Mistaken for mujahideen

Finally in Afghanistan we are starting to see a bit of cohesion: an actual plan, not imposed by NATO or the US, but brought in conjunction with Karzai's Afghan development and support. The New York Times reports that

American and Afghan officials intend to set up local militias of 100 to 200 fighters in each provincial district...militiamen will be given a brief period of training, along with weapons like assault rifles and grenade launchers...

What I've been saying about Afghanistan all this time included a call for greater tribal engagement. This doesn't mean we arm the people! Despite Petraeus being the genius of Iraq, or something similar depending what weeklies you read, a universal re-application of his Sunni Awakening media campaign tactic probably won't work in Afghanistan. Council members who we continue to pay in Iraq as local militia police forces are mostly in urban areas - Baghdad was where we needed the most help in Iraq. In Afghanistan, the border region is vast, sparsely populated, and without central organization. The tribes cannot and won't act in unison. They speak different languages and have wildly different social and religious customs, even within those who follow Islam and not animist religions. Militias will be forced to cover vast regions beyond their traditional tribal lands - not their small, local neighborhood.

For tribal engagement to work as a defense tactic against the Taliban we need to build roads, schools, and civic centers. Tribal groups obviously need to feel safe to help US forces in the fight against the Taliban, but this doesn't mean they should have to do it themselves. Embedded forces combined with greater development efforts is the way to stop the Taliban's second coming. Let's hope this is something the US and Afghans can figure out together.

(Photo by erwinlux)

Predict(able)

Obama may be on vacation, but his proposed stimulus plan has garnered alot of economic debate, which is certainly not of the post-partisan variety. In case you haven't been following it, the huge surprise is a back and forth between Mankiw and Krugman. Shockingly they're duking it out over whether tax cuts or government spending is more efficient to spur economic growth. 

These are both very, very intelligent men, but lest we find ourselves trending to whatever side our political inclinations may lead, let us keep in mind that forecasting is hard. And if it's hard to predict oil or food prices, how can we seriously hope to predict what this stimulus will produce; especially when economic historians still debate the exact causes and escape mechanisms of the Great Depression. 

What we must admit and accept is that the experimentation and bold action our current situation requires could easily be hampered if we require historical precedent. This is not to say that healthy and vigorous debate is not needed; it most certainly is. But let us not forget that debate should eventually produce some action. For now, we can only hope that today's recession fears go the way of the Y2K bug, but until history proves that view, let's have something more than words in place. 

El Gordo

The holidays are officially upon us. For most in the US that means quiet nights with family and friends, perhaps a drunk uncle or two, and hopefully some good memories. Across the pond it's a bit different, and no I'm not talking about Boxing Day. El Gordo is a Spanish lottery that's played every year right before Christmas. It's the world's largest lottery and is always advertised in the pages of Parade (I think I'm the only person besides my grandmother who actually reads this) and late night infomercials sandwiched between old men selling commemorative, limited edition coins.

The competition is huge - up to 32 million people play annually - but in a global recession will we see more people sitting out to save their dwindling cash or more than ever hoping to catch the "fat one"? No one really knows whether lotteries are a counter-cyclical industry. Sales are up in many parts of the world and it would seem that people will indeed pay to play when they're down and out. But gaming as a whole suffers during a recession (largely because it's often paired with travel), so why does lottery do well? For one thing, it's cheap. Second, it's sold in the same places as gas, cigarettes, and booze. Vices usually go together. So, in a climate of rising unemployment and 401(k) losses, here's hoping that the fat one can make somebody's Three King's Day a bit brighter. Let's just hope they don't invest it coins.

Sorry for the light posting of late: between starting a new job and finishing up the term, time was stretched far too thin...back to normal this week.

(Photo by alvy)

Facebook sparks controversy in the Balkans

In the last few weeks, two interesting stories made the press involving the social networking website Facebook and the Balkans. On December 1, the International Herald Tribune reported that police detained 22 year old Niksa Klecak – creator of the Facebook group "I bet I can find 5,000 people who dislike [Croatian Prime Minister Ivo] Sanader." Police questioned Klecak for three hours and searched his home and computer. Several defended the detention, claiming that the group included a photo montage of Sanader in a Nazi uniform - Nazi symbols are banned under Croatian law.

