Recession, trade limits don’t mix

I am not surprised at all that the stimulus package has “buy American” provisions in it. I suppose congressional leaders were reflecting the prevailing mood among the U.S. public, and even among most students in my introductory geography course.

My students’ “buy American” discussion was in the context of an assignment they had completed. I had asked them to pick 20 items at random in their apartments and note the countries where they were manufactured. They then had to identify any patterns they observed in the data.

As one would guess, about 50 percent to 60 percent of the goods they owned were manufactured in China. Barely a fifth of their “stuff” was made in the good ol’ USA. Some students were surprised to note that they owned things made in countries they did not even know existed.

The more we discussed the data, the more they seemed to be concerned about goods flooding this country from somewhere else. It didn’t take long before some of these students in an introductory geography class began wondering if we need to protect and encourage “our” businesses and not rely so much on China or other foreign countries.

The “buy American” provisions in the stimulus package reflect these same concerns. The package requires that only U.S.-made goods, particularly iron and steel, be used in public works and building projects that will be paid for by the stimulus dollars. Financial firms that are on government life support will not be able to hire foreign labor, either.

My typical response to students is to rely upon local examples. I ask them whether other countries might feel that importing planes manufactured by Boeing precludes the growth of an aircraft industry within their borders. I ask whether the import of Hollywood films is wiping out other countries’ native movie industry. I ask whether my students would be OK with those countries not buying our movies and planes.

It becomes clear that trade is a way of life, and imports and exports are basic characteristics of modern and successful economies — even during recessions. On the other hand, if countries implement a variation of autarky — the notion that a country should be self-sufficient and not engage in international trade — then the results are unfavorable.

India, during my formative years, practiced a version of “buy Indian” through an elaborate and regulated system of import-substituting industrialization. In this system, it was nearly impossible to get access to goods manufactured in another country. It didn’t matter whether it was chocolate or cement or cars, importing meant extensive governmental red tape and even bribes.

Had India continued down that path, it would not have undergone the economic and technological revolution that it has. The much joked-about call centers would not have been sited in India. Neither would Thomas Friedman have coined the phrase “the world is flat.”

As I have noted in earlier columns, absolute poverty in India has not been eliminated, and many other problems persist. But I am confident that the situation would be worse had India not switched its economic gears from autarky to policies that actively encouraged greater participation in the global economy.

So much to my students’ disappointment, I am not keen on closing our economy, even if only partially, with “buy American” provisions.

Also, the current economic crisis is not merely American but global. We are at a stage where China’s imports have dropped almost by half, and the economic contraction in Japan makes our recession look tame. So I am equally worried that other countries might start imitating America with their own versions of “buy domestically.” It is no wonder then that other key global players, including China and the European Union, already have warned us that they will keep a close watch on American protectionism.

To a large extent, the way out of this recessionary hole is by adopting a global slogan of “just buy, baby,” similar to Al Davis’ old tagline of “just win, baby” in the Oakland Raiders’ heyday. It’s simply unwise to chant, “just buy American, baby.”

Published in The Register-Guard

Appeared in print: Sunday, Mar 8, 2009, page G3

Iceland is a hedge fund. That sounds right.

Iceland was entirely new to his experience: a nation of extremely well-to-do (No. 1 in the United Nations’ 2008 Human Development Index), well-educated, historically rational human beings who had organized themselves to commit one of the single greatest acts of madness in financial history. “You have to understand,” he told me, “Iceland is no longer a country. It is a hedge fund.”

Isn't that a wonderful description of Iceland during its go-go-years between 2002 and 2008? That quote was from this lengthy piece in Vanity Fair.

The article seems so surreal--could such things have really happened? How could the global economy have become such a grand ponzi scheme? I mean, take this excerpt, for instance:

On February 3, Tony Shearer, the former C.E.O. of a British merchant bank called Singer and Friedlander, offered a glimpse of the inside, when he appeared before a House of Commons committee to describe his bizarre experience of being acquired by an Icelandic bank.

Singer and Friedlander had been around since 1907 and was famous for, among other things, giving George Soros his start. In November 2003, Shearer learned that Kaupthing, of whose existence he was totally unaware, had just taken a 9.5 percent stake in his bank. Normally, when a bank tries to buy another bank, it seeks to learn something about it. Shearer offered to meet with Kaupthing’s chairman, Sigurdur Einarsson; Einarsson had no interest. (Einarsson declined to be interviewed by Vanity Fair.) When Kaupthing raised its stake to 19.5 percent, Shearer finally flew to Reykjavík to see who on earth these Icelanders were. “They were very different,” he told the House of Commons committee. “They ran their business in a very strange way. Everyone there was incredibly young. They were all from the same community in Reykjavík. And they had no idea what they were doing.”

