December 26, 2012 3:49 pm
Asia must free itself from western chains

The world is still reeling from the financial crisis, with Asia one of the few areas with strong future growth prospects. This should mark a new intellectual era. But policy makers across the region continue to turn to those very things that got the world into its current predicamentwestern ideas.

It is not just that we have failed to figure out how to live with the forces released by the industrial revolution, but that we are struggling with the ideologies it created too, notably the continuing stubborn belief that markets, technology and liberal democracy will deliver all the things we need.

Yes, those ideas, born in Europe and then refined in North America, brought great prosperity to a part of the global population. But their formulas cannot be endlessly repeated and applied everywhere.

With a population that could peak at 6bn by 2050, Asia does not have the luxury of exploitation of global resources that the west enjoyed in the building of the modern world. What Asia therefore needs is new ideasones that tackle the challenge of establishing what kind of prosperity can be spread across such a huge number of people.

The western paradigm sees Asia’s large population either as a tremendous market opportunity or a threat to its well-being. Similar ideas fill too many Asian minds.

Instead, Asia must imagine a future in which urbanisation is not seen as inevitable and necessary, where its cities do not follow the car-driven ways of the west, where food is not produced in fields drenched in chemical fertilisers and pesticides, or where ever-expanding consumption is seen as the only recipe for economic well-being and political stability.

Among the specific questions countries must ask are: what level of per capita energy consumption is viable; how to pay for sustainable food production; whether people are better off sticking with low-meat diets; how transport systems should be built around mobility, not car ownership; and whether new technologies could be used to allow people to prosper in the countryside rather than being forced to migrate to cities for a life of urban squalor?

Universities and schools should educate students in ways that equip them to contribute ideas relevant to the country in which they live, rather than promoting unattainable western lifestyles. Much of this work will be in economics and public policy. But new ideas must also be sought across every major discipline – in the sciences and the social sciences, of course, but also in the humanities, in studies of values, of history and of culture.

This will require challenging the orthodoxies that underpin western thinking – for example, that we should look to businesses to supply the tools to overcome capitalism’s inherent problems or that market incentives are the key to overcoming climate change.

To confront this challenge, the starting point has to be Asia’s universities. Sending the best young minds of the region to western institutions serves to reinforce that intellectual subservience. What Asia needs is for the best research about the region to come from universities within Asianot from Harvard or Cambridge. Therefore Asia needs a rallying call – the launch of 100,000 PhDs. It must ask 100,000 of its smartest graduates to launch a revolution of original thinking and research that will allow the region to move beyond the ideologies that have driven it for the past 50 years.

This research must acknowledge that the needs of Asian countries are very different from those of the US or Europe. It must create a body of ideas in academia that can enter the public consciousness and aid national leaders in making the tough decisions about increasing populations, resource constraints, climate change and technology.

Universities across the region must focus their curriculums and research on a drive for new ideas applicable in their local contexts. They should be forced to ask themselves critical questions ones that directly confront conventional thinking.

Above all, we must look to those who will have to live in Asia through the next half-century and beyond to come up with new ideas and ways of thinkingones that look beyond the economic ideologies that enriched one part of the world at the expense of the rest, but which if continued to be applied in Asia will only create catastrophic outcomes for all.

The writer is author of ‘Consumptionomics

Copyright The Financial Times Limited 2012.

