Very good article about the "axis of diesel."
http://www.economist.com/world/international/displayStory.cfm?source=hptextfeature&story_id=12480942
Friday, October 24, 2008
I'm a Slacker
Work has been crazy - and that was where I was doing my research/writing. With so many interesting things going on in the world, I'll be back next week. The promised India-Pakistan post is in the works. Thanks for your patience!
Tuesday, October 7, 2008
Political Economy for Dummies
First of all, I apologize for the delay in this post. Political Economy is one topic I feel ill-prepared to thoroughly discuss off the top of my head. I know the basics, but I am no expert. I did my research, went through several drafts, and it just took a little longer to put together something I feel confident enough to share. As always, if you have questions or comments, please let me know. Thanks for reading.
Economics can be confusing. Inflation, recession, devaluation, government debt, government bail-outs, currency exchange rates; these are all terms we hear tossed around with rarely an explanation of what they really mean. The intersection of politics and economics can be especially confusing once you understand that markets and governments are inherently intertwined.
In the United States, most of us live under the impression that this is a free-market system with little government manipulation of the economy. However, the New Deal ushered in a practice of government intervention. Ever since, Americans have relied on the government more and more to manage their money, their income, and their savings.
Fiscal Conservatives argue that the laws of supply and demand, when left alone, will create a natural balance in the economy. They rely on the understanding that humans are selfishly motivated and will act rationally to profit, observing market activity and taking advantage of opportunities to maximize their benefit while minimizing cost (a "rational" action is simply one that maximizes benefit while reducing cost - it does not mean sensible or reasonable in this context).
Fiscal Liberals argue that the free market system creates an imbalance in the economy. Those who start off with more are better placed to improve their situation than those who start off with less. In order to "level the playing field," some authority (government) must intervene. This stems from the Liberal ideal of human nature; perceiving people as more communally motivated and inherently generous than the Realist adherence to humans as rational actors.
Most political economists fall loosely into one of these camps. How the market is organized and how the government interacts with the economy is directed by these ideals. For example, a Realist/Conservative would argue for deregulation of the market - allowing business and industry, trade and commerce, to operate with little to no government oversight or manipulation. Taxation is, of course, a government right, but that should be the extent of government interaction with the market. An Idealist/Liberal, on the other hand, would prefer to see the government set rules for industry in how they should behave, perhaps set salary caps, oversee the risk investment companies are taking, determining the price of health insurance, just to give a few examples. Of course to a Liberal wealth should be more evenly distributed throughout all sectors of society; requiring businesses to pay a minimum wage to employees, provide some sort of savings plan for retirement, and hiring Union workers on their terms, etc. Again, I'm generalizing here to clarify the differences between the two ideologies - in reality the lines are never this cut and dry.
It is no surprise that one of the primary points of discussion in the Vice Presidential Debate last week is the economy. The entire world is facing a major recession. Governments are doing everything they can to manage the potential crisis. Before we get into this, there are a couple points to be made. First of all, it cannot go unacknowledged that there are cycles in the market. There is both growth and recession, some fluctuations more pronounced than others. Second of all, it must also be noted that economic policies take about 8-10 years to have an effect on the actual market. The specific crisis facing the US now is a result of countless decisions made and policies implemented since 1998. It’s impossible to pinpoint any one event as the cause of this mess because all the politics in the meantime can either over-correct or under-correct according to how we perceive the market at the moment. It’s easy to blame corporate greed and Wall Street’s irresponsibility for all our problems; and it’s just as easy to point fingers at lawmakers and report voting behavior on specific policies to demonstrate how a candidate helped or hurt the economy.
Let’s look at some of these economic concepts though and, hopefully, understand a little better how the market operates.
First of all, what is inflation? We hear this term tossed around a lot without a clear explanation of what it really means. Inflation occurs when a unit of currency has less purchasing power than it did previously because the real cost of goods increases. Thus the value of a unit of currency is decreased and you must use more currency to purchase the same goods.
