Position Paper: China

          With the developing countries and much of the global community still climbing out of recession, there is still a risk for plunging the global economy into a "double dip" recession. In attending this meeting, China hopes countries will recognize not only this risk but also the need for a gradual progression to instituting the WTO principles.

          China is still a developing economy. Keeping in mind that liberalizing our economy could lead to instability and retardation of growth, we urge the community gathered to carefully deliberate on the issues of liberalizing capital accounts and trade practices.  In working towards having a developed economy, a speedy and full liberalization of our capital account, removal of non-trade barriers, and elimination of some subsidies would hurt our progress.

          The global community must listen to the developing countries and be fair if we are to have a system of equal trade and investment. In East Asia and Southeast Asia, we are trying to encourage economic growth for over one third of the world's population. While the rest of the world is eager for our economies to grow so that we can all share in a higher level trade, investment, and prosperity, the developed countries must recognize the gradual process necessary to establishing parity for developing countries with advanced economies and ensuring stability before moving on to full liberalization.

          In dealing with the proposed topics, China hopes to keep in mind fairness, the interests of the developing countries, China's competitive advantages, and the aims of our domestic economic development.

For proposal I, this argument ties into the role of subsidies and so we must not forget that some countries would trade using unfair advantages. At the same time, China must take into account its developing economy and the hundreds of millions still in poverty and the many people that are unemployed.

For proposal II, as has been the case for some time, developed countries such as the United States and those in the European Union have engaged with China in anti-dumping disputes. The misunderstandings arise from a lack of communication about our strengths and weaknesses in producing certain goods. Hopefully, our community can come together to recognize our strengths and weaknesses and design our economies accordingly.

For proposal III, although there is not much interest in genetically modified foods, China does have a concern for the safety and well-being of countries around the globe and hopes for regulations to be instituted to guarantee the health and safety issues of GMO.

For proposal IV, as China is still a developing country and needs the appropriate levels of growth in all sectors of the economy, subsidies are a necessary tool for developing our economy. All countries around the world engage in subsidies, so we must work together to find solutions for lessening the reliance that developed and developing countries have on subsidies.

For proposal V, China still needs to stabilize and grow its economy. It was only twenty years ago that the Asian Crisis caused much suffering and inhibited China's economic growth. Recognizing the risks of instability  that free flows of capital could cause, China must remain wary about the full liberalization of the capital account.

For proposal VI, China is well on the way to promoting free trade in the global community. We certainly hope that other countries will join in developing the world economy and opening up to trade.

Sources:
IMF Report on Capital Flows: http://www.imf.org/external/pubs/ft/wp/2012/wp12275.pdf

The Fiscal Cliff and Signals of Uncertainty

          With the upcoming fiscal cliff, the U.S. government faces the possibility of massive reduction in the deficit. You may be thinking that this is exactly what needs to be done in order to stop the ever-increasing debt that threatens to burden future generations with high interest payments on the debt and higher taxes/lower spending. Certainly, the United States needs to regain control of its debt spending habits. However, letting the Bush/Obama Tax Cuts expire (the trigger for the fiscal cliff) deliver a shock to everyone in the form of higher taxes (households would receive as much as a 6% reduction in income, according to the Urban Institute and Brookings Institution Tax Policy Center). Clearly not doing anything to avoid the fiscal cliff would cause some serious harm and likely put the economy back into recession.

          Besides the future costs, small businesses currently are holding back investments and hiring as the time for legislation to solve the inevitable tax increases gets shorter and shorter (Wells Fargo small business survey). The uncertainty that the U.S. government is instilling in the private sector is inhibiting growth and that is a deplorable outcome of the gridlocked government.

          Holiday shoppers on the other hand have not quite taken heed to the implications of the fiscal cliff. Spending among holiday shoppers has risen since last year and online spending once again hit its highest mark (according to Mercury News the Economy continues to improve despite the fiscal cliff).

          Small businesses are set to have a wealth of investment materials ready to hire and grow businesses if the fiscal cliff is avoided, but conversely, consumers would face a rude awakening of tax increases on top of heavy holiday spending if the fiscal cliff is not avoided. These imbalances are a result of the signals of uncertainty that the government is giving to the economy. Hopefully, things can be solved soon so that businesses and consumers can rest easy over the holiday break.



