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Transparency Thursday: The Syrian Humanitarian Crisis

A lot has been written on the Syrian Civil War, and rightfully so. Over the last 23 months, the Syrian Civil War has claimed the lives of an estimated 70,000+ people. The Assad government remains in control mainly due to UNSC vetoes by Russia and China. These two countries, natural champions of “national sovereignty”, have tied the international community’s collective hands in the matter with no ideological shift in sight. Multi-lateral intervention has failed the Syrian people.

Therefore, it falls on individual nations to act either unilaterally, or more likely bi-laterally, to expedite the process of removing Bashar Al-Assad from power. It has become public knowledge that late last year President Obama rejected a plan from high ranking administration officials to arm the Syrian rebels.

It is not surprising that Obama has been very meticulous with regards to the Syria conflict. America is currently in the process of winding down its expensive “war on terror” in Afghanistan; no one has any interest in getting involved in another “conventional war” in the Middle-East.

There is also the fact that arming rebels can backfire. America has a history of backing a rebel group to topple an autocratic dictator who was seen as a threat to U.S. national security interests, only to bring to power another faction that also did not support “Western values”. For example, America armed a group led by Osama Bin-Laden to fight the Soviet Union in the 1980s, that did not end up so well.

There is an element of worry regarding arming Syrian rebels as well. Certain factions fighting Assad, notably the Al Nusra Front, are believed to have ties to Al-Qaeda. It is important we do not empower a future enemy with advanced military technology and governmental authority.

This time, however, is different. The U.S. and its allies have been central in planning an alternative government in Syria–The Syrian National Coalition. This parallel government was designed to be an inclusive organization that will protect religious pluralism and democratic rights. The fact that such a parallel system exists should help put to rest fears of backing a potential future enemy.

Lost in this Civil War and subsequent power grab is the humanitarian crisis affecting hundreds of thousands of Syrian refugees and internally displaced persons (IDPs). These are the people whom the Western world should be most concerned with supporting; those who have no aspirations of political power but merely want a chance to live a meaningful life. But in the midst of all the bloodshed and political jockeying, these people have generally been forgotten.

Oxfam recently put out a report that “…the United Nations’ “worst-case scenario” of more than a million refugees fleeing the country by June could be realized within weeks.”

“The surge was placing a “massive burden” on these countries, with the potential to “undermine stability in the region,” he warned.

‘The humanitarian crisis is worsening day by day, leaving agencies struggling to provide help that’s desperately needed,’ Lacasse said.

He also said that only 20 percent of the $1.5 million pledged by the U.S., other Western nations and Gulf Arab countries at a donor conference last month in Kuwait has been received.”

There is absolutely no excuse for Western nations to have not donated the $1.5 million necessary to support those most affected by the Syrian Civil War. While providing arms is riddled with political and military implications, providing humanitarian aid is a no-brainier. $1.5 million is nothing for the developed world, compared to the potential cost of regional instability associated with massive inflows of refugees into neighboring countries. One could argue that it has only been a month, but this financial aid has to be made available immediately—those on the ground who need the aid cannot wait while the Western world moves slowly to transfer the aid it has agreed to provide.

Yesterday, the White House agreed for the first time to directly assist the rebel forces opposing Assad with “non-lethal” support. While this is a good start to help bring an end to the Civil War, this support must occur in addition to, not instead of, humanitarian aid.

Update: U.S. non-lethal assistance will include $60 million in both non-lethal military aid AND humanitarian aid such as food rations and medical supplies. Good job John Kerry and the rest of the Obama administration! “The United States has also provided $385 million in humanitarian aid to the burgeoning flood of refugees outside Syria and displaced people inside the country.” Seems like I did not give the U.S. enough credit in it’s efforts to combat the humanitarian crisis in Syria and the surrounding region.

Humanitarian aid is a small sliver of the assistance the Western world will ultimately give in ending the violence in Syria. It is however the most beneficial in the short-run to those most affected by the civil war—Syrian refugees and IDPs. Guns and artillery have to be disseminated with great care to ensure the right people receive them. Humanitarian aid is not as sensitive a matter; credible NGOs such as Oxfam already exist to help the Syrian people, the only thing holding them back is a lack of funding.

There is no immediate end of the Syrian Civil War in sight; even Western artillery will only help topple Assad over a significant period of time. But providing aid to stop the humanitarian crisis is a much more immediate fix; once funding is available these people can receive whatever food, fuel, vaccinations and clean water they need to survive.

 Those who have died fighting for freedom can never be brought back. The years of lost economic and human development cannot be returned. All that can be done in the short term is to put an end to the humanitarian crisis affecting almost 1,000,000 Syrian refugees and IDPs. If the Western world wants to have a true Ally in a future democratic Syria, it must provide aid to those who will ultimately hold power in a democratic Syria—the Syrian people themselves.

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Economic Outlook: Defending Bernanke’s Defense of Fed Stimulus Policy

Yesterday, Federal Reserve Chairman Ben Bernanke went before Senate to defend the Federal Reserves loose monetary policy. The Federal Reserve has engaged in “Quantitative Easing“, pumping “cheap money” (because the fed can borrow at basically 0% interest rates) into the economy to stimulate consumption and investment (and therefore reduce unemployment).

It is important for the Federal Reserve to partake in unconventional monetary policy. Usually, the Fed adjusts the interest rate to stimulate the economy in one direction or another (speed up a slumping economy or “cool down” an over-leveraged economy). But up against the “zero-bound“, the Fed has to use less conventional policy as the interest rate cannot be lowered below 0 to stimulate the economy.

“The Fed, which has amassed almost $3 trillion in Treasury and mortgage-backed securities to promote more borrowing and lending, is expanding those holdings by $85 billion a month until it sees clear improvement in the labor market. It plans to hold short-term interest rates near zero even longer, at least until the unemployment rate falls below 6.5 percent.”

The Fed is going to keep buying assets until the economy recovers, measured either by an unemployment rate below 6.5% or an inflation rate above 2%. As Inflation does not seem to be an issue currently (despite greatly increasing the supply of money in the economy, the USD has remained stable), the unemployment target seems to be the one that the Fed has focused on.

Exactly why the dollar has remained stable despite greatly increasing the monetary base is up for debate. The main argument is that since we are in a “liquidity crisis”, newly printed Fed money is simply taking the place of private sector money (which is being horded, see corporate profits). Therefore, even though the overall money supplied by the Fed has increased, the actual amount of dollars available to the market has not really increased.

Another explanation is that the USD is a global reserve currency (about 60% of global reserves are denominated in dollars). Not only does the US have stake in a strong dollar, but every other country does as well. Other countries have no interest in seeing their real reserve levels fall, and export-based economies have no interest in competing against a weaker dollar (which would make their imports cheaper and exports more expensive).