Devaluation, similarly, refers to when the real value of a unit of currency is reduced. This may occur when a government prints more currency or puts more currency into the market, reducing the value of the currency. The interesting (confusing) thing about currency is that since the U.S. abolished the Gold Standard in 1971 and currencies once again became "floating" (as prior to WWII), the worth of a currency is based on it's trade value on the global market (for a more sophisticated explanation see: http://en.wikipedia.org/wiki/Bretton_Woods_system). Money is only worth what someone is willing to pay for it, to put it crudely.
Recession occurs when markets slow and goods, services, currencies are not trading at a high rate. The pertinent question, though, is how do the problems on Wall Street affect the life of the average American, who may not have huge investments in the stock market? Retirement accounts like 401(k)'s have been hit very hard (a 20% loss since mid-2007). People who were planning on retiring, may feel like they can no longer afford to stop working at this point. The other, more complex, problem is in the "credit crunch." When banks lend money to other banks, they earn an interest rate - this is how they turn a profit. When lending money becomes too volatile and the risk that loans will not be paid off as agreed becomes too high, banks lend more cautiously, or stop lending altogether. If banks can't borrow money, you and I can't borrow money. So available credit for things like mortgages, car loans, college loans, etc. becomes scarce. Higher interest rates for banks equal higher interest rates for the consumer. If loans continue to go unpaid, banks become more risk adverse and lending slows even more. While Wall Street and the Stock Markets have headlined in this crisis, it is really grounded in money markets and lending practices among banks.
Companies don't have to borrow money from banks. They have been able to raise money by selling commercial papers - short term debt. Similar to when a government prints too much currency and it loses its value, companies can also over-distribute commercial papers and when it is no longer perceived to be a sound investment, it pays a higher rate on that debt (http://www.economist.com/displaystory.cfm?story_id=12342237).
So what about the bailout? Where is the $700 billion going? Hank Paulson's (Secretary of the Treasury) plan provides for the government purchase of "toxic debt" from financial institutions - debt that is not likely to be paid off. This debt is mostly tied up in the housing market. The losses have made capital scarce for banks. It has been nearly impossible to liquidate this debt and the money markets are mired down (http://www.economist.com/opinion/displaystory.cfm?story_id=12305249). The Bail-out purchases delinquent mortgages from financial institutions at a higher rate than they are worth in order to provide capital and stimulate new lending. Paulson argues (based on his own studies of the Great Depression) that injecting capital into the banking system is really the only way to solve the "insolvency" (http://www.economist.com/opinion/displaystory.cfm?story_id=12305746).
By intervening the government hopes to quell the panic and ease the risk of lending. When the House failed to pass the original Bail-out plan last week, it created more fear in the market and the Dow tumbled nearly 800 points. After Ben Bernanke (Chairman of the Federal Reserve) used $85 billion to bail-out AIG, he was criticized by Nancy Pelosi for the lack of oversight "the American people deserve" before spending tax dollars. Five weeks from election day, Representatives balked at the idea of sending more money to the institutions that are perceived to have gotten us into this mess in the first place. Crisis managment is all about timing though, and acting too slowly may create more problems than acting too quickly.
That said, I have to conclude by putting in my two-cents. I am beginning to believe that limiting government involvement in the economy to crisis management is really the problem here. While we all like to believe in the free-market and a laissez-faire approach to the economy, it seems to make sense to develop a more comprehensive economic strategy rather than scrambling around every time the market dips to recover and minimize losses. Sure theory is great, but let's be pragmatic. By no means am I advocating a government-run economy. I just think that if the Chairman of the Federal Reserve and the Secretary of the Treasury have so much power, why not let them put together an overarching plan for how the government will interact with the economy?
Next week: The Pakistan Factor and a Nuclear India
Economics can be confusing. Inflation, recession, devaluation, government debt, government bail-outs, currency exchange rates; these are all terms we hear tossed around with rarely an explanation of what they really mean. The intersection of politics and economics can be especially confusing once you understand that markets and governments are inherently intertwined.
In the United States, most of us live under the impression that this is a free-market system with little government manipulation of the economy. However, the New Deal ushered in a practice of government intervention. Ever since, Americans have relied on the government more and more to manage their money, their income, and their savings.
Fiscal Conservatives argue that the laws of supply and demand, when left alone, will create a natural balance in the economy. They rely on the understanding that humans are selfishly motivated and will act rationally to profit, observing market activity and taking advantage of opportunities to maximize their benefit while minimizing cost (a "rational" action is simply one that maximizes benefit while reducing cost - it does not mean sensible or reasonable in this context).