He examined Kaupthing’s annual reports and discovered some amazing facts: This giant international bank had only one board member who was not Icelandic, for instance. Its directors all had four-year contracts, and the bank had lent them £19 million to buy shares in Kaupthing, along with options to sell those shares back to the bank at a guaranteed profit. Virtually the entire bank’s stated profits were caused by its marking up assets it had bought at inflated prices. “The actual amount of profits that were coming from what I’d call banking was less than 10 percent,” said Shearer.

In a sane world the British regulators would have stopped the new Icelandic financiers from devouring the ancient British merchant bank. Instead, the regulators ignored a letter Shearer wrote to them. A year later, in January 2005, he received a phone call from the British takeover panel. “They wanted to know,” says Shearer, “why our share price had risen so rapidly over the past couple of days. So I laughed and said, ‘I think you’ll find the reason is that Mr. Einarsson, the chairman of Kaupthing, said two days ago, like an idiot, that he was going to make a bid for Singer and Friedlander.’” In August 2005, Singer and Friedlander became Kaupthing Singer and Friedlander, and Shearer quit, he said, out of fear of what might happen to his reputation if he stayed. In October 2008, Kaupthing Singer and Friedlander went bust.

In spite of all this, when Tony Shearer was pressed by the House of Commons to characterize the Icelanders as mere street hustlers, he refused. “They were all highly educated people,” he said in a tone of amazement.

And later this on the foreigners who jumped in:

You didn’t need to be Icelandic to join the cult of the Icelandic banker. German banks put $21 billion into Icelandic banks. The Netherlands gave them $305 million, and Sweden kicked in $400 million. U.K. investors, lured by the eye-popping 14 percent annual returns, forked over $30 billion—$28 billion from companies and individuals and the rest from pension funds, hospitals, universities, and other public institutions. Oxford University alone lost $50 million.

Interestingly enough, the latest issue of the New Yorker also has a piece on Iceland and its financial debacle. I wish the two authors and the two magazines had worked together--because they are so much similar, even in the writing styles! One interesting aspect in the New Yorker article, when it discusses the protests:

From the foot of the statue, Edward Huijbens, a geographer who teaches at the University of Akureyri, in northern Iceland, spoke briefly. In his thirties, he was a neatly Bolshevik figure, wearing a black fur hat, a white shirt, and a dark tie.

More power to geographers :-)

14.8 percent unemployment and underemployment

The government’s broadest measure of unemployment and underemployment was 14.8 percent in February. That includes some of the people who have stopped looking for work because they don’t believe they can find jobs. It also includes part-time workers who want to be working full time.

The Labor Department did not keep such a statistic in the early 1980s. But it likely would have been in the neighborhood of 17 percent then. (Awhile back, I created a similar — though slightly narrower, for reasons of historical consistency — measure, with help from Labor Department economists. It peaked in 1982 at 16.3 percent in December 1982; it was 14.1 percent last month.)

So it’s still too early to call this the worst recession since the Great Depression. But it’s bad, and it’s still getting worse at a rapid rate.

More on the jobs report, from Economix, is here and here.

Source: David Leonhardt

The wisdom(!) of CNBC

Life would be hell if it weren't for Jon Stewart, Stephen Colbert, The Onion, and other remarkably intelligently funny things. How do they do this day after day?

The Daily Show With Jon StewartM - Th 11p / 10c

CNBC Gives Financial Advice

Daily Show Full Episodes
Important Things With Demetri Martin

Political Humor
Joke of the Day

The Colbert ReportMon - Thurs 11:30pm / 10:30c

Market Psychology - Jim Cramer

Colbert Report Full Episodes
Political Humor

Rap Battle
Joke of the Day

"No, I regret nothing" for "my way"

Yes, lots of inside statements

For what is a man, what has he got?
If not himself, then he has naught.
To say the things he truly feels;
And not the words of one who kneels.
The record shows I took the blows -
And did it my way!

June 14th @ Portland: André Rieu

I am going :-)

The Iraq war is over. Really?

The Daily Show With Jon StewartM - Th 11p / 10c

Mess O'Potamia - The Iraq War Is Over

Daily Show Full Episodes
Important Things With Demetri Martin

Political Humor
Joke of the Day

It is not cricket :-( Anarchy in Pakistan

When I was a kid, the phrase "it is not cricket" meant more than just the game--it was a phrase that described behaviors and actions that were not sportsmanlike.
How do I describe the act of shooting at cricketers, the violence and mayhem? "It is not cricket" is way too lame in this context.