Others, including political analyst Jelena Lovric and Social Democrats leader Zoran Milanovic, claim it is a veiled attempt to quash growing dissent that pervades the internet. An earlier Facebook group in protest of Sanader already had 80,000 members. Klecak’s group has attracted more than 5,000, and in the wake of his detention, almost 3,000 joined a new group called "Search my flat, you Gestapo gang, Croatia is not a police state." Sanader might be disappointed to hear that "I bet I can find 7,000 people who LIKE Sanader" only brought together 19 Facebookers. Ouch.

Meanwhile in Serbia, Radio Free Europe/Radio Liberty reports that a Facebook group proclaiming that the massacre at the Bosnian town of Srebrenica is a model for "fighting Islam" has popped up and drawn some 1,000 members. An estimated 7,000 Muslim men and boys were killed at Srebrenica in an act of genocide. A group in Bosnia-Herzegovina is asking Serbian officials to shut down the page and to prevent the Internet from being used as a forum to promote hate speech. No action thus far has been taken. 

These cases bring to mind the usual questions. What is freedom of speech? Should there be limitations to freedom of speech? etc., etc. However, what must not be overlooked is that while both cases are controversial in nature, they are both being openly discussed in and out of country. While it is disheartening to see a man be detained for starting an opposition Facebook group, and it’s just plain disgusting to see so many people support what most consider genocide, we should be reassured that the citizens of these countries as well as international observers are informed. In stark contrast, over the weekend 90 people were detained in Russia for participating in an opposition rally organized by Garry Kasparov. You may have read about it; the Russian press (for some reason) has overlooked this story.

(photo by ManilaRyce)

CHAAAAANNNNGGEEE!!! YOU KNOW IT!!!

Nick’s post from the other day got me thinking about what an upcoming Obama Administration will look like and how Mr. Obama will govern. Some disjointed thoughts:

Like most functioning democracies, in the United States, it's better to work for incremental, meaningful, and calculated reform than any sort of systemic change. The US Executive has considerable power, but that power is constrained by the institutional quirks of and large number of veto players in the American political system. It is also important to remember that the President represents the American people. There is a strong appetite for a larger government role in the economy and society given our current woes, but Mr. Obama would do well to remember that the US is essentially a center or center-right nation. I’m not saying that there aren’t policy areas where significant reform would be welcome (climate, energy, and education all spring to mind), but Mr. Obama risks squandering valuable political capital by proposing changes that offend popular sentiment (HilaryCare springs to mind.)

Fortunately, I think he understands this. His advisers are the cream of the Democratic Party establishment, but most of them have been around for years and cut their teeth during the Clinton Administration. To me, this sends a strong signal about prioritizing competence and experience over ideology or grandiose but unworkable plans. I should add that I appreciate the calculus behind the Clinton pick at State and am reasonably optimistic that it will work out fine.

Barack Obama strikes me as a highly intelligent, capable, and confident man poised to govern from the country’s political center. Like Nick,

I voted for the man based on my belief that his Presidency would represent a
return to a thoughtful administration, open to debate among passionate and
intelligent academics with equal weight given to voices, despite their
ideological leanings.

I’m still optimistic that this will largely be the case, save a few issue areas that I will refrain from discussing here.

(I'm in London for business and the LSE graduation ceremony this week, so posting from me will be light.)

Fool me once?

I must admit to being a somewhat lukewarm Obama supporter. I voted for the man based on my belief that his Presidency would represent a return to a thoughtful administration, open to debate among passionate and intelligent academics with equal weight given to voices, despite their ideological leanings.

When assembled, the formidable economic team validated my hopes for open and honest debate in a time when it's most certainly required. Hillary tempered my support just a little. And now this.