Therefore, a concerted global effort has kept the dollar stable despite the expansion of the monetary base. It is probably some combination of these two forces, along with other forces, that has kept the dollar stable. It should be heartening to see that the world still believes in the USD as a reserve currency post-Great Recession, a signal that the U.S. BOP and Federal deficits are sustainable (even if they are higher than politically popular).

Back to Bernanke being grilled by Senate: ” Mr. Corker [Senator, R, Tennessee] then accused Mr. Bernanke of insufficient concern about potential inflation, saying, ‘I don’t think there’s any question that you would be the biggest dove since World War II,’ using the term “dove” to denote a Fed official who is more concerned about unemployment than higher inflation.

Mr. Bernanke, clearly piqued, responded, ‘You call me a dove, but my inflation record is the best of any chairman in the postwar period.'”

Mr. Bernanke is simply using the policy tools available to him that fit the current situation. If inflation was high and unemployment was low, his policies would be very irresponsible. But given the current economic climate, the Fed’s policies make sense. Mr. Bernanke understands the monetary system better than most; his academic work revolves mainly around monetary policy during and after the Great Depression (and liquidity crisis monetary policy). His knowledge of monetary policy in face of economic downturns is amongst the best in the world, and I for one believe having Bernanke as the chairman of the Fed has helped an otherwise weak economic recovery.

But might the Feds actions disrupt markets, causing asset bubbles instead of helping the real economy?

“Jeremy C. Stein, a member of the Fed’s Board of Governors, and some other Fed officials have expressed concern in recent months that low interest rates were encouraging excessive risk-taking by investors pursuing higher returns. Mr. Stein in a recent speech highlighted rising demand for junk bonds and certain kinds of real estate investments, and shifts in bank balance sheets, as areas of potential concern.

Mr. Bernanke said the Fed took these concerns “very seriously,” noting that the central bank had significantly expanded its efforts to monitor financial markets, as well as giving greater priority to financial regulation.”

One could argue that the Fed should be lending directly to business and individuals instead of using the financial system as an intermediary (after all, the financial system by-and-large got us into the mess we are currently in). There is a strong argument here, but this is simply not how the Fed functions (and drastically changing the policy of a major institution takes time, this cannot be a short term fix but perhaps an idea to consider going forward). This time around, it is up to strengthened financial regulation and adequate capital market taxation to ensure bubbles are not a byproduct of loose monetary policy (hopefully the sequester doesn’t hit the SEC too hard, or this job will prove even more difficult than it already is):

Monetary policy cannot shoulder the whole load of this economic recovery, as Bernanke himself has stated. However, while fiscal policy remains deadlocked in partisan bickering (it seems that fiscal stimulus is unlikely anytime soon; it would be a victory if the U.S. could avoid fiscal austerity, a.k.a. the “sequester”). It is therefore even more important than usual to have loose monetary policy (both because of the reality of a global liquidity crisis and the inability to address economic concerns via fiscal policy).

Bernanke has made it part of his mission to make the Fed more transparent and engaged with the American people. This is a noble pursuit, as members of the Fed are not elected but instead appointed by elected officials. Monetary policy is inherently confusing, even to trained economists; the ability of Bernanke to make people feel more engaged in the process is a difficult proposition. I hope I am in some small way doing my part to help explain why the Fed is doing what it is doing. People have to forget any Econ 101 they may know or think they know (increasing the supple of something reduces it’s value), as we are currently in a very specific situation which calls for a very specific policy response.

It seems Bernanke’s words have had a calming effect on the global economy, as assurance that the Fed will not abandon it’s bond buying program drew a favorable response from markets. It would be nice if people agreed with what Bernanke was doing, but it is unrealistic to expect the lay-man to understand liquidity crisis monetary policy (even I, and people with more training than me, have trouble with it). It is a great benefit to the U.S. and global economy to have someone as knowledgeable as Ben Bernanke running the Federal Reserve.

 

 

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Conflict Watch: Rocket From Gaza Hits Southern Israel (Cease Cease-Fire)

Well that cease-fire did not last long. Since agreeing to a cease-fire last November, brokered by controversial Egyptian President Morsi, Palestinians ended the 3 month cease-fire by launching a rocket into southern Israel from Gaza strip Tuesday. The rocket caused damage but no casualties:

“A subgroup of the Al Aqsa Martyrs Brigade, the military wing of the PalestiniansFatah faction, said in an e-mailed statement that it had fired the rocket in ‘an initial natural response to the assassination of prisoner Arafat Jaradat,’ a 30-year-old Palestinian who died in an Israeli jail on Saturday. The statement also said that Palestinians ‘should resist their enemy with all available means.’

“During a rally Sunday in Gaza, Hamas officials had expressed frustration with its rival Fatah faction in the West Bank for not doing more to support the prisoners. Attallah Abu Al-Sebah, Hamas’s minister of prisoner affairs, urged Fatah ‘to set the hand of resistance free to deter the occupation and stop its crimes against the prisoners,’ and called for kidnapping Israeli soldiers ‘instead of pursuing playful negotiations that brought nothing to the Palestinian cause.'”

“Mr. Masri [a Hamas lawmaker] said Israel was “fully responsible for the consequences of the wave of the Palestinian public fury.” He also accused Israel of violating the cease-fire first, citing several incidents in which Gazans have been shot near the strip’s borders with Israel and fishermen attacked at sea; the Israeli authorities have said their soldiers and sailors were only responding to efforts to breach the new limits set out in the cease-fire agreement.”

It is deeply disturbing that high level political leaders in Palestine are calling for kidnappings and rocket strikes only three months after a cease-fire was agreed to. Even if Hamas claims are true, the death of a prisoner during an interrogation is a poor reason to resume open warfare (especially when the last time open warfare occurred, the Palestinian side took much larger casualties than the Israelis. Clearly extremist political groups like Hamas and Fatah have no interest in securing a lasting cease-fire in the Gaza strip.

After the rocket fire Tuesday, Israel shut Kerem Shalom, the crossing through which commercial goods enter Gaza from Israel, and closed its Erez border crossing except for medical, humanitarian and “exceptional” cases, according to a statement from the military.

Sari Bashi, executive director of Gisha, a group that advocates for lifting Israel’s restrictions on the Gaza Strip, protested the closures in a letter to Israel’s defense minister, saying the timing raised ;serious concern that this is not a travel restriction necessitated by a concrete and weighty security imperative but rather a punitive act aimed at Gaza’s civilian population.’ She called the move ‘a dangerous regression to a policy that violates humanitarian law.'”

You know what else violates humanitarian law? Firing rockets at innocent civilians. It is absurd to believe that there will be no response to a rocket being fired into Israel by Palestine; citizens of Gaza should hope that supplies are the only response Israel plans for the attack.

