2.      Will the Nation-State Survive Globalization?

• “A spectre is haunting the world’s governments – the spectre of globalization.” Some say it weakens govt for good – others say it weakens govt for bad – globalization means the irrelevance of national broders and distance  - immigration peaked in 1890s – increased US pop by 9%, Argentina 26%, Australia 17% - UK gave up 5%, Spain 6%, Sweden 7% - in 1990s only US – 4% increase – change in composition of capital flowes – types of industries - - TTM- globalization is not technologically determined – it is policy determined – on taxation – national governments look more like states – be careful with taxes  - will see change in types of taxes – in what we tax – states matter – must provide public goods – laws – private property -

3.      Are Human Rights Universal?

• Two dynamic elements – globalization and individualization

4.      The Spirit of capitalism

• “The triumphant religion of the twentieth century was not Christianity or Islam but economic growth” ..But now a consensus seems to have emerged. Free trade, free markets, and international investment are the intellectually anointed paths to prosperity.  Communism and socialism are definitely out.” Reaity is different – many areas not succeed – 1999 conference at Harvard – Culture Matters was a resulting book – some cultures are more accepting of growth – need to support work ethic, - in Asia strong families supplanted law that were key in west – this is where trust was - - Asia outgrew the system – crony capitalism

5.      Toward Global parliament

• The Question of hegemony
  New Wilsonionism – hegemonic power – belief in us being right – hegemonic power always breeds competitors – lok at 100 years ago – seemed peceful world run by UK – dominated by European empires

Justin Brown, "The Clinton Patter: Trade First," Christian Science Monitor 11/19/1999

Raymond Carroll, "The global disease crisis: What is America's role?," Great Decisions 2001

"Cancun's charming outcome," The Economist 9/20/2003

Challenges of the Global Century: Report on the project on globalization and national security,” National Defense University 2001

• globalization has pluses (creates wealth, promotes communication, stimulates technological innovation, rewards good governance, creates new markets, encourages multilateral cooperation) negatives (widening income gap, painful social upheaval, financial instability, facilitate growth of crime and mass-destruction weapons, it does not stop wars, reverse long-standing hatred..)

Amy Chue (Globailization colloquim 9/30

• For over a decade now, the reigning consensus has held that the combination of free markets and democracy would transform the third world and sweep away the ethnic hatred and religious zealotry associated with underdevelopment.  By contrast, based on her New York Times bestseller World on Fire, Yale Law School professor Amy Chua will explain why many developing countries are in fact consumed by ethnic violence after adopting free market democracy.
  
  Chua shows how in non-Western countries around the globe, free markets have concentrated starkly disproportionate wealth in the hands of a resented ethnic minority. These “market-dominant minorities”  -- Chinese in Southeast Asia, Croatians in the former Yugoslavia, whites in Latin America and South Africa, Indians in East Africa, Lebanese in West Africa -- become objects of violent hatred. At the same time, democracy empowers the impoverished majority, unleashing ethnic demagoguery, confiscation, and sometimes genocidal revenge. She also argues that the United States has become the world’s most visible market-dominant minority, a fact that helps explain the rising tide of anti-Americanism around the world. Chua is a friend of globalization, but she urges us to find ways to spread its benefits and curb its most destructive aspects

Amy Chua, “A world on the edge,” Wilson Quarterly Autumn 2002

• Three most powerful forces today – markets, democracy, ethnic hatred
• “Market dominant minorities are the Achilles’ heel of free market democracy.” – and as democracy spreads it gives voice to the downtrodden majority who see markets as way for US to get wealthier
• globalization binds free-market democracy with ethnic violence
• “Togethe, markets and democracy will gradually transform the world into a community of prosperous, war-hunning nations, and individuals into liberal, civic-minded citizens and consumers.”
• Ethnic minorities often come to control the symbolic resource – oil, diamonds…
• Three types of violence – minority against markets (Zimbabwe), majority against markets (Sierra Leonne – no citizenship for whites..), majority against minorities (Bosnia)
• The income inequality is not a class thing, it is an ethnic thing

“Cloed borders and open palms,” The Economist 9/9/2000

• Corruption and trade are related – but what is causality
• Study looks at ‘natural openness”

Connoly & Gunther, “Mercosur: Implications for growth in member countries,” FRBNY Current Issues May 1999

• Established 1991 (Argentina, Brazil, Paraguay, and Uraguay)
• Pushed regional trade at expense of international trade

Cletus Coughlin, “The Controversy Over Free Trade: The Gap between Economists and the General Public,”  St Louis J/F 2001