Fiscal Liberals argue that the free market system creates an imbalance in the economy. Those who start off with more are better placed to improve their situation than those who start off with less. In order to "level the playing field," some authority (government) must intervene. This stems from the Liberal ideal of human nature; perceiving people as more communally motivated and inherently generous than the Realist adherence to humans as rational actors.
Most political economists fall loosely into one of these camps. How the market is organized and how the government interacts with the economy is directed by these ideals. For example, a Realist/Conservative would argue for deregulation of the market - allowing business and industry, trade and commerce, to operate with little to no government oversight or manipulation. Taxation is, of course, a government right, but that should be the extent of government interaction with the market. An Idealist/Liberal, on the other hand, would prefer to see the government set rules for industry in how they should behave, perhaps set salary caps, oversee the risk investment companies are taking, determining the price of health insurance, just to give a few examples. Of course to a Liberal wealth should be more evenly distributed throughout all sectors of society; requiring businesses to pay a minimum wage to employees, provide some sort of savings plan for retirement, and hiring Union workers on their terms, etc. Again, I'm generalizing here to clarify the differences between the two ideologies - in reality the lines are never this cut and dry.
It is no surprise that one of the primary points of discussion in the Vice Presidential Debate last week is the economy. The entire world is facing a major recession. Governments are doing everything they can to manage the potential crisis. Before we get into this, there are a couple points to be made. First of all, it cannot go unacknowledged that there are cycles in the market. There is both growth and recession, some fluctuations more pronounced than others. Second of all, it must also be noted that economic policies take about 8-10 years to have an effect on the actual market. The specific crisis facing the US now is a result of countless decisions made and policies implemented since 1998. It’s impossible to pinpoint any one event as the cause of this mess because all the politics in the meantime can either over-correct or under-correct according to how we perceive the market at the moment. It’s easy to blame corporate greed and Wall Street’s irresponsibility for all our problems; and it’s just as easy to point fingers at lawmakers and report voting behavior on specific policies to demonstrate how a candidate helped or hurt the economy.
Let’s look at some of these economic concepts though and, hopefully, understand a little better how the market operates.
First of all, what is inflation? We hear this term tossed around a lot without a clear explanation of what it really means. Inflation occurs when a unit of currency has less purchasing power than it did previously because the real cost of goods increases. Thus the value of a unit of currency is decreased and you must use more currency to purchase the same goods.
Devaluation, similarly, refers to when the real value of a unit of currency is reduced. This may occur when a government prints more currency or puts more currency into the market, reducing the value of the currency. The interesting (confusing) thing about currency is that since the U.S. abolished the Gold Standard in 1971 and currencies once again became "floating" (as prior to WWII), the worth of a currency is based on it's trade value on the global market (for a more sophisticated explanation see: http://en.wikipedia.org/wiki/Bretton_Woods_system). Money is only worth what someone is willing to pay for it, to put it crudely.
Recession occurs when markets slow and goods, services, currencies are not trading at a high rate. The pertinent question, though, is how do the problems on Wall Street affect the life of the average American, who may not have huge investments in the stock market? Retirement accounts like 401(k)'s have been hit very hard (a 20% loss since mid-2007). People who were planning on retiring, may feel like they can no longer afford to stop working at this point. The other, more complex, problem is in the "credit crunch." When banks lend money to other banks, they earn an interest rate - this is how they turn a profit. When lending money becomes too volatile and the risk that loans will not be paid off as agreed becomes too high, banks lend more cautiously, or stop lending altogether. If banks can't borrow money, you and I can't borrow money. So available credit for things like mortgages, car loans, college loans, etc. becomes scarce. Higher interest rates for banks equal higher interest rates for the consumer. If loans continue to go unpaid, banks become more risk adverse and lending slows even more. While Wall Street and the Stock Markets have headlined in this crisis, it is really grounded in money markets and lending practices among banks.
Companies don't have to borrow money from banks. They have been able to raise money by selling commercial papers - short term debt. Similar to when a government prints too much currency and it loses its value, companies can also over-distribute commercial papers and when it is no longer perceived to be a sound investment, it pays a higher rate on that debt (http://www.economist.com/displaystory.cfm?story_id=12342237).