“President Shimon Peres, who was visiting southern Israel on a previously scheduled tour, said, ‘Quiet will be met with quiet; missiles will be met with a response.’

‘I believe both sides have a deep interest in lowering the flames,’ Mr. Peres added.”

Palestinians can claim humanitarian grievances, but if they continue to pursues actions  that are likely to lead to open warfare, their words will remain hollow. Any chance of a real two-state negotiated settlement between Israel and Palestine requires trust between the two sides, but also the ability for The Palestinian Authority to keep factions such as Hamas and Fatah under control (not the other way around). A ceasefire also requires a certain admission of past wrongdoings (so they do not occur again); the fact the Palestinians routinely break cease-fires and continue to blame Israeli’s is a microcosm of the larger intractable Israeli-Palestinian conflict.

“There has not been one rocket fired from Gaza since the operation, and the recalcitrant organizations were there all the time,” he said. “Now it is proven that the organizations can’t fire unless Hamas lets them.”

Adnan Damiri, a spokesman for the Palestinian security services in the West Bank, accused Hamas of wanting “to make chaos in the Palestinian territories” and working against the Palestinian Authority and its security force.”

It is unclear whether this is a tactic to shift blame from the Palestinian Authority to Hamas / Fatah, or whether a rift truly exists between the two. Either way, it is the responsibility of the Palestinian Authority (with the help of the international community if need be, Palestine recently secured “observer state” status at the U.N.) to control factions within its own borders. How can the Palestinian Authority believe it can agree to a meaningful two state solution (the organizations state goal) if it cannot even control security issues within it’s country?

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Monday Morning QB: The World Baseball Classic and Professional Sports as a Development Tool

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It seems that 200 MLB players will be participating in the World Baseball Classic this March. For those of you who do not know, the WBC is a global baseball tournament held every 3 years in March–this March will be the third such tournament. You may expect the Americans to dominate on the global stage, as baseball is the “American Pastime”, but you would be wrong. Japan has won both of the two World Baseball Classics so far, the U.S. has never even made it to the finals (and only made it to the semi-finals once).

There are a number of reasons for the lack of dominance by the U.S. For one, lots of the best MLB players come from Latin America (the Dominican Republic specifically), so the MLB talent does not favor the U.S. as much as it may have in the past (when baseball was dominated by white Americans). This map from 2011 is a pretty recent visualization of how baseball has become more global in recent years, if we had an updated map for 2013 you would expect to see even more international players.

There is also the argument that “Team America does not take the WBC seriously”. Many players from MLB rosters are barred from playing in the WBC by their team (older guys, pitchers, players coming off injury traditionally do not play in the WBC). This affects the rosters for all the clubs, but disproportionately the American team as it has the vast majority of MLB players. Also, the WBC runs parallel to spring training in America; many MLB players are just getting into playing shape and use the WBC as an opportunity to shake the rust off, as opposed to some international players whose seasons may be in “full swing” (no pun intended).

There is also the argument that MLB players will not help you win this competition. Japan, the only team to win the WBC, has never had many MLB players on their roster. This year, Japan will look to defend its WBC title with zero MLB players, that should be fun to watch. With MLB players just getting warmed up, other teams have a much better chance at competing in the WBC then one may expect.

Sports can be a powerful development tool for undeveloped countries.Professional sports bring to the table billion dollar profit margins that can go an even longer way in a poor developing country than they could in the U.S. These programs are a true win-win for professional sports leagues and developing nations. The professional sports leagues can expand their markets to new regions, and the process of discovering talented new players is essential for the future profitability of any sport.

The benefits to the developing country are not what one may think. It is natural to think of the sport star who signed a big contract giving back to his home country, and for this most part this does happen. However, these benefits are small compared to the more “organic” process of economic development. By linking sports programs to educational and nutritional programs, even those who do not go on to become professional sports stars will be helped in achieving their potential. The social capital and camaraderie learned in sports is a more abstract advantage than schooling and nutritional guidance (human capital), but are nonetheless important skills for young people to learn.

Participating in these sports development programs are not only fun for kids, but they teach them valuable life skills. Instead of selling drugs, joining militias, or working as poor child laborers, these children learn marketable skills and are given the opportunity to realize their full potential (something we in the developed world often take for granted). The next great MLB player could come from one of these programs, but so could the next Nobel Prize Laureate. The benefits from these “investments” will take time to pay dividends, but the return on these investments could be absurdly large for both professional sports leagues and developing countries. These programs are a true example of a win-win relationship, and there is a strong argument for “scaling-up” these programs.
Baseballs development initiatives tend to be in Latin America and Asia, where baseball is popular. Comparable programs exist for other major sports as well. Any NBA fan could tell you about “NBA Cares“, where star players help out in poorer communities around the U.S.. Less well known is the SEEDS program, which supports similar programs in developing countries (currently operations are based in Senegal, but the organization has an ambitious goal to expand to other countries in the future).

Certain sports naturally fit better in different countries. Asia and Latin America have a history of baseball. Also due to the fact that these regions are generally more developed than Sub-Saharan Africa, the cost of playing baseball is a bit more achievable (and is subsidized in certain cases by MLB). In Africa, basketball and soccer are more popular, as all you need to play these sports is a ball and an arena. Different sports for different folks, but they all have the same potential for spurring economic development and raising the standard of living.

Baseball seems to be making inroads in the African market as well. Uganda became the first African team to play in and win a Little League World Series game last year after missionaries brought baseball to Uganda in the 1990s. Some of the best athletes in the world are born in Africa, I would not be surprised to see MLB take further steps in promoting it’s sport in Africa in the coming years / decades.  South America is another potential untapped growth region for MLB to consider.

So while you’re enjoying the WBC, or the Olympics or World Cup in the future, know that you are not only enjoying sports, that you are not only displaying national pride, but that you are also (indirectly) advocating the use of sports as a poverty reduction tool. All that socially constructive behavior by sitting on your couch at home, not too shabby!!

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Transparency Thursday: The Prison Paradox

It would seem natural that longer prison sentences would reduce crime. Given a stronger punishment, the “costs” of performing a crime should outweigh the benefits, causing a would-be criminal to rethink his actions and possibly decide against committing a crime. But there is another explanation of criminal activity; that for whatever reason the would be criminal simply does not have other viable options, therefore he will undertake a crime regardless of the potential punishment. In line with this view, recent evidence suggests that longer prison sentences do not have the desired crime-reducing effect:

“The shift to tougher penal policies three decades ago was originally credited with helping people in poor neighborhoods by reducing crime. But now that America’s incarceration rate has risen to be the world’s highest, many social scientists find the social benefits to be far outweighed by the costs to those communities.”

