Normative Narratives


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Economic Outlook: Reparations, Development Aid / Debt Relief, and Common But Differentiated Responsibilities

Original Article:

In recent international news, a group representing 15 Caribbean nations (CARICOM) is seeking reparations from former colonial rulers for past atrocities, which they argue continue to have negative socioeconomic development impacts to this day:

Spurred by a sense of injustice that has lingered for two centuries, the countries plan to compile an inventory of the lasting damage they believe they suffered and then demand an apology and reparations from the former colonial powers of Britain, France and the Netherlands.

To present their case, they have hired a firm of London lawyers that this year won compensation from Britain for the torture of Kenyans under British colonial rule in the 1950s.

Just as important, the discussions around reparations — in the Caribbean as in Europe — might become an occasion to delve into history, to mourn but also confront the many ways in which the past continues to shape the present.

Laurent DuBouis Op-Ed:

This is more than just creative accounting. When economists debate why some countries are poor and others are rich, they often focus on the cultural, political or economic structures of poor countries. But historians of the Caribbean have long argued that national inequality is a direct result of centuries of economic exploitation.

But a French commission concluded that, while there was a responsibility on France’s part, financial reparation was not the solution. Its report suggested that French aid to Haiti was a kind of “reparation” and urged more of it.

After the 2010 earthquake in Haiti, President Nicolas Sarkozy offered an aid and debt-forgiveness package to the country. But the French government never officially apologized, let alone offered compensation.

Despite the rightness of the Caribbean nations’ claim, European governments are likely to respond similarly this time. If Caricom accepts this approach, the call for reparations may ultimately just come to play a strategic role within international negotiations over aid and trade.

What would it mean to truly rid our world of the legacies of slavery? In the Caribbean, it would mean undoing the divisions created by colonialism, through regional economic cooperation and reduced dependence on foreign aid and foreign banks.

It would mean, above all, ending the continuing mistreatment and stereotyping of Haitians, who were the pioneers in the overthrow of slavery and have been paying for it ever since.

In Europe and the United States, it would mean abandoning condescending visions of the Caribbean and building policies on aid, trade and immigration based on an acceptance of common and connected histories.

It would mean, above all, consigning racial discrimination, exploitation and political exclusion to the past. That would be the truest form of reparation.

By framing the issue of reparations as a way to remedy past atrocities (mainly slave trade) as well as a way to move forward cooperatively, CARICOM may indeed be able to achieve its goals. Reparations fit into a broader interpretation of common but differentiated responsibilities, and are consistent with the human rights accountability based approach to development:

The concept of “common but differentiated responsibilities” in reference to the “global commons”, has until this point been used almost exclusively in the environmental and natural resource arena. I would argue that both of these terms have a much wider application. Global commons should refer to any non-excludable good / service, with positive / negative externalities, whose effective management requires global coordination (to overcome cheater and free-riders). This would include, among other things, development outcomes.

By re-framing the concept of “the global commons”, a new global partnership for development can take root through the UN Post-2015 Development Agenda, with the concept of common but differentiated responsibilities at its core. By “common but differentiated” I do not mean that countries should have ideologically different policies–quite the contrary. The “common” aspect refers to creating programs with global policy coherence, aimed at achieving a normative vision of the future. The “differentiated” aspect refers to these programs being financed in a way that takes into account past transgressions, present context, and future goals.

Both articles mention the socioeconomic effects of slavery and slave trade, and corresponding financial component of reparations, an unavoidable element of any reparations argument. More tellingly, both articles also mention the emotional and psychological impacts of slavery that still persist today. What exactly should reparations look like? I believe in order to be effective–to truly “rid the world of the legacy of slavery”–reparations must have two components:

1) Debt Relief / Development Aid: Debt relief already exists, in the form of the Highly Indebted Poor Country (HIPC) Initiative. However, only five of the thirty-five HIPC countries are in Latin America (LA)–apparently Latin American countries are not poor enough to qualify for debt relief. Given the IMF’s role in the “Lost Decade” of development in LA (1980s), which was much more recent and therefore has a more direct impact on current socioeconomic conditions in Latin America than the 18th century slave trade does, it is particularly troubling that the IMF does not believe most Latin American countries should qualify for debt relief–particularly given Latin America’s substantial debt burden.

Debt relief should be extended to Latin American countries. Furthermore, donor countries should make a strong effort to reach the 0.7% of GDP for development aid target. Both initiatives should carry only the precondition of good, transparent, and accountable governance (political preconditions as opposed to economic preconditions, which are restrictive, paternalistic, and often lead to counter-productive development outcomes). This precondition gives developing countries the greatest amount of autonomy in developing their poverty reduction strategy.

2) An Admission of Wrongdoing, and an Apology: It is clear that the scars of slavery have not healed on their own over time. Drastic economic differences between the most and least developed countries play out as various power-asymmetries on a global scale, where the rich get richer and the poor get poorer. Instead of convergence, there is divergence, with devastating impacts such as human suffering, instability, and conflict. In light of both our common past and interdependent future, it is essential to acknowledge past wrongdoings, so the worlds leaders can move forward in a constructive manner.

Case in point is recent news concerning allegations that the N.S.A. spied on foreign leaders. While Germany, France and Spain certainly are not happy with the news, they are willing to hear America out and work with U.S. intelligence agencies–they understand the positive ends of U.S. actions even if they do not agree with the means . Latin American leaders have, in general, reacted in a much more negative way, cancelling diplomatic exercises and moving towards greater isolation. This reaction is reflective of a deep mistrust between L.A. countries and the highly developed Euro-America alliance.

By admitting to past wrongdoings via these two forms of reparations, we can move forward with greater trust and cooperation with our L.A. neighbors. These are countries we share an economic and political ideology with; there is no reason for such distrust and dislike to persist. L.A. countries also have a crucial role to play in the global partnership for development, as an intermediary between the most and least developed countries in the world (“south-south cooperation“).

