As the world turns...

Duncan Green has a thought-provoking, and downright frightening, post on how institutions may shape the climate change debate in the coming years.

I tend to be optimistic that this will not be the case; but more because I think technology will propel us forward, not the magnanimous actions of politicians or the scepter of international cooperation. Climate change is something we here at zzeitgeist are worried about. Let's hope Mr. Green's fiction is much stranger than the truth.

Just to the north (and a little to the right)

Have a look at this fascinating interactive graphic comparing key fiscal indicators in the United States and Canada. I had have read stuff detailing Canada's newfound fiscal conservatism but was nonetheless surprised at how similar we are to our northern neighbors.

Engineering an international incident

This article is a great follow up to the post I wrote a few weeks ago. New estimates suggest that the cuts in carbon emissions that would be necessary to halt climate change are much larger than we thought. They may not be politically feasible. Policymakers need to start thinking seriously about the international implications of unilateral climate change plans like geoengineering. 

Climate change legislation

EPA moves toward climate change regulations: "This decision is a game-changer," said Rep. Ed Markey, D-Mass. "It is now no longer a choice between doing a bill or doing nothing. It is now a choice between regulation and legislation. EPA will have to act if Congress does not act."

The politics of geoengineering

In an interview this week, John Holdren, Director of the Office of Science and Technology Policy in the White House, indicated that “the Obama administration is discussing radical technologies to cool Earth's air.” They probably are talking about it, but it was a huge mistake for Holdren to mention so publicly, for three reasons.

The "radical technologies" that Holdren references are collectively known as geoengineering. In a nutshell, geoengineers propose to purposefully manipulate the environment to counteract the effects of global warming. The idea has gained traction as a relatively painless way to fight climate change without taxing carbon or raising the cost of doing business. However, there is disagreement over whether it is actually possible and whether it risks making things much worse. Modern climate science is still relatively primitive – there are many things that we simply don’t yet understand. Geoengineering is the scientific equivalent of a Hail Mary pass.

By acknowledging it as a viable option, Holdren risks undermining international negotiations on combating climate change. Currently, the best solution available to climate change is to reduce carbon emissions, most commonly through some form of cap-and-trade system. But by pricing carbon, you raise the cost of goods and services at least in the short run. This is a tough enough pill to swallow, and geoengineering gives naysayers more ammunition to lobby against it. Negotiations are going to be hard enough as is – remember that it’s been seven torturous years of Doha Round negotiations that would produce a net economic gain, and we’re still not done.

Finally, geoengineering does not eliminate international coordination challenges. As a global problem, climate change requires a global solution. There are significant collective action problems to address. But even if we decide to geoengineer our way out of this mess, these problems will remain. Who gets to pick which geoengineering scheme gets used (there are many)? What if different nations choose to go forward with different geoengineering strategies? And most importantly, who pays for it?

I am somewhat of an international cooperation sceptic, and I worry that the global community won’t reach a consensus on climate change. For that reason, President Obama really ought to be exploring every contingency plan, geoengineering included.

But he and his team need to keep it to themselves.

A false dawn

April is the cruelest month - if you're an economist. Seriously, the dismal science has outdone itself in the past week. Here are some graphs charting the collapse in trade flows. (Bonus: here are some related statistics and graphs tracking the slowdown of bilateral US-UK trade). Here are some measuring the even faster disintegration of capital flows. Here are some which show that by every indicator, the global economy is tracking or doing worse than during the Great Depression. And here is the impossible (to paraphrase Felix Salmon) list of things we would need to do to avoid another Black Swan like this occuring in the future.

I am most troubled by the argument that current aggressive policy responses may eventually end the recession without addressing the fundamental problems which caused it in the first place. Green shoots? Try cold snap.

Panic and Pandemic

According to the World Health Organization, Ukraine experienced a huge drop in diphtheria, mumps, polio, hepatitis B, TB and whooping cough vaccinations in the last year after a widespread scare about vaccine side effects. Last May, a 17-year-old boy died after he received a combined shot for measles and rubella, and though the causes of his death turned out to be unrelated to the shot, the panic spread across the country like… well like a virus.

