S&P Downgrade Brought on by Republican Obstructionism

Jeff Madrick

There are lessons to be learned from S&P’s report, but none of them are financial.

Does anyone really think that Standard & Poor’s downgrade of U.S. debt would have occurred unless there had been the Congressional stand-off on raising the debt ceiling? For all of S&P’s handwringing about the nation’s debt problems, Congressional recalcitrance was the driving issue. So when the press says neither the Democrats nor the Republicans can escape blame, it is in truth nonsense. The showdown caused the downgrade, not the nation’s financial liabilities, and Republicans deliberately caused it in pursuit of their own political and ideological goals.

Of all the silly comments about the Standard & Poor’s downgrade of U.S. debt, those of Senator Lindsey Graham might take the cake. He said any CEO would have to quit if his or her company’s debt was downgraded. But Graham does not realize that private corporations are essentially dictatorships, only occasionally beholden to shareholders. President Obama has to deal with the deliberately obstructionist Congress led by Graham’s party. Republicans could have lifted the debt ceiling and still fought for their case. Instead, they played chicken with U.S. credit in the name of ideology — or, more likely, to target the President.

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Environmentalism’s Original Sin

James K. Boyce

In 2007 the National Audubon Society, one of the leading environmental organizations in the United States, issued a report headlined “Common Birds in Decline.” Based on statistical analysis of 40 years of bird population data, it announced “the alarming decline of many of our most common and beloved birds.”

The story attracted wide press coverage. “Spreading suburbs and large-scale farming are contributing to a precipitous decline in once common meadow birds,” began a New York Times story. An accompanying editorial lamented, “We somehow trusted that all the innocent little birds were here to stay. What they actually need to survive, it turns out, is a landscape that is less intensely human.”  A letter to the editor predicted that the deadly pattern will continue “as long as we ask the earth to support too many people.”

Few commentators bothered to study the study itself. Had they done so, they might have noticed that among 309 bird species for which statistically meaningful trends could be established from data in two population surveys, birds showing a “large increase” exceeded those showing a “large decrease.” Forty-one species recorded a large increase in both surveys; only twelve saw a large decrease.

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Environmentalism's Original Sin

James K. Boyce

In 2007 the National Audubon Society, one of the leading environmental organizations in the United States, issued a report headlined “Common Birds in Decline.” Based on statistical analysis of 40 years of bird population data, it announced “the alarming decline of many of our most common and beloved birds.”

The story attracted wide press coverage. “Spreading suburbs and large-scale farming are contributing to a precipitous decline in once common meadow birds,” began a New York Times story. An accompanying editorial lamented, “We somehow trusted that all the innocent little birds were here to stay. What they actually need to survive, it turns out, is a landscape that is less intensely human.”  A letter to the editor predicted that the deadly pattern will continue “as long as we ask the earth to support too many people.”

Few commentators bothered to study the study itself. Had they done so, they might have noticed that among 309 bird species for which statistically meaningful trends could be established from data in two population surveys, birds showing a “large increase” exceeded those showing a “large decrease.” Forty-one species recorded a large increase in both surveys; only twelve saw a large decrease.

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Foreign Direct Investment and Economic Development

Matías Vernengo

In the 1960s Foreign Direct Investment (FDI) and Transnational Corporations (TNCs) were seen, at least by progressives, as an obstruction in the process of economic development.  The ultimate critique was that not much of the technological development introduced by foreign firms diffused to other parts of the economy, and that profit remittances would become a burden on the balance of payments accounts.  Hence, TNCs were seen as signs of the exploitation of the South by the North.  It did not help that companies, like International Telephone and Telegraph (ITT) in Chile during the Allende government, were plotting to bring down democratically elected governments.  Everything about foreign capital was bad.

By the 1990s, after a lost decade and the victory of the Washington Consensus Decalogue, foreign capital and TNCs were seen as central for economic development.  FDI created jobs, increased productivity, and macroeconomic problems associated to the balance of payments accounts were seen as secondary, since export performance, within the context of an export-led development strategy, would reduce the possibilities of crises.  Everything about foreign capital was good.

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The truth about the global demand for food

In this article from The Guardian, Jayati Ghosh provides more a more detailed analysis of some of the new research from the FAO, noted earlier by Wise, which shows that biofuels demand in the US and Europe, not growing demand for meat in China and India, is the real driver of the rise in global cereal demand.

A new report from the FAO blows the myth about increased grain consumption from developing countries leads to higher global demand and higher prices.

Ever since the global food crisis of 2007-08, a perception has persisted in many parts of the world that one of the main underlying reasons for the price spikes in major food items – especially food grain – is the increased demand from countries such as China and India. If anything, this perception has become even more widespread since prices started rising again, especially since early 2010.

On the face of it, such a perception seems quite reasonable. After all, China and India both have huge populations, accounting for nearly 40% of the total world population between them. Their economies have both been expanding very rapidly, much faster than most of the rest of the world, so per capita incomes have been rising from relatively low bases. It is well known that as incomes rise from low levels, people tend to consume more food grain – not necessarily directly, but indirectly through the consumption of livestock products that require more grain in the form of food.

So it is only to be expected that the increased incomes in China and India would translate into more demand for food grain, and this could certainly affect the global supply demand balance in ways that would cause food prices to rise. Expected, yes: but did this actually happen?

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Food Aid Talks: What’s on the Table?

Jennifer Clapp

The Horn of Africa is experiencing its worst drought in 60 years. The impact is so serious that the United Nations has declared a famine in parts of southern Somalia. Several million people face starvation and the UN has called for an additional $300 million in emergency aid to avert an even bigger disaster in the region. The magnitude of the situation reminds us that the renegotiation of the Food Aid Convention (FAC) could not come soon enough.