Washington Post Blog about the effects of the Fiscal Cliff: http://www.washingtonpost.com/blogs/wonkblog/wp/2012/12/01/how-a-sane-political-system-would-deal-with-the-fiscal-cliff/

The U.S. should still be wary of Mexico's drug cartels

          A war has been raging south of the U.S. border and has claimed the lives of over 60,000 lives in the past five years. While the words "If you don't pay, the place burns down" may resonate near the U.S.-Mexico border, the scene is much different in the southern provinces of Mexico (Huffington Post). In southern states such as Guanajuato and Querétaro,  a growing auto industry has elevated Mexico to the position of the world's 4th largest exporter of automobiles. Much of this economic development is laid out in Stephanie's blog, in which she details both the bright spots and roadblocks of Mexico's development. Her main point, however, is to call for the U.S. to reform its trade, border, and immigration policies directed towards Mexico. In agreement with Stephanie, I think it is important to emphasize the significance of Mexico's economic rise, but it is equally important to recognize that drug cartels remain a large roadblock to developing stronger relations with Mexico.

          Although we did not get to cover the predominantly political issues of the trafficking of drugs, people, and weapons during our International Political Economy course, the prevalence of these issues around the world is a major concern in the international community. These three deplorable and sometimes horrific businesses operate not only on the global stage but also domestically in the United States. Fortunately, the violence along the U.S.-Mexico border has subsided, and murders, kidnappings, and other violent crimes have fallen drastically in some of the war-torn Mexican states like Chihuahua. However, some experts of the Mexican drug war say that this might simply be a sign that the drug cartels are biding their time to see what the new President Enrique Peña Nieto will do (Huffington Post). Meanwhile, despite the apparent success in Chihuahua, authorities are seeing negative results in other areas where drug cartels operate.

          In Ventura, California, located 200 miles north of the U.S.-Mexico border,  Martin Madrigal, a kind of regional manager for the Mexican Mafia, has been indicted along with 26 other suspects for violent crimes, drug and arms trafficking, and extortion (LA Times). The article notes how this one guy was so feared (his nickname is "Evil") that he was able to coordinate other Mexican gangs in the area.

          In a city not far from Guanajuato called Tiquicheo, the city's former mayor, a defiant opponent of drug cartels, was murdered by hitmen after a third assassination attempt on her life (Fox News Latino). The area has apparently been a hotbed for the growing of  poppy for heroin and marijuana, and it has also been importing large amounts of  chemicals for the production of methamphetamines and cocaine.

           These incidents show a still powerful and influential criminal network that can operate within U.S. borders and cause terror for many Mexican families. This is an issue that needs to be dealt with before the U.S. opens up the border to more immigrants precisely because liberalizing immigration policy would facilitate the movement of drug cartels into the United States. Because the United States is the main source of demand for these drug cartels, the United States would likely see an increase of drug cartel members crossing the border if immigration were to be liberalized. As President Obama said in his meeting with Mexico's next President, the United States certainly wants to aid hardworking Mexican immigrants who are coming here to work (Latino Post). At the same time, however, the U.S. should not run the risk of allowing drug cartel members to immigrate.

          Additionally, while many Mexicans are willing to do the menial and hard labor that other Americans will not do provide a boon for agribusiness in the United States, the many immigrants that want to bring their families may impose a stress on the already faulty and expensive healthcare and educational systems in the U.S.
         
          So for the time being, it is more important for the U.S. and Mexico to continue their efforts to control the prevalence of drug cartels and the violence that they cause. While the cartels have not really bothered the auto producers that have enabled Mexico's rise economically, they are still disrupting everyday life for Mexican local businesses, politics, and families (Wall Street Journal). Accordingly, the Mexican authorities still have a lot of work to do, and it may ultimately be impossible to eradicate the drug cartels. In order to eradicate drug cartels, there needs to be greater cooperation among the U.S. and Mexico in terms of criminal justice and possibly regulation of the drug industry. Thankfully, California and the Attorney General of Mexico have already begun to coordinate efforts against the drug cartels by agreeing to help one another in the prosecution of transnational criminal organizations (Fox News Latino).

         Despite the exciting developments of Mexico's economy, until the United States and Mexico can get the drug cartel problem under control, the U.S. should wait before liberalizing immigration on the southern border.



President of Mexico's plans for reform: http://www.reuters.com/article/2012/11/29/us-mexico-penanieto-idUSBRE8AS0YR20121129 (Reuters)
In depth article on Mexico's Auto Industry: http://online.wsj.com/article/SB10000872396390444083304578018462369529592.html (Wall Street Journal)

A Different Take on "Cities of the Future"

