Relevant and even prescient commentary on news, politics and the economy.

Closer to a Yuan Revaluation?

Back in August, I wrote that a rise in inflation in China might make the Chinese government more inclined to revalue the yuan against the dollar. Part of Stephen Roach’s commentary this week suggests that that time might be getting closer:

Meanwhile, there has been an important shift in the Chinese inflation dynamic: After 15 months of deflation, China transitioned back into positive inflation territory at the start of 2003. And slowly but surely, the rate of inflation has begun to accelerate. The just-released inflation report for November 2003 was mildly disturbing — a 3.0% y-o-y increase, which represents the sharpest rise in nearly seven years. The mix of Chinese inflation is important, but not for the reasons we stress in the industrial world. The recent surge is concentrated in food prices, where annualized inflation is now running at an 8.1% rate. Weather-related or not, this is a big deal in a nation that still has about two-thirds of its population living at poverty levels. Unlike the West, where we strip out food in an effort to come up with “core” inflation, the Chinese have no such luxury…

As you know, the China issue has been growing for months. So this news matters. If the Chinese are serious about wanting to slow inflation, they will have no choice but to revalue, for various reasons. But first, they’ll probably try to sell some of their $500 billion of US government bonds.

The year 2004 could bring some interesting times…


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Does This Rule Out Dean-Clark ’04?

Salon recently interviewed Wesley Clark, and asked him about the possible “dream team” Democratic ticket against Bush:

[J]ust 48 hours before before the capture of Saddam Hussein outside of Tikrit, Clark made his strongest statement to date about why a Dean-Clark ticket is a bad idea. Clark, who says that he’s uniquely qualified to go “toe-to-toe” with President Bush on security issues in 2004, said that whether he’s on the ticket or not, the Democrats can’t win with Dean as their presidential candidate.

“I don’t think the Democratic Party can win without carrying a heavy experience in national security affairs into the campaign,” he told Salon in a phone interview last week. “And that experience can’t be in a vice president.”

Asked if he was referring specifically to the much-discussed possibility of a Dean-Clark ticket, he said: “It’s no substitute. It won’t work, and it won’t carry the election for this party.”

Of course, when running for president one must not seem to be really running for vice-president. But if we take him at his word, Clark seems to be ruling out an alliance with Dean.

Or, do his comments leave that door open just a crack…?


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Ugly, Ugly Fratricide

This is not pretty. And one wonders why the Republicans have gained such complete control over the US’s political system, given that the majority of American’s are closer to Democrats than Republicans on the issues…

Dr. Dean, the former governor of Vermont, had billed his speech here to the Pacific Council on International Policy as a sweeping international tour of what he said were his moderate foreign policy views…

“The difficulties and tragedies which we have faced in Iraq show the administration launched the war in the wrong way, at the wrong time, with inadequate planning, insufficient help, and at the extraordinary cost, so far, of $166 billion,” he said. “The capture of Saddam does not end our difficulties from the aftermath of the administration’s war to oust him.”

Dr. Dean’s Democratic opponents immediately seized on the speech to raise new questions about his viability in a general election… At the same time, a group of Democrats known informally as a “stop Dean” coalition began running a television advertisement in New Hampshire and South Carolina that shows a photograph of Osama bin Laden with the warning, “It’s time for Democrats to start thinking about Dean’s inexperience.”

Regardless of your opinion of Dean, I think that anyone who wants to get rid of Bush in 2004 should find this disgusting.


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Guest Blogging

Just a reminder: Kash and I are looking for guest-bloggers from 12/20 to 1/7 (I’ll be blogging through the end of the year, then taking a week off. Kash is off for 2.5 weeks.) Happily, we have one great guest so far (the much anticipated unveiling will come at the end of this week), but we could use one or two more. If you’re interested, click here.


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It’s Your Children’s Money. Quick! Keep Taking It!