• economists more supportive
• why economists support trade? – trade has many beneficial affects on nationspecialization, economies of scale, exchange of ideas, spread of technology, reduce power of companies,
• 1817 – Ricardo – England and Portugal
• Hechsher-Ohlin theory – after trade there is equalization of prices of goods and factors – see political conflict as income redistributed
• Stopler-Samuelson Theorem – trade benefits country’s abundant resource and hurts scarce one
• Empirical results – tdae barrier reductions would be gain for US, faster growth where trade is more open
• Findings on trade policy and antitrade behavior
• Protection higher when industry is labor intensive, when low-wage, low-skill industry low wage workers hate trade – result from Stopler-Samuelson
• Why Americans not supprt trade – care about transitional costs, care about unemployment, care about sweatshops, care about environment,

“Dangerous activities: Trade disputes,” The Economist 5/11/2002

• 2 months after terrorist attacks 142 countries agreed to meet in Doha for new round of multilateral trade negotiations
• March 2002 US imposes tariffs on steel  - also getting ready to sign farm bill

Peter Daniels, "New York City police crack down on World Economic Forum protests," World Socialist Web site 2/9/2002

Dopubts inside the barricades," The Economist 9/28/2002

Charles Engel, “Are we globalized yet,” FRBSF 11, 19, 1999

• Price differentials still persist

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Feldstien…”Is America’s large and growing trade deficit economically sustainable?

• It is a gift to US – it will stop. It reflects strength – I opportunity for rest of world, build-up of debt eventually catches up with US

Victor Ferkiss, “Globalization: myth, reality, problems” America 2/19/2000

• ·        globalization not new – Roman empire, 15^th century Euopean expansion

• ·        1900 – foreign born = 14% of US population, today = 8% / IMF says capital movements below what they were in 1880

• ·        free market is economically and socially destabilizing – bring on inequality, environmental damage, loss of control of nation’s own destiny  - fundamental gap between economic power and regulatory power

Ted Fishman, "Global Roulette: In a volatile world economy, can everyone lose?," Harpers June 1998

“Fifty years on,” The Economist 5/16/198

• table – history of WTO
• GATT birth – 23 countries
• 1949, 1950-51, 1956, 190-62, 1964-67 (Kennedy), 1973-79 Tokyo, 1986-1993 Uruguay
• 1995 WTO
• Telecommunications agreement

“Foreign Born in US at Record High” NYT 2/7/02

• 56M, in 1910 foreign born = 35% ofpop, in 2000 they are 20%
• concentrated in CA,NY,FL<TX,NJ, an IL

Thomas Friedman, “The five myths,” NYT 10/27/2000

• five myths about China
• main threat to China’s rulers is students – will be workers and farmers
• internet will promote democracy –
• internet will not promote democracy in China –
• every chineese youth is building a statute of liberty  = they believe in nationalism
• natural successor to communism is Jeffersonian democracy –

Richard Gardner, "The one percent solution," Foreign Affairs J/A 2000

Geography and economic development

Globalization and its critics,” Economist 9/29/2001

• profits over people – strongest case for globalization – liberal one – people get freedom – turns pursuit of profit into engine of social progress
• industrial revolution was painful
• increasing inequality – trade or technology?
• grinding the poor – trade does promote growth – seems to be result of econometric studies why some see it as a bad? 1. too many poor countries enter trade will push down prices. – export oriented growth usually large since it brings structural change and new products
• alternative was import-substituting industrialization – not work – corruption tends to breed in closed economies – no competition
• is government disappearing – look at the tax/GDP data – remains high in Europe – evenb in open economies (Sweden and DK) – if it creates productivity then it will be OK – see it as a brake on oppression by government – globalization allows a country to tap into capital flows – people are not as mobile – countries adopt a gGolden straightjacket – why everyone moves to the center – narrows political and economic choices
• a plague of finance Washington consensus – John Williamson term from 1989 – fiscal discipline, privatization, deregulation, competitive exchange rates,  - the banks are too big to fail so they get policies to help them
• who elected the WTO?

Griswald (Cato) “America’s Misunderstood Trade deficit.” (in trade section)

• Trade deficit has nothing to do with trade policy S – I = Ex – Im – link is exchange rate
• Look at Germany in early 1990s – rebuild East – funds stayed home – reduced supply abroad – higher price – lower exports – result was trade surplus became trade deficit
• Enduring myths
• Unfair trade barriers cause trade deficits
• America is losing its competitiveness
• Trade deficits mean lost jobs -
• Trade deficit is a drag on economic growth  

Keith Hammonds, "The new faces of global competition, Fast Company Feb 2003

"Horror stories," The Economist 3/15/2003

"Is globalization doomed?," The Economist 9/29/2001

"Is it at risk?," The Economist 2/2/2002

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Paul Krugman, “The myth of competitiveness,” Harpers Jun 1994