          After reading Annelise's post on Tianjin's new "Eco-City" (Mind the fact that Tianjin is actually already a city with a population of ~13 million) and having followed the link in her post, I wondered how I might address her last sentence: "America should also get on board because a city like Tianjin is the city of the future." Although I am excited by the enthusiasm and initiative of the project, I cannot help but wonder, how they expect to pull this project off. Tianjin itself is an extremely environmentally-unsafe city, which has lead some critics to argue that attempting to build an eco-friendly city is simply a propaganda move by the Chinese government (ThinkDesign). I, however, do not think that making the Eco-City itself is actually the main focus of this project. Instead, the city provides a breeding ground for testing new approaches to creating greener cities.
          As Annelise said, over 600 companies already have signed on to the project, but going further, they have signed on to test out their own environmentally friendly products. Take for instance GM's driver-less cars that are expected to be ready or on the market by 2020. GM, like many other "green" companies, wants to use Tianjin as a proving ground/practice area to test their new technologies. Other innovations include in-home medical evaluations, a Swedish waste management systems that takes trash away from your house, and not to mention the widespread use of solar, wind, and various other green technologies that will be integrated throughout the city (Good but possibly outdated NY Times article discusses more of the proposed projects). 
          This city will not only feature many state-of-the-art green technologies but also the development of eco-friendly city planning on a huge scale. With seven city sectors, each designed for a specific purpose, and widely accessible green transportation, getting around the city will be very environmentally friendly. Reshaping our transportation practices, water and waste management techniques, and energy consumption proclivities certainly is on the cutting edge of city planning. Going back to Annelise's last sentence, I wonder whether the U.S. should get on board and how might we benefit from this forward-looking development in urban planning and green tech-integrated cities. 
          Obviously, with 80% of the population already living in urban areas, the U.S. will not be engaging in city building like China, but hopefully lawmakers can adapt the technologies that are going into these eco-cities into our own urban surroundings. However, if our cities, which are mainly centers of employment for people living in the suburbs, are unable to be re-planned, will we be forever stuck with this environmentally-unfriendly, antiquated public infrastructure?  Is Tianjin really a futuristic city or just some narrow experiment that does not apply to countries with already highly urbanized populations? What does this say about the idea of eco-cities as the "cities of the future"? Only time will tell to see if Tianjin can prove to be environmentally friendly. I would doubt that the Tianjin eco-city will change much for its future inhabitants, considering the widespread heavy pollution ~6 miles to the south, where morning commutes are like this:

(by the way that's not fog)


ThinkDesign Article: http://www.thinkdesignmagazine.com/architecture/tianjin-eco-city-the-future-or-a-chinese-hoax 

P4T: Africa, the Resource Curse, and China

          Last Thursday, I went to the second P4T (Preparing for Tomorrow) symposium, which focused on aid to Africa. One of the moderators, Blaise Buma, from Cameroon, mentioned how little the U.S. trades with African nations and how China has taken the route of trying to develop African countries through trade as opposed to aid. Reading Stiglitz's chapter on "Lifting the Resource Curse" after attending this P4T event, I found it interesting that Stiglitz mentioned using trade as a vehicle to help countries develop only at the end of the chapter in saying that trade practices can be used to enforce "good behavior," i.e. political openness, economic transparency, and fair-trading.
          I know I am probably forgetting my economics 101, but when there is a "resource curse," the economy becomes focused on developing natural resources, preventing workers from developing secondary, tertiary, or other industries. Given this understanding, could the problem of the "resource curse" be sidestepped by liberalizing trade?
          Earlier in the course, we discussed how trade liberalization can be a vehicle for national growth, but for the United States and Africa, from what I understand, there is a lack of bilateral economic and trade relations. The U.S. sends aid to Africa, hoping that this will help improve social or health conditions, but the U.S. does not focus on building up trade with Africa. Perhaps the reason is that the U.S. imposes social and political benchmarks for African countries applying for aid or trade agreements. This runs counter to what Stiglitz says. The demands for more liberal social and political policies are often forced onto countries that do not have a demand for such policies, which can hinder the development of liberal policies such as transparency or eliminating corruption (Stiglitz 152). Considering the U.S.'s development practices might do more harm than good, is it any wonder that China, which is focusing on trading with Africa rather than promoting democracy and anti-corruption policies, is quickly gaining influence in Africa?
          Already China is helping Africa develop their agriculture, which has to compete with U.S. subsidized agribusinesses on the global market. By helping Africa become self-sustaining agriculturally, they will not have to import food from the U.S. as they do now. Perhaps, this will help Africa to "stand on its own two feet" economically. If the real trouble in Africa is that they are under-developed because of social and political structural problems, i.e. corruption, lack of the rule of law, etc., could it be possible to sidestep these problems by focusing on their economic development rather than political and social development?         
          Using China as a case study, they have corruption on a massive scale, an undemocratic political system, and poor people on the scale of the hundreds of thousands. Because they are not exactly resource rich per capita, they do not have a "resource curse." However, they have developed at incredible rates, despite these perceived political and social shortcomings. It is interesting therefore that Blaise mentioned that many African countries are beginning to look to China as their bedrock for development.