Here’s the new fiscal responsibility plan: cut the deficit in half by 2009. Maybe. There’s a major caveat:

In an interview Friday, Joel Kaplan, deputy director of the White House budget office, said Bush would halve the deficit “by pursuing very aggressively his pro-growth economic policies, and by leading the Congress toward overall policies of fiscal restraint. And if the Congress adheres to those two programs, we’ll be successful in halving the deficit from its ’04 peak within that time period.”

I’m pretty sure the Republican Congress is in on the tax cut side. They’re still working on the spending restraint, however (via Atrios).

Seeing this made me want to track down some old Bush quotes about his budget and tax plans. Here’s a nice excerpt from the 2000 campaign website:

Cut Taxes Responsibly: Governor Bush’s $460 billion tax cut over five years will contribute to raising the standard of living for all Americans. His budget uses only about a quarter of the surplus for tax cuts, reserves all Social Security funds for Social Security only, and still leaves extra money for debt reduction, defense, education, and other priorities.

Of course, you have to visit the Internet Wayback Machine to find that promise. For some reason, it’s no longer part of the official site.

Also while wandering the Web for quotes from 2000, I found this from an 11/1/2000 CNN piece:

“We’ve got a surplus in Washington, D.C.,” [Bush] said. “Let me tell you what I think a surplus means. It means the government has got more money than it needs. That’s why it’s called a surplus.

“When you have a surplus, it means our people are overtaxed, that your government is overcharging you. I propose responsible priorities for our surplus — a balanced budget and a fiscally responsible plan.”

But that was then.


P.S. I’m pretty sure that when the administration says (first quote, above) “pursuing very aggressively his pro-growth economic policies” they mean more tax cuts. Yes, tax cuts are stimulative in the short run, but when did Conservatives morph into Keynesians? Must have been some time in early 2001.

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Good News

The latest news is that Saddam Hussein may have been captured. Clearly, that would be unambiguously good news. But it leads me to wonder whether the opposition is driven by pro-Saddam loyalty or anti-American sentiment. If the former, then things could take a turn for the better; if the latter, then we’re likely to keep seeing more of the same. Either way, it is — at the least — an important symbolic victory.


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Yet Another Miserable Failure

From today’s Washington Post:

KIRKUSH, Iraq, Dec. 12 — More than half the men in the first unit to be trained for the new Iraqi army have abandoned their jobs because of low pay, inadequate training, faulty equipment, ethnic tensions and other concerns, leaving the nascent 1st Battalion dramatically understaffed just days before it is scheduled to leave training camp for its first assignment, Iraqi, U.S. and other coalition officials say.


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How Do You Decide on a New Constitution?

It’s not easy. Just take a look at what the EU is going through this weekend as they try to write their first Europe-wide constitution. The biggest issue is how much representation in the Council of Ministers to give to each country. They have to be careful to set it up right, or they could end up with a system that’s not very representative… maybe even one that allows a minority of population to control policy-making, or even elect the EU’s leaders…


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Into the Breach Again I Go…

Fight it… Fight it… No… Can’t… Resist… Must… Bring up… Trade… Again…

It’s not my fault. Blame Brad DeLong. He put up a provocative post yesterday about this week’s Economist piece (subscription required) on white collar jobs in the US being outsourced to places like India. DeLong’s point is that The Economist goofed. He says:

The fact that trade balances–that dollars paid to Indian call-center workers show up as demand for American exports or as funding for investments in America*–means that the Economist is doing a bad thing when it talks about “job loss” rather than “job shift.” Bad Economist! Go lie down now!! No biscuit for you!!!