So what about the bailout? Where is the $700 billion going? Hank Paulson's (Secretary of the Treasury) plan provides for the government purchase of "toxic debt" from financial institutions - debt that is not likely to be paid off. This debt is mostly tied up in the housing market. The losses have made capital scarce for banks. It has been nearly impossible to liquidate this debt and the money markets are mired down (http://www.economist.com/opinion/displaystory.cfm?story_id=12305249). The Bail-out purchases delinquent mortgages from financial institutions at a higher rate than they are worth in order to provide capital and stimulate new lending. Paulson argues (based on his own studies of the Great Depression) that injecting capital into the banking system is really the only way to solve the "insolvency" (http://www.economist.com/opinion/displaystory.cfm?story_id=12305746).
By intervening the government hopes to quell the panic and ease the risk of lending. When the House failed to pass the original Bail-out plan last week, it created more fear in the market and the Dow tumbled nearly 800 points. After Ben Bernanke (Chairman of the Federal Reserve) used $85 billion to bail-out AIG, he was criticized by Nancy Pelosi for the lack of oversight "the American people deserve" before spending tax dollars. Five weeks from election day, Representatives balked at the idea of sending more money to the institutions that are perceived to have gotten us into this mess in the first place. Crisis managment is all about timing though, and acting too slowly may create more problems than acting too quickly.
That said, I have to conclude by putting in my two-cents. I am beginning to believe that limiting government involvement in the economy to crisis management is really the problem here. While we all like to believe in the free-market and a laissez-faire approach to the economy, it seems to make sense to develop a more comprehensive economic strategy rather than scrambling around every time the market dips to recover and minimize losses. Sure theory is great, but let's be pragmatic. By no means am I advocating a government-run economy. I just think that if the Chairman of the Federal Reserve and the Secretary of the Treasury have so much power, why not let them put together an overarching plan for how the government will interact with the economy?
Next week: The Pakistan Factor and a Nuclear India
Sunday, September 21, 2008
Welcome to My World
Welcome to my forum for sharing my views on a variety of political issues. After earning my M.A. from the University of Kansas, I have sought out opportunities to continue the engaging and enlightening discussions that are part of the daily life of a Political Science Graduate Student. Outside of a classroom, it's not easy finding willing and knowledgeable participants in conversations about electoral systems, international trade agreements, the rise of socialists democracies, or the value of political parties. Perhaps this is as much of an attempt to satisfy my personal cravings to read, think, and write on these topics again, as much as it is a way for me to share what I know and understand about politics with whoever will listen. Either way, I hope what I have to say prompts you to read and think more on these important issues, and ultimately form a well-grounded system of personal political beliefs.
My goal will be to write on a new topic every week. I'll introduce the topic with a few of the FAQs on the issue, then provide some background and basic (brief) political theory, and conclude with my own thoughts and analysis. If you have a particular interest in something, let me know, I'll do the research and share my thoughts. Thanks for reading, I look forward to exploring my world with you.
Next week: Party-Animal - Taming the Political Party Beast.
My goal will be to write on a new topic every week. I'll introduce the topic with a few of the FAQs on the issue, then provide some background and basic (brief) political theory, and conclude with my own thoughts and analysis. If you have a particular interest in something, let me know, I'll do the research and share my thoughts. Thanks for reading, I look forward to exploring my world with you.
Next week: Party-Animal - Taming the Political Party Beast.
Party-Animal: Taming the Political Party Beast
I had a discussion a few weeks ago with a friend who is adamantly opposed to political parties. He sees no need for them and believes that they inhibit rather than enhance the political process. It certainly seems this way at a point in time when voters rally around individuals rather than ideals/issues, and when party politics seems to breed corruption and inefficiency in government.
The original purpose of political parties was to provide a widely dispersed electorate with a schema for choosing local and national leaders, and (of course) to provide these potential leaders with a national network of fundraisers and supporters.