P4T Latin America Summit

          Tonight, I took the opportunity to go to the Latin America - U.S. aid summit put on by P4T (Preparing for Tomorrow). With Stephen Vetter the president of Partners of the Americas, a historian on Bolivian history, and Bethany Reynolds, a W&L senior holding the presentation, the summit gave me some insight into the U.S.-Western Hemisphere relations.
          Bethany, who spent the past summer in Guatemala, discussed how around the start of the Cold War, because of the purported communist leanings of Guatemala's democratically elected president Bermejo, the U.S. used the CIA to force Bermejo out of government. The anti-communist measures employed in Guatemala drastically harmed the country's development. Even today, over half of the population lives below the poverty line because of the lack of economic development and other social problems in Guatemala, some of which arose from the civil war fomented by the U.S..
          Next, a historian on Bolivia covered the relationship between the U.S. and Bolivia from its inception up until the present day. He noted that the U.S. style of pursuing economic development is not received well in Bolivia, especially because the Bolivians have their own way of doing things. They have a particular cultural and social identity and traditional economic practices that they would like to keep in place, but US-AID would harm these things. Instead of supplying aid and experts who will only attempt to change Bolivian culture and traditional economic practices, he said that US-AID or other NGOs need to aim for a grass-roots development strategy. By helping Bolivians to have more education, open commercial markets, and an equal society, the U.S. can make a great deal of progress in helping Bolivia develop.
          Finally, Mr. Stephen Vetter spoke about the relations between the U.S. and other Western Hemisphere nations by highlighting the efforts of the not-for-profit "people to people" organization Partners of the Americas  in Jamaica and Brazil. In Jamaica, Partners of the Americas tried to create cultural centers that would help women, people in poverty, and the development of human capital in Jamaica, but they ran into limits imposed by multiple actors: the U.S. itself, Jamaican political parties, and other private sector organizations that wanted to put their own influence on what was intended to be a grass-roots project. However, the project never managed to get off the ground, but in Brazil, the story is different. Because the Partners of the Americas group garnered so much attention, other NGOs have taken its place, effectively allowing the grass-roots efforts to escape the limits imposed by other controlling parties. Recent proposals for development include encouraging college exchange programs between South America and the United States. By doing this, the U.S. can improve Western-Hemisphere relations, increase economic development and redefine the image of U.S. Aid.

          What I learned through all the stories was that the United States has been very controlling and lacking in empathy in attempting push its agenda for how countries should develop and become part of the global markets. It is this mindset, in fact, that has caused a lot of problems for development and for our international relations. Perhaps, the lesson is that, the U.S. should be thinking of these relationships in terms of partnerships  rather than as investments.

**There will also be another summit tomorrow night which will cover U.S. Aid to Africa. It starts a 7:00 in the Commons room 216. This time it includes a panel with professor Dickovick. I recommend going.

Krugman on Romney's Economic Advisors

          Here's an article written by Paul Krugman last week, in which he says that the U.S. is finally "recovering in earnest." The article has a political message in that it is meant to discredit those who favor Romney's economic plan, who believe that this recession is similar to the recessions in 1981-2 and that it is the mere presence of Obama in the White House that is discouraging economic success. he makes a point that is not strongly highlighted in his book "The Return of Depression Economics."
          In the article, he makes the distinction between this recession as a financial-crisis recession and the 1981-2 recession as a "postmodern recession," which are brought on by high interest rates. As Krugman argues in his book that a lack of understanding worsened the recession, it is important to make sure that we fully understand the nature of the crisis and of this current recession if we are to overcome it and prevent future crises (190).
          If Krugman is right that our economy is already well on the road to recovery, this will mean that regardless of who is elected today, the next President will have the opportunity to start with a much healthier economy. What will this mean for the next four years? Perhaps it will provide a free political range for the candidates to carry out their objectives, or considering there will be divided government with a Republican House maybe there will be greater partisanship.

Précis of Giles Chance’s “China and the Credit Crisis: The Emergence of a New World Order” 2010

            Having maintained an astonishing pace of economic growth even through the financial crisis[1], the continued growth of China’s economy has become essential to the recovery of the world economy. Giles Chance’s “China and the Credit Crisis: The Emergence of a New World Order” gives readers a wide, encompassing picture of China’s role in the lead up to and the aftermath of the global financial crisis. In this book, he posits that China’s economic resurgence had a substantial influence on the precipitation of the financial crisis and that the continued growth of China in combination with the decline of the U.S. through the course of the global recession will force China into an even more influential role in the international political and economic community.

            The book’s opening chapter outlines the ensuing chapters covering China’s influence on the economic conditions preceding the crisis, China’s admittance into the World Trade Organization (WTO), China’s international relations, the suggestions of China assuming a global leadership role, especially among developing countries, and many other subordinate topics.

