America’s Hope Against Hope

Joseph E. Stiglitz

06 December 2012
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NEW YORKAfter a hard-fought election campaign, costing well in excess of $2 billion, it seems to many observers that not much has changed in American politics: Barack Obama is still President, the Republicans still control the House of Representatives, and the Democrats still have a majority in the Senate. With America facing a “fiscal cliff” – automatic tax increases and spending cuts at the start of 2013 that will most likely drive the economy into recession unless bipartisan agreement on an alternative fiscal path is reached – could there be anything worse than continued political gridlock?




In fact, the election had several salutary effects – beyond showing that unbridled corporate spending could not buy an election, and that demographic changes in the United States may doom Republican extremism. The Republicans’ explicit campaign of disenfranchisement in some states – like Pennsylvania, where they tried to make it more difficult for African-Americans and Latinos to register to vote backfired: those whose rights were threatened were motivated to turn out and exercise them. In Massachusetts, Elizabeth Warren, a Harvard law professor and tireless warrior for reforms to protect ordinary citizens from banks’ abusive practices, won a seat in the Senate.




Some of Mitt Romney’s advisers seemed taken aback by Obama’s victory: Wasn’t the election supposed to be about economics? They were confident that Americans would forget how the Republicans’ deregulatory zeal had brought the economy to the brink of ruin, and that voters had not noticed how their intransigence in Congress had prevented more effective policies from being pursued in the wake of the 2008 crisis. Voters, they assumed, would focus only on the current economic malaise.




The Republicans should not have been caught off-guard by Americans’ interest in issues like disenfranchisement and gender equality. While these issues strike at the core of a country’s values – of what we mean by democracy and limits on government intrusion into individuals’ lives – they are also economic issues.





As I explain in my book The Price of Inequality, much of the rise in US economic inequality is attributable to a government in which the rich have disproportionate influence – and use that influence to entrench themselves. Obviously, issues like reproductive rights and gay marriage have large economic consequences as well.




In terms of economic policy for the next four years, the main cause for post-election celebration is that the US has avoided measures that would have pushed it closer to recession, increased inequality, imposed further hardship on the elderly, and impeded access to health care for millions of Americans.
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Beyond that, here is what Americans should hope for: a strongjobsbillbased on investments in education, health care, technology, and infrastructure – that would stimulate the economy, restore growth, reduce unemployment, and generate tax revenues far in excess of its costs, thus improving the country’s fiscal position. They might also hope for a housing program that finally addresses America’s foreclosure crisis.




A comprehensive program to increase economic opportunity and reduce inequality is also needed – its goal being to remove, within the next decade, America’s distinction as the advanced country with the highest inequality and the least social mobility. This implies, among other things, a fair tax system that is more progressive and eliminates the distortions and loopholes that allow speculators to pay taxes at a lower effective rate than those who work for a living, and that enable the rich to use the Cayman Islands to avoid paying their fair share.
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America – and the world – would also benefit from a US energy policy that reduces reliance on imports not just by increasing domestic production, but also by cutting consumption, and that recognizes the risks posed by global warming. Moreover, America’s science and technology policy must reflect an understanding that long-term increases in living standards depend upon productivity growth, which reflects technological progress that assumes a solid foundation of basic research.




Finally, the US needs a financial system that serves all of society, rather than operating as if it were an end in itself. That means that the system’s focus must shift from speculative and proprietary trading to lending and job creation, which implies reforms of financial-sector regulation, and of anti-trust and corporate-governance laws, together with adequate enforcement to ensure that markets do not become rigged casinos.




Globalization has made all countries more interdependent, in turn requiring greater global cooperation. We might hope that America will show more leadership in reforming the global financial system by advocating for stronger international regulation, a global reserve system, and better ways to restructure sovereign debt; in addressing global warming; in democratizing the international economic institutions; and in providing assistance to poorer countries.




Americans should hope for all of this, though I am not sanguine that they will get much of it.  More likely, America will muddle through – here another little program for struggling students and homeowners, there the end of the Bush tax cuts for millionaires, but no wholesale tax reform, serious cutbacks in defense spending, or significant progress on global warming.




With the euro crisis likely to continue unabated, America’s continuing malaise does not bode well for global growth. Even worse, in the absence of strong American leadership, longstanding global problems – from climate change to urgently needed reforms of the international monetary system – will continue to fester. Nonetheless, we should be grateful: it is better to be standing still than it is to be heading in the wrong direction.





Joseph E. Stiglitz, a Nobel laureate in economics and University Professor at Columbia University, was Chairman of President Bill Clinton’s Council of Economic Advisers and served as Senior Vice President and Chief Economist of the World Bank. His most recent book is The Price of Inequality: How Today’s Divided Society Endangers our Future.



On the brink of gunboat diplomacy

Amando Doronila
Philippine Daily Inquirer

Publication Date : 07-12-2012







The past four weeks saw the swiftest escalation in recent years of tensions over the territorial disputes between China and its neighbours in the Asia-Pacific.



The tensions spiraled in late November when the province of Hainan, in the southern coastal region of China, issued an imperial-sounding edict that its so-called lawmaking body had authorised its police patrol boats to board and search foreign ships of any nationality that illegally enter what it considers Chinese territories in the South China Sea. The plan was announced to take effect on short notice: on January 1.



The edict caused considerable alarm among China’s smaller neighbours, including the Philippines, Vietnam, Malaysia, Brunei, and Taiwan, all of whom have overlapping claims on islands in portions of the South China Sea, which China has claimed as exclusively belonging to it on the strength of ancient maps. It also caused consternation among other world powers such as the United States and India, which do not have territorial claims in the South China Sea, which is the shortest route between the Pacific and Indian Oceans and through which more than half of the globe’s oil tanker traffic passes.