• Difficult to define competitiveness of a country
• Deficits may be sign of strength – others allow you to borrow money

Kurlantzick & Allen, "The trouble with globalism," US News.com 2/11/02

“Little countries: Small but perfectly formed,” The Economist 1/3/1998

• 50% of world’s countries have fewer people than MA – is small god when we believe in economies of scale?
• At outbreak of wwI there were 62 countries – today there are 193 – 87 with pop<8 mil
• There are regional alliances that help smaller countries

Federico Mayor, “Four Challenges for a new world” Unesco 10/1999

• Peace – needed to deal with other problems
• Inequality
• Environment – sustainable development
• Loss of control at national level – financial markets

Richard McCormick “Ten myths about globalization,” Vital Speeches 11/15/2000

• international chamber of commerce
• merchant of menace

1. globalization is a conspiracy bt big companies
2. globalization is concentrating power in hands of few corporations
3. globalization’s evil tool os IT
4. globalizationis companies without rules
5. globalization takes away jobs
6. globalization undermines cultural diversity
7. globalization lowers labor standards, turning developing nations’ workers into slaves
8. globalization is destroying the environment
9. globalization means BIG companies flourish

Akio Morita, “Toward a New Economic Order,” The Atlantic June 1993

• Wants to reduce trade barriers – to make globalization a creative, beneficial, positive force
• “All of us are paying for the mistakes of the past decade. As it turned out the 1980s was a bit like Alice’s decent into Wonderland.  The border between economic reality and fantasy was blurred. ..Roaring Eighties in US, Bubble Economy in Japan, and Europhoria in Europe
• need harmonization (market access, antidumping, antitrust, patent rights, environmental protection, free floating exchange rate

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Joseph Nye “Globalization’s democratic deficit” – Foreign Affairs J/A 2001

• “Globalization, defined as networks of interdependence at worldwide distances, is not new. Nor is it just economic – current backlash against globalization – hard to define democratic international institutions – one vote- one country – one vote one person – neither works – need transparency and accountability.

“Patches of light: Agricultural Trade,” The Economist 6/9/2001

• Anecdotes on tariffs – Japan’s tariff on rice ==1,000%, most grains avg 63%

"Picking up the pieces," The Economist 7/28/2001

“Playing games with prosperity,” Special Report: World Trade,” The Economist 7/28/2001

• GATT rounds (Kennedy, Tokyo, Uruguay and 1984 form WTO successes – but attempt to launch new round in 1999 got hammered in Seattle – now we see what happens in Doha
• Issues left over from Uruguay – services and agriculture /  Europe seems more concerned with the environment  (read GM food)

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  Stephen Roach, Cracking Denial, Global Economic Forum – Morgan Stanley 1/18/2002

• We need to get past denial
• In exprecession C increased rapidly – verry unusual, we took on debt, cashed out homes, aggressive price cutting = denial since happened with rising U and falling Y
• Denial in stock market – high ratios
• $ - why not fall with trade deficit?
• Globalization –
• “2^nd half of 1990s was a binge we will never see again”

• ·        “The principle of comparative advantage is one of the crown jewels of the economics profession.”

• ·        How much globalization is there? -

• ·        How much does globalization constrain national autonomy?

• ·        Does globalization exacerbate inequality? – abundant factors gain from trade

• ·        How significant are the benefits of globalization?

• ·        Are global governance structures adequate to deal with globalization?

Dani Roderick, How far will international economic integration go?  9/1/1999

• political trilemma international economic integration, nation-state, and mass politics cannot coexist
• we are less globalized then we think – borders and cultures and languages still matter – investment portfolios have an international dimension
• why borders matter – transactions costs including contract enforcement
• global integration can continue only if we do not have our own laws – sovereignty and trade are problem
• Friedman says – as you put on the golden straightjacket your economy grows and your politics shrinks – if we are truly globalized where there are no border effects then all counties have similar ta and regulatory structures – a world government
• Bretton – Woods era not really free trade – Africa and latin America were behind barriers, Asia did not play by modern WTO rules, Japan had own version of capitalism, special deals with agriculture and textiles
• Sees world government as likely our=tcome -

Tina Rosenberg, “”The free trade fix,” NYT Magazine 8/18/2002

• trade has not hurt the poor – it is a rigged system

Ross & Chan, "From North-South to South-South: The True Face of Global Competition," Foreign Affairs S/O 2001