To overcome the most pressing issues affecting the world in the 21st century, we need trust, coordination and cooperation between nations–especially between allies! We also need a global economic framework that will reverse the damaging trend of economic divergence and lead to more sustainable, peaceful, and inclusive development. Reparations are but one example of the “common but differentiated responsibilities” every country has in achieving this future. That we can have a debate on the merits of reparations in an open and even-handed way is a testament to how far we have come as a global community, but much work still remains to be done.

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Transparency Report: (In China) the Appearance of Human Rights Laws Must be Upheld, Especially When they are Being Broken

This is a picture of William “Boss” Tweed, one of the most notoriously corrupt politicians in American history. His character, in the critically acclaimed movie “Gangs of New York”, has a particularly memorable line; “the appearance of the law must be upheld, especially when it is being broken”.

The Chinese government does not supporting human rights, as exposed in a recent government white paper on the subject. According to the Tibetan Centre for Human Rights and Democracy, “China’s white paper is oblivious to the indivisible and universal nature of human rights, and that guaranteeing human rights requires action and not just mere hollow proclamations.”  While Tibetan’s are admittedly not unbiased observers, this does not change that fact that this statement is 100% correct.

International human rights law is not only about economic development; this is just one element of the human rights based approach to development. Human rights consist of economic rights, as well as social, cultural, political and civil rights. These rights are understood as universal (must be granted indiscriminately), interdependent, indivisible, and mutually reinforcing. One right begets other rights (leading to empowerment and sustainable human development), while one violation enables another (leading to undesirable ends such as “extreme poverty”). This broader definition of [sustainable] human development is about far more than GDP per capita – that tells us remarkably little about the state of a society, particularly where gross inequity prevails, according to Helen Clark, UNDP administrator.

It seems the Chinese government believes in the economic rights portion of human rights, but not the other essential components. It may pay lip-service to these other rights, but this is simply a facade to appease the international community and it’s own civil society. However, neither of these parties seem fooled. Microblogs have become a popular outlet for Chinese citizens to voice grievances against the government, prompting stricter monitoring / regulations. The international community also recognizes a deterioration of human rights in China, according to a report by the United Nations Human Rights Council:

“We’re concerned that China suppresses freedoms of assembly, association, religion and expression…, harasses, detains and punishes activists…, targets rights defenders’ family members and friends and implements policies that undermine the human rights of ethnic minorities,” Zeya said.

“I think that there wasn’t really an openness to criticism,” Sharon Hom, executive director of Human Rights in China, told a news briefing. “It was clear from the Chinese delegation’s responses that ‘objective and frank’ meant no criticism, or at least no criticism that they didn’t control.”

Some experts had thought the administration of Xi would be less hardline than his predecessors. Instead, critics say Xi has presided over a clamp down that has moved beyond the targeting of dissidents calling for political change.

For example, authorities have detained at least 16 activists who have demanded officials publicly disclose their wealth as well as scores of people accused of online “rumor-mongering”.

“Xi Jinping has definitely taken the country backwards on human rights,” prominent rights lawyer Mo Shaoping told Reuters.

Three specific examples support the theory that China does not uphold international human rights standards, but rather pays lip service to them: 1) the governments reaction to smog in China, 2) the corruption trials of Bo Xilai, and 3) the treatment of Tibetan monks.

1) Smog in China:

Schools, major roads and an airport remained closed Tuesday, as a thick cloud of filthy smog smothered the northeastern city of Harbin.

Pollution levels remained far above international standards, as the city’s monitoring stations on Tuesday showed that concentrations of PM2.5 — the tiny airborne particles considered most harmful to health — were more than 30 times the World Health Organization’s recommended standard, the state-run China Daily reported.

However, the government has responded with token measures. To the extent the government cares about pollution, it is arguably for economic reasons (reduced tourism, stopped economic activity), as opposed to the health aspect (premature deaths due to dangerous smog)

China said on Monday it would give rewards amounting to 5 billion yuan ($816.91 million) for curbing air pollution in six regions where the problem is serious, underscoring government concern about a source of public anger.

Protests over pollution in China are becoming common, to the government’s alarm. Authorities have invested in various projects to fight pollution and even empowered courts to mete out the death penalty in serious pollution cases.

But the results have been mixed. Enforcement of rules has been patchy at the local level, where district authorities often rely on taxes from polluting industries.

State media said in July the government planned to invest 1.7 trillion yuan ($277 billion) to fight air pollution over the next five years.

Despite new enforcement rules, without empowering people with civil and political rights, top down measures never become ground level realities; a prime example of the interdependence of different aspects of human rights.The Communist party can be seen taking a tough stand on pollution, without adequately addressing the problem.

Such a response will not result in better air quality; which is bad news for the vast majority of Chinese people who cannot afford a purifier; top of the line airs purifiers run between $2000 and $3000, and basic standard models range from $320 to $480 a piece. Meanwhile, the average annual family income of the 712 million urban Chinese is $2100. Do the math!

2) Bo Xilai Trial

The sentencing of former Chongqing Communist Party boss Bo Xilai to life in prison on bribery charges over the weekend effectively brought to a close China’s biggest political crisis since the Tiananmen Square crackdown in 1989.  Bo’s exit is significant in that it leaves the neo-Maoist “New Left” without a star. But the trial was also noteworthy for the many questions it raised about the future of China’s much-scrutinized legal system.

The trial of Bo, presided over by the Jinan Intermediate People’s Court in eastern China’s Shandong province, caught many off guard with its apparent openness. While politically sensitive trials have typically been cloaked in secrecy, the proceedings in the Bo trial were broadcast online in unusual detail through the court’s official feed on Sina Weibo, China’s version of Twitter.