Two factors fed this panic: an unstable government and irresponsible media. First, true to their nature, the politicians sought to use the boy’s death to promote themselves and discredit others. Instead of properly investigating the boy’s death and initiating a thorough vaccination campaign, they squabbled like they’ve been doing since the Orange Revolution. So accurate information was not made available, and vaccinations expired before a campaign could be launched.

While the public did not get any accurate information, they were inundated with rumors and drivel, because those types of stories sell. The most popular misinformation: the boy's death was caused by an Indian-made measles and rubella vaccine, which also sterilizes men as part of a plot by Ted Turner, whose charity paid for the vaccines. Why Ted Turner would want to sterilize Ukrainians, I’m still not sure. How would that be good for business? If there were more Ukrainians, he could rationalize opening a chain of Montana Grills in Kyiv. But I digress.

This most recent side effect of political instability and unreliable media causes much cause for concern. In the early 1990s, Ukraine experienced an economic crisis and didn’t really get vaccinations to the public. Combined with the scare, UNICEF estimates that almost 9 million Ukrainians need vaccinations. Since 2000, there have been two major outbreaks of measles, and experts predict another larger outbreak. Moreover, with freer visa regulations established in the last couple years, more Europeans are traveling to Ukraine, and more Ukrainians are traveling to Europe.

Thus the possibility of exporting an outbreak is more and more likely. In this blogger’s opinion, it’s incredibly important that the EU and international organizations work with the Ukrainian Ministry of Health to start a campaign that will convince the public of the importance of vaccinations. Barring that, perhaps they can launch a campaign giving Ted Turner more credibility.

Big game hunting

* Trade posts represent solely my own opinions.

At a recent conference that I attended, one of the speakers borrowed a quote from Ike Eisenhower to great effect: “if a problem cannot be solved, enlarge it.” It occurs to me that this sentiment directly applies to the politics of trade in the United States. The public is divided on whether trade is beneficial to the economy, the 111th Congress has already demonstrated protectionist instincts, and it is increasingly difficult to advocate openness as jobs are lost and the recession deepens. How should President Obama, who understands the benefits of trade, address these political realities?

Enlarge the problem substantially by negotiating a comprehensive free trade agreement with the European Union or Japan. First, such an agreement would have huge economic benefits: EU-US trade flows were worth more than $640 billion in 2008. Export-oriented industries on both sides could be counted on to exert a lot of political pressure for that kind of market access. Second, a USEUFTA would take a very long time to negotiate due to the complexity of the trade relationship and both sides’ preference for high-quality agreements. This would put trade on the backburner for at least several years, which would help diffuse political tensions and give the economy time to recover, thereby mitigating the political influence of import-exposed industries. Negotiating with the EU would eliminate the standards (labor, environmental or otherwise) problem.

There are serious drawbacks to such an approach, such as the fact that it shuts out China, India, Brazil and other developing countries (though if you believe in competitive liberalization, you might argue that this would spur further negotiations.) Perhaps most worrisome, by establishing a substantive parallel system, it could easily undermine the multilateral trading system and provide a final knockout blow to the Doha Round. That would be terrible.

Still, the Obama Administration made it clear in its 2009 trade policy agenda that it would seek more economically meaningful agreements. Indeed, in a lot of ways, it would be better to complete one really big one instead of many smaller ones. Perhaps it’s time for trade policy-makers to consider big game hunting.

Exxxxcellent!

Much talk has surfaced lately concerning provisions in the recent stimulus bill that curb hiring of workers through the H-1B visa program. The proposed restrictions only affect TARP recipients, and Science points out that the practical impact of the limits could be minimal:

The limits affect new hires, not existing holders of work-related visas. And while the amount of TARP money is staggering, the number of companies involved -- generally in the financial services industry -- is relatively small. Only about 1 percent of workers in this industry have H-1B visas.

Rejoice you bloodthirsty capitalists, here are a few reasons to celebrate!

1. Computer software is a high growth industry with great employment prospects, yet interest in computer science remains generally low. Silicon Valley relies on the H1-B hiring process to find skilled workers.
   
2. Immigrants start companies. See Google.
   
3. Exporting education services helps the US to reduce its global trade imbalances. We still have the best higher education system in the world, but inhibiting the prospects of employment in the US may deter foreign students.
   