The concern of the United States and India, both of which have powerful navies to challenge China’s aggressive assertion of its hegemonic ambitions, involves freedom of navigation and trade routes in the entire China Sea.



The new rules emanating from Hainan will allow its local policenot China’s navy—to seize control of foreign ships that “illegally enterChinese waters and order them to change course. The determination of what is illegal is left entirely in the hands of the Hainan authorities.



What has affronted the rest of the world is this arbitrary exercise by China to enforce its territorial claims while intimidating its weaker neighbours with threats of its expanding naval power.





The rules shocked China’s neighbours so powerfully because these were issued, not by a democratic political system, but by a provincial government, and was addressed to rival claimants of disputed territories in both the South China Sea and the East China Sea, most of which are democracies. These rival claimants are the Philippines, Vietnam, Malaysia, Brunei, and Taiwan.






The Hainan decision empowering its border police to intercept foreign ships sailing in waters claimed by China as its territory, which also overlaps territories in the South China Sea, affronts other claimants because it is seen as condescending and treating them as vassal states of the suzerain province.





There are now questions raised over whether the new rules were handed down at the instigation of the central Chinese government in Beijing or were initiated by the Hainan provincial government. Whatever is the source of the initiative, the new rules have galvanised countries affected by it to call for a clarification.




The rules have accelerated the spiraling of tensions close to a flashpoint, of armed confrontation between Chinese gunboats and those of smaller countries whose ships are being intercepted even in waters claimed by them.




Under the new rules, Hainanese patrols are to prowl the seas far beyond the “baseline” of China’s 12-nautical-mile zone, which is allowed archipelagic countries. The Philippines has joined other nations in a coalition calling for clarification.




A report in the Wall Street Journal said experts were unclear how the rules would be applied in practice. According to the report, Wu Sichun, the director of the foreign affairs office of Hainan province, who is also president of the National Institute for South China Sea, gave a narrow interpretation of the regulations.





He said the main purpose was to deal with Vietnamese fishing boats operating in waters near Yonxing Islands in the Paracels, which China calls the Xisha Island.





Wu said the regulations applied to waters around islands which announced “baselines.” He said the baseline is the low-water line along the coast from which countries measure their territorial waters, according to the UN Convention on the Law of the Sea (Unclos).





Wu also said the rules allowed police to check and expel vessels that will enter, or conduct illegal activity within, the 12 nautical miles of the islands for which China has announced baselines. It is not clear how this rules apply. The problem is that the Chinese are handing down their set of rules, interpreting these at their own convenience, and enforcing these with their own police patrols.





With their unilateral interventions, they have decreed a new law of the sea without the consent of the users of the sea. What worries us is: What happens when the boats they intercept are our gunboats patrolling our own national territory also claimed by China? That can be an act of war. We are on the brink of gunboat diplomacy.



REVIEW & OUTLOOK
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December 4, 2012, 3:46 p.m. ET
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Trans-Atlantic Trade Stimulus
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A way to spur growth without spending taxpayer money.



A Trans-Atlantic Free Trade Agreement is one of those ideas that's always at the wedding party but never catches the bouquet. Since 1985, when the U.S. signed its first bilateral free-trade deal (with Israel), America has agreed to FTAs with 19 countries. The EU has four comprehensive trade deals to its own name, in addition to agreements of various sorts with non-EU neighbors and former colonies.





But despite approving noises from both sides of the ocean over the years, a comprehensive EU-U.S. trade deal has never seriously been attempted. That could be about to change, and a good thing too.




In the coming days, the European Commission will make a formal recommendation on whether to open FTA negotiations with Washington. The Commission is enthusiastic. The Obama Administration is ready to start talks, though it remains to be seen whether President Obama will spend political capital backing a deal given how hostile his labor constituency is to open markets.





A good trade deal could be the cheapest stimulus that you don't need money to buy. The U.S. and the EU represent nearly half of global GDP. One-third of world trade is between the U.S. and Europe. Trans-Atlantic direct investment totals some $2.7 trillion, and total bilateral annual trade tops $600 billion.




Europe and America, in other words, already do a lot of business. Tariffs between the two are relatively low on most goods5% to 7% on average. The problems come in such politically sensitive areas as agriculture and textiles, although a simulation run by the Brussels-based think tank ECIPE suggested that the EU and U.S. would both see increased textile exports to each other if trade barriers were eliminated. In any case, the usual way around sensitivities in one area is to do a comprehensive deal, so the total benefits outweigh the fears of any particular industry.




This is where things get sticky. The EU's usual modus operandi in trade negotiations is to attempt to impose its standards—in food safety, or public procurement, sometimes environmental or labor standards—on its trading partner. The U.S. often isn't much better.




But the EU isn't likely to get a deal if it tries to force the U.S. to sign up to whole swaths of Europe's regulatory state. Nor is regulatory harmonization necessary if the two sides commit to genuinely free trade, as opposed to some sort of joint regulatory cabal. Fredrik Erixon of ECIPE likes to say that a true free trade agreement is a blank piece of paper, and he has a point. The bigger the rulebook gets, the less free the trade is, whatever the tariff schedule says.




The 1930s saw a global economic downturn become the Great Depression in no small part because governments reacted by throwing up tariff barriers to protect domestic industry from foreign competition. In pursuing free trade as a way out of the current economic quagmire, the EU and U.S. could show that, sometimes, we do learn from history.


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