Over the Cliff We Go

J. Bradford DeLong

27 December 2012

BERKELEYUnless something unexpected happens, the United States’ many legislated reductions in taxes over the past 12 yearsall of which have been explicitly temporary – will expire simultaneously at the start of 2013. American tax rates will revert overnight to their Clinton-era levels.
Some of these reductions were implemented to fight what was seen four years ago as a temporary downturn. Although their supporters wanted to make them permanent, claiming that they were temporary allowed for the circumvention of procedural requirements in the legislative process that Democrats had created in a vain effort to guarantee fiscal sanity.
The immediate increase in tax rates is only part of the story. At the same time, automatic reductions in the defense budget and “discretionarydomestic spending agreed to by both Democrats and Republicans in the summer of 2011 – will take effect.
Couple these tax increases and spending cuts with the provisions of “Obamacare,” the US health-care reform championed by President Barack Obama, and, as of January 1, 2013, America’s long-run structural budget deficit disappears. The restored tax rates will, for the foreseeable future, be sufficient to support the US defense establishment, the growing US social-insurance system, and a moderatealbeit inadequate and suboptimalamount of otherdiscretionaryfederal spending. The US national debt/GDP ratio will be on track to fall from its current level of 75% to 50% by 2035.
Moreover, the US will begin running primary budget surpluses – the fiscal balance minus interest payments on existing debt – by 2015.
So why isn’t the prospect of going over the fiscal cliff greeted with enthusiasm? Yes, there will be big spending cuts – which will hit defense contractors, doctors with Medicare patients, and all who benefit from or rely on government discretionary spending – and substantial tax increases. But, to balance the budget in the long run, either taxes have to go up or spending has to go down relative to some baseline, or both.
There are two reasons why deficit hawks are not declaring victory. First, many who call themselves deficit hawks are really spending hawks: they believe that US social insurance is too generous to the unemployed, the disabled, the elderly, and the sick, and that by far the best policy is to cut back on such programs rather than raise taxes to pay for them. But, they fear that calling for spending cuts will be unpopular, unlike, they hope, demands to balance the budget. For them, the problem with the fiscal cliff is that it does not cut spending enough and raises taxes too much.
Second, and more important for those who worry about the US economy’s health, the process is not well-described by the term fiscal cliff.” It is, rather, an austerity bomb that hits an economy in which unemployment remains high, the employment-to-population ratio remains horrifyingly low, and there are only feeble signs that the large gap between current and potential output is closing.
The past two months’ run-up to the austerity bomb’s detonation has already reduced projected real GDP growth in 2013 from 3% to 2.5%, and has raised likely end-2013 unemployment from 7.5% to 7.7%. Each day from January 1 to June 30 that the damage continues will have a roughly linear impact on economic performance in 2013, reducing the likely full-year real GDP growth rate by 0.0084% – and only if a deal is ultimately reached that would have caused no economic harm in 2013 had it been reached on November 10, 2012. If no deal is reached by June 30, America’s likely 2013 real GDP growth rate will be -0.5%, with the likely unemployment rate returning to 8.9%.
Spending cuts and tax increases that in the long run restore fiscal sanity and balance are good. Having them all hit a weak, still-depressed economy simultaneously is not good. Thus, US officials face four tasks.
First, Republicans and Democrats must negotiate a bipartisan agreement to stretch out the spending cuts and tax increases that take effect on January 1, 2013. That way, they will affect the economy gradually over five years, rather than all at once.
Second, the Federal Reserve should expand its quantitative easing and forward guidance programs. Consumers will be spending less in 2013, owing to higher taxes, as will government, which means that someone has to be spending more.

Housing construction and exports are the obvious candidates, and both can be boosted somewhat by more aggressive balance-sheet operations by the Fed, together with promises of continued low nominal interest rates and higher inflation in the medium term.
Third, the large government-sponsored mortgage enterprises, Fannie Mae and Freddie Mac, should be used as macroeconomic-policy tools to restore housing construction to its long-term trend level. This should have been done five years ago, but better late than never.
Finally, and also five years too late, the US Treasury secretary should announce that while the string-dollar doctrine was appropriate (and in America’s interest) during the dot-com boom, the country needs a weak dollar in the aftermath of the austerity bomb’s detonation.
Reaching the wrong agreement to defuse the austerity bomb, or cushion the economy from its impact, would merely recreate America’s long-run structural budget deficit – a very bad outcome. Failure to take all four steps outlined above all but guarantees renewed recession in America, even if a good agreement is reached on stretching out the tax hikes and spending cuts. And if no agreement is reached on that, undertaking the last three steps would at least reduce somewhat the subsequent damage.

J. Bradford DeLong is Professor of Economics at the University of California at Berkeley and a research associate at the National Bureau for Economic Research. He was Deputy Assistant US Treasury Secretary during the Clinton Administration, where he was heavily involved in budget and trade negotiations. His role in designing the bailout of Mexico during the 1994 peso crisis placed him at the forefront of Latin America’s transformation into a region of open economies, and cemented his stature as a leading voice in economic-policy debates.