Jeffrey Sachs, “Global Capitalism: Making it work,” The Economis 9/12/98

• “Since the fall of communism, Washington has aspire to stage manage the transition to global capitalism.”
• “America has wanted global leadership on the cheap. It was desperate for the developing world and post-communist economies to buy into its vision, in which globalization, private capital flows and Washington advice would overcome the obstacles to shared prosperity, so that pressures on the rich countries to do more for the poor countries could be contained by the dream of universal economic growth.”
• G 8 (begun by French in 1975 during oil crisis) = Canada , France , Germany , Italy , Japan , Russia , the United Kingdom and the United States = less than 1/7 of world’ population
• It is time for a G-16 – the majority of the world’s people ar enot well represented in the international organizations
• Need to forgive BIG debt
• World Bank should get in the business of getting info to poorer counties

Jeffrey Sachs, The geography of economic development Naval War College Review Autumn 2000

• advisor to Russia 1992-93, what went wrong with fall of communism? –
• globalization is dynamic process of economic integration  =  increased trade (X/GDP), capital flows (Suharto, Asia, China), economic production (car not American any more – or Japanese), increasing institutional harmonization of economic policies, legislarion, and structure.  = collapse of communism – WTO = make international law without international govt.
• Why now?
• World has tried all else- used to believe there were two ways close or open – Africa gobbled up in 18701890, India 1857, SE Asia in 1850s = this was world industrial system – after WWII the system began to unwind – India 1947, Indonesia 1948, Egypt 1952 – they did not jump to international system because they had been pawns in it – they need to develop to take on western powers – close down borders and control production “hard version – Bolshevickism, soft version – nationalization)  1/3 of world lived under hard version til mid 1980s, 40% under soft version – most went bankrupt – 70ish governments went bankrupt in 1980s and early 1990s – American model looked good
• Technological revolution and globalization – SE Asian countries tied themselves to US – became export center (as result of containerization) – model of success – others follow
• Geography of globalization – great inequality, - not random – distance from equator, proximity to markets (landlocked),

Bruce Scott, “The Great Divide in the Global Village,” Foreign Affairs J/F 2001

• What does traditional economics tell us =- convergence – but is it happening?  No = result of rich barriers to trade from poor + immobility of capital
• Washington consensus

“School Briefs: One world” The Economist 10/18/1997

“School Briefs: Workers of the world” The Economist 1/11997

“School Briefs: Trade winds” The Economist 1/8/1997

“School Briefs: Globalization” The Economist 1997

• Forces creating globalization (technology and trade liberalization
• Comparisons with previous globalization – less capital mobility, less labor mobility

“School Briefs: "Bearing the weight of the world” The Economist 10/18/ 1997

Schroeder & Aeppel, "Skilled workers mount opposition to free trade, swaying politicians," NYT 

Peter Schwartz, "The G-8 summit in Genoa: Illusion and reality," World Socialist Web site 7/25/2001

“Should we be concerned about the current account? Chicago Fed Letter 4/2000

• Congress actually set up a review commission in 1998 to examine impact
• Decomposition of current account
• Exports & imports
• Income account – payments of and to foreigners (ex: interest, profit)
• Transfers – private + official)

“Special report: The IMF – doubts inside the barricades,” The Economist 11/28/2002

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“Special report: World trade talks: The Cancun Challenge,” The Economist 9/6/2003

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Susan Steinberg, “Massive police operation at G8 summit in Genoa,” World Socialist Web Site 7/20/2001

·       Hidden fist allows the invisible hand ? the source of quote

Nicholas Stein, “No way out,” Fortune 1/20/2003

• Competition to make new products for western companies has revived an old form of abuse: debt bondage

 “Storm over globalization,” The Economist 11/27/99

• Trade grown much faster than output – world exports share of GDP rose from 8% to 26% of GDP from 1950 – 2000
• Why does trade policy have a hard time being supported (political (unions important in key states (WVA, PA< MI, OH), Congress divided, benefits taken for granted, losses easier to mobilize
• Lack of common ground between EU and US

Larry Summers, “Address to Senate panel on Developments in Global Economy,” 11/5/99

Larry Summers, “Reflections on managing global integration,” Journal of Economic Perspectives Spring 1999

• Extent of globalization – back to the future 1914-1950 = dark ages of globalization/ passport = 20^th century innovation  Brad DeLong compared earlier (low bandwidth) with today’s (high bandwidth – goods, services, capital..) – economic activity depends on social networks (trade between states will be greater than trade between countries of equal size and distance)
• Case for globalization – “Fundamentally the case for free trade is the case for the market system.”  Show up in efficiency, growth, wages…found 1970-1989 convrgence among open countries – no convergence among closed “economic integration bring political stanbility – Friedman – no way between countries with McDonalds.  – look at Europe after WW II
• Economic integration trilemma = problems with greater economic integration, proper public economic management, national sovereignty – easy to get two – today governments try to manage economy – not so under gold standard in late 1800s – today governments have accepted more responsibility for economy -
• Policy implications of increased integration
• Special role of US as superpower -  