            Following this, he begins with China’s effect on the Global Financial Crisis of 2008. While he argues that China did not cause the crisis, the massive supply shock to global markets stemming from the emergence of China as a global economic force set in motion the lowering of interest rates, allowing for huge over-borrowing, which eventually brought down the global financial system. The unexpected effects of China’s emergence coupled with the United States’ penchant for a low regulatory, free-market environment and high liquidity levels caused the catastrophic breakdown of the global financial system.

            The effect of the global financial collapse eventually ended up hurting Chinese exports, which had served as the growth machine of China’s economy. Recognizing that their economy relies heavily on foreign markets, the Chinese government has attempted to refocus the Chinese economy to be more reliant on domestic consumption by reducing the savings rate. As Chinese domestic consumption has not fulfilled the buoy that the Chinese economy needs, the Chinese government has launched huge public spending programs, but it can only use so much of the huge pool of Chinese savings. China will also have to look for places other than the U.S. in the international community to help continue the country’s development.

            Chance notes that China has a unique challenge in that it must rely on other countries to reach its full potential, and because China has claim over a number of firsts and seconds such as the largest population, second largest gross domestic product, etc. China has a “strong-yet-weak international position” (73). Because of the decline of the influence and credibility of the U.S. financial system, China is in the position to assume greater involvement in the international community. Consequently, China is pushing for fundamental reform of the global financial institutions the IMF and the World Bank, and along with other major emerging countries, China will begin to play an increasingly large role in world affairs.

            This ascension to global influence has not come without the decline of the United States, however. As the dollar grows weaker and the credibility of the U.S. financial system recedes, the attention to the issue of the dollar as the world’s reserve currency grows. Here, Chance lays out China’s position on the U.S. dollar as the world’s reserve currency, and he shows that China would like to have a new reserve currency as others such as economist John Maynard Keynes have suggested. In the meantime, China has taken matters into its own hands by establishing the Chinese yuan (China’s currency) as a reserve currency for Southeast Asia.

            China’s attempts to affect a change in the world’s reserve currency are part of the larger scope of Sino-American relations. In the sixth chapter, Chance describes the history of relations between the two countries from Communist China’s inception through the rise in global terrorism and the growth of China’s export industry to the ongoing shift in global power from the United States to China today. While they have had a history of mutual suspicion, the two countries are by far the most powerful and influential in the world, and as a result, they must learn to cooperate in this new, increasingly bipolar post-financial crisis world.

            The rise of China has also altered Asian politics and economics. The three competing countries, China, India, and Japan all struggle for the leadership role in Asia. However, China’s strong economic growth has surpassed the other two countries, allowing China to draw more power in the region. Since America has played a key role in counterbalancing China’s growing political and economic influence over the region, the retreat of U.S. influence allows China to assume greater influence. Resultantly, India and Japan will have to yield to China’s regional goals.

            Chinese growth paired with the U.S.’s decline has also allowed for a larger Chinese role in aiding developing countries around the world. Ever since the inception of Communist China, the country has assumed that all other emerging countries are partners with China pursuing a common goal. Now that China is in a better position to aid countries, it has developed many ties with Africa and Latin America despite some of the objections by Western countries. While many Western countries may look down on China for assisting undemocratic countries, they cannot avoid their own history of colonial imperialism that affected many developing countries. China on the other hand is aiming only for economic development as opposed to economic development with political restraints.

            China assumes a greater role in developing countries because it wants to resist a G2 between itself and the United States. China hopes to develop to its full economic capacity, and in order to do this, it must carefully manage relations with the United States, which has been on the decline economically and politically in the global community. China is ready to become the next global superpower by the numbers, having the largest population and having the potential to succeed the U.S. in GDP within a few decades. However, countries are reluctant to trust China, and China must carefully persuade other countries of its peaceful intentions in order to show leadership.

            In the last chapter, Chance describes the changed feelings of Chinese people. Today, more people identify themselves as middle class by having a high level of education and a white-collar job or perhaps they are starting to have consumption-driven class standards. Either way, the global financial collapse initiated by the United States has called into question the ascription of economic success to Western practices. China has a wealth of history to look back on, in which they had long periods of global dominance, and consequently, Chinese people are more frequently looking inward for a resurgence of Chinese methods and ideas.

            In conclusion, Giles Chance’s book on China provide a firm background for readers that are new to the economic and political developments of the past sixty years during which China has gathered more and more influence and power in the international community. His depiction of relations between China and the U.S., the global financial system, and other international players shows China as a reluctant, but ready leader in the global community. China has influence the global economy, and it will continue to as U.S. power declines and China’s influence rises.