Copyright Project Syndicate -

The European Oasis

Dominique Moisi

27 December 2012


PARISAre non-Europeans much less pessimistic about Europe than Europeans themselves? Could distance be a prerequisite for a more balanced view of the continent’s predicament?

In an interview a few months ago, Wang Hongzhang, the chairman of China Construction Bank, indirectly expressed his subdued enthusiasm for Europe. Quoting the Chinese proverb, “A starved camel is still bigger than a horse,” he went on to say that Europe’s economies are much stronger than many people believe. And, without saying so explicitly, he suggested that the time was right to go on a European buying spree at the right price.
Of course, not everyone would share this optimistic vision. Across the English Channel, British Euroskeptics rejoice that they have kept their distance from a “sinking ship.” But, while The Economist recently described France as being in denial,” the same could be said of the United Kingdom. True, the French had neither the Olympic Games nor a royal celebration this year; but, when it comes to the state of their economies, the two countries are largely in the same boat.
If one travels to America or Asia, as I did this autumn, Europe’s image becomes selectively brighter: while it continues to be perceived as a positive model, it is no longer considered a global actor. Seen from the United States, Europe may no longer be a problem, but it is not considered a part of any solution to the world’s problems, either – with the possible exception of those that concern Europe directly (and, even then, doubts linger).
Yet, for many international investors, Europe continues to be, or is once again, a risk worth taking, if not – as in the case of Wang – a golden opportunity. In a time of growing complexity – and thus uncertaintyinvestors want to hedge their bets. At least some of the BRICS countries (Brazil, Russia, India, China, and South Africa) appear to be running out of steam economically; and, while new emerging powers, such as Mexico, are tempting, they may prove to be more fragile than they look.
In this context, Europe may be a tired, aging, and depressed continent, but, as its luxury and aeronautics industries attest, it would be premature to bury it. Relative decline is obvious: Europe accounted for 20% of the world’s population at the beginning of the eighteenth century, but only around 7% today, while its share is expected to be even lower in 2050. But demography is not destiny: a small population has not prevented Singapore from sustaining a hyper-competitive economy.
Europe may not be a source of economic inspiration, but it still makes people dream. It is perceived as a model of “civility.” Whatever their other disagreements, Chinese and Japanese concur on one point: if Asia today, with its rising nationalist tensions, evokes Europe in the first half of the twentieth century, it is precisely because Asia has not embarked on a reconciliation process such as that which enabled France and Germany to transcend their centuries-old rivalry.
Likewise, Russia’s president, Vladimir Putin, may emphasize the specificity of “Russian civilization” in a manner evocative of nineteenth-century anti-Western thinkers; but many in the Russian elite still consider the European Union, despite its many weaknesses, the most civilized model of governance that exists. When Chinese seek a benchmark model for social protection, they go on study trips to Scandinavia.
But can Europe remain a model if it is no longer a serious geopolitical actor? When US officials say to the Europeans, “We need you,” what they mean is quite minimal: “Please do not collapse and bring down the global economy with you.” Europeans have become the Japanese of the Westfinancial contributors who at best play a supporting role in global strategic affairs.
For example, if the Israeli-Palestinian conflict can still be resolved, a solution can come only with strong US involvement. Barack Obama, who wants to be a transformative president like his role model, Abraham Lincoln, could do worse to deserve the Nobel Peace Prize that he received prematurely than to facilitate a comprehensive Middle East peace settlement. Few expect such a colossal achievement, of course, but far fewer expect anything remotely similar from Catherine Ashton, the EU’s foreign policy czarina, or, for that matter, any European leader.
Europe remains a significant economic and commercial actorone that can rebound at any time, now that it has at least partly transcended its systemic crisis. It also remains a model of reconciliation in which people can continue to dream, despite unacceptably high levels of unemployment, particularly among the young.
But Europe is no longer perceived as a global actor – and rightly so. It is an oasis of peace, if not dynamism. The question for Europeans today is whether they can – and, more important, should be content with their status.
  Dominique Moisi is the founder of the French Institute of International Affairs (IFRI) and a professor at Institut d’études politiques de Paris (Sciences Po). He is the author of The Geopolitics of Emotion: How Cultures of Fear, Humiliation, and Hope are Reshaping the World. .