By pushing families into “inter-generational poverty traps” keeping criminals in jail for longer causes more crime, not less. Having people in jails, typically black males (4.8% of black males in the U.S. are in prison, compared to 1.9% of Hispanic men and 0.7% of white men), leads to many one parent families. These one parent families are more likely to turn out criminals; without adequate parental guidance and financial security, crime is often the only solution for young minorities.

“‘Prison has become the new poverty trap,’ said Bruce Western, a Harvard sociologist. ‘It has become a routine event for poor African-American men and their families, creating an enduring disadvantage at the very bottom of American society.’

Among African-Americans who have grown up during the era of mass incarceration, one in four has had a parent locked up at some point during childhood. For black men in their 20s and early 30s without a high school diploma, the incarceration rate is so high — nearly 40 percent nationwide — that they’re more likely to be behind bars than to have a job.

No one denies that some people belong in prison. Mr. Harris, now 47, and his wife, 45, agree that in his early 20s he deserved to be there. But they don’t see what good was accomplished by keeping him there for two decades, and neither do most of the researchers who have been analyzing the prison boom.

The number of Americans in state and federal prisons has quintupled since 1980, and a major reason is that prisoners serve longer terms than before”

“Raymond V. Liedka, of Oakland University in Michigan, and colleagues have found that the crime-fighting effects of prison disappear once the incarceration rate gets too high. “If the buildup goes beyond a tipping point, then additional incarceration is not going to gain our society any reduction in crime, and may lead to increased crime,” Dr. Liedka said.

The benefits of incarceration are especially questionable for men serving long sentences into middle age. The likelihood of committing a crime drops steeply once a man enters his 30s. This was the case with Mr. Harris, who turned his life around shortly after hitting 30.”

Long-term lockup rates, and poor job prospects for ex-cons, great a “prison culture” in poor neighborhoods. Older ex-con’s believe a return to jail is inevitable, young children believe jail is inevitable (because of what they have witnessed growing up); this pessimism leads to poor decision making and ultimately creates a self-fulfilling cycle of poor prospects, poor decision making, and subsequent prison terms (and perpetuates the inter-generational aspect of the poverty trap).

The ensuing prison sentence and related poverty trap has real social effects, according to some estimates:

“‘The social deprivation and draining of capital from these communities may well be the greatest contribution our state makes to income inequality,’ Dr. Braman said. ‘There is no social institution I can think of that comes close to matching it.’

Drs. DeFina and Hannon, the Villanova sociologists, calculate that if the mass incarceration trend had not occurred in recent decades, the poverty rate would be 20 percent lower today, and that five million fewer people would have fallen below the poverty line.

This story makes me think back to “Freakonomics“, the popular behavioral economics book by Steve Dubner and Stephen Lewitt. In the introduction of this book, the authors examine the reason for a marked drop in U.S. crime rates nationwide in the 1980s and 90s. They go over the obvious potential causes, stronger laws and incarceration penalties (and based on the time period, probably the same policies previously referenced in this story). Ultimately, the reason they come to for the drop in crime rates was completely unrelated to legal/penal policy; the legality and increasing number of abortions.

The argument was that most poorer families did not get abortions even though they did not want their children. These unwanted children were neglected, and unsurprisingly tended to become criminals. Once parents were given more power to determine when they had children, these unwanted children were never born to the benefit of society.

This story highlights an important aspect of any policy analysis. There will probably be unforeseen consequences to policy actions, both positive and negative. Longer prison sentences were meant to reduce crime, but they have not. Abortion legalization was supposed to be a civil liberty / social issue, but it ended up having a remarkable effect on crime rates. Often times, these unforeseen consequences of policy have a more dominant effect than the expected consequence. It is therefore important for politicians to remain open minded and constantly revisit the real world effects of a policy, regardless of how well that policy works in theory.

As the federal government looks for areas to make spending cuts, it would be beneficial for policymakers to revisit reducing prison sentences for certain crimes. It seems that shorter prison sentences would save money today via a lower prison bill, and save us money in the future in the form of lower future entitlement spending. Less spending on long prison terms and greater spending on social programs (which enhance ones future prospects and thus makes crime a less attractive alternative) should combine to break the “prison poverty trap”.

People need to be held responsible for their actions, but the punishment must fit the crime. Making an example of individuals in an attempt to deter future crime does not work. What it does is impose an unfair burden on both the tax-payer as well as the  family (children) of the incarcerated.

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Economic Outlook: An Austerity Program By Another Name Will Be Just As Painfull

Some of you may remember, way back when Normative Narratives started a few months back, a prickly little topic on every news outlets agenda–The Fiscal Cliff. The Fiscal Cliff was supposed to be an outcome so unthinkable that it forced congress to act and pass a reasonable budget by new years day 2013. While this is no easy task during a recession (partisan gridlock aside), congress had from the summer of 2011 to come up with some sort of deal. Unfortunately, the best our congress could do was kick the can down the road for a bit.

True important tax reforms we’re secured during the Fiscal Cliff debate (raising the top rate on incomes over $400,000 and raising the capital gains tax, as well as keeping Bush era tax cuts in place for everyone else). Not to take anything away from the significance of averting the “fiscal cliff”, but it was at best an incomplete victory. But on the spending side, nothing permanent was decided. Congress was able to agree that the economy would be unable to absorb the shock of spending cuts without causing a double-dip recession / increasing unemployment, and succeeded in kicking the can down the road for a few months. If congress couldn’t figure it out in the year and a half time period between the original debt-ceiling debate and the “fiscal cliff”, was it realistic to think they would be able to reach an agreement on mostly the same issues over the course of two months?

Whether it was reasonable or not, we are currently face-to-face with another austerity program that could indeed send the U.S. economy back into a recession / greatly increase unemployment:

“In less than two weeks, a cleaver known as the sequester will fall on some of the most important functions of the United States government. About $85 billion will be cut from discretionary spending over the next seven months…The sequester will not stop to contemplate whether these are the right programs to cut; it is entirely indiscriminate, slashing programs whether they are bloated or essential…These cuts, which will cost the economy more than one million jobs over the next two years are the direct result of the Republican demand in 2011 to shrink the government at any cost, under threat of a default on the nation’s debt.”

This New York Times article does a great job of highlighting exactly how and where the cuts would take place.

Initially I was going to go through the article piece by piece and explain how each cut could hurt a specific group of Americans. But this is pretty obvious from reading the article, so I will leave it up to the reader to read about specific cuts and make their own judgements. Much less obvious is why these cuts will hurt the U.S. economy overall (and not just specific groups withing the economy). There are two main reasons for this:

1) The Government provides “public goods” that cannot be adequately provided by the private sector

2) We are still in what economists call a “liquidity trap”

First #1. The government provides public goods, such as schooling, infrastructure, and security (military / policing). Public goods are public because they inherently suffer from the “free-rider” problem. Everyone benefits from public goods, there’s no way of excluding someone from benefiting from a better school system, or better roads, or more police officers.  These positive externalities mean that, left up to the private sector, investment in these goods will be insufficient. People will expect someone else to pay for the program and try to reap the benefits for free (hence the “free-rider” problem). Insufficient spending on public goods leads to higher crime (less law enforcement available combined with higher poverty rates due to cuts in social programs), and depresses both current (think poor infrastructure) and future (think inadequate schooling) economic prospects.