“Survey of Globalization: Globalization and its critics,” Economist 9/29/2001

• case against globalization is it is force for oppression, exploitation, and injustice.” Poverty breeds terrorism and globalization breeds poverty –you connect the dots. – case for globalization – is liberalism – people pursue own interests – and technology allows more info and ability to act – believe markets civilize the pursuit of profit
• profits over people – strongest case for globalization – liberal one – people get freedom – turns pursuit of profit into engine of social progress – most of US FDI is in other wealthy countries
• industrial revolution was painful
• increasing inequality – trade or technology?
• Look at technological change and trade as similar – both allow more ‘stuff’ for a country
• Evidence is that FDI is mostly between advanced countries
• FDI is accompanied by increased exports – but of intermediate goods
• We will get increased inequality – favors skilled workers (same from trade as tech change)
• grinding the poor – trade does promote growth – seems to be result of econometric studies.  
• why some see it as a bad? 1. too many poor countries enter trade will push down prices. – export oriented growth usually large since it brings structural change and new products. 2. no spread effects of FDI. 3. no power to labor so it is bad for workers
• alternative was import-substituting industrialization – not work – corruption tends to breed in closed economies – no competition
• problems with import substitution (1. once industries established it is difficult to let them go. 2. corruption
• is government disappearing – look at the tax/GDP data – remains high in Europe – even in open economies (Sweden and DK) – if it creates productivity then it will be OK – see it as a brake on oppression by government – globalization allows a country to tap into capital flows – people are not as mobile – countries adopt a Golden straightjacket – why everyone moves to the center – narrows political and economic choices – Dani Roderick sees globalization as lowering countries’ ability to offer social services
• a crisis of legitimacy – Golden Straightjacket – policies to convince capital to stay there – taxes, regulation, privaization, balanced budgets.. people are fed up with government because of two trends – liberals say globalization makes me do it – believes there is no regulatory race to the bottom – bad officials use globalization as excuse for bad policies – there is some buck passing
• a plague of finance – the Washington consensus – John Williamson term from 1989 – fiscal discipline, privatization, deregulation, competitive exchange rates,  - the banks are too big to fail so they get policies to help them – foreign capital comes at a cost – FDI – better – but the profits will be returned  - borrowing can be destabilizing – Latin America in the 1980s
• who elected the WTO? – it is too secret – it takes politics away from the locals – it is intergovernmental and not supragovernmental – intellectual property rights works against the poor
• A different manifesto

“Survey of Globalization and tax: The mystery of the vanishing taxpayer,” The Economist, 1/29/2000

·       The mystery of the vanishing taxpayer

·       A brief history of tax – interesting – source of taxes – wealthy escaping military service

·       Net losses

·       The happy e-shopper

·       Gimme shelter

·       To victor the spoils

·       Getting personal

·       You pluck, we hiss

“Survey of World Trade: Where next? The Economist, 10/3/98

·       Time for another round – 50 year anniversary of GATT – not well received – concern that downturn would bring back the protectionists

·       Why trade is good for you – comparative advantage – when is protection ‘good’ = strategic trade policy (economies of scale = civil aircraft, autos, semiconductors)

·       Border battles – be careful with historical data – tariffs in US – declining % due to inflation since they were tied to volume (1930s-1950s)  US tariffs – trucks =25%, peanut butter =132%, similar in EU – in Uruguay Round began to move textiles off multifibre agreement – off by 2005

·       Trade by any other name – FDI – there are different rules here – not quite open / this is where you get competition in services (need to set up operation in country = telecommunications, finance..)

·       Commerce and contestability – once open borders – need to worry about competition

·       Alphabetti spaghetti – growth in regional trade associations

·       Turtle wars – WTO takes away ability to control one’s environment – WTO said US could not discriminate against countries using shrimp nets that catch sea turtles and EU concern over growth hormones

·       Brothers up in arms – do not use trade restrictions  to improve labor

·       The wages of fear -

·       Slow road to fast track

·       India’s hesitation

·       Seconds out

“Survey of the world economy: The future of the state,” 9/20/1997

·       The future of the state – threatened by technology and ideology  “1989 was to big government as 1929 was to laissez faire. / globalism pessimists and optimists – will capitalism and democracy coexist? One option capitalism kills democracy as social unrest rises or democracy strangles capitalism

o      “governments are confronted by to old enemies, stronger now than ever before, technology and ideology.”  “1989 did for big government what 1929 did for laissez fair.”

o      Pro globalization = efficiency, greater choice, less poverty

o      Anti globalization = unfair distribution from gains – social exclusion

o      Freedom and capitalism and freedom and democracy go together – do capitalism and democracy?

