There is a very interesting article The Wrong Friends: The Uncomfortable Lesson Of The Uprisings In The Middle East in The Boston Globe. The author is David Mednicoff.

But one thing is undeniable: In a region full of monarchies and other unelected regimes, the government that fell — the one government unable to maintain enough hold on the public to weather a crisis — was the most secular one.

Mednicoff is referring to Tunisia in this quote, but the rest of the article goes on to consider many other countries in the Middle East.

When Hillary Clinton or Barack Obama start making pronouncements on what the government of Egypt should and shouldn’t do in the face of the current crisis, I get a very queasy feeling.  How would they know what Egypt ought to do?  Obama and Clinton have their hands full figuring out what the U.S.A. ought to do.

Author David Mednicoff puts some meat on the bones of my queasy feeling. We in the United States think that there should be a separation between church and state. That is a form of government we have chosen for ourselves.  It works pretty well for us, a heterogeneous country of people of many religions.  Where is it written, that all countries must adopt this system and all peoples yearn for this type of government?  We already know that there are many people in this country who think this country ought to be a Christian nation.  We do not have such a system because we decided to adopt a Constitution that prohibits it.  Do we have the right to impose this system on everyone else in the world?  Why should we even be promoting such a system in other people’s countries?  Why can’t we, in all humility, let those people decide what kind of a system they want?

In the face of our knee-jerk reaction to those that want Sharia law in their countries, I have had my doubts on how tenable a Jewish state is in Israel.  Now I realize why it is not up to me to make this value judgment.

Perhaps we still have a leg to stand on when we think that the people in a country ought to have a voice in the choice of the form of their own government.  To the extent that a certain form is foisted upon them without their consent, perhaps we can still rightly decry the situation.

The Democrats believe the roots of the crash were laid by the private sector’s derivatives trading and housing bubble that was facilitated by deregulation and lax enforcement of the remaining regulations.

The Republicans believe the crash was caused by the US Government encouraging home ownership and the expansion of Freddie Mac and Fannie Mae.  (Of course you have to get time to run backward to support this theory.)

However, there may be another theory that I bet you never considered.

In found the article US Military Spending and the National Debt: Roots of the 2008 “Crash” of the Global Capitalist Financial System by Hassan Ali El-Najjar, Ph.D. “…presented at the annual meeting of the American Sociological Association in Atlanta, on August 15, 2010, in the regular session of the Political Economy of the World System.” Below is a taste of the presentation to whet you appetite.

Abstract

In this paper, I investigate the roots of the 2008 perceived “crash” of the global capitalist financial system, in its center, the United States.

I argue that the so-called “crash” was nothing more than a necessary measure to end the financially chaotic period of the Bush administration (2001-2008). The chaos was caused by the cash-saturated financial markets as a result of about $4.3 trillion dollars issued by Congress to finance the so-called “War on Terror.”

I don’t want to color your perception of this paper, so I will make no further comment.

Robert Reich’s blog post The President Ignored the Elephant in the Room, discusses the State Of The Union address of  two nights ago.

But the President’s failure to address the decoupling of American corporate profits from American jobs, and explain specifically what he’ll do to get jobs back, not only risks making his grand plans for reviving the nation’s competitiveness seem somewhat beside the point but also cedes to Republicans the dominant narrative.

This may be the elephant to Reich, but I think there is a pink elephant that even Robert Reich seems to have missed.

To me, the talk of regaining competitiveness by having education as good as our competitors and innovation as good as our competitors doesn’t sound like enough.  If their education and innovation is as good or better than ours and they work for less money, I just don’t see how we are going to get the jobs back.

When I say their education is as good or better than ours, I am reminded that about 60% of the technical PhD degrees granted by our own universities have been going to citizens of these competitor nations.  This has been going on for more than 30, dare I say 40, years.  Add the number of PhDs from the schools in the competitor countries that I can guarantee aren’t giving 60% of their degrees to Americans, and you see the problem even more clearly.

It seems to me that we will have to come close to matching the competitor countries’ salary levels before we can really compete.  Will all the wealth of the U.S. be subject to this adjustment through lowering the value of the dollar relative to the competitor nations?  Or will only the wealth of the working class be lowered by lowering wages in fixed value (gold standard) dollars.  In the second scenario, the wages of the workers decline but their debts remain fixed.  So the wealthy get to collect the full amount that they lent. The wealthy can preserve their wealth and only the workers have to adjust.

The only saving grace that I can think of is to understand how Germany is managing to do so well with highly paid workers in the face of the same competition against which we are losing.  Germany has higher taxes and a more robust government safety net than even we do.  It looks like it would behoove us to find out what their secret is.

Perhaps the German secret will turn out to be the closer ties between German corporate profits and the success of their workers.  In that case, Robert Reich will have identified the correct elephant.  He ought to spell it out more clearly if that is what he is getting at.  There is no better way to make your point for a change in policy than to point to a successful example of the use of that policy.  If there is an example, we don’t only have to look at the abstract concept of tying corporate profits to worker success, but we can look at actual tactics for realizing the concept.