In this era of mass communication, and easy access to endless amounts of information, are political parties even necessary from a voter’s standpoint? When we can find out everything we want to know about a candidate, their political philosophy, their position on certain issues, and, not to mention, their personal lives, do we really need a party program to organize our political belief system? Unless you live in a closed primary state, you don't even have to be a party member to select the nominees for party candidates. Even if you are registered under a specific party few of us actually participate in party functions or are aware of dailiy party operations.
From a candidate’s standpoint is it really necessary to have a political party to support you in your attempt to grasp power? Candidates have direct access to voters in ways that have never before been possible. In 2000 Howard Dean was the first to show that fundraising through the internet can successfully fund a national campaign. While a vast majority of the funds required to finance such an undertaking are provided from party coffers, perhaps this can change?
Political Parties are organized groups of voters and potential leaders who share a common mentality in how government should be run, generally and in regards to specific policies. The main purpose of a political party, as opposed to other types of groups involved in the political process, is to obtain and maintain power. Whatever altruistic promises a party may make to win over the hearts and minds of potential voters, the primary goal is power. In a system where leadership is determined by popular elections, parties must appeal to voters in order to gain power. The theoretical advantage of political parties for voters is that parties provide and represent a clear set of political values with which voters may identify. This is intended to make the voting process simpler – a candidate from a certain party is identified with the political values represented by the party, so if a voter identifies closely with that party, they can trust the related candidate to represent their values in government. The real advantage of political parties for candidates is that parties provide a national network for fundraising and support.
These purposes may seem obsolete in a time when candidates may have more direct contact with voters and vice-versa than at any other time in history. If able to gather the millions of dollars required to fund a national campaign (or a state campaign), an individual could run sans-party essentially over the internet and through the mass media. But the real issue is not individuals connecting with individuals to garner votes. Political parties are a function of the social and competitive nature of human beings. There are several sociological factors at work: 1) we want to be around people who think and feel the same way we do about things; 2) we want to be clearly aligned with others against an opposing group; and 3) we want to be on a winning team. This may sound overly simple, but it’s an experience with which we are all familiar. We mark our territory and protect what’s important to us in politics just as in anything else.
While parties may create a system of corruption, prohibit minority voices from being heard, and squelch innovative thinking, they are a natural function of a representative government system (government in which representatives are selected by voters to make policy decisions). I propose that the problem is not with political parties themselves but in how our representatives are chosen. In suggesting that the American electoral system is flawed I do not want to begin a tired discussion about abolishing the Electoral College. Rather, I argue that by selecting representatives based on the number of votes they receive is inappropriate. Political Parties could actually represent a clear set of ideals if legislative seats were won based on the proportion of votes received by the party as a whole – Proportional Representation. For example, if the Republican Party wins 42% of the votes, they claim 42% of the seats; if the Democrats win 43% of the votes, they claim 43% of the seats; and if the Green Party wins the remaining 15% of the votes, they claim 15% of the seats. This method allows for multiple parties and thus greater representation of a variety of viewpoints in government. You cynics might immediately begin to argue that with only 15% of the seats, the Greens still have so little power they won’t be able to accomplish their agenda – but 15% could be just a start, and it’s better than nothing. Once more parties are allowed to have a significant role in government, they have greater potential for gaining more support, and voters have a better opportunity to connect with a party and a candidate that more closely represents their personal ideals. This improves voter efficacy which leads to higher voter turnout, which leads to better representation in government, and the cycle continues.
By allowing for more parties to be significantly involved in the political process, it keeps the major parties from gaining too much power. I think that we can agree that we’re all tired of hearing the same promises from both parties election cycle after election cycle, and really, they aren’t ideologically very different anyway. More and more voters are registering as independents and selecting individual candidates rather than voting down party lines. At the same time, partisan politics are becoming more prominent and more polarized. These symptoms do not so much signify illness within the parties themselves, but in a system that only allows for two major parties.
The fact of the matter is, political parties are not going anywhere – they are an organic function of representative government. If we can create a system that holds parties in check by allowing for a more significant involvement from minority voting groups through a Proportional Representation electoral system, it may successfully keep the Party Animal at bay.
Next week: Political Economy for Dummies/Bail Out? Bail ME Out!
The original purpose of political parties was to provide a widely dispersed electorate with a schema for choosing local and national leaders, and (of course) to provide these potential leaders with a national network of fundraisers and supporters.