This “apparent openness” was by design, as is everything done by the Communist Party in China. The purpose was to show Chinese citizens, and the world, that leadership has gotten “serious” about corruption. Here’s the problem, China has over 10 million civil servants, it is impossible to stamp out corruption on an ad-hoc basis. In effective democracies, corruption is kept at bay by the democratic process; if a civil servant is proven unfit for service, he is dismissed. Absent these political rights, the Chinese people must rely on the benevolence of the parties internal auditing.

The Chinese judicial system is controlled by the government (and therefore not independent or transparent)  and is highly reliant on confessions as opposed to evidence. Confessions can be forced, especially when people lack the civil rights to challenge the interrogation / judicial processes. The Chinese judicial system allows government leaders to push out strategic foes under the guise of fighting corruption. Again, the Communist party appears to be upholding peoples rights, without making any meaningful reforms.

3) Tibetan Monks:

One of the most important sites in Tibetan Buddhism, Labrang presents an idyllic picture of sacred devotion that is carefully curated by the Chinese government, which hopes to convince visitors that Tibetan religion and culture are swaddled in the Communist Party’s benevolent embrace.

But behind closed doors, many of the monastery’s resident monks complain about intrusive government policies, invisible to tourists, that they say are strangling their culture and identity.

“Even if we’re just praying, the government treats us as criminals,” said a young monk, who like others interviewed recently asked for anonymity to avoid government repercussions.

Such frustrations, many monks say, are what has driven more than 120 Tibetans to set fire to themselves since 2009, including 13 in the Labrang area, in a wave of protests that has gone largely unreported in the Chinese media.

International human rights advocates say that rather than address the underlying grievances — including Beijing’s deeply unpopular campaign to demonize the Dalai Lama, the exiled Tibetan spiritual leader — Chinese authorities have responded with even harsher policies that punish the relatives of those who self-immolate and imprison those who disseminate news of the protests to the outside world.

Monks here describe a largely unseen web of controls that keep potential troublemakers in line: ubiquitous surveillance cameras, paid informers and plainclothes security agents who mingle among the busloads of tourists. Hidden from the throngs are the political education sessions during which monks are forced to denounce the Dalai Lama. Stiff jail sentences await those who step out of line. “If we don’t obey, it will be terrible for us,” the monk said. 

With an eye on the lucrative prestige of a Unesco World Heritage listing, the central government is giving the monastery a $26 million face-lift. Around 1,000 monks and 65,000 volumes of Buddhist scripture are housed in the sprawling complex, which local officials say is in dire need of structural improvements.

Yet locals complain that much of the construction is aimed at increasing tourism, rather than benefiting Tibetans. “It looks fancy, but in reality all the improvements are for Chinese people,” one said.

Such complaints appear to be falling on deaf ears. During a tour of the region in July, China’s top official in charge of ethnic minorities, Yu Zhengsheng, insisted that economic development was the panacea for what ailed Tibetans. In the same breath, he condemned the Dalai Lama’s “middle way,” which calls for genuine autonomy in Tibet but not independence, saying it conflicts with China’s political system.

“Only when people’s lives have been improved can they be better united with the Chinese Communist Party and become a reliable basis for maintaining stability,” he said, according to Xinhua.

Notice a common thread? You should. In each of these cases, the Chinese government is going to great lengths to paint the picture of a society which respects the human rights of it’s citizens. At the same time, it continues to crack down on dissenters with relative impunity. It is no secret that people do not have political freedom in China’s one party system, but apparently there is also no respect for civil or rights, religious freedom, or concern for health-related socioeconomic rights. By denying political and social rights, as well as media independence, the Communist party can appear to be making reforms while in reality it roles back China’s human rights record by cracking down on dissenters.

It would appear that the only rights the Communist Party of China truly cares about are economic rights. Am I being too critical? Read Mr. Zhengsheng’s comment again and decide for yourself; it would appear the Chinese government is openly concerned only with economic rights. The appearance of the law must be upheld, especially when it is being broken–international human rights law is no exception. Perhaps this is all for the good of the Chinese people; if that is so, let them decide that for themselves.   

Can China perhaps uphold specific human rights, notably economic and educational, while denying others? There is certainly an element of Chinese exceptionalism; there is no parallel political structure in the world that compares the Communist Party of China–it’s experiences are unique. Even if China ultimately proves that sustainable human development can be achieved by picking strategic human rights and denying others (which I do not think will happen, I try not to make predictions but growing unrest in China’s future is more of a hypothesis anyhow), this would be the exception (albeit an incredibly large exception), not the rule.

The political organization and homogeneous society present in China simply does not exist in the vast majority of the developing world. Furthermore, without the “production engine” that over a billion Chinese workers represent, other developing countries will need to rely on less labor intensive, more diversified / entrepreneurial growth; which are cultivated by upholding all human rights and allowing them to realize their full potential. 


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Conflict Watch: The End Of Team America World Police (Part 5)

Well, after no installments of “The End of Team America” for a few months, I now have back-to-back blogs on the “subject”. I don’t make the news people, I just analyze it! I suppose with the specter of a potential U.S. strike on Syria, unrest in Egypt, and complications with Iran, the timing wasn’t ripe to discuss winding down America’s military involvement around the world. However, this has always been a long term goal of the Obama administration; with Assad’s regime complying with international chemical weapons experts / “Geneva 2” peace talks in the works (I am personally skeptical the Syrian opposition will participate, which would derail these talks), Egyptian unrest seemingly subsiding (or festering under the surface?), and Iran entering the fold of international diplomacy with renewed optimism (but is it just a stalling tactic or a real attempt at change?), it seems that the tune of news outlets has shifted away from imminent U.S. military intervention back towards the long-term goal of winding down America’s role in global security measures. True none of these shifts represent concrete changes in their respective debates, but they do present an opening for a different focus by news outlets, at least for the time-being. 