---

[1] The World Bank. "GDP growh (annual %)." 2012. <http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG> Accessed 11/5/2012

"Ben Bernanke: Currency Manipulator"

          This post lags behind last weeks debate in which Presidential Candidate Mitt Romney pledged to accuse China of being a currency manipulator, but in yesterday's Wall Street Journal opinion section, an article entitled "Ben Bernanke: Currency Manipulator" gave the case that Federal Reserve policies force the rest of the world into unfair situations.
          The article details this argument using Brazil's reaction to Ben Bernanke's proposal of a third round of Quantitative Easing or commonly QE3: "Brazilian Finance Minister Guido Mantega has complained bitterly about it because in his mind the higher relative value of the real makes Brazil worse off." While the U.S. must rely on its central bank to help get this country out of the recession, Ben Bernanke has no qualms about stepping on other countries' toes. Obviously, Americans want to get back to manufacturing and producing goods for export, and by lowering the value of the dollar, this should lower the price of our exports, thereby increasing the amount of exports. However, with the dollar as the world's reserve currency and the U.S. economic dominance in question, how far can we go in upsetting the international community before opinions about this country turn sour? Taking this a further step: if the U.S. continues to print money "at a rate of $40 billion per month with no deadline" will this accelerate a change in the world's reserve currency?

Getting Ready for the Final Debate

          Last Week I meant to post this for those of you commenting on China in your blogs, the Chinese would like to have a word themselves about the U.S. Presidential race: http://usa.chinadaily.com.cn/world/2012-10/16/content_15819728.htm

         The Article discusses some points about how China bashing has been more prevalent in this election season than in previous ones. Because the bashing has been this way, the Chinese are wary about the fact that although in previous instances of China bashing during the election season, the winner usually reverts to an amicable disposition. However, they are hoping these two candidates do not go so far as to damage bilateral relations.

          Tonight, we will see how far the candidates will go. While China may not be first on the list of topics for tonight's debate, the debate will certainly highlight the subject of China as a rising global power.

          Both Romney and Obama have been heavy on the "China bashing." Mr. Obama accuses Mr. Romney for having a penchant for advising companies to send jobs or other investments overseas to China, while Mr. Romney rebukes Mr. Obama for not being tough enough on China as a currency manipulator. From my perspective, Mitt Romney is catering to a group of Americans that are not exactly knowledgeable on the subject. Earlier this year, the IMF downgraded the rating of China's currency from "substantially undervalued" to "moderately undervalued," raising the question: "How far is Romney willing to push China over this issue?" (IMF Summary Report)

          Granted that using a foreign rival (a Communist one at that) as a proverbial punching bag is a move many politicians would make, but diplomatically-speaking, denouncing China as a "currency manipulator" is  a very insensitive position for a president to take. The president is the face of America when it comes to international relations, and attempting to stir up bad blood with the number one foreign holder of U.S. public debt and our second largest trading partner is a precarious action to take.

          In terms of the other topics on the table for tonight, there is the Attack on the U.S. Embassy in Benghazi, the War in Afghanistan, relations between Israel and Iran, and the Crisis in Syria, among some other international issues. Although the last debate was very heated, it will be interesting to see what the candidates have has to say about one another in this debate. Romney has made many political gaffes abroad while Obama made the mistake a few weeks ago of mislabeling the Attack on the U.S. Embassy as a protest. Their positions on the War in Afghanistan are relatively similar, but I imagine they will certainly be more contrasting on the situations regarding Iran and Israel.

          As this is the final debate and the most relevant one to the two candidates' potential future job as Commander-in-Chief and liaison to the International Community, I encourage you to enjoy the final debate if you get the chance.
       

The Student Debt Crisis

          Noticing an interesting point in Annelise's post about the rising "cost" of tuition, looking at the possible student loan bubble may be a model to look at for analyzing an ongoing crisis.

          While professors' salaries may be rising, the real rise in tuition has perhaps come from the huge reductions in state spending on higher education. The Department of Education has made drastic cuts in subsidies for college tuition, and because the cost of an education is not decreasing, the students must make up the difference where the Federal government has come up short. 

          Another factor to look at is the value of college education (determined by simple supply and demand aspects). As more students go to college, more people get degrees. With more people graduating from college and the current scarcity of jobs, the demand and thereby the value of a college degree has fallen due to a large supply of unemployed college graduates. Annelise is right to note that while many college graduates are fortunate enough to go to a university that can deliver the potential for higher future earnings, other students may not be able to pay off their loans. To get a scope of things, the amount of student debt is over $1 Trillion (that is a T), and already ~13% of those who had borrowed money to pay for college have defaulted on their payments. That dollar amount is bigger than both the debts owed on auto-loans and credit cards.

          Defining the "cost" of tuition is difficult because the government made credit so readily available for financing college tuition payments. While this originally was an effort to maintain the affordability of college for the middle class, has this ease of credit gone on for too long? Have we created a glut of college students who now cannot find jobs and consequently cannot pay off their loans? More fundamentally, is there a limit to how many college students our economy can sustain?