4. Backdoor isolationism sends the wrong message to our allies and trading partners. We have much work to do in order to improve our global standing.
   

Addendum: This should be an interesting study

Trash talk

The United States may finally be stuck with all of the discarded paper, scrap metal, and old computer parts that had previously been shipped to China for recycling. The New York Times recently reported that the once fruitful recycling industry in China that had been soaking up numerous waste products from around the world has become largely unprofitable after the fall of commodity prices, a trend we have been following closely here on zzzeitgeist. Among these commodities, paper prices have fallen by as much as 80%, meaning an end to the old practice of smuggling medical waste in crates marked for recycled paper. As environmental concerns shape into policy, the throw away culture of the past will hopefully reform in both the United States and China, leading not only to greener disposal practices but less waste as a whole. Finding viable solutions for managing the waste we've already created will open the door to cleaner practices in the future. In this era, the already fine lines between waste management (nuclear included), renewable energy, and culture will likely fade away.

(Photo thanks to Patrick)

Feeding humanity

* Posts on agriculture represent my personal opinions on the subject.*

Yesterday, Rory made an important observation: the global food crisis isn’t over. Indeed, many of the long-term changes in global food supply and demand haven’t changed since last year’s price spikes. And as the world’s population continues to grow, finding a way to feed everyone will become an increasingly central challenge for humanity.

When it comes to the feasibility of significantly increased food production, I am no Malthusian. The great promise of genetically-modified crops, combined with current low levels of agricultural productivity in most of the developed world, suggest that current yields can be substantially increased. To this end, we should support programs that aim to increase productivity in the developing world through better rural infrastructure, mechanization of agriculture, increased fertilizer use, seed pilot programs, etc. We should also encourage biotechnology research and development in rich countries.

However, agricultural land, like any natural resource, is distributed unevenly. Some countries are better positioned to grow food than others. Because of this, we need to advocate strongly for total liberalization of international agricultural trade. This is the only way to ensure that every country, including those with poor resource endowments, has equal access to market-priced agricultural staples. Let’s not forget that a significant trigger of global food price spikes were temporary export controls enacted by major wheat and rice exporting countries. Improve agricultural productivity wherever possible and work simultaneously toward agricultural free trade.

But agricultural trade liberalization would require an unprecedented degree of global policy cooperation. I am particularly worried that the economic crisis will actually result in a breakdown of international cooperation, which could herald a significant domestic retrenchment of politics. History shows us that globalization is hardly the natural state of international affairs. However, some of the most dangerous problems that humanity faces, like climate change and food security, will require global solutions. If we can’t find a way to cooperate, our shared future will be bleak.

How green is your stimulus?

The FT has a neat interactive graphic comparing "green spending" in the major national stimulus packages. I must admit, I was a little surprised by which country has the greenest stimulus by volume.

Hello G20, goodbye G7

In a new piece on Vox EU, the legendary Barry Eichengreen considers some of the repercussions of the G20's rise as the new forum for addressing global economic issues. My two cents: the G20, while more unwieldy than the G7 and yet not as representative as one would like, is still the most logical place to tackle global economic problems right now. Hey, path dependence can be a real pain.

How not to build foreign investor confidence

Bolivian president Evo Morales won a January 25 referendum on a new constitution that significantly increases the central government's control over strategic sectors, including mining and natural gas. The new constitution is but the most recent victory in the Movement to Socialism's drive to nationalize the Bolivian economy and consolidate political power (amongst other objectives, of course).

Obviously, the risks posed to foreign investors have increased substantially since Morales gained power in 2005. This uncertainty has resulted in a 75% decline in foreign investment since 2006. But amidst the commodity price and credit collapse of 2008, Morales seemingly realized that the Bolivian government could not fund, explore, extract and manage its natural resource wealth without foreign involvement. State-owned and private Bolivian firms simply lacked the expertise and capital to maximize the country's production/export potential. A number of public assurances and overtures last fall led some to adopt a more optimistic outlook on the role of foreign investors in the Bolivian economy.