Original Article:

Germany called for closer military integration between groups of NATO countries on Tuesday as the alliance grappled with how to keep its defenses strong at a time of falling military spending.

Germany’s proposal, discussed by NATO defense ministers at a Brussels meeting, is that big NATO nations act as “framework nations” leading a cluster of smaller NATO allies.

These clusters of countries would jointly provide some military capabilities or develop new ones for the benefit of the whole alliance, with the lead nation coordinating their efforts.

The idea was welcomed by NATO Secretary-General Anders Fogh Rasmussen and by Britain but diplomats said some other countries, including France, had concerns about the proposal, fearing it could undermine countries’ sovereignty and lead to over-specialization.

“Does that lead to a kind of specialization which could be dangerous if some nations specialize only in certain types of mission and disengage from other missions?,” one diplomat said.

Some diplomats also worry that a cluster system could make it more difficult for NATO to use forces on operations because a parliament in one country could effectively veto military action by other nations in the cluster.

The United States has repeatedly voiced alarm about the growing gulf between U.S. military spending and capabilities and those of its European allies.

The German proposal would help share the cost of expensive military systems at a time when many NATO allies are slashing defense spending in response to the economic crisis.

Only four of the 28 NATO members – the United States, Britain, Greece and Estonia – met the alliance’s target of spending 2 percent of their economic output on defense in 2012.

As a block, the EU spends only 1.7% of it’s GDP on military expenditure. The U.S., by contrast, spends 4.7% of it’s GDP on military purposes. This unequal distribution of global security expenditure (39% of global military spending is by the U.S.) has placed an unfair burden on the American tax-payer, even as it has strengthened U.S. influence over global security decisions. The U.S. is expected to foot the bill of many multilateral security operations, which as led to roughly 1/4 of all Federal expenditures to go towards military purposes. This has constrained U.S. fiscal space, draining it’s economy of resources needed to reinvest in it’s future through social programs. The aggregate result has already begun to show in the form of increasing inequality and reduced social mobility.

It is not only in other countries best interest to reclaim some say in security matters, it is also in the U.S. best interest to have such a re-balancing take place. But absent other countries stepping up, the U.S. has no choice but to continue footing the bill, otherwise the “global security commons” would suffer. It appears that Germany now agrees with the U.S. and is taking the initial steps to more evenly distribute the burden of global security.

This plan certainly has snags, which are addressed in the article. Could more “specialized” NATO tie the hands of some of it’s smaller members, requiring an impossible consensus for military action? It is possible, although I would argue that states rarely make security decisions unilaterally (with the exception of the U.S., which would likely still retain it’s ability to act unilaterally in any foreseeable agreement). With each country having to take military intervention back to it’s legislature for a vote, having more votes ultimately complicates military action. I am sure that NATO members, headed by Germany and the U.S., will take necessary steps to streamline a more cooperative process, although admittedly I do not know what these steps would be at this time.

Germany was demilitarized after WWII, that was almost 70 years ago. Germany has, since that time, proven it has the political will, stability, and foresight to be a world power. It is time to allow Germany to become a true world power, by increasing its role in global security debates. I will be sure to keep my readers up to date on any news on this important proposition.


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Conflict Watch: The End of Team America World Police (Part 4?)

The first time in a while I have been able to talk about America scaling back it’s direct military presence in remote areas of the World. Obama hinted at the limits of American intervention at his speech at the UNGA last month. However, burying our heads in the sand and pretended threats don’t exist is not an option either. It seems the U.S. has a plan which allows it to remain a global security presence without relying on American “boots on the ground”.

Original Article:

Here on the Kansas plains, thousands of soldiers once bound for Iraq or Afghanistan are now gearing up for missions in Africa as part of a new Pentagon strategy to train and advise indigenous forces to tackle emerging terrorist threats and other security risks so that American forces do not have to.

“Our goal is to help Africans solve African problems, without having a big American presence,” said Lt. Col. Robert E. Lee Magee, a West Point graduate and third-generation Army officer whose battalion has sent troops to Burundi, Niger and South Africa in the past several months, and whose unit will deploy to Djibouti in December.

“Africa is one of the places,” President Obama said at a news conference three days after the commando raids, “that you’re seeing some of these [terrorist] groups gather. And we’re going to have to continue to go after them.”

But with the United States military out of Iraq and pulling out of Afghanistan, the Army is looking for new missions around the world. “As we reduce the rotational requirement to combat areas, we can use these forces to great effect in Africa,” Gen. David M. Rodriguez, the head of the Africa Command, told Congress this year.

Missions that were once performed largely by Special Operations Forces, including the Army’s Green Berets, are now falling to regular infantry troops like members of the Second Armored Brigade Combat Team here at Fort Riley, nicknamed the Dagger Brigade.

“We’re never going to teach them anything about Boko Haram they don’t already know, but we can help them develop their capacity as a military,” said Maj. Bret Hamilton, 38, an Iraq and Afghan war veteran who led the team in Niger.

Before deploying, the troops in Kansas receive six days of cultural training and instruction from Africa-born graduate students at nearby Kansas State University. “The soldiers trained are able to ask about things not in their books,” said Daryl Youngman, an associate professor at the university who oversees the instruction.

Some Africa specialists say that if the goal is to build a cadre of regional specialists, this training seems lacking. “There needs to be a concentrated effort for these forces to have sustained regional language training and expertise,” said Lesley Anne Warner, an Africa analyst with CNA’s Center for Strategic Studies in Alexandria, Va., who has studied the regional brigade concept. “Not having such training defeats part of the rationale for having regionally aligned forces.”

For the South Africans, it was a chance to learn tactics and techniques that American troops refined in Iraq and Afghanistan. For the Americans, it offered an opportunity to gain new insights on African counterinsurgency.