·       Spend, spend, spend – data on growth of spending – mostly after WWII – growth has been in transfers

·       Democracy at a price

·       The enigma of acquiescence – govt programs are mostly for middle class

·       Markets go global – depends on individal’s wants – in mobile world if we do not want redistribution then we will not have it – tax less mobile

·       Still in command -must tax less mobile factors – labor not so mobile

·       Ballad of the global worker – trade means more competition means higher elasticity of demand for workers means lower bargaining power of workers

·       Beyond the welfare state – govt must think about what it does – education – health - pensions

·       The future of liberty – govt tends to expand by seeking median voter, transfer seeking behavior, political self interest

“Survey of the world economy: Navigating in troubled waters” 9/25/1999

·       Navigators in troubled waters

·       A new economy for the new world?

·       Hubble, bubble, asset price trouble –

o      tend to happen in low inflation environments (low interest rates encourage it) – we have inflation in assets, but not picked up in CPI –

o      trouble with bubbles

1.     spill over into goods market

2.     CPI misses assets

3.     Affects decision making – business I high since looks like capital is ceap

4.     Bursting bubbles are BAD

o      Why central banks do not prick these bubbles

5.     Can’t tell how much of price is real

6.     No ‘weapon’ that can focus on this problem – only interest rates that have effect on real economy

7.     No political mandate

o      Two efforts by central banks to end asset inflation US in 1928-29 and Japan in 1989-90.  Enough said

o      Study at Fed Cleveland suggests that prices should fall in periods of great technological change and productivity increases – like 1920s- but FED trying to keep stable prices pushes $s into the system and this goes to buying assets

·       Living on borrowed time

o      Rise in debt/GDP ratio- rose rapidly in late 1980s then recession of early 90s it dropped – then started up again

o      Private setor has a financial deficit – saving too little for investment – and see that countries with highest runup in debt in 1984-89 had most severe recession

·       Dropping anchor

·       What’s your problem?

·       In a fog

·       Coming in from the cold

·       An endangered species – what will happen with e-money?  - some call for end of central banks – but they currently serve a useful purpose

“Survey of the world economy: The unfinished recession,” 9/28/2002

·       The unfinished recession Warren Buffett “It’s only when the tide goes out that you can see who is swimming naked.”  - we have a history of claiming the end of business cycles – recessions shorter, less severe, and less frequent – 1990s – overborrowing was the key driver – low inflation will make recovery slower since takes longer to work off debt – irony is IT that was supposed to smooth out economy has caused the volatility – globalization was also overrated as a stabilizer once economies getin sinc.  If central banks focus on inflation and ignore credit then we will get bubbles – and international capital flows will make them BIGGER

·       Of shocks and horrors

o      Three explanations for cycles

1.     Exogenous shocks – 9/11, oil prices

2.     Keynesian – instability of AD

3.     Real-business cycles – productivity shocks –

4.     Policy mistakes –Rudi Dornbusch once said postwar expansions not die of old age, they were killed by the Fed

5.     Austrian business-cycle theory – it is interest rates and capacity – rates low then AD increases –

o      How do you measure a recession?  GDP or relative to potential?  If it is relative to potential then US looks bad

·       Keeping a lower profile

o      Measures of how US econmy is more stable since WWII – and Europe and japan were even more stable – why?

1.     services

2.     better inventory control

3.     globalization

4.     bigger government

5.     automatic fiscal stabilizers

6.     discretionary fiscal policy

7.     better monetary policy ( when on gold standard the Ms fell in recessions and this created deflation – longer recessions)

8.     bank reforms – deposit insurance

9.     financial deregulation- easier for firms and consumers to spread out spending

·       1990s were different – in early 1990s US was in recession and japan and Europe OK – after that it reversed – so there was not BIG inflationary pressure

·       why 2000 recession mild in US? – monetary and fiscal ease plus housing prices plus strong growth in productivity – far below potential with positive growth

·       Weapons of mass distraction –

o      Belief in power of M&F policies have been over and underestimated

o      Fiscal policy seems to be less effective than it used to be – not because of monetary policy offsets, not because of savings swings (Ricardian  effect) but exchange rate effects – maybe higher G means higher exchange rate – higher imports with more capital mobility

o      If you look at GDP gap data you find that in 1973 the reported gap of –3% was revised to a +4% - suggests errors in measurement created Fed’s policies of expanding money supply

·       Japan’s lost decade

o      What happened? It looks like they did not use fiscal effectively – more for aid to well connected businesses and for wasteful projects – multiplier higher for tax cut than spending increase – feldstein – to get consumers spending eliminate sales tax temporarily..