President-elect Barack Obama is expected to create what is sometimes called an “energy czar” to coordinate energy and environmental policy among the myriad federal agencies and lead a new National Energy Council...Browner, who’s heading the transition team’s environmental division, has likely landed the job.

I'm starting to fear that instead of real policy decisions, we will have a tepid and limp administration hampered by so many different new agencies, councils and czars that the executive branch will take longer to act than our current Congress. Maybe such a fear is irrational; granted, the man can't really do anything until January 20th, but if this is what he meant by job creation than America just got hoodwinked.

Rule of who?

No one seems to know what to make of the Blackwater case. Charges against the contractors, who turned themselves in, have been filed in Utah based on their role in the deaths of 17 Iraqi civilians in Baghdad back in September 2007. The 6 men are the first to be charged under the Military Extraterritorial Jurisdiction Act; 5 of the 6 have pled not guilty.

Thankfully under this law they can be tried for their crimes here in the US, because Lord knows they will never be extradited to Iraq. But would they be able to at least get a fair trial there? The answer to that question depends on whether Iraq functions under the rule of law. If the rule of law is defined by a functioning judiciary, then the country passes, but just barely. The US has sunk a LOT of money into rebuilding the courts (as it has in Afghanistan as well), but the problem is that the staff are underpaid, and sad to say, often corrupt.

Rebuilding a judicial system from the ground up is no small feat, but it is vital to any successful nation building operation. Just as important as the police force, the legal system must be able to handle not only the large number of cases, but do so in a fair manner. It may not be a realistic way of testing the system, but it would tell us more about the capabilities of the Iraqi judicial system more than any of the High Court's reviews of oil contracts or parliamentary actions.

China: cooperation or competition?

It seems clear that combating a global recession will require a good deal of international cooperation. There are a number of policy arenas where coordinated government action makes sense, such as monetary, fiscal and trade policy. So far, world leaders have said the right things in regards to working together, and they’ve explicitly acknowledged the dangers of protectionism. So what do you do when a rising economic power decides that it will do whatever it takes to avoid recession, even if it means harming other economies?

From the Asia Times:

As for the beggar thy neighbor, it has become clear over the past week that
Chinese government officials intend to export their way out of the global
economic crisis. This is all too readily apparent in the recent downward
movements of the Chinese yuan relative to the dollar. Stripped of any rhetoric,
this movement represents a "competitive devaluation" designed to boost Chinese
exports to the US at the expense of both domestic US manufacturers and competing
countries such as South Korea and Japan.

Such a move, if deliberate and sustained, is potentially disturbing for three reasons. One, as Martin Wolf has argued, in order for the root causes of this recession to be addressed, the world’s massive surplus countries (ahem… China) must expand domestic demand to mitigate imbalances. China is neglecting its systemic responsibilities to satisfy domestic concerns, which brings me to my second point. I tend to think that when a government’s legitimacy and mandate to rule are predicated on delivering sustained rapid economic growth, such a government will be more tempted by “beggar-thy-neighbor” strategies.

Finally, in this particular economic climate, we really do need to be wary of the ghosts of Smoot-Hawley. I’m not fear-mongering, nor am I suggesting that we’re entering a new period of trade-destroying protectionism; in fact, I’ve argued the opposite. But there is a lot of damage to trade that could be done legally, without violating existing WTO commitments, mainly due to the gap between applied and bound tariff rates. This sort of posturing by China merely provides fodder for the Lou Dobbs crowd and makes international cooperation all the more difficult to sustain politically.

The Great Resource Guessing Game

Petroleum Intelligence Weekly has published its influential annual ranking of the world's top oil companies. The most notable and widely reported aspect of the report is the global power shift from the traditional private oil majors to national oil companies. 27 of the top 50 oil companies are now majority state-owned. China's CNPC leads the surge, having surpassed both BP and Shell according to the report's metrics. Exxon Mobile is the only majority privately owned company remaining in the top 5.