Well, if the referendum itself didn't temper this optimism, February 10 sure did. One day after saying that the government would encourage foreign investment in the natural gas sector, the energy minister announced the central government's intentions to nationalize 4 of the power sector's largest companies, including Empressa Electricia Guarachi SA, majority owned by British firm Rurelec Pc.

February 9: Open for business!

February 10: No soup for you!

At this rate, Bolivia better hope General Motors' restructuring includes a whole lot of electric cars, because their mining, natural gas and power production is in a bit of trouble.

(photo: germeister's photostream)

Double, double oil and trouble

Little publicized fact: the $787 billion stimulus bill that Obama signed last week contains $16.6 billion for the Energy Efficiency and Renewable Energy (EERE) Office of the Dept of Energy. This increases the EERE’s budget tenfold, and it’s yet another signal that Obama is serious about alternative energy. That’s good.

Also this week, crude oil dipped below $40 for the first time in 2009, which has caused a stall in new energy projects. That’s bad. Oil prices are low because the economy is in terrible shape, which stifles demand. But the longer prices stay low, the harder it will be to commercialize advanced biofuels, which by one estimate will need an oil price of $80-$120 in order to be competitive in a reasonable timeframe.

This is a paradox worth watching as it plays out over the next 25 years. Ideally, you want clean and cheap energy. But that's still a ways off, and for now it seems like you can mainly have one or the other. Which is more important? How do you balance the two demands?

(photo from ifijay's photostream)

Social media enters...

the O.R.?

That's right, Twitter is in a Michigan hospital.

Seriously?

I am among social media's biggest fans, but I'm pretty sure there is a time and place for media 2.0-ing... and I'm gonna go out on a limb and say: while removing a cancerous tumor from a man's kidney is neither the time, nor the place.

According to CNN, Dr. Craig Rogers (lead surgeon in the Henry Ford surgery) said the reason for Twittering was to "let people know that a tumor can be removed without taking the entire kidney."

Ok, Dr. Rogers... I understand that social media gives the general public the power to share their ideas with massive amounts of people instantaneously, but I'm pretty sure that you can share that information AFTER the surgery is over.

Another gentleman quoted in the CNN story "tweeted" his own varicose vein-removal surgery as it was happening because:

A) It minimized his nervousness

B) He felt like he had support

C) He wanted a "record for other people who might be interested in the same surgery"

D) It later allowed him to connect with others with the same issues

No comment...

I want to be clear: I absolutely support the use of social media in the most innovative ways possible. I just seriously question the judgement of a medical practitioner that sees value in twittering DURING a procedure, as opposed to utilizing the same forms of media AFTER surgery. Again- time & place...

Don't you people watch medical dramas? Doctors don't need any more distractions.

Is it an onus?

Pundits like to act outraged when they hear Wall Streeters complain that $500,000 isn't that much money. They're right that it's a lot of money...if you don't live an upper crust lifestyle in New York. 

When a basic apartment goes for more than a million, 500k can go pretty quick. Obama and his economic team are quite right that all firms should be cutting back in this " winter of hardship" (seriously?). But capping executive pay is a pretty blunt and inefficient method of forcing companies to do this. Companies receiving federal bailout funds should certainly be subject to strict scrutiny, but if an executive can successfully employ this "bridge" money to shore up balance sheets and lead a return to profitability, shouldn't they be rewarded accordingly? 

Wall Street's "bonus" culture has been entrenched for so long that we seem to forgot exactly what one normally earns a bonus for. We shouldn't embrace it in it's current form, nor should we pay regulators the exorbitant amounts previously earned by execs. As always in times of hardship, we swing from one extreme to the other and suggest heavy handed ways to counter problems we didn't see coming and are all occasionally guilty of hyperbole.

Let's let government service remain just that and reinstitute the true meaning of bonus.

(Photo via c-weiss)

The Daschle debate

Who will replace Tom Daschle? There may not be an equal candidate, one with the experience and potential to drive health care reform, but there is a growing line of qualified applicants for the position of Health Secretary, as well as pressure to fill the opening. The New York Times offered five possible replacements, all of them current or former governors, saying "the effort [needed] to cover the uninsured and rein in health costs...is bigger than one person."