·       A necessary evil

o      Are recession really all that bad – or do they serve a useful purpose – for restructuring (Schumpeter)

·       Bubble and squeak

o      ‘elasticity’ of credit expansion has increased (no gold standard and fed concern with inflation) – hard for Fed to raise interest rates with inflation low – Greenspan fell into believing the new economy

·       United we fall

o      Decline in dispersion in growth rates – sharp peak in late 19990s

o      Closer alignment of stock market indexes also in recent years

·       After the bubbles

“Survey of the world economy: Flying on one engine,” 9/28/2002

·       Flying on one engine

o      Sinc 1995 the US has accounted for 60% of growth in world output – it’s share of world is 30ish% - we have borrowed to buy – trade deficit – foreign central banks buy US govt debt – helps keep $ up and their exports cheap – saw run up in BOP deficit in 1980s – looks like Reagan – but it was BIG growth from japan and germany in late 1980s that saved recession

·       The price of profligacy

o      Maybe some of our numbers being wrong reflect poor stats – world runs a trade deficit – but could not be true.

o      At about 5% of GDP – a dangerous level -  IMF study showed between 1980 and 1997 25 episodes of current account adjustments show that after they reach 5% of GDP they tend to reverse – another IMF study found that since 1973 only 12 episodes where rich countries rank deficit for at least 3 years

o       

o      Why can US get away with this?

1.     return on foreign I in US has been low and falling

2.     The good news is our debt is not too large – but it will get large quickly – in 202=25% of GDP, could reach 60% within a decade

3.     a HUGE stock and bond market that are trusted.

o      Flip side is asset market – investors look for diversification and high rate of return – eventually the diversification will hurt US

·       Shrink proof

o      Hard to turn around US deficit – why?

1.     high US Mpimport (trade barriers in ROW, maybe immigration, maybe foreign supply growth,)

2.     MPI (US) = 1.8 and MPI (ROW) = .8 = look at what growth does to US BOP

3.     what will happen - $ fall – but maybe not work too well

·       much of complete price is transport… that is not affected.

·       foreign companies not raise price

·       inelastic demand in SR elasticity of exchange rate = .3

·       how much would $ ned to fall? Ranges from30ish% to 50ish%

·       Reaganomics redux

·       Many parallels between the two; rising D spending, tax cuts, deficits, rising trade deficits

·       Under Reagan the deficits soared as $ rose and US economy soared – Reagan ignored external deficit – by 1985 the story changed – protectionist mood – 1985 the Plaza Accord – drive $ down(America would cut its deficit, Germany tax cuts, Japan looser monetary policy = helped fuel bubble in Japan) – deficit shrank (help from foreign growth and depreciation) – by 1991 the US had a surplu

·       different from Reagan era – other countries weaker, US has more debt, bigger capital market, no country control over ECB, currency intervention less effective with large private capital flows

·       A pair of deadbeats

o      Can Germany and japan be reinvigorated? = 20% of world output

o      Problems = demographic challenges (pension time bombs), structural rigidities in labor and output markets,

o      Germany trend growth rate =1.5%

o      Far tighter macro policies – budget euro constraint and ECB

o      Japan – busted banks hurt by deflation – solution is rising yen to ‘clean house’ 

·       Oriental mercantilists

o      Rising foreign exchange reserves Japan $520B, China $350B, Taiwan 180…

o      Keep their currencies low, Europe bitching, US compaining – China has kept rate at 8.3 yuan to $ since 1994

·       Raising the barricades

o      China bashing is growing ; end of 2004 the Mutifibre Agreement is scheduled to expire – China will win / Bush being nice to China for war on terrorism

o      World should see increasing pressure everywhere for more protectionism

·       Leadership and luck

o      US must take lead – not go protectionist and take care of fiscal imbalance

o      Look at the numbrs tax cut, defense spending, medicare

“Survey of global finance: Time for a redesign?” 1/30/99

·       A time for redesign?

·       A wealth of blueprints

o      Control capital flows - Malaysia

o      Eliminate IMF – problem of moral hazard – certainly function changed over time – after Bretton Woods collapsed

o      Reform IMF

·       A stich in time

·       Pity the firemen

·       Fix or float?