          Looking at Krugman's take on the Asian Crisis in Thailand, it seems we can draw some comparisons... 

          Q: Is it necessary that we reduce the amount of financial aid for college tuition payments? If so, how can we do it responsibly to avert a real crisis?

          Q for You: Romney and Obama have not really discussed the debt burden of college graduates. For the young demographic 18-25, maybe some older, this is probably the most important issue next to finding a job. How are they going to answer the questions above? Look for some answers (given with a mountain of salt) in the town hall debate this week!

         
       

Reduction of Government Funding for College and Education (2):
http://moneyland.time.com/2012/01/25/students-bear-the-burden-of-state-higher-ed-cuts/ (Jan 25, 2012)
http://libertystreeteconomics.newyorkfed.org/2012/09/soaring-tuitions-are-public-funding-cuts-to-blame.html (Sept 19, 2012)
Facts and numbers about recent graduates, employment levels, and other interesting points:
http://www.huffingtonpost.com/2012/06/26/infographic-shows-how-us-_n_1628187.html (June 26 2012)
Defaults on Student Loans:
http://www.washingtonpost.com/local/education/concerns-raised-about-student-loan-defaults/2012/09/28/99ba45b8-099d-11e2-a10c-fa5a255a9258_story.html (Sept 28, 2012)
USA Today, College Costs and the Department of Education:
http://usatoday30.usatoday.com/money/economy/story/2012-06-13/college-costs-surge/55568278/1

Samsung a Good Corporation?

          Even with Apple's recent victory over Samsung in patent infringement charges in the U.S., the back and forth legal battle will continue into the future as the companies try to establish exactly who is copying whom and in what respects. This trouble has not yet played out in China, which just recently became the world's largest smartphone market this year (Forbes Article), and perhaps in an attempt to shift its focus, Samsung has begun investing in its manufacturing operations in China to ratchet up its already dominant position in the smartphone market.

          Although it is unclear whether China is either a developing or developed country, its sprawling and modernized metropolises like Shanghai and Beijing certainly stand in contrast with the western part of the country, which is much less developed than in the East. However, with Samsung's investment in a $7 billion semiconductor manufacturing factory in Xi'an, a second-tier city in the western Shaanxi province, the pace of growth is accelerating for the West (Korea Times). As if the creation of jobs and attraction of business that this investment will bring were not enough, according to an article from China.org.cn, Samsung also plans to create a partnership with the nearby universities in Xi'an to provide graduates with jobs and stimulate growth in the fields of IT and electrical engineering.

          In light Stiglitz's opinions about how globalization should progress in his chapter on "Patents, Profits, and People",  this example is interesting because it is evidence of a "good corporation," one that is investing in the improvement of capital and education in a developing country (of course, smartphones are not nearly as important as live-saving pharmaceuticals, but they at least promote development of China's low- to medium-skilled labor). At the same time, Samsung has been proven to be infringing on patents, so I wonder what his opinion would be concerning Samsung.

Subsidizing China's Home Appliance Market

          In an effort to raise consumption in the Middle Kingdom, the Ministry of Finance (MOF) has been subsidizing the home appliances market since 2009, especially in rural areas. Already over 585.5 billion RMB (~$92 bln USD) has been spent to keep China's home appliance business (the largest in the world, at least for refrigerators) surging (China Daily: "China rural subsidy program drives home appliance sales"). According to another article in China Daily, back in 2011, the industry already provided well over 400,000 jobs to mostly rural and migrant workers, and through the expanding of the project to include 6 major home appliances and an old-for-new trade-in deal, Chinese consumers have greatly improved their home energy efficiency and standard of living. Because of the project, consumers can save up to 13% in purchasing these new models, while producers get to increase their production, meaning both parties can be happy, and not to mention the Chinese government can breathe a little lighter (as  tough as that may be in Beijing) due to the decrease in energy use, subsequent decrease in pollution, and increase in rural area living standards and employment (China Daily: "Rural subsidy program spurs home appliance sales").

          This brings up the question that I did not address as well in my last blog post about the Chevy Volt, which is that as opposed to limiting foreign competition and dealing a loss to consumers as Coughlin et al. would suggest, can subsidies benefit producers, consumers, and society as a whole? Would subsidizing the production of more efficient and environmentally friendly goods, which would normally be uncompetitively costly for the producer be a bad thing for the wider economy?

          Perhaps, these industries could be likened to infant industries in that the subsidies provide a way to get over the barrier of researching and developing cost competitive products for a new segment of the market (e.g. hybrid and electric cars in the auto industry, energy efficient home appliances in the home appliance industry).  More importantly, however, these goods provide a benefit that other goods normally do not in that they deal inherently with the negative externalities. Instead of paying an environmental tax or emissions fee, these eco-friendly, yet costlier products deal with the negative externality of pollution themselves.