All evidence suggests that President Obama needs to act soon to fill this position and give the new candidate the necessary tools and time to begin drafting any health care reforms. As the Economist reminds us, the longer this issue sits on the table, the uglier it starts to look. Best to handle it in "stealth".

As the financial crisis deepens, so too does the difficulty of health care reform. The costs of health care are tremendous and the complexity of the issue make it a burdensome political topic. In the past, health care has been hung up by sluggish presidencies and waning public support. As national health care benefits for low-income families decline - every 1% increase in unemployment leads to an increase of 1m in the number of unemployed and 1.1m in the numbers joining Medicaid and SCHIP - the difficulty of managing the health care crisis inversely increases.

Among that list of five governors, former Oregon Governor John Kitzhaber, represents a calculated pick. He lacks much of the political clout held by Daschle and others, but as a doctor, his commitment to the issue is sound and noteworthy. America's health care crisis may be stealth, but the man tasked with it's revival certainly shouldn't be. Kitzhaber just may be able to bring attention to this neglected post without a litany of improper tax returns.

(Sweet shorts, Doc)

Shamless plug

For those of you interested in youth issues, specifically with regard to education and poverty, let me point you to a new blog at the World Bank.

The Youthink! site is a comprehensive effort by the Bank to engage youth on issues important to development. I'll be blogging there regularly. Please take a look. 

L’économie politique du Roquefort

*These observations on trade are strictly my own thoughts.

One final note on l’affaire Roquefort, in which outgoing-President Bush raised tariffs on imports of French Roquefort cheese to 300%. I have generally been disappointed by the quality of debate in the blogosphere on this issue. As I have argued many times on this blog, trade policy is not understood very well through the prism of either political science or economics. If you want to understand trade policy outcomes (not the underlying theory), it’s best to think in terms of political economy.

The Roquefort tariff was first addressed by FP Passport, whose analysis hinges on the likely political impact:

The last thing Obama wants right now is to get into a trade war with France over
a last-minute decision by his predecessor, particularly when he's looking for
French cooperation on far more pressing issues.

Turning to economics, after a first attempt, the Economist followed with a scathing post:

While the measure hurts producers (and consumers) of a large number of
scrumptious products, the greatest casualty is Roquefort cheese. Yes, while
Europeans will be relishing delicious bleu cheese, Americans can eat
hormone-injected beef with a side of stale freedom fries. The asymmetry of the
quality has predictably inspired ridicule for the duties in France.

Beyond that superficiality, the Roquefort duty in particular is poorly
targeted and hardly just. A village of 600 people will have to face the most
severe consequences of a single European anti-trade policy. The banning of the
cheese is a symbolic measure that will do little to affect France’s economy as a
whole. Instead, it serves to provoke Europe unnecessarily and to reinforce
accusations of American jingoism.

Both analyses are incomplete. Passport’s international politics framing would be a suitable analytical point for other issues, but trade policy rarely moves so fast, and it would be extremely unlikely for the US to hike tariffs for no reason. This is especially true given Mr. Bush’s predilection for free trade. The Economist correctly identifies that the tariffs were enacted as a WTO-legal retaliatory measure in response to the EU’s banning the import of American hormone-treated beef. But they are wrong to hastily conclude that the Roquefort tariff is “poorly targeted.” As I wrote recently, the WTO is in many ways a mercantilist institution, and retaliatory sanctions (tariffs) are the only punishment it can authorize in disputes. Countries which are given WTO permission to apply sanctions have an incentive to make them symbolic, painful or, if possible, both. In doing so, the offended country hopes to harness the affected domestic producers in the offending country to pressure their government to make the sanctions go away (ideally, by complying with the WTO ruling.)

For many reasons, I do not want to discuss the specifics of this particular tariff. But this is the best framework with which to view this issue. Essentially, it’s rigging a purposefully inefficient outcome with the hope of forcing a more efficient outcome (i.e. freer trade in both European cheese and American beef) than the previous equilibrium (free trade in European cheese only.) Juicy as it may be, I doubt we can draw many conclusions about Mr. Bush’s free trade record from this incident or tie it to France’s opposition to the Iraq War.

Alors...