The private sector cannot decide to buy public goods just for certain people, as it cannot take advantage of “economies of scale” necessary for public goods to be  affordable. Think how expensive it would be for a rich community to decide to pave it’s own roads, or build it’s own schools, and the security bill needed to ensure other people do not use these services. These bills would be much greater than the taxes otherwise needed to pay for such goods.

But lets suppose that the private sector could make up for this government spending. This is where #2 comes in–the liquidity trap:

A liquidity trap is a situation in which despite very low interest rates (up against the “zero-bound”), private sector funds are not being adequately invested into the economy, but instead dumped into government T-bills (or other low yield but safe asset). A common argument against fiscal stimulus is that it will “crowd-out” private sector spending, and therefore cannot lead to growth. In times of economic growth, this is somewhat true (although not true for “public goods”, as explained above). But in a liquidity crisis, this argument does not hold. Even given incredibly low rates of return, the private sector is unwilling to invest the money needed to create the aggregate demand needed for economic growth / job creation.

If the private sector instead decides it is better to give this money to the government, it should be a strong signal that the government should be spending the money in productive ways (instead of letting it sit in the Federal Reserve, and for it’s part the Fed led by Ben Bernanke has done a marvelous job making sure the economic recovery has not been even more stagnant / non-existent by pursuing unprecedented expansionary monetary policy, known as “quantitative easing”. But this alone is not enough, expansionary fiscal policy is also needed. If stimulus is not politically realistic, contractionary fiscal austerity must be avoided at least.

There is no additional cost to the government spending money, as it essentially pays zero interest on borrowed funds. Given high unemployment, why not put that money to work, and worry about paying it back later? Economically speaking, with an interest rate near zero, and a fiscal multiplier > 1, stimulus spending can be a magic bullet of sorts. Government spending costs the government less now than it otherwise would, and the expansionary effects of fiscal spending are greater now then they otherwise would be. Currently, stimulus is both fiscally responsible and economically necessary to boost aggregate demand (and stimulate economic growth / reduce unemployment / increase tax receipts by growing the economy).

So again here we are; the G.O.P. is playing a game of chicken with “the full faith and credit of the United States of America” (which is one of the reasons we are able to borrow at such low rates despite a relatively high debt / GDP ratio, the fact that American debt is considered “safe”). The effects of a default on our debt  would cripple America’s ability to pursue meaningful monetary policy in the future. The effects of contractionary fiscal policy would depress an already weak U.S. economy (which would send out a ripple effect, depressing global economic growth) and raise unemployment. Yet the G.O.P. is willing to consider these unthinkable scenarios in order to push it’s tried and failed Austerian ideology.

America will have to reign in it’s deficit one day, especially with rising healthcare / social security costs, but that day is not today. Artificially forcing that day to be today, due to the sequester / debt-ceiling, will do nothing but hurt America’s credibility as an economic power both at home (by forcing the government to cut essential programs) and abroad (by making people reconsider whether U.S. debt is a “safe” investment or not).

 

 

 

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Conflict Watch: China, Friend or Foe?

I have written in the past about how China is not our enemy but our ally. In many ways this is true, but in some ways the two countries are ideologically opposed. While the rift between the U.S. and China is not as significant as the rift between the U.S. and the U.S.S.R was, China still has the potential to pose a significant threat to our national security. New technology, and the power for good that comes with it, also carries an intrinsic risk. As sensitive data becomes digitized, it can become a target for “cyber-terrorism”.

Before diving into the article, it is important to highlight the important ways the China is NOT our enemy. When a story like this comes out, people who dislike China will use it as evidence to vindicate their views that China is our enemy in whatever other sense they are trying to prove (or to argue for whatever protectionist policy they are advocating). The following are some of the ways in which China is our ALLY:

Economically: There are probably no two nations who are as interdependent economically then the U.S. and China. The largest and second largest economies in the world respectively, each nation has been able to grow and will continue to grow only if the two nations continue to work together. Since growth is essential for raising the standard of living, for financing important government programs (both social and military), and for keeping unemployment low, this relationship must be maintained and strengthened.

Trade disputes are to be worked out in the W.T.O.. Currency disputes (it is often argued that China manipulates the value of it’s currency make it’s exports cheaper) are unfounded. While it is no secret that the Chinese currency is not valued on the open market, this is the decision of the Chinese government. America, or any other nation, would not allow another country to determine it’s monetary policy (unless it chose to fix it’s currency’s value or “peg it” to the dollar, or joined a monetary union like the EU). An undervalued Chinese Yuan hurts Chinese citizen’s (they do not have as much purchasing power as they otherwise would); it is ultimately up to the Chinese people to put pressure on the Chinese government  to allow the Yuan to be fully “convertible”.

Global Security: China, along with Russia, finds itself as the modern champion of “national sovereignty”. Taken to the extreme, this position has unfortunately led to U.N.S.C. inaction against the Assad regime as China and Russia continue to veto international intervention in the Syrian Civil War. Many non-democratic countries align themselves with China, and sometimes these are countries we would consider “bad apples” here in America. Countries such as North Korea and Iran have or are pursuing the ability to build nuclear arms that could pose significant threats to global security. Also, human rights violations in less developed countries attract terrorist activities. China’s ability to ensure global security, and to act responsibly (unlike in the Syrian situation)  will go a long way in cementing China as a world power. It  would also allow the U.S. to focus more on domestic issues (instead of continuing to fund a disproportionately large  military budget to fight the worlds wars, which we can no longer afford to do). China must be our partner, not our enemy, in ensuring global security in a nuclear age.

Environmental Issues: The U.S. and China, being the two  largest economies in the world, are naturally the two largest emitters of greenhouse gasses. Issues such as capping emissions levels, and cap-and-trade / carbon tax policies, will require global coordination to ensure corporations cannot avoid stricter laws by simply moving operations to another country. Multilateral environmental talks have stalled in recent years; the developing world (lead by China) affirms that the developed world should pay for the majority of “green funds” to finance global environmental initiatives, as they are historically responsible for the majority of greenhouse gas emissions (you have to admit, this is a strong argument). The developed world (lead by the U.S.) argues that everyone has to pay their fair share. While the specifics are slowly worked out (as is always the case in multilateral negotiations), it will take coordination between the U.S. and China for any meaningful policy to take shape.

