How Obama is to the Right of Reagan on Trade

Sarah Anderson, guest blogger

I hate to break it to the Tea Partiers, but their presidential idol was less of a free-market hardliner in trade negotiations than Barack Obama.

While doing some archaeological digging into old treaties, I discovered that the Reagan revolutionaries were relative softies on at least one issue — government meddling in capital markets.

The vast majority of the 52 existing U.S. trade agreements and bilateral investment treaties forbid governments from putting controls on capital flows. But buried in the annexes to four Reagan-era treaties, I found exemptions allowing trade partners to apply such controls during financial crises. Capital controls are various measures including (gasp!) taxes designed to prevent speculative bubbles or rapid capital flight.

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Stop the Draft!

Gerald Epstein

It’s time to stop the draft.

I know: the military draft effectively ended in 1973.

But even if the government is no longer conscripting the youth into the Army, our young people are subject to a draft nonetheless: they are now being sent in droves into the “reserve army of the unemployed”.

And with the economic collapse, they are facing high odds that their number is going to come up.

According to the latest figures,  18.1 percent of young people between the ages of 16 and 24 are unemployed. But, as with the Vietnam War era draft, different groups face radically different chances of being drafted.  Black and Hispanic youth have an unemployment rate of 31% and 20% respectively, while white youth face a high rate of 16%.

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The sound (finance) and the fury

Matías Vernengo

The current policy consensus in the developed world (i.e. the United States and Europe) seems to be that fiscal austerity (the euphemism used these days is consolidation) is necessary.  Christine Lagarde, the new Managing Director of the International Monetary Fund (IMF), said recently in the Financial Times that: “fiscal adjustment must resolve the conundrum of being neither too fast nor too slow.”

That is what she refers to as “Goldilocks fiscal consolidation,” that is, cut spending and increase taxes, but slowly please!  She repeated this view in her talk at the Jackson Hole conference, arguing that in order to obtain “credible” consolidation governments must implement: “measures that change the rate of growth of entitlements, health or retirement.”  In other words, cut spending and increase taxes fundamentally on social programs that benefit overwhelmingly the poor.

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What if Equilibrium Never Existed? The Crisis in Economic Theory

Alejandro Nadal

When Arrow and Debreu published their famous proof of the existence of competitive equilibrium in 1954 their work was met with extraordinary praise. In fact, approbation was so intense that there was hardly any substantive criticism of the paper. Not a good omen. But then again, who needs to cast doubts when you want to have faith?

The existence question is not only a technical question (i.e., finding out if a system of equations has a solution). In the grand narrative of market theory, the issue of existence of equilibrium is relevant because it concerns the reference point towards which disequilibrium prices (and allocations) are supposed to converge. The idea of market forces leading an economy to a point of equilibrium would be meaningless without certitude about the existence of the promised land.[i] In macroeconomic theory, this is so important that in some extreme cases (i.e., dynamic general equilibrium models), it is assumed that the economy is always in an equilibrium position.[ii]

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Iceland has Stabilized, but Growth is Elusive

Robert Wade and Silla Sigurgeirsdottir, guest bloggers

Amid the swirling European crisis, there is some modest good news from one small corner. Iceland, having abruptly transmuted from “Nordic Tiger” to “National Bankrupt” in October 2008, when the collapse of the country’s three mega-banks put them into  Moody’s league of the eleven biggest financial collapses in history, is now seeing the beginnings of a recovery.

The economy (population 310,000) experienced the third biggest fall in output and the fourth biggest fall in employment among the 30 OECD countries. The contraction stopped in late 2010, at 11% below the peak in the first quarter of 2008. Real GDP is expected to grow by just over 2% in 2011 and a little higher in 2012.  Thanks to increases in welfare spending, only 14% of the population say they are finding it “very difficult” to make ends meet, well below the EU average.  The government reentered global capital markets in June 2011, when it sold $1bn worth of bonds at a spread of  3.2 percentage points above LIBOR,  which testifies to the credibility of the stabilization program  in the eyes of financial markets.

