Outsourcing, Trade Agreements and Employment: Lame Duck or Just Plain Lame?

Gerald Epstein

The Obama plan for employment generation has now come down to this: trickle-down stimulus tax cuts and a pledge to double exports in five years’ time. The first plan was passed during a lame duck session of Congress, while the second is pretty lame, plain and simple.

Taking a page out of the Clinton playbook, the Obama administration is now touting free trade agreements and the restoration