“When the tire meets the tar, that’s when you actually learn the most lessons,” Brig. Gen. Lawrence Reginald Smith, the South Africa force commander there, said in a telephone interview. “What we bring to the table is knowledge of the indigenous people and the rebels who come from those people, including how they act.”

Obama, in referring to “places these groups go”, was talking about how terrorist groups tend to fill the governance-void, buying goodwill through essential services in exchange for a base of operations. Africa certainly has governance and public service delivery issues, making it an ideal place for extremists groups to try to setup shop.

Initially, this program will not be a scaling back of American military expenditure, but rather a shift from fighting to training. In the long run it will allow America to allocate less resources into military programs without compromising our national security and/or that of our allies.  While there may still technically be “boots on the ground”, it is much more desirable to have Americans training on ally grounds then fighting in enemy territory. 

It would be nice if American troops had language and cultural sensitivity training beyond the 6 days currently being allocated to troop preparation, and perhaps in time more resources will be invested into this aspect. However, language training is a long term task, and generally is outside the pay-grade of the average American soldier. With English as a primary language globally, it makes more sense to have African’s learn English and act as translators then expecting our troops to learn a new language (and expect them not to demand greater compensation for such training). The economic benefit of our troops knowing African languages is virtually non-existent; the economic benefit of teaching African’s English (which many will already know) goes beyond just the training of soldiers and can have a meaningful impact on their earning potential for their whole lives.

This is certainly a long term project, but one which alongside preventative peace-building projects I believe will lead to a more secure Africa. With peace being a prerequisite to sustainable human development, I believe this is a worthwhile project for America to pursue, in both our own and African economic / security terms. It is also a mutually beneficial relationship; America brings in our military expertise and advanced weaponry, while the Africans train us on the local realities we would otherwise not know about.  


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Economic Outlook: “Starve the Beast”, MMT, Debt Sustainability and the Debt Limit

I have, like many an economist, been preoccupied by the possibility of a U.S. debt default. How could our politicians willingly do something that is so obviously detrimental to American and global economic interests? Is there any precedent or historical clue which may shed some light on this phenomenon? It is possible, I would argue, that such a default is the current (and most heinous) manifestation of “starve the beast” political theory:

Starving the beast” is a political strategy employed by American conservatives in order to limit government spending[1][2][3] by cutting taxes in order to deprive the government of revenue in a deliberate effort to force the federal government to reduce spending. The short and medium term effect of the strategy has dramatically increased the United States public debt rather than reduce spending

On July 14, 1978, economist Alan Greenspan gave testimony to the U.S. Finance Committee: “Let us remember that the basic purpose of any tax cut program in today’s environment is to reduce the momentum of expenditure growth by restraining the amount of revenue available and trust that there is a political limit to deficit spending.”[5]

The earliest use of the actual term “starving the beast” to refer to the political-fiscal strategy (as opposed to its conceptual premise) was in a Wall Street Journal article in 1985 where the reporter quoted an unnamed Reagan staffer.[7]

Since 2000

The tax cuts and deficit spending of former US President George W. Bush‘s administration were attempts to “starve the beast.” Bush said in 2001 “so we have the tax relief plan […] that now provides a new kind—a fiscal straightjacket [sic] for Congress. And that’s good for the taxpayers, and it’s incredibly positive news if you’re worried about a federal government that has been growing at a dramatic pace over the past eight years and it has been.”[8]

Historian [Economist] Bruce Bartlett, former domestic policy adviser to President Ronald Reagan, has called Starve the Beast “the most pernicious fiscal doctrine in history”, and blames it for the increase in US government debt since the 1980s.[18]

For a historical look at government revenue and expenditure, please see here. The most useful number (IMO), is the % GDP comparisons.

But what is the connection between “starve the beast” and the “debt limit”? The answer lies in a simple analysis of Modern Monetary Theory:

A pivotal issue in our discussion turns out to be whether the central bank can or should hold the nominal rate of interest on government debt, R, below the rate of growth of nominal GDP, G. (We could frame the discussion in real terms instead by subtracting the rate of inflation, ΔP, from both sides; it makes no difference.) If R is held below G, then essentially any level of the government’s budget deficit is “mathematically sustainable,” a term we have been using to mean that the debt-to-GDP ratio does not grow without limit over time. On the other hand, if R exceeds G, the budget balance must show a primary surplus, on average over the business cycle, to achieve mathematical sustainability of the debt. (See the first of the posts referenced above for a detailed discussion of the conditions for mathematical sustainability.) 

The essential argument of MMT is that if growth rates are greater than interest rates, debt is sustainable and a government can run a budget deficit indefinitely (governments, unlike households, do not die). Japan, with its Debt/GDP ratio almost twice as high as the U.S., is a primary example the difference between debt sustainability versus total debt. Many of Europe’s “trouble countries” have trouble with much lower debt / GDP ratios (than Japan); without control of printing money, they are at the mercy of markets to borrow. These markets have been charging troubled countries a higher “risk premium”, pushing these countries into damaging austerity policies in the face of depressed demand. It is not the level of debt, but the interest that needs to be paid on it, that determines debt sustainability in a MMT model. 

In order to truly starve the beast, it is not enough to deny the U.S. government of tax revenue; the obstructionist must also increase the governments borrowing cost. This is exactly what a debt default would do, lead to higher borrowing costs. In fact, one of the main arguments by liberal economists for stimulus spending–other than the social and economic benefits of employing a substantial portion an idle workers and stimulating demand–is that the cost for doing so is for all intents and purposes the same as if we were running a government surplus! True the Fed can set the interest rate it pays by expanding it’s balance sheet, but this is an extraordinary role for the Fed to use only the most dire liquidity trap, not a viable long-term policy (due to inflationary effects of increasing the money supply when the economy is near or at full capacity).