Copyright Project Syndicate -


December 26, 2012, 6:21 p.m. ET

Henninger: The Biggest Cliff of All

The largest threat in the world is the collapse of public policy making.



If you're looking for optimism as the world turns toward 2013, stay up late watching paid-for television explaining how to turn wrinkles into miracles. Past that, my own reservoir of uplift is a bit dry this year.

A famous and successful American optimist, Ronald Reagan, put his finger closer to the problem when he suggested there was little limit to what people could accomplish if government would get out of the way. As Barack Obama flies from Hawaii's beaches to Washington's cliff, there may be four or five liberals who've come to agree with the Gipper.

Indeed, a reality has become too obvious for the world's dazed inhabitants not to notice: The greatest threat to the upward arc of human progress is the collapse of public policy making. That is the biggest cliff of all.

Governments are giving government a bad name.

Japan's once-thriving economy has been in the dumpster for years. California, said to be the world's sixth-largest economy, is joining Japan in decline. The euro crisis, now in its third year, is less a crisis than a chronic condition of policy failure across Western Europe. As to America's fiscal cliff, no comment.

Then came the Newtown massacre. A few days after this event, a familiar American policy-making consensus called for federal gun-control laws. More precisely, they want Congress to re-pass the ban on big, dramatic-looking assault-type weapons that existed from 1994 until the law sun-setted in 2004.
Government, for the past 80 years or so, has seen its purpose as mainly to "respond" to society's failures the moment they occur or whenever they are imagined. Adam Lanza killed with guns, so modern policy-making logic posits that government must pass a law. Whether that law will accomplish its goal is . . . irrelevant.

Policy making has become an activity that supports the genetic and financial needs of policy makers and their follower tribes. The community's role, we've lately learned, is to provide revenue. Medicaid, for example, is medical care for the poor. As administered by the policy professionals, it has been allowed to become awful.

The experience with guns is hardly better. In November 2011, the National Institute of Justice convened its Firearms and Violence Research Working Group to examine what the best research reveals about reducing gun-related violence. In 2005 the National Research Council produced a 250-page study of this subject. Both concluded that the quality of data about gun violence and prevention programs is poor, and that it is possible to reach very few policy conclusions about what works or not.

Programs and laws abound already. For years the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives has run the National Tracing Center that operates the firearms eTrace system. Every new U.S. firearm goes into the eTrace system from point of manufacture to first retail sale. But past first sale, tracing guns or bullets has proved impossible.

A real-world look at where killers and other career criminals get guns emerged in October when the New York Police Department put on display 154 gunsmost of them bizarre-looking handguns—that it obtained in a high-risk sting operation in Brooklyn. Incidentally, these police antigun efforts are about the only program that research has identified as effective.

Buying or possessing a gun legally in New York City is so difficult that it is a non-subject for most New Yorkers. So where did the NYPD get these guns? A Mr. Kerwin "Trini" Gobin allegedly sold undercover cops 87 of the weapons, including a Sten machine gun able to fire 550 rounds per minute.

Machine guns have been illegal since the 1930s. But not in Trini Gobin's world. The illicit firearms market is global. Canada, Australia and New Zealand are all wrestling with how to control black-market gun traffic after recent outbreaks of firearm violence, much of it gang-related.

A consensus has formed around the unacceptability of young people being killed by guns—as bystanders in the inner cities or as mass-murder victims in the suburbs and on campuses. Policy making today ordains that we pass laws no matter how little we know and ignore what we've already learned.

After Newtown happened, mental-health experts pointed out the hardly disputed linkage between violent behavior and some untreated or poorly medicated patients who have a severe mental illness. But legislation to monitor or mandate effective treatment for individuals already identified as dangerous is frequently voted down by various civil libertarians. Public programs that exist are often poorly administered.

Government's problem for a great many people around the world today is that its advocates are enacting policies that do damage or don't work. The public record of national governmentsAmerica's and others'—as we approach the new year calls to mind the minimalist optimism of a prescient book title from the 1960s: "Been Down So Long It Looks Like Up to Me."