The impact of a global oil market dominated by state-owned firms on both international growth and security is immense. The recent Global Trends 2025 report published by the US National Intelligence Council, and Patrick's farming piece below, highlight the high probability of future inter-state conflicts over increasingly scarce resources like oil. Energy security has risen to the top of both national and international agendas, and the threat of countries using the "energy weapon" for geopolitical leverage has lead many Western states to move in the direction of resource nationalism.

Beyond military and economic conflict, market uncertainty is the biggest effect of greater state control of natural resources. Reserve and refining capacity statistics are classified as state secrets in many countries with nationalized energy sectors. As Western majors are kicked out, and given the press restrictions in countries such as Russia and Iran, it will be increasingly difficult to obtain an accurate measurement of global supply and capacity (you can find my take on Russia's energy industry here). The hysteria surrounding "peak oil" (due in part to the realization of "known unknowns") last year probably contributed to the record run up in oil prices. The inability of traders to estimate and match long term supply and demand will drive up the speculative risk premium in oil prices, particularly if over-the-counter markets remain unregulated (an issue that has dropped off the political radar since the commodity bubble burst). This will only exacerbate inflationary pressures, political instability, and resource competition similar to what we witnessed over the past few years.

Information, transparency, property rights, and security are all central elements of an efficiently functioning oil market. Greater resource nationalization compromises all of these, and increases the probability of resource-driven political and economic conflict. As long as the trends outlined by Petroleum Intelligence Weekly continue, energy security will remain one of the defining issues of the 21st century.

(Photo: ifijay)

What are the consequences of farming abroad?

*As with any writing that pertains to trade and agricultural issues, I would like to note explicitly that this post represents solely my own opinions.*

A couple weeks ago, there was a fascinating story about the South Korean corporation Daewoo leasing land in Madagascar for the purpose of farming. This is especially notable because it is the latest in a series of land deals, whereby rich countries with limited agricultural production capacity are acquiring land in the developing world for the purpose of growing food to ship back home. A number of Middle Eastern countries have made similar arrangements in Africa, particularly Sudan, and China has been actively pursuing land deals in Brazil.

The scope of this deal is particularly staggering: if it is finalized, Daewoo would acquire a 99-year lease on 1.3 million hectares (half the size of Belgium) for no money, but Madagascar would presumably benefit from increased employment and rural development. I suspect the potential gains are highly skewed toward Daewoo, though I don’t want to fault a sovereign government for negotiating a deal presumably in its best interests.

However, I’m interested in the larger implications of this ‘farming abroad’ trend. In my mind, it’s inherently a sensitive issue because it involves food, which we all consume. Necessarily, agricultural investment will be more controversial and visible than, say, a sovereign wealth fund acquiring a stake in a foreign bank. The countries that are seeking these deals need to be very careful to avoid looking like imperialists, and there certainly needs to be a careful balance between how much food is exported and how well the domestic market is served. I wouldn’t bet on these contracts being honored very long if there were food shortages in the host country. How does any government allow food to be exported if locals are starving without full-throated international condemnation and vicious domestic civil unrest? My point is, land lease contracts ought to be managed with the utmost care to balance public relations and, more importantly, ethical concerns. A contract that looks skewed toward the foreign party is in neither side’s interests, in my mind.

Second, the lesson which these countries appear to have gleaned from the food crisis earlier this year is that self-sufficiency is the best option. If we follow this thinking to its logical conclusion, we risk severe resource-driven competition and conflict, especially as the world population continues to expand. For humanity to secure its food future, we absolutely need free and non-distorted agricultural trade at the multilateral level. That countries are drawing the opposite conclusion and adopting what I would describe as “beggar-thy-neighbor” food policies is troubling, to say the least.

(Photo from Quack A Duck's photostream)

Give the Big Three a bailout!

Ford, General Motors, and Chrysler need a bailout. But they're asking the wrong guys for money. Instead of driving their hybrids to Washington DC, they ought to fly into Riyadh and Dubai.