·       From architecture to action

“Survey of global finance: A cruel sea of capital?” 5/3/2003

·       A cruel sea of capital

o      How can you be worse off if you open up economy to more choices? If you make choices you come to regret. 

o      Capital markets are more prone to bubbles (focus on expectations – and decisions made with limited information – Latin America in 1980s (lost decade), Mexico 1994, East Asia 1997-98 cause for concern

o      Trade in capital is different from trade in goods in two ways – in the scope of getting things wrong and the punishment

o      Trade in capital also involves another market – foreign exchange

·       Catching the tide

o      Why so little capital from rich to poor? 

o      England in last quarter of 19^th century exported capital =5% of GDP of host country – stopped in 1914 – never regained earlier flow – even in 1970s it was <1% of GDP

o      Very little known about capital inflows / openness and economic growth

o      Developed countries far more open to capital than developing counties

·       Hot and cold running money

o      Bank borrowing is risky – FDI not too risky

·       The trouble with banks

8.     Two problems with lending – adverse selection (only risky want $s) and moral hazard (once have $s you will gamble)

9.     Banks are good at dealing with these problems

10.  U and Britain use financial markets more than banks to allocate funds – Germany and japan use banks more – and it used to be viewed that these countries did better job of getting capital where it was best used

11.  In developing countries we see deposit insurance can lead to instability

12.  Asian crisis – before crisis up to 40% of borrowing went to stocks and real estate

·       Sudden storms

·       Safety first

o      Basel agreement of 1975 gave risk categories – countries = owest – so too much to risky countries

·       Shipbuilding

o      Corruption discourages FDI, nationalized banks increases volatility, foreign owned banks are like FDI

·       A slightly circuitous route

“Tangled up in textiles,” The Economist 3/30/2002

• Textiles since 1997 hurt much more than steel 55K vs 10K loss of jobs in 2001
• Multifibre agreement due to end in 2005

“The case for globalization,” The Economist 9/23/2000

• globalization can be stopped – and world poverty is BIG issue
• “globalization is the difference between South Korea and north Korea, between Malaysia and Myanmar…” 

"The challenge from up north," The Economist 3/17/2001

“The fall and rise of the global economy,” Chicago Fed Letter 4/2001

• Keynes description of Pre-WWI
• “What an extraordinary episode in the economic progress of man that age was which came to an end in 1914!   Life offered, at a low cost and with the least trouble, conveniences, comforts, and amenities beyond the compass of the richest and most powerful monarchs of other ages.  The inhabitant of London could order by telephone, sipping his morning coffee in bed, the various products of the whole earth… he could at the same moment and by the same means adventure his wealth in the natutral resources and new enterprises of any quarter of the world …  But most important of all, he regarded this state of affairs as normal, certain, and permanent…”

• what are driving forces in globalization – technology (transportation – containerization, air travel – moved to higher value/wt – IT – better trade in services and policy (Smoot-Hawley – GATT)
• graph of trade in US – back to 1900-/ Keynes quote on globalization at turn of century / Graph of capital flows (grown substantially since early 1920s)
• globalization driven by technology and policy  / drop in air freight and increase in value/weight of US exports / telephone call NYC to London 1930-1998 = $293-$.36 for 3 minute call

"The Cancun challenge," The Economist 9/6/2003

"The WTO under fire," The Economist 9/20/2003

The World Economy: A global game of dominoes,” The Economist 8/25/01

• it was a difficult time – world output declined for first time in 20 years, it was IT recession (why Asia exports hurt) – consumers kept things going (maybe why China continued to grow) – four forces driving economy south

• 1.      global IT bust

• 2.      collapse of stock markets (tech stocks have impact on spending)

• 3.      increased energy prices

• 4.      spillover from America’s downturn in Asia trade down in some areas 25-30%

"Unfair protection," The Economist 11/7/98

Weisbrot, Baker, Kraev, and Chen, The scorecard on globalization 1980-2000: Twenty years of diminished progress, Center for Economic and Policy Research

• looks at 1960-1980 vs 1980 –2000 to see what globalization has done

“When trade and security clash: Container trade,” The Economist 4/6/2002

• growth and distribution of container trade – map of trade patterns

• ·        1850-1914 – distributional consequences created backlash against globalization

• ·        Corn Laws repealed 1847 – history of high tariffs

• ·        REAL WAGE CONVERGENCE MOSTLY RESULT OF MASSIVE MIGRAION (ABOUT 70%) – mass migration increased inequality in labor poor countries, lowering inequality in labor abundant countries 1917 – Congress passes immigrant literacy test, 1921 Emergency Quota Act  

World Trade: Fifty years on,” The Economist 5/16/98

Martin Wolf, “Will the nation state survive globalization?” Foreign Affairs J/F 2001

• Are G protecting people from markets or markets protecting people f4rom G?
• Never get globalized economy – one where distance and geography do not matter