The Chevy Volt's Complex Protectionist Circuitry

          While the Chevy Volt is still in relative infancy, reports (Reuters, CNet)  have come out that Chevy loses as much as $49,000 on each Volt that is produced. After reading Coughlin's article "Protectionist Trade Policies: A Survey of Theory, Evidence and Rationale" (1988), the reports about Chevy's loses would seem to be contrary to Coughlin's thoughts about the way protectionism works, which is that  consumers suffer from price increases as producers benefit from protectionist policies that limit foreign competition (p.17). Of course, times have changed, and while the government subsidizes the auto industry, the benefits are being passed on to the consumers in the form of lower prices along with government tax incentives for buying more fuel efficient cars.

          With the tax rebates and new leasing programs for the Volt, these cars are more readily available at lower prices (although still high for many at a roughly $40,000 base price). While protectionist policies like subsidies usually hurt low-income earners while benefiting high-income earners, the payoffs of being able to afford or lease a high quality car should allow low-income earners a chance to benefit from these subsidies (Coughlin 21).

          Part of the reports stated that the Volt was "over-engineered and over-priced," and seeing how the volt would be as much as $89,000 without the subsidies, tax breaks, and other mechanisms to reduce consumers' costs, it seems that this statement is true. In GM's mind, however, this venture will serve as a jumping off point for developing technologies for their fledgling line of EVs and high mpg cars while at the same time building a consumer base for these new types of hybrid vehicles.In the meantime, competition with Toyota's Prius, the most popular hybrid in the U.S., is going well for Chevy, considering the number one car being traded in for the Volt is the Prius.

          Besides the taxpayer cost of the government's bailouts for the auto industry, consumers can benefit from these subsidies, and from GM's perspective, they look for gains in the future having developed new technologies to be used on future models.While the Chevy Volt cannot currently compete with the Prius in terms of prices, it certainly has gotten good reviews for its advanced electronic system, smooth ride, and long range driving capability. Perhaps these protectionist policies will benefit both the consumer and the producer though at the cost of the taxpayer.

          Is it possible to create a better redistributive system beyond taxes and transfers through subsidies?

A Major Challenge for the Leaders of the 21st Century

(Timed  ~1 hr)      
          The term "greatest" can be applied in many ways, but for me, it is a thing, event, idea, in this case, a challenge, that outstrips all other challenges in terms of the degree of importance to the widest range of participants and the length of time that its effects last for.
          As we have recently capped off the first decade of the 21st century, we have seen nations globalize and form tighter and stronger bonds with other countries in economic terms, political terms, cultural terms, and in a host of other ways more than ever before. Unfortunately, for many this has meant decline. As the United States' housing bubble burst and the ensuing "Great Recession" brought economies around the world to a halt, many countries, peoples and leaders have started questioning not only the structure of the United States's economy, which has provided a bedrock for economic growth worldwide, but also the structure and ideals behind capitalism itself, the economic system behind most of the Western World's development. While the economic ideologies of capitalism, socialism, state-capitalism, and others will, in my opinion, always compete for credibility, what is of greater importance is the more fundamental question of how international political economics can create a better world for its inhabitants.
          In the 21st century, I believe that (essentially) free energy will give the leaders of the 21st century their greatest challenge and likewise their greatest reward. While we have seen that freedom of communication is a great thing in itself, allowing people and cultures to connect and share their thoughts and beliefs and allowing people to rise up and demand accountability from their governments among other things, the next step seems to be the freedom of energy, which would allow people to more freely produce what they need or want, transport what they need and want, and many other things besides these two fundamental activities of a free and personally-created life.
          For the purpose of being brief, I would name solar energy as the champion of "free energy" because in its natural state solar energy is relatively equal in accessibility and relatively limitless in its supply. While people might say that we have already surmounted the challenge of harnessing solar energy, my aim for global leaders is to make solar energy more accessible in at least two important ways: increasing the economic efficiency of harvesting solar energy and making it more readily exchangeable on international markets. Facing this challenge would not only solve one of the most pressing issues of future generations, the limited supply of fossil fuels, but also serve as a means to promote greener production standards, which would help alleviate our current issues with human-produced green house gases and climate change.
          While this project may seem idealistic with terms like "free energy", the international leaders must ensure that the international community competes for solutions to this goal without inciting trade wars, creating an unfair competitive environment through high subsidies or tariffs, or other ways that countries might disrupt what should essentially be a humanitarian effort. What is needed is a common goal  and common reward that all countries can take part in, which would be the exponential increase in the production capabilities and living standards of all people if energy became free.