First off, no one makes fun of you for flying on your private jet. Saudi Prince Al Waleed Bin Talal just placed a personal order for a private Airbus A380! If you don't show up on a private jet, you're nobody. Secondly, Saudi Arabia and the UAE have money to spare: at least one trillion dollars in their sovereign wealth funds. The Big Three need about $34 billion to stay afloat, (which they have promised to pay back!), and it is important that they don't shut down. There is a dangerous domino effect if just one of the Big Three falls: they use many of the same suppliers, so if one goes down it might drag the others with it and lose some 2.5 million jobs in the process. This is probably an overestimate, and with so much of their production outsourced abroad, the pain would be spread around quite a bit. Still, it wouldn't be good.

The oil exporting countries have a vested interest in keeping SUV producing companies running. All car companies are hurting these days, but the Big Three are not sitting on enough cash to get through these tough times. Part of this is due to their brand-killing habit of making lots of bad cars, but they are working hard to fix that. The UAW has made some serious concessions, the Big Three are investing tons in R&D, and many of their cars are on par with Japanese and German imports these days (Disclaimer: I drive a Honda Civic, which was made in Ohio, interestingly enough).

Hell, all of OPEC should chip in and give a bailout to the Big Three. And if OPEC fails to bailout the Big Three, maybe Beijing would be interested? If they did I would take back all the mean things I said here. For selfish reasons, I am rooting for a bailout because someday I want to buy that new Camaro.

You just got Wurzelbached

I didn't know being an unlicensed plumber qualified one to suggest heavyweight economic texts. How is this guy still making news? Granted, it is American Spectator, but still. Joe the Plumber's favorite books (sigh)...

Temples of Convenience—and Chambers of Delight (Lucinda Lambton): "It shed a great deal of light on the development of the lavatory, or as we say over home, 'the hutch.'" Most of the privies in the book are "the product of non-union labor." 

Flushed with Pride: The Story of Thomas Crapper (Wallace Reyburn): "Just when you think you know everything about plumbing, this book comes along."

Plumber's Handbook (Howard C. Massey): Particularly useful "on the topics of greasy waste systems, outside waste interceptors, and what for me has been a longtime conundrum, local gas codes." 

The Theory of Money and Credit (Ludwig von Mises): "It brought monetary theory into the mainstream of economic analysis. It is important reading for these troubled times."

Tyler Cowen thinks Ron Paul's camp fed Joe the von Mises. Not a bad guess, though I would venture that he's gearing up for a 2010 House run. His platform? The exact opposite of this.

(HT: Democracy in America)

South Asia double down

I've been slow to write about the events in India for a variety of reasons, but now that (some of) the dust has settled, it seems appropriate to offer a few thoughts. India (especially Mumbai) is a country I love and have spent a lot of time in and I am loathe to think that the US is dragging its feet in response. 

In the midst of condemnations and travel plans, people seem to be forgetting that these are two nuclear powers in a strategically critical part of the world. What the US does is vital to the future security and stability of South Asia. Though their methods may not have been perfect, our present administration has done a wonderful job of simultaneously maintaining good (well, decent) relations with Pakistan and India.  India is, and should be, one of our strongest allies, even if we have to offer some concessions (non-prolifi what?) and Pakistan continues to be vital to our efforts in Afghanistan. The danger of wrong, or even worse - no, action in this scenario may hasten the loss of two of our most important allies.

The US needs to stamp out any speculation that the ISI (Pakistan's intelligence agency) was involved: even if they were, the notion will simply weaken Pakistan's young, struggling civilian government. The simple truth is that we can't afford to lose support from either of these countries and that will require the type of diplomatic nuance the Bush administration widely lacks. Secretary Rice must send a strong message that any military movement or action will be closely watched, roundly condemned, and will result in lost concessions, whether in trade, arms, or technology. Cooperative investigation is the best, and hardest, path to restoring some semblance of normality.

Take notice W: we can't wait until January 20th for any type of resolution. US memory is short and a deft handling of this situation may alleviate much of the disdain the foreign policy community holds for you.

(Photo: EC)