Back to the issue at hand–cyber security. A recent NYT article highlights that ” A growing body of digital forensic evidence — confirmed by American intelligence officials who say they have tapped into the activity of the army unit for years — leaves little doubt that an overwhelming percentage of the attacks on American corporations, organizations and government agencies originate in and around the white tower.”

This is disturbing new, if the Chinese military is indeed behind the majority of cyber-attacks on sensitive U.S. data, it could strain the already complicated relationship between the U.S. and China. For the reasons discussed above, it is essential for the global good for China and the U.S. to be allies, not enemies; global economic growth, security, and environmental sustainability depend on it. Hopefully the two countries are able to work this issue out with minimal damage to our important yet delicate relationship. Below are some key excerpts from the article, the whole thing can be found here:

“An unusually detailed 60-page study, to be released Tuesday by Mandiant, an American computer security firm, tracks for the first time individual members of the most sophisticated of the Chinese hacking groups…Mandiant discovered that two sets of I.P. addresses used in the attacks were registered in the same neighborhood as Unit 61398’s building[a Chinese military building].

It’s where more than 90 percent of the attacks we followed come from,’ said Mr. Mandia.”

“’There are huge diplomatic sensitivities here,’ said one intelligence official, with frustration in his voice.

But Obama administration officials say they are planning to tell China’s new leaders in coming weeks that the volume and sophistication of the attacks have become so intense that they threaten the fundamental relationship between Washington and Beijing.”

“The United States finds itself in something of an asymmetrical digital war with China. ‘In the cold war, we were focused every day on the nuclear command centers around Moscow,’ one senior defense official said recently. ‘Today, it’s fair to say that we worry as much about the computer servers in Shanghai.'”

“What most worries American investigators is that the latest set of attacks believed coming from Unit 61398 focus not just on stealing information, but obtaining the ability to manipulate American critical infrastructure: the power grids and other utilities.”

“Mr. Obama alluded to this concern in the State of the Union speech, without mentioning China or any other nation. ‘We know foreign countries and companies swipe our corporate secrets,’ he said. ‘Now our enemies are also seeking the ability to sabotage our power grid, our financial institutions, our air-traffic control systems. We cannot look back years from now and wonder why we did nothing.”

Mr. Obama faces a vexing choice: In a sprawling, vital relationship with China, is it worth a major confrontation between the world’s largest and second largest economy over computer hacking?

A few years ago, administration officials say, the theft of intellectual property was an annoyance, resulting in the loss of billions of dollars of revenue. But clearly something has changed. The mounting evidence of state sponsorship, the increasing boldness of Unit 61398, and the growing threat to American infrastructure are leading officials to conclude that a far stronger response is necessary.

‘Right now there is no incentive for the Chinese to stop doing this,’ said Mr. Rogers, the House intelligence chairman. ‘If we don’t create a high price, it’s only going to keep accelerating.'”

Mr. Rogers is correct, the U.S. has to make it clear that these actions are unacceptable, otherwise a dangerous precedent would be set. Whether the Chinese government is behind these cyber-attacks, or they are simply taking place under the government’s watch, it is up the the Chinese government to make sure these attacks are kept to a minimum. This story is likely to evolve as more information becomes available and as high ranking officials from the U.S. and China talk. I will do my best to keep the Normative Narratives community up to date on this important issue.

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Monday Morning QB: Smoking Aces, Ranking the top 10 MLB Pitching Rotations

Happy President’s Day everyone! There’s nothing more American than taking a day off to honor past Presidents’ and talk baseball!

Today I will be ranking the top 10 rotations in MLB. This list was admittedly a bit harder for me than the last two. It seems like there’s no shortage of stacked pitching staffs going into this season. One thing I’ve learned about pitching over the years is you can never have enough of it; someone is bound to have a down year / get injured, and a “no-name” pitcher will step-up at some point and have a big year. Nonetheless, it is still fun (and useful) to rank teams rotations going into the season to get an idea of what different clubs are bringing to the table:

(For comparison’s sake, here’s how the “pros” ranked em)

1) San Fransisco Giants:

1.    Matt Cain
2.    Madison Bumgarner
3.    Tim Lincecum
4.    Ryan Vogelsong
5.    Barry Zito

Last years World Series champs get the number 1 spot on this list, and for good reason. It is difficult to win a World Series without a powerhouse offense, but great pitching can help  make up for that. Matt Cain has evolved into a true ace, and Bumgarner is a young pitcher with all the tools to be a great MLB pitcher. “Big-Time-Timmy-Jim” Lincecum will have a bounce back year this year, and while he may never regain his Cy-Young form, he doesn’t have to as the number 3 pitcher on the staff. Vogelsong and Zito are solid bank end starters; the Giants will look to make another deep playoff run on the wings of their dominant pitching.

2) Washington Nationals
1.    Stephen Strasburg
2.    Gio Gonzalez
3.    Jordan Zimmermann
4.    Dan Haren
5.    Ross Detwiler

Strasburg is ready to be the Nat’s “work-horse” this year, and is the best pitcher in the league not named Justin Verlander. Gio Gonzalez was great last year for the Nat’s, and it doesn’t appear MLB will suspend him for being on Anthony Bosch’s PED list. Jordan Zimmerman is a good young pitcher who should continue to develop. I like the acquisition of Dan Haren and think he will benefit from a return to the NL.

3) Detriot Tigers
1.    Justin Verlander
2.    Max Scherzer
3.    Doug Fister
4.    Anibal Sanchez
5.    Rick Porcello

Verlander and Scherzer are just plain scary as a 1-2 punch. Both are flamethrowers and while Verlander is undoubtedly the ace, this is no knock on Scherzer’s ability. We’ve been hearing about Doug Fister’s potential for a while now, its time for him to prove it with a full season of solid pitching. While I think the Tigers overpaid Sanchez, that has nothing to do with this list and he (along with Porcello) are more than solid back-end-of-the-rotation type of guys.

4) Los Angeles Dodgers

1.    Clayton Kershaw
2.    Zack Greinke
3.    Josh Beckett
4.    Hyun-Jin Ryu
5.    Chad Billingsley

The Dodger’s didn’t forget about pitching when they opened up their checkbook this offseason; it will be interesting to see how well Greinke performs this year as the talent is obviously there. Kershaw is one of the best young pitchers in the game and a true ace. Josh Beckett was effective last year with the Dodgers, and should have a solid year pitching in the NL. Ryu is a big Korean pitcher who has the stuff to succeed in the MLB, and Billingsley would be a front to middle of the rotation pitcher for many teams. Like their line-up, this pitchign staff is  stacked going into the season.