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The Colombia FTA: Only Corporations Win

Matías Vernengo

Trade has been a contentious issue in U.S. politics for a very long while. In recent times, free trade agreements have been promoted as essential by the cheerleaders of globalization, and as a threat to good jobs with decent wages and benefits by those who are skeptical about the advantages of the global economy. President Obama, a man of broad views, seems to represent both opinions. On February 12, 2008, candidate Obama made the following argument on this issue:

“It’s a game where trade deals like NAFTA ship jobs overseas and force parents to compete with their teenagers to work for minimum wage at Wal-Mart. That’s what happens when the American worker doesn’t have a voice at the negotiating table, when leaders change their positions on trade with the politics of the moment, and that’s why we need a President who will listen to Main Street—not just Wall Street; a President who will stand with workers not just when it’s easy, but when it’s hard.”1

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Rio +20: Beyond the Legacy of Despair

Fander Falconí

The Triple Crisis Blog is pleased to welcome Fander Falconí Benítez as a regular contributor.  After stepping down as Ecuador’s Foreign Minister in 2010, Falconi is now Coordinator of the doctoral programme in economic development at the Factultad Latinoamericana de Ciencias Sociales (FLASCO) in Ecuador. Triple Crisis is able publish and translate his posts thanks to the support of the Heinrich Boell Foundation.

In June 2012, there will be a follow-up to the Earth Summit held in Rio de Janeiro twenty years earlier. The upcoming summit (Rio + 20) will focus on two main issues: the green economy and the debate about the establishment of an institutional framework for sustainable development.

Although the United Nations Framework Convention on Climate Change (UNFCCC), a product of the 1992 Earth Summit, underscored the historic responsibility of industrialized countries, it has not been applied in a legally-binding manner.

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What Switcheroo? A Response to Bruce Everett

Frank Ackerman

In a recent blog post, Tufts University professor and former ExxonMobil executive Bruce Everett claims to have had hundreds of conversations with advocates of active climate protection over the last ten years. From these conversations he claims that they – an almost entirely unnamed group of “Climatistas”  –  make ever-changing, unsubstantiated arguments, and cannot answer his objections.

I’m not sure who his “Climatistas” are, or why they were struck dumb by his garden-variety climate-skeptic arguments. But here’s a quick response. I’ll try to resist the temptation to respond to his rhetoric in kind.

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Global Disorder and the Indian Economy

Jayati Ghosh

The world economy has clearly started on Act II of the possibly prolonged drama that began with the Great Recession of 2008-09. But if the Government of India is to be believed, the Indian economy is not likely to be very adversely affected by the current round of global financial volatility. Finance Ministry sources argue that the Indian economic growth story is so robust that the current uncertainty will cause no more than a minor blip in its confident trajectory.

But this is definitely an over-optimistic prediction, which makes one hope that the policy makers are actually more aware of the possible downsides, whatever their public pronouncements may be. One important downside is the likely diminished role of the US as a net importer. This is no longer a future possibility – it is already a process that is well under way and is likely to get even more accentuated in the near future. And it means that the rest of the world – including India – can no longer rely on exporting to the US as the means of generating growth in their own domestic economies.

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Is China Next?

CP Chandrasekhar

Though different, the Greek and the US public debt crises threaten a return to the Great Recession of 2008. The world is therefore savouring the reprieve provided by their temporary resolution. But before that ephemeral benefit could be enjoyed comes news of a potential new global economic threat from an unsuspected source: China.

Its source lies in the boom in China’s property market over the last few years, which gathered substantial momentum in the wake of the huge post-crisis stimulus provided by the government to the economy. With a significant share of that stimulus diverted to projects that increased demand for real estate, price increases have been so large that the spiral is now being identified as a bubble.

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