There is certainly no proof that this is specifically anyone’s agenda. However, the same ideologies are behind “starve the beast” policies are behind holding the debt-limit hostage for fiscal concessions. We have to at least question the motives of these politicians; they are “rational” people, and until now I have heard no rational reason for such an unprecedented default. If the goal is to convince their opponents, who are likely to have Post-Keynesian if not MMT views of political economy, that certain policies are unsustainable, a default is–an irreversible way–to achieve such goals.

As the self-proclaimed party of fiscal responsibility, the GOP is leading America down the road of ballooning interest payments. Interest payments  already make up a substantial portion of total expenditure (8% and growing, twice as much as the federal government spends on education). A default would cause these payments to be substantially bigger, further constricting fiscal space for important social programs. We wouldn’t be getting more for less, or even the same for the same amount, we would receive less services for the same levels of expenditure. It is not fiscally responsible, but then again “starve the beast” and their contemporary “Tea Party” advocates were never really about fiscal responsibility.

Furthermore, follow a debt default the ensuing global recession would greatly raise the unemployment rate, driving up the spending on “automatic stabilizer” welfare programs that would otherwise be trending downwards in tandem with a growing economy.

You may say that no elected official would ever act so heinously and against the interests of the government and the American people; I would say read up on the history of the “starve the beast” political philosophy. It should also be noted that a default does not actually need to pass in order to result in higher borrowing costs / lower growth (making borrowing unsustainable based on a MMT framework); the specter of a default is enough to achieve these goals (the next debt-limit debate is set for February 2014). 


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Economic Outlook: As U.S. Debt-Ceiling Battle Continues, China Seizes Opportunity

Original article:

China accelerated plans to internationalize its currency on Thursday by agreeing to swap euros and yuan with the European Central Bank in a deal that is set to be China’s second-largest to date.

The bilateral currency swap agreement between the European Central Bank (ECB) and the People’s Bank of China (PBOC) is valid for three years and has a maximum size of 350 billionyuan, or 45 billion euros ($60.8 billion).

The deal is the latest of a string of currency swaps that China has created with other nations to promote usage of the yuan in global commercial and financial transactions, with the ultimate goal of rivaling the dollar as a reserve currency.

“The emphasis is on renminbi internationalization,” said Louis Kuijs, an RBS economist in Hong Kong.

The yuan is now the world’s eighth most-traded currency, financial services provider SWIFT said this week, with a market share of 1.5 percent and overtaking the Swedish krona, the South Korean won and the Russian rouble.

To be sure, the Chinese renminbi is still a long way from rivaling the USD as the worlds primary reserve currency. While the renminbi has become the 8th most traded currency in the world at a 1.5% market share, the USD is still the undisputed king, accounting for 61.9% of foreign reserves according to the IMF. One of the main factors holding back the renminbi’s attractiveness as a reserve currency is the fact that it’s value is not determined on the open market but rather set by the People’s Bank of China. A free-floating renminbi is unlikely any time soon, as it’s low value is a crucial element of China’s export driven economy.

However, recent events point to increased attractiveness of the renminbi, and troubling signs for the USD as a reserve currency. The Federal government does not have to default on it’s debt obligations in order to hurt the standing of U.S. debt as the ultimate “safe-asset”; just the threat of a default led to the first ever downgrade of U.S. credit rating in the summer of 2011.

Furthermore, there are signs that markets are beginning to shy away from U.S. debt, leading to higher borrowing costs:

In good times and bad, the world’s financial system has long been able to rely on one thing: that the United States government would pay back its debt on time.

This assumption has made short-term government debt the most basic building block of the financial system, as reliable as a dollar bill.

In recent days, however, the fiscal impasse in Congress has been testing investors’ confidence. As a result, investors have been shifting their money out of the $1.7 trillion market for the short-term government debt known as Treasury bills, worried, for the moment at least, that they may not be the risk-free asset they have known.

The clearest sign of the changing perceptions has come in the prices for the bills that the Treasury Department is supposed to repay in the days right after the debt ceiling is set to be reached.

Normally, as the day of repayment for a Treasury bill gets closer, the chances of getting repaid go up and the bill becomes worth more to investors. Now, however, the opposite is happening, and the bills are becoming worth less than they were previously, making them available for a discount on their face value.

The discount on bills to be paid on Oct. 24 has grown by 400 percent since the beginning of the month; on Wednesday, it jumped 24 percent. That has brought the price that the government has to pay to borrow money for a month to three times what the average AA-rated American company has to pay, according to Federal Reserve data. Typically, the United States government can borrow money for less than big corporations.

Confidence in investments widely considered to have little or no risk has been periodically shattered in the recent past. Until 2008, most investors thought they could not lose money on mortgage-backed bonds that carried a rating of AAA. Last year, investors were forced to rethink their belief that countries in the European Union would always repay their debt.

In the longer term, the fear is that a default would dent the willingness of foreign investors to use Treasury bonds as a place to park their money. Their desire to do so today has made the dollar the world’s most widely used currency.

In remarks prepared for a hearing on Thursday, the head of the industry group for mutual funds, Paul Schott Stevens, said that if a payment was delayed for as little as a few days, “investors will learn a lesson that cannot and will not be unlearned.”

“That lesson is simple: Treasury securities are no longer as good as cash,” Mr. Schott Stevens said.

Let me be clear, the sky is not falling–yet; it seems that politicians on both sides of the political spectrum understand the importance of not defaulting on U.S. debt obligations. However, one has to question the long term effects of even the threat of a debt default. The G.O.P has proposed a temporary debt ceiling increase in exchange for negotiations over budgetary issues. This is not a good compromise, kicking the can down the road will just lead to another debt-ceiling showdown a few weeks from now; one has to wonder at what point global markets will begin to question the USD as it’s main reserve currency. Surely, every-time we have this debate, we risk a credit rating downgrade and further damage the sterling reputation of U.S. Federal debt. As a nation, we literally cannot afford to lurch from one debt showdown to another.