5) Toronto Blue Jays

1.    R.A. Dickey
2.    Brandon Morrow
3.    Mark Buehrle
4.    Josh Johnson
5.    Ricky Romero

Perhaps no other staff has as much potential to either be dominant or pedestrian as these Blue Jays. How will Cy-Young winner R.A. Dickey’s game translate to the AL East? Can Brandon Morrow stay healthy, and will his dominant stuff ever come together to make him an elite pitcher? Can Buehrle be effective in the AL at this point in his career? Will Josh Johnson be the guy who almost set the record for most consecutive outings giving up 2 or fewer earned runs, or have injuries taken a toll on his once bright career? And Ricky Romero, the Jays 2012 opening day starter, has gotta be on paper the best number 5 pitcher in baseball. The talent is certainly there, but how the Jay’s rotation will shape up is anybody’s guess.

6) New York Yankees

1.   CC Sabathia
2.    Hiroki Kuroda
3.    Andy Pettitte
4.    Phil Hughes
5.    Ivan Nova / Phelps / Pineda

CC is an ace, and Kuroda was better than anybody could’ve guessed last year earning him another season with the Yanks. Andy Pettitte was great last season until he injured himself, it will be interesting to see what he can contribute to this club for a full season (and probably the post-season, these are the Yankees after all). Phil Hughes has had flashes of brilliance, but all-in-all has not lived up to his potential; this is a make-or-break year for the no longer young Hughes. Nova and Phelps are both young pitchers with lots of potential that any team would like to have fighting for the 5th spot in their rotation. If Pineda can get healthy that would be great for the Yanks, he was one of the most dominant pitchers in the league 2 years ago in his rookie campaign. The Yankees have a good deep staff going into this season, and that margin for error than provides is very important in a 162 game season.

7) Tampa Bay Rays

1.    David Price
2.    Jeremy Hellickson
3.    Matt Moore
4.    Jeff Niemann
5.    Alex Cobb

David Price is an elite pitcher, and Jeremy Hellickson is a young stud who is right there knocking on elite’s door. Matt Moore is a very young very talented  pitcher who will be looking to perform better after a disappointing (for him) 2012 season. Niemann and Cobb are both question marks as starters, but have shown the ability to be effective as back end of the rotation guys (Cobb is still young and will continue to develop). Losing James Shields would hurt any pitching staff, but if there’s any team that can make it work with what they got you have to believe the Joe Maddon led Rays are that team.

8) Philadelphia Phillies

1.    Roy Halladay
2.    Cliff Lee
3.    Cole Hamels
4.    Kyle Kendrick
5.    John Lannan

Down years in 2012 for Halladay and Lee cost the Phillies a few spots on this list, and although Hamels is number 3 on the depth chart he is the true ace of this staff. Still these 3 guys are arguably still the best 1-2-3 in baseball (I wouldn’t argue it, but someone could). Kyle Kendrick was solid in 2012 for the Phills, and John Lannan is good enough to be a number 5 starter in the NL.

9) Chicago White Sox

1.    Chris Sale
2.    Jake Peavy
3.    John Danks
4.    Gavin Floyd
5.    Jose Quintana

Chris Sale was the surprise breakout pitcher of 2012, his stuff was unhittable at times and he will look to build on that success in 2013. Jake Peavy had a resurgence last year, does he have another dominant season in him? At only 31 years old, I think he does (doesn’t he seem like hes been around for a looooong time, I though he was in his mid 30s and had to double-check his age). John Danks and Gavin Floyd are solid middle of the rotation guys, but the real wild-card here is Jose Quintana. Quintana is only 24 years old and was very good for the White Sox last season. If he continues to get better, and Peavy has another good year, this staff will finish better than 9th best in the league.

10) Oakland Athletics

1.    Brett Anderson
2.    Jarrod Parker
3.    Tom Milone
4.    A. J. Griffin
5.    Daniel Straily

I may be greatly underestimating this staff, time will tell. The A’s were one of the pleasant surprises of the 2012 MLB season, and much of their success was due to their young pitching staff. The lack of a true ace cost them spots on this list, but everyone is young and everyone is good, and this staff could very well finish the season as one of the best in baseball. Straily is a bit of an unknown, but the A’s have given us no reason to question the ability of their young pitching.

So there you have it. This was the toughest list of the 3 I’ve done so far, and I’m sure many of you will disagree with my picks. Be sure to let me hear it in the comment section!

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Transparency Thursday: Mystery Meat? The Mystery’s Out, It’s Pumped Full of Antibiotics

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A disturbing analysis of FDA research reveals interesting facts about the meat we eat. Most people love meat because it is delicious, but there are a number of reasons to reconsider your food choices. For environmental reasons, eating meat is not “sustainable”. Animals require feed which raises the cost of crops such as corn. In addition, the packaging, transferring, and storing of meat products are all more energy intensive than for an equivalent amount of vegetables (and therefore release more greenhouse gases).

But there are also health related reasons to watch what meat you eat, the rampant use of antibiotics on the animals we eat:

“Note that that while human antibiotic use has leveled off at below 8 billion pounds annually, livestock farms have been sucking in more and more of the drugs each year—and consumption reached a record nearly 29.9 billion pounds in 2011. To put it another way, the livestock industry is now consuming nearly four-fifths of the antibiotics used in the US, and its appetite for them is growing.”

Not only is eating the antibiotics unhealthy for humans, but regularly treating animals with antibiotics leads to drug-resistant bacteria in the food we eat.

“Not surprisingly, when you cram animals together by the thousands and dose them daily with antibiotics, the bacteria that live on and in the animals adapt and develop resistance to those bacteria killers.”

Here are a few highlights from Pew Charitable Trust’s analysis of the FDA report:

“• Of the Salmonella on ground turkey, about 78% were resistant to at least one antibiotic and half of the bacteria were resistant to three or more. These figures are up compared to 2010.

• Nearly three-quarters of the Salmonella found on retail chicken breast were resistant to at least one antibiotic. About 12% of retail chicken breast and ground turkey samples were contaminated with Salmonella.

• Resistance to tetracycline [an antibiotic] is up among Campylobacter on retail chicken. About 95% of chicken products were contaminated with Campylobacter, and nearly half of those bacteria were resistant to tetracyclines. This reflects an increase over last year and 2002.”

Unfortunately, just attempting to eat antibiotic free meat is often not enough. Producer labels are often confusing and may not mean what you think they do. The following is an excerpt from the executive summary of a consumer reports analysis of what different labels mean (the full report can be found here):

“Consumer Reports shoppers found a wide array of labels related to antibiotic use, such as “never ever given antibiotics,” “humanely raised on family farms without antibiotics,” “organic,” and “grassfed.” Consumer Reports analyzed the various labels and concluded that most of them are at least somewhat useful to consumers. Consumers can always rely on the “organic” label, since organic rules ban antibiotic use in livestock. In addition, consumers can generally rely on most labels that contain the words “no antibiotics” or “raised without antibiotics” especially if it is “USDA process Verified” (meaning that the USDA has checked up to see whether the producer is actually doing what it claims).