In this era of mass communication, and easy access to endless amounts of information, are political parties even necessary from a voter’s standpoint? When we can find out everything we want to know about a candidate, their political philosophy, their position on certain issues, and, not to mention, their personal lives, do we really need a party program to organize our political belief system? Unless you live in a closed primary state, you don't even have to be a party member to select the nominees for party candidates. Even if you are registered under a specific party few of us actually participate in party functions or are aware of dailiy party operations.
From a candidate’s standpoint is it really necessary to have a political party to support you in your attempt to grasp power? Candidates have direct access to voters in ways that have never before been possible. In 2000 Howard Dean was the first to show that fundraising through the internet can successfully fund a national campaign. While a vast majority of the funds required to finance such an undertaking are provided from party coffers, perhaps this can change?
Political Parties are organized groups of voters and potential leaders who share a common mentality in how government should be run, generally and in regards to specific policies. The main purpose of a political party, as opposed to other types of groups involved in the political process, is to obtain and maintain power. Whatever altruistic promises a party may make to win over the hearts and minds of potential voters, the primary goal is power. In a system where leadership is determined by popular elections, parties must appeal to voters in order to gain power. The theoretical advantage of political parties for voters is that parties provide and represent a clear set of political values with which voters may identify. This is intended to make the voting process simpler – a candidate from a certain party is identified with the political values represented by the party, so if a voter identifies closely with that party, they can trust the related candidate to represent their values in government. The real advantage of political parties for candidates is that parties provide a national network for fundraising and support.
These purposes may seem obsolete in a time when candidates may have more direct contact with voters and vice-versa than at any other time in history. If able to gather the millions of dollars required to fund a national campaign (or a state campaign), an individual could run sans-party essentially over the internet and through the mass media. But the real issue is not individuals connecting with individuals to garner votes. Political parties are a function of the social and competitive nature of human beings. There are several sociological factors at work: 1) we want to be around people who think and feel the same way we do about things; 2) we want to be clearly aligned with others against an opposing group; and 3) we want to be on a winning team. This may sound overly simple, but it’s an experience with which we are all familiar. We mark our territory and protect what’s important to us in politics just as in anything else.
While parties may create a system of corruption, prohibit minority voices from being heard, and squelch innovative thinking, they are a natural function of a representative government system (government in which representatives are selected by voters to make policy decisions). I propose that the problem is not with political parties themselves but in how our representatives are chosen. In suggesting that the American electoral system is flawed I do not want to begin a tired discussion about abolishing the Electoral College. Rather, I argue that by selecting representatives based on the number of votes they receive is inappropriate. Political Parties could actually represent a clear set of ideals if legislative seats were won based on the proportion of votes received by the party as a whole – Proportional Representation. For example, if the Republican Party wins 42% of the votes, they claim 42% of the seats; if the Democrats win 43% of the votes, they claim 43% of the seats; and if the Green Party wins the remaining 15% of the votes, they claim 15% of the seats. This method allows for multiple parties and thus greater representation of a variety of viewpoints in government. You cynics might immediately begin to argue that with only 15% of the seats, the Greens still have so little power they won’t be able to accomplish their agenda – but 15% could be just a start, and it’s better than nothing. Once more parties are allowed to have a significant role in government, they have greater potential for gaining more support, and voters have a better opportunity to connect with a party and a candidate that more closely represents their personal ideals. This improves voter efficacy which leads to higher voter turnout, which leads to better representation in government, and the cycle continues.
By allowing for more parties to be significantly involved in the political process, it keeps the major parties from gaining too much power. I think that we can agree that we’re all tired of hearing the same promises from both parties election cycle after election cycle, and really, they aren’t ideologically very different anyway. More and more voters are registering as independents and selecting individual candidates rather than voting down party lines. At the same time, partisan politics are becoming more prominent and more polarized. These symptoms do not so much signify illness within the parties themselves, but in a system that only allows for two major parties.
The fact of the matter is, political parties are not going anywhere – they are an organic function of representative government. If we can create a system that holds parties in check by allowing for a more significant involvement from minority voting groups through a Proportional Representation electoral system, it may successfully keep the Party Animal at bay.
Next week: Political Economy for Dummies/Bail Out? Bail ME Out!
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