Perhaps investors, fed-up with American political gridlock and uncertainty, will begin to see China, with its insulated and unified leadership, as a safer place to park its money–surely China’s rulers would not even entertain the idea of a default on their debts. 

The debt limit is not a political bargaining chip; it must be raised in the very short-term, while entitlement and tax reform are longer term issues (which have been unsuccessfully negotiated for the better part of the past two decades, is it realistic to believe we will be able to reach a grand bargain in a few weeks?!). As the NYT editorial board put it, “First End the Crisis, Then Talk“. 


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Transparency Watch: Who Will Hold the UN Accountable?

Haiti is one of the worlds poorest countries, both in terms of GDP per capita (adjusted for standard of living expense, 2012 PPP GDP per capita is estimated at $1,242) and HDI (0.456, 161st out of 187 countries and the lowest in the Western Hemisphere). Any other measure of well-being will turn out similarly dismal results. It is therefore unsurprising that Haiti is the target of many international and multilateral aid campaigns, aimed at increasing the standard of living for Haitians. However, even the most well intended campaigns can have unintended negative consequences, and those responsible must be held accountable.

Original article:

Advocates for Haitian victims of the deadly cholera epidemic that first afflicted their country three years ago said they were taking the extraordinary step on Wednesday of suing the United Nations, asserting that the organization’s peacekeeping force in Haiti was responsible for introducing the disease through sewage contamination from its barracks.

The lawsuit, which the advocates said they would file in Federal District Court in Manhattan on Wednesday morning, will be the strongest action they have taken in pressing the United Nations to acknowledge at least some culpability for the outbreak of cholera, a highly contagious scourge spread through human feces that had been largely absent from Haiti for 100 years.

Cholera has killed more than 8,300 Haitians and sickened more than 650,000 in the earthquake-ravaged country, the poorest in the Western Hemisphere, since it first reappeared in October 2010. While the worst of the epidemic has eased, it still kills about 1,000 Haitians a year.

United Nations officials have said they are committed to eradicating the cholera, but they have not conceded that the organization was inadvertently responsible for causing it. They also have asserted diplomatic immunity from any negligence claims, a position that has deeply angered many Haitians who consider it a betrayal of United Nations principles.

Haitian leaders, while dependent on the United Nations to help maintain stability and provide other important services, have also expressed unhappiness over the cholera issue. In an address last Thursday at the annual United Nations General Assembly opening session, Haiti’s prime minister, Laurent Lamothe, spoke of what he called the “moral responsibility” of the United Nations in the outbreak, and said the efforts to combat it had been far from sufficient.

Forensic studies, including one ordered by the United Nations, have identified the culprit bacteria as an Asian strain imported to Haiti by Nepalese members of the United Nations peacekeeping force, known as the United Nations Stabilization Mission in Haiti, which was first authorized in 2004 and maintains about 8,700 soldiers and police officers there, drawn from more than three dozen member states. The forensic studies have also linked the spread of the cholera to a flawed sanitation system at the Nepalese peacekeeper base, which contaminated a tributary that feeds Haiti’s largest river, used by Haitians for drinking and bathing.

It was far from clear that the lawsuit would be accepted by the court, which affords broad latitude to diplomatic protections for the United Nations against such litigation. These protections are partly rooted in the formal legal conventions created with the inception of the United Nations after World War II. “The majority view is that the U.N. and U.N. entities are immune from domestic lawsuits,” said Jordan J. Paust, a professor of international law at the Law Center of the University of Houston.

Eight months ago, Ban Ki-moon, the secretary general of the United Nations, informed Haitian leaders that it would not accept claims for compensation made by victims of the outbreak, citing a provision of the Convention on the Privileges and Immunities of the United Nations.

Ms. Lindstrom said the United Nations had also rebuffed her group’s attempts to address the issue. “They’ve refused to sit down for a conversation with the victims, or with us,” she said.

Navi Pillay, the top human rights official at the United Nations, suggested on Tuesday from her headquarters in Geneva that Haiti’s cholera victims were entitled to some compensation, although she did not specify who should provide it.

I am generally very supportive of the United Nations; despite widespread cynicism about the efficacy of international development efforts, I believe the United Nations has played an integral part in establishing / maintaining peace in conflict regions and empowering the worlds most impoverished marginalized since its inception. However, all these positive elements does not exonerate the UN from being held accountable for it’s transgressions.

During my time interning with the UNDP, I was given an assignment to assess survey responses  received from countries with a UNDP country office. While the responses were overwhelmingly positive, there were some caveats. On questions relating to the UNDP’s transparency / accountability / inclusiveness / respect for countries self-determination, little over half of the responses were positive. I noted that since the UNDP was advocating for precisely these aspects in domestic politics, it should lead by example and make it a point to champion these qualities in its day to day activities. Failure to do so, I argued, was hypocritical, paternalistic, and ultimately undermined the UNDPs credibility.

I have written about the Post-2015 development agenda a number of times. At its heart is a human rights based approach to development, with international human rights law spelling out “who will be accountable” for various human rights obligations / violations. In addition, the UN has gone to great lengths to make develop the Post-2015 agenda in an inclusive and consultative manner. As someone that has seen firsthand all the lessons learned from MDG’s shortcomings and hard work that has gone into the Post-2015 agenda, I am cautiously optimistic that the Post-2015 development goals will have a significant positive impact on the worlds most impoverished.

People often talk about the UN losing influence due to it’s inability to enforce its security rules; however the UN has difficulty enforcing it’s norms on these issues, as there is a layer of national sovereignty preventing full implementation of UN principles. The Haitian case is different, the only thing holding the UN back from championing it’s own principles is the UN itself.