It is sad to read about the attack on Sri Lankan cricket players while they were in Lahore. It is sad on so many grounds. Sri Lanka itself is not a happy place, with its own madness. Pakistan is rapidly spinning out of control. This was in Lahore--not even some small town in Pakistan's northwest.

I just don't understand how the US and the West did not see the coming anarchy in Pakistan, when even an idiot like me, sitting cozily in my home in the Pacific Northwest, have been warning about this for years :-(

Here are a few links to this story:
A video news report from the BBC
A BBC report that also includes a map of Lahore (note that the cricket stadium is named after one of the world's leading thugs--Gadaffi!)

Faculty life and work :-) Critical times ....

I bet this piece in the Chronicle will draw rapid fire. I loved it; of course, eh! The contrarian that I am!!! Here are a few excerpts:

[C]are about students. And I mean really care. Talk to them like human beings. Give them your best. Be well prepared for and coherent in class. Write letters of recommendation for them. If you do all of that, you're standing head and shoulders above most tenured professors, at least most of the ones I know. Students are your clients, your bread and butter. Many tenured literature professors may say, "How can you claim to care about students if you're teaching eight classes or so a semester?" Well, surgeons and lawyers achieve excellence in their professions by doing a lot of work in their field. It's the same thing for English teachers. You get better at what you do a lot of. ....

[R]emember that literary studies is ultimately a derivative and service-oriented discipline. Fiction writers and poets perform the real work. Always have, always will. Literary studies is not similar to computer science or physics, where people teaching in their subject areas actually "do" the content. Occasionally, of course, people in English departments produce scholarly works approaching the status of art itself. I can think of three or four people in the humanities in the last 40 years who produced that kind of work: Paul Fussell, William Gass, Russell Jacoby, and James Kincaid. Those stylists are the true descendants of people like H.L. Mencken, who realized that criticism can be art. But that's four out of hundreds of thousands of people. Most of the rest of the work is taxonomy and politically driven commentary — pretty derivative stuff. The work of literary studies is teaching writing skills and other people's books. If you really want to innovate, don't read continental philosophy for hours on end and produce incomprehensible articles. Fire up the word processor and create your own fictional vision of the world. ....

BTW, did you read the NY Times piece on the humanities? Here is an excerpt from that one:

“Although people in humanities have always lamented the state of the field, they have never felt quite as much of a panic that their field is becoming irrelevant,” said Andrew Delbanco, the director of American studies at Columbia University.

With additional painful cuts across the board a near certainty even as millions of federal stimulus dollars may be funneled to education, the humanities are under greater pressure than ever to justify their existence to administrators, policy makers, students and parents. Technology executives, researchers and business leaders argue that producing enough trained engineers and scientists is essential to America’s economic vitality, national defense and health care. Some of the staunchest humanities advocates, however, admit that they have failed to make their case effectively.

This crisis of confidence has prompted a reassessment of what has long been considered the humanities’ central and sacred mission: to explore, as one scholar put it, “what it means to be a human being.

Jokes, while I keep my day job :-)

Hey, I came up with these jokes:

* General Motors has been downsized ....
..... It is now Colonel Motors :-)

* Meanwhile, because of all the talk about fast food and obestiy,
KFC's Colonel Sanders has been replaced by his big boss .....
......... General Motors (ha ha ha)

* My wife suddenly remembered that she needs to observe Lent, the good Catholic she is.
So, what did she give up?
....... Her husband :-)

Ok, that is enough for a Sunday night, eh!

Church and State: Do not tear down that wall

Susan Jacoby, author, most recently, of The Age of American Unreason, has a powerful op-ed in the NY Times, about the systematic chiseling away of the separation of church and state. She notes that it started with President Clinton, was massively expanded by President Bush, and is being continued on by President Obama. Jacoby writes:

President Obama might also take a moment to reread the religious freedom act passed by the Virginia General Assembly in 1786, with strong support from both Baptists and freethinkers. That law, which prohibited tax support for religious teaching in public schools, became the template for the establishment clause of the First Amendment and also helped establish our American tradition of government freedom from religious interference and religious freedom from government interference.

Yet we are moving blindly ahead with faith-based federal spending as if it were not a radical break with our past. If faith-based initiatives, first institutionalized by the executive fiat of a conservative Republican president, become even more entrenched under a liberal Democratic administration, there will be no going back. In place of the First Amendment, we will have a sacred cash cow.