Needless to say, Brad’s post has generated a storm of comments, many of which are intelligent, articulate, and almost all of which I’ve enjoyed reading. Numerous commenters raised the issue of the job losses that the IT sector in the US has experienced over the past 2 or 3 years. There are dozens of comments along this line, but I’ll reproduce one particularly persuasive comment by a contributor named Camille Roy to give you the flavor:

Dear Mr DeLong,

Love your blog, but this is bogus. In fact the stream of consciousness in this thread, in so far as it characterizes these out sourced jobs as low-skill jobs we may be better off without, is bogus. (The ivory tower mentality reflects poorly on your profession.) I am speaking from the line of fire, as a silicon valley software engineer with over a decade of advanced lab experience in the best companies in the valley. I know what’s going on and it is ugly. The wages dropping like a stone etc, etc. I know the companies around here are sending work off-shore as fast as they can and I know that there are very few replacement jobs. Job losses here are around 300K and there is nothing on the horizon for these highly trained unemployed.

I am completely sympathetic to the feelings and fears behind these types of comments. It is true that jobs have dramatically disappeared in Silicon Valley. And it is truly awful for those who lost jobs, or can’t find jobs.

I would like to pose two questions in response to these concerns.

First, how can one tell that outsourcing is responsible for recent job losses in IT? I would argue that nearly all of those job losses are due to the end of the massive internet technology bubble of the late 1990s, coupled with the general job market recession. In other words, I bet that job losses would be about the same in the industry if no new jobs had been created in India.

My second question is related: If outsourcing is responsible for the loss of jobs in IT, then what explains the job losses in other industries? Many have argued that manufacturing jobs have also disappeared because of international trade. But jobs have also disappeared in industries that face no international competition, such as transportation and retail trade.

The table below shows the percent change in total employment, given by the BLS, between September 2000 and September 2003. Jobs that face no international competition, such as courier services, rail transportation, and various wholesalers, have disappeared just as fast as (or faster than) jobs in software publishing, accounting, and research and development, which are supposed to be the major victims of outsourcing.

What explains this? It’s simple: the state of the economy is the reason for the loss of jobs in the US, not international trade.

As I argued at length a few weeks ago, the process of losing jobs to international competition is no different from the process of losing jobs to technological advances. They both cause pain and hardship for some people, and benefits for others. Why treat international trade any differently from technological progress? If you’re worried about the state of the job market in the US, then you should focus on the state of the economy, and the competence of the people running it. Don’t worry about international trade — it’s a red herring.

Let me end this post with another comment from DeLong’s post, by a contributor named Bulent Sayin:

Suppose, just suppose, that these whatchamacallit “call center” operations did not go offshore, instead, they were completely automated.

I mean suppose these call center jobs were lost to software, not to workers in India, with exactly the same effects on American call center workers. (If it is going to make you happy, assume that the conputers hosting that software is located in US; but that won’t make helluva difference, I can tell you.)

What would you say to that?

More importantly, what would you do about it?


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Uncompetitive and Unmonitored

Josh Marshall has a lovely follow up to Kash’s earlier post on the likely impact of the administration reducing competition for reconstruction contracts in Iraq (illustrative example of this effect: importing gasoline from Kuwait costs $2.64/gallon). Here’s the news from Marshall:

When Congress voted the $87 billion for military expenditures and reconstruction in Iraq they were keen to create an office of Inspector General at the Coalition Provisional Authority (CPA) to watch out for all manner of waste, fraud, abuse, price gouging and various other shenanigans.

Now it seems that Paul Wolfowitz has gutted that provision. …

I still try to picture Wolfowitz as a misguided idealogue, but damn it if he doesn’t make it tough to see him as anything other than a naked shill for war profiteers.


UPDATE: Wolfowitz must have been anticipating this morning’s NYT, which alleges more attempted profiteering:

Kellogg, Brown & Root, also submitted a proposal for cafeteria services that seemed to be inflated by $67 million, the officials said. The Pentagon rejected that proposal, they said.

The problems involving Halliburton, where Vice President Dick Cheney was chief executive, were described in a preliminary report by auditors, the officials said. The Pentagon contracts were awarded without competitive bidding and have a potential value of $15.6 billion; recent estimates by the Army have put the current value of the Halliburton contracts at about $5 billion.

The solution to inflated bids? More competition? No. Less auditors!

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