The UN’s strength, in my opinion, comes not from influence on security decisions. Rather it is it’s function as a forum for voicing grievances and it’s technical expertise accumulated over decades of employing development experts , alongside it’s country-level presence, that makes the United Nations an integral part of the international community. 

However, failure of the UN to be held accountable for its role in spreading cholera in Haiti could undermine support for the Post-2015 development agenda. Who is the UN to demand accountability from a wide variety of actors (government, business, civil society), when they themselves are not accountable for their own human rights violations (they may ask)? Even if the UN is not legally accountable to the Haitian people, Haiti’s prime minister is right to invoke the idea of the UN’s “moral responsibility”.

OHCHR Chief Navi Pillay understands the importance of accountability and leading by example, and I commend her for coming out and saying the UN should be held accountable for it’s role in the Cholera outbreak in Haiti, especially given (her boss) Secretary General Ban’s unwillingness to even meet with victims and/or their representatives.

It would be nice if the UN realized the importance of it’s own accountability, and settled outside of court. If this does not occur, it will be up to some court to hold the UN legally accountable. 


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Green News: Competition in the Waste-to-Fuel / Energy Industry

(Everyone is sick of hearing about this government shutdown anyways right??)

The potential of the waste-to-energy industry is a recurring topic here at NN. To quote a NYT article on the subject, “THERE is an indisputable elegance to the idea of transforming garbage into fuel, of turning icky, smelly detritus into something valuable.” It seems that energy producers and waste management companies agree, as there has been a strong push in the past decades to turn energy based waste / fuel into commercially viable alternative power source. Most articles I have reviewed so far have referred to the gasification of garbage in specially designed power plants. A new concept proposes to capture the methane released from garbage already in landfills and turning it into energy/fuel:

Clean Energy Fuels will announce on Thursday that it has started selling a fuel made of methane from landfills and other waste sources at its more than 40 filling stations in California. The company, which is backed by T. Boone Pickens, is developing a nationwide network of natural gas pumps and plans to introduce the fuel elsewhere as well.

The company expects to sell 15 million gallons of the fuel in California this year, more than double the amount of similar fuels the Environmental Protection Agency projected would be produced nationwide.

To many in the industry, the pace of the fuel’s development has been something of a surprise.

“Though California and others have been investing in the development of this fuel, I don’t think people were expecting there to be a significant public supply or access this soon — maybe not even this decade,” said Tim Carmichael, who leads the California Natural Gas Vehicle Coalition, a trade group.

A big factor in methane’s rise is the surge in natural gas production from shale drilling, which had already nudged the transportation industry to begin shifting to vehicles that can run on the cleaner-burning fuel, making it easier to meet emissions standards.

Another reason is powerful government incentives, especially in California, that have imposed strict regulations intended to help reduce carbon emissions to 1990 levels by 2020. Under the program, suppliers that reduce emissions during the production, transportation and use of the fuel are awarded tradable credits.

These and similar federal incentives are allowing Clean Energy to sell the fuel, which is called Redeem, at the same price as its conventional natural gas fuel even though it is more expensive to produce.

But because of its source, the fuel counts as renewable and takes less energy to extract and process, making it more attractive to companies seeking to burnish their green credentials

The fuel’s environmental benefits also include capturing the methane before it is released into the atmosphere. When the methane-derived fuel is burned, it is far less harmful to the atmosphere than petroleum fuels. But the methane that escapes directly from decomposing waste is more potent as a heat-trapping gas than carbon.

For this reason, many large-scale farms, wastewater treatment companies and garbage companies have developed systems to capture escaping methane — known as biogas — for both transportation and electricity, and several start-up companies are working on systems of their own. There are projects in Europe as well, where biogas for transport is more common.

Beyond the bottom line, customers are increasingly interested in how clean the fuel is, said Andrew J. Littlefair, the chief executive of Clean Energy, adding that Redeem can burn 90 percent cleaner than diesel. “We’re seeing from these heavy-duty trucking fleets, and these shippers that hire these trucking fleets, they’re really interested in sustainability,” he said. “It’s gotten to be a very important part of the sale.”

John Simourian, chief executive of Lily Transportation, which uses a nationwide network of trucks to move a range of products, including construction materials and groceries, said that only a small portion of his fleet ran on natural gas but that the company was shifting over.

Not only is the fuel less expensive, but it gives the company a competitive advantage with customers on price and environmental concerns. “It’s just a win all around,” he said.

It is interesting to note all the different avenues being explored when it comes to turning waste into something valuable and environmentally friendly–and why not? According to Sharon E. Burke, the assistant secretary of defense for operational efficiency plans and programs “Waste is a problem, so if we could dispose of waste and create energy at the same time, that would be a silver bullet.” But you don’t need to be en expert to know that trash is a problem, especially in densely populated areas (such as major cities) which produce a lot of trash; it stinks, it takes up room, and it costs money to get rid of. It is safe to say that, with the current trash disposal system, we have a “surplus of trash”.

Now imagine a world where not only is trash not a liability, but there are actually companies biding for trash (both intra-industry and inter-industry; some want it for landfill methane extraction, others to gasify the garbage directly into energy)–a trash shortage! A stream of revenue could open up for large municipalities, instead of a large bill for waste management. It is true that eventually waste-to-trash will have to get off subsidies to become truly commercially viable. However, if as a society we are unwilling to reward waste-to-energy for it’s positive externalities (such as less emissions and less garbage around), we can still hold “dirty” energy producers accountable for their negative externalities via carbon tax / cap and trade. As waste-to-energy matures and becomes more efficient, and emissions prices stabilize due to a more complete global market, the industry should eventually be able to compete without subsidies. It would appear this world is not so unimaginable or far-off as one may think.