The FAC is an international agreement among eight major donors (Australia, Argentina, Canada, European Union, Japan, Norway, Switzerland and the United States) that sets out rules for food aid. Its signatories agree to provide a minimum amount of food aid each year to meet the needs of the world’s hungry. The intention of a guaranteed amount of aid is to reduce the UN’s need to rely on special aid appeals to address crises.

Canada has played a leading role in the renegotiation the FAC as chair of the Food Aid Committee, the body that oversees the treaty, since the discussions began in June 2010. Negotiators aspire to have a revised agreement in place by the end of 2011. The current talks are especially challenging given the major changes that have taken place in the negotiating context since the treaty was last updated in 1999.

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Food Aid Talks: What's on the Table?

Jennifer Clapp

The Horn of Africa is experiencing its worst drought in 60 years. The impact is so serious that the United Nations has declared a famine in parts of southern Somalia. Several million people face starvation and the UN has called for an additional $300 million in emergency aid to avert an even bigger disaster in the region. The magnitude of the situation reminds us that the renegotiation of the Food Aid Convention (FAC) could not come soon enough.

The FAC is an international agreement among eight major donors (Australia, Argentina, Canada, European Union, Japan, Norway, Switzerland and the United States) that sets out rules for food aid. Its signatories agree to provide a minimum amount of food aid each year to meet the needs of the world’s hungry. The intention of a guaranteed amount of aid is to reduce the UN’s need to rely on special aid appeals to address crises.

Canada has played a leading role in the renegotiation the FAC as chair of the Food Aid Committee, the body that oversees the treaty, since the discussions began in June 2010. Negotiators aspire to have a revised agreement in place by the end of 2011. The current talks are especially challenging given the major changes that have taken place in the negotiating context since the treaty was last updated in 1999.

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In case you missed it. . .

The most important and hotly contested economic issues in the news recently have been the focus of several Triple Crisis Posts. Here is a compilation of what bloggers have to say on the Greek Crisis, the debate on commodity speculation, and the US debt ceiling:

Triple Crisis bloggers on Greek Crisis:

Another Victory for Finance? By CP Chandrasekhar
Restructuring Greece’s Debt Crisis, by Kevin P. Gallagher
The Greek Crisis: The EU’s Wasted Year, by Daniela Schwarzer
The Greek Crisis: Uttering the Other “D Word,” by Matías Vernengo
The Tyranny of Bond Holders, interview with Kevin P. Gallagher

Triple Crisis bloggers on commodity speculation and food prices:

Spotlight G20: Identifying the Drivers of Price Volatility, by Timothy A. Wise
Speculation Drove Wheat Prices up While Supply Expanded, interview with Jayati Ghosh
Spotlight G20: New Evidence of Speculation in financialized commodities markets, by Timothy A Wise
Spotlight G20: Agriculture Ministers Should Strengthen Government Role in Volatile Markets, by guest blogger Sophia Murphy

Triple Crisis bloggers on the US Debt Ceiling Debacle

The Debt-Ceiling: a Guide for the Bewildered, by Matías Vernengo
GOP bad faith on the debt ceiling, by Kevin P. Gallagher
US debt impasse worries the world, by Martin Khor

The road to Earth Summit: 20 years later

Martin Khor

The outcome of the 1992 Earth Summit was large in ambition but poor in implementation.  With the world in even larger crisis, the search is on for stronger institutions, as a meeting in Solo last week revealed.

“Sustainable development” came into vogue as a result of the United Nations’ Earth Summit in Rio, Brazil, in 1992.

The term is widely taken to mean that environmental, economic and social goals have to be taken together into account and if possible “blended”, when policies are being made and actions taken, internationally and nationally.

It is now enjoying a revival – a hotly debated one – since the United Nations will hold another summit in Rio in 2012, to mark the 20thanniversary.

Putting all three elements – economic, social and environmental – together in the policy mix was Rio 1992’s achievement.

Making policies only on the basis of economic goals like high economic and export growth is simply not balanced, as the environment can be badly damaged and natural resources can soon run out (and thus growth is not sustainable).

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Another Victory for Finance?

C.P. Chandrasekhar

Days after the July 22 deal on a second bail-out package for debt-strapped Greece, the full import of the package is still being unravelled. There are two basic messages that seem to be emerging. First, the banks, which were initially seen as having been forced to take a well-deserved hit for their lack of diligence as lenders,  have gotten away with a good deal. Second, as a result, while European governments have staked a lot of their money in the hope of saving the eurozone and preventing another crisis, and so have governments elsewhere through the involvement of the IMF, the crisis has not been even partially addressed, but merely postponed.

The second bail-out package is worth 109 billion Euros, just a billion euros short of the 110 billion provided in the first bail-out more than a year ago. According to observers much of this money will come from eurozone governments in the form of new 15 to 30-year loans carrying an interest rate of 3.5 percent. The IMF, which provided €30 billion in the course of the first bail-out, is expected to provide around that much this time too, if Christine Lagarde, its new European head, has her way. And private creditors will swap or roll over 135 billion euros of existing loans into new, longer-term instruments.

This split, it is now estimated, lets the banks off very lightly.  This should have been expected when the Institute of International Finance, the Washington-headquartered association of leading international banks, emerged an important player in the negotiations. According to the IIF, as a result of the deal the banks are set to lose a possibly overestimated €54 billion. But that is far short of the more than €200 billion they would have lost if Greece was allowed to spiral into total default.

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