But Consumer Reports shoppers found a few labels that consumers should not rely upon as indicators that a product has truly had no antibiotics throughout the growing process. They include “natural,” “antibiotic-free,” “no antibiotic residues,” and “no antibiotic growth promotants.” “Natural” means only that the product contains no artificial ingredient or added color and is only minimally processed, according to the USDa. antibiotics can in fact be used in the raising of “natural” meat and poultry. The terms “antibiotic-free” and “no antibiotic residues” are terms that the USDa does not approve for use on meat and poultry, so their meaning is uncertain, and they should not appear in the marketplace.

The label “no antibiotic growth promotants,” also not USDA-approved, is not helpful because the animal still could have been given antibiotics on a daily basis to prevent disease (just not forgrowth promotion). “grassfed” labels, usually found on beef, can also be useful, but require close scrutiny. If they are coupled with the “organic” label, consumers can be sure the cow was raised without antibiotics. If “grassfed” appears alone, however, antibiotics might have been given. “american grassfed” and “Food alliance grassfed” labels also indicate that in addition to having been raised on grass, the animal in question received no antibiotics, but those products are available in very few stores.”

So there you have it. Eating antibiotic treated meat every once in a while is probably unavoidable if you’re a person on the go. However, it would be in your best interest to buy antibiotic free meat whenever you get the chance. It may cost a little bit more in the short run, but it will save you time, money, and suffering if it allows you to avoid an illness. Also, be sure you know exactly what the label on your product means, or you may be paying extra for something that was still treated regularly with antibiotics (and therefor potentially contains antibiotic resistant bacteria).

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Economic Outlook: Economics in The State of The Union Address

Economics always plays a prominent role in the State of the Union Address, particularly during times of economic turmoil. Last night’s speech was no exception.

“President Obama, seeking to put the prosperity and promise of the middle class at the heart of his second-term agenda, called on Congress on Tuesday night to raise the federal minimum wage to $9 an hour, saying that would lift millions out of poverty and energize the economy.”

Raising the minimum wage would help put more money in the pockets of America’s poorest workers. As I have pointed out in previous posts, the lower your income, the greater your MPC (marginal propensity to consume). In other words, every dollar of income that goes to a minimum wage earner has a larger multiplier effect on the economy than that same dollar in the hands of a wealthier wage payer. In light of recent evidence of a corporate cash hoarding, this policy makes sense not only from an economic equality standpoint but also for economic growth.

“Our economy is adding jobs, but too many people still can’t find full-time employment,” he said. “Corporate profits have rocketed to all-time highs, but for more than a decade, wages and incomes have barely budged.”

In addition, by raising the wage floor, everyone else wages should rise as businesses have to adjust the wages they pay to attract more talented workers. This should lead to lower spending on entitlement programs as higher wages will cause less families to qualify for government programs. How far up the wage ladder these increases will trickle is open to debate, but as this is a secondary benefit of raising the minimum wage it should be considered “icing on the cake”.

“On trade policy, the president said that the United States and the European Union were ready to begin negotiations on a comprehensive trade treaty. That came after a report submitted earlier in the day concluded that the gaps between the two sides were narrow enough to put a deal within reach.”

Greater trade openness with Europe will stimulate the economy by provide consumers with lower prices for goods (and therefore more disposable income). A Closer relationship with the E.U. will also allow for greater monetary policy and currency coordination, which is important given the similarities between the American and E.U. economies.

“Mr. Obama pledged to work with states to provide high-quality preschool to every child in America. And he recycled a proposal to help homeowners refinance their mortgages.”

Evidence suggest that early childhood is the most important time period for cognitive, emotional, and social development; investing in high quality public pre-schools ensures that all children, not just those of well off parents, have the ability to reach their full potential. Homeowners deserve more help in coping with the housing crisis; Main St. did not get anywhere near the same bailout as Wall St. did, and many families are still struggling with “underwater” mortgages. Helping families restructure their mortgages would help stimulate the economy for similar reasons as raising the minimum wage (by putting more money in the pockets of those who will spend it).

“On climate change, Mr. Obama endorsed the cap-and-trade legislation once championed by Senator John McCain, Republican of Arizona, and former Senator Joseph I. Lieberman of Connecticut, but long stalled in Congress. Though the president said he would not hesitate to use executive orders to push his own measures to reduce carbon emissions, he did not give any details.”

Cap and Trade should already be U.S. legislation. It has strong bipartisan support and makes sense from an environmental and economic point of view. It is because of special interests (lobbyists) that we do not currently have such legislation. Hopefully congress can come together and pass a bill, although recent history suggest they will not be able to. It will be interesting to see what sort of executive orders Obama has in mind to reduce carbon emissions.

In the G.O.P. rebuttal, Sen. Marco Rubio had (unsurprisingly) some choice words for President Obama:

“’I hope the president will abandon his obsession with raising taxes and instead work with us to achieve real growth in our economy,’ Rubio said in the formal Republican response to Obama’s speech.”

Isn’t it interesting that to the G.O.P., “real economic growth” cannot come from government spending? Ask the families of school teachers and police officers how “real” their wages are, ask anyone how “real” their contribution to society is. Ask local businesses (or miltinational corporations too for that matter) if they care whether a public or private sector employee buys their good or service, I guarantee you they do not. Of course the private sector has the play the dominant role in our economy, that doesn’t mean that government spending shouldn’t play any role. It is especially important to have stimulus spending when private demand is low in order to keep the economy growing (weak public sector spending is a major reason for the slow economic recovery both in the U.S. and around the world).

For his part, the President does not seem to be backing off his call for higher taxation and greater government spending:

“ Mr. Obama also signaled, however, that the era of single-minded deficit-cutting should end. He noted that the recent agreements on taxes and spending reduced the deficit by $2.5 trillion, more than halfway toward the $4 trillion in reductions that economists say would put the nation’s finances on a sustainable course.

Mr. Obama spoke darkly of the consequences of a failure to reach a budget deal, which would set off automatic spending cuts on the military and other programs. “These sudden, harsh, arbitrary cuts would jeopardize our military readiness,” he said.”

The government does have a role to play in ensuring markets function properly; government intervention is an essential component of capitalism. Obama has apparently shifted the middle of the political spectrum to the left. The G.O.P., after losing the presidential election, has taken on a “re-branding” of sorts, while the Democratic Party has doubled-down on its ideological stance (and increased the divide between the legitimacy of the two parties; one is sticking to it’s guns and has popular / scientific support, the other is re-branding itself in an attempt to maintain political relevancy).

Will the G.O.P. get on board with Obama or continue to drag its collective feet? How the G.O.P responds to democratic proposals over the next few months will go a long way in determining how many seats it will win in the 2014 congressional elections.

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