In a discussion with faithful reader RichardH, I was complaining about the legacy of Mlton Friedman as an example of the poor record of the Nobel Prize in Economics.

After I clearly stated my view, I decided to do a little research.  Isn’t that the way all intellectual discussions should unfold?

I first read the WikiPeida entry on Milton Friedman. The preceding link focuses on the criticism section, but I actually read more of the entry than just that.  In typical WikiPedia fashion it says on the one hand you have this opinion and on the other hand you have the opposite.

In following the references, I came across the Paul Krugman article Who Was Milton Friedman? in The New York Review of Books.  I think this was written in early 2007.

I believe that even Krugman’s piece gives too much credit to the value of the Friedman hypothesis as it applies to the period of stagflation in the 1970s and early 1980s.  In later sections, on other topics  Krugman warns that things are more complicated than Krugman’s brief analysis.  He should have given the same warning about his analysis of stagflation.

I think that the contribution of Krugman’s article is that it reminds us that economic theories that were developed to explain behavior under a certain set of conditions will fail badly when applied to situations that do not match the conditions specified in the theory.  For instance Kenyes proposed a theory of the failure of monetarism in periods of depression/exceedingly low interest rates.  The fact that these theories weren’t applicable during periods of high inflation and  high interest rates is not a problem of the theory.  It was a problem of applying the theory meant to explain one situation to a situation that it was never meant to explain.

Likewise, Friedman’s monetarist theories apply in a definable range of situations.  Unlike others who applied Keynes’ prescriptions to the wrong maladies, it was Friedman himself that applied his own prescriptions to the wrong maladies.

Do you give credit and award prizes to a stopped watch because it is correct two times a day?

I have just come across some of the information about how the U.S. Marine Corp is treating its prisoner Bradley Manning.

The buzzflash blog has the article Military Steps Up Retaliation Against Bradley Manning As Support Network Grows, which gives a hint at what is going on.

I wonder what harm they think Manning could do if they treated him humanely.  Maybe someone else can come up with a rationale as to why our government would act this way.  Does President Obama suddenly believe in torture now?  Is that why he wouldn’t look into the possible war crimes under the Bush administration?

Finally a TV series explaining Portland, Oregon.

Below is a trailer for the first episode of the show Portlandia.

There is a sneak preview of the entire first episode.

This episode was written up in Salon Magazine.

On Reuters web site you find the typical article about the Chinese leader’s visit, Deals, yuan in focus as China’s Hu visits U.S.

Currency concerns took center stage in Washington.

Senators Sherrod Brown, a Democrat, and Olympia Snowe, a Republican, sent a letter to Geithner promising to introduce legislation to “address China’s unlawful practice of currency manipulation.”

“China’s actions to subsidize its exports through currency manipulation pose both immediate and long-term challenges to American manufacturers and workers still recovering from the economic recession,” they wrote.

Their letter came after a group of senators said on Monday the United States had to pass legislation to punish China if it fails to allow its currency to rise in value.

The Congressional Steel Caucus of lawmakers from steel-making states urged Obama to tell Hu that “American patience for its unfair and illegal trade practices, and its exploitative and anti-competitive policies, has run out.”

I haven’t yet figured out exactly what illegal thing China has done by pegging their currency to the dollar or by only letting it rise by 3.5% over the last year.  If the Chinese let the value of the yuan rise precipitously against the dollar, large numbers of Chinese workers would be thrown out of work as their exports would drop as precipitously.  I can’t imagine why the Chinese government would think this would be a good thing for the Chinese government to do.

Moreover, the Chinese are very large holders of U.S. Government debt.  Why would the Chinese government want to devalue the debt owed to them?  They could offer to dump that debt on the open market before they revalued their currency.  I am not sure that the U.S. government would like that policy.

In fact, China is now suffering some level of inflation because of the growth of their economy.  If they could divert some of the goods being exported to satisfy the needs of their domestic economy and allow more foreign goods in to supplement the supply, they might be able to tamp down inflation. (Of course that doesn’t necessarily help the inflation in the one thing that cannot be imported, and that is real-estate.)

To the degree that  China makes the above suggested shift, they could afford to let the value of the yen rise at the same rate as the shift was being made without the huge sudden rise in unemployment.  However, The United States would be hard pressed to convince the Chinese that this revaluation of the yen ought to occur on a timetable that is best for the U.S.

Now all the U.S. has to do is to let the Chinese revalue our debt that they hold which is now denominated in dollars into debt denominated in the yuan, and China would probably be very receptive of our ideas.  Of course we would be fools to allow  such a change.

I don’t think it helps our cause to act all upset and threatening because they are looking after their own best interests.  We don’t pay much attention to them getting upset over our looking out for our own interests.  Perhaps it is time to drop the charade, be honest with the American people, and just negotiate on realistic terms.

I have just tried to do a modicum of research on the legality of the Chinese currency manipulation‘

In WikiPedia we have the article on Currency Intervention

Under normal rules^{[says who?]} of international trade, the Chinese central bank should sell its dollars on international currency markets and buy yuan in exchange, resulting in a self-correcting system: the U.S. dollar weakens and the Chinese yuan strengthens, until equilibrium is restored and the trade gap closes. However, in order to avoid this situation (which would decrease Chinese exports), the Chinese central bank “bends the rules”^{[says who?]}: they slow the appreciation of the Yuan, or in some cases effectively peg the CNY against the USD.

The super-scripted “says who?” refers to WikiPedia’s deprecation of using unsupported attributions.

I found an article, No legal basis for labelling China as currency manipulator, posted on the Chinal Daily web site.

“I find it very hard to be able to come to the conclusion that China is a currency manipulator,” said Robert Howse, an expert on international trade law and professor of international law at New York University.

With this attribution, you can decide whether or not you find the web site credible and/or whether or not you find  the New York University expert credible.

Paul Krugman has an article Can Europe Be Saved? in The New York Times Magazine.

In the article he discusses how the European Monitary Union (the common currency called the Euro) is presenting challenges to the European Union in these troubling economic times.  The article is a primer on the history of how the union got started and how it has progressed from a smooth success to the current bumps in the road.

He discusses the similarities and differences between the Euro’s relation to the countries of Europe and the Dollar’s relation to the states of The United States.

He discusses the possible ways various countries in Europe could handle their problems.  With each route, he describes who will be the winners and who will be the losers.

I recommend the article for the information provided.  This is not an endorsement of the predictions nor a guarantee that everybody sees the situation as Krugman describes it.  Whatever the outcome of the story may end up to be, you have to start somewhere in educating yourself about the reality.  You might as well start with someone who has a record of not being too ideological ( and is open about whatever ideological bias he has ) when it comes to issues related to his field of expertise, Economics.

Simon Johnson has posted the article The Bill Daley Problem on his BaselineScenario web site.

The Bill Daley Problem is completely bipartisan – it shows us the White House fails to understand that, at the heart of our economy, we have a huge time bomb.

Johnson goes on to describe the time bomb.

Today’s most dangerous government sponsored enterprises are the largest six bank holding companies: JP Morgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley.  They are undoubtedly too big to fail – if they were on the brink of failure, they would be rescued by the government, in the sense that their creditors would be protected 100 percent.  The market knows this and, as a result, these large institutions can borrow more cheaply than their smaller competitors.  This lets them stay big and – amazingly – get bigger.

I wonder if the danger could be ameliorated by explicit statements from the administration to the debt holders of these institutions that they will not be bailed out if the banks go bust.  The statement would explicitly emphasize the great risk these people are taking by investing in these banks.  Of course, we will never find out the answer to my wonder.  No administration, especially not this one, would ever put out such a clear warning.

There a lot of links in the Johnson article which I intend to follow up.

I had been meaning to post something about the appointment of Daley as Obama’s chief of staff as yet another indication that this administration had gone off the rails. Simon Johnson has done all the work and stated the case much more authoritatively than I ever could have done.

I have looked into just a few of the links in Johnson’s article.  The first few were over a year old, which is hardly a sign of peoples’ current thinking.

Then I checked out the link “Gene Fama, father of the efficient financial markets view, gets it better than anyone.” This again raises my doubts as to whether or not Simon Johnson and I are on the same wavelength or not.

Gene Fama is definitely infected with the Chicago School of Economics sickness.  As the father of the theory of efficient markets, he perverts the whole idea in order to defend capitalism.  His theory claims that the market sets prices based on all the current available information. If this were true, then perhaps his claim would be true  that capital could not be allocated any better than the way the free market allocates it.  He too readily dismisses the idea that bubbles are proof of the failure of efficient markets.  He says nobody could have known we had a bubble that was going to burst.  Amongst that crowd of nobodies he must dismiss all the people who were predicting that we were in a bubble and it would burst.  Some of those people included Nouriel Roubini who was complaining about derivatives as the bubble inflated.  Even Warren Buffet was claiming that financial derivatives were financial weapons of mass destruction.  All the people who were warning that the repeal of the Glass-Steagall act during the Clinton administration would lead to disaster turned out to be correct.  (I count myself among the people who were contemporaneously predicting the fallout from the repeal.)  Of course Fama is right that nobody could have predicted the exact date of the burst.

Fama claims that regulation is doomed to fail.  He agrees in a way with Simon Johnson that the idea of banks being too big to fail should be off the table. Instead of regulation we ought to raise capital requirements dramatically to as much as 40%.  I wonder who Fama thinks has the power to raise this requirement?  That wouldn’t be some form of regulator would it?  Couldn’t be.  He doesn’t believe in regulation.

I know, some of what I am saying is too simplistic an argument against Fama, but no more so than Fama’s use of efficient market theory to defend the Chicago School’s theory of how the world ought to work.  They don’t seem to recognize the difference of how something ought to work in a utopian world and the limits on how things can actually work in the real world made up of real people and not some ideal automaton.

If only real people would be completely rational.  If only politicians didn’t behave as politicians do.  If only big corporations didn’t use their resources to buy off politicians.  If only peoples’ lives could be adjusted instantaneously to each turn in the market.  If only people didn’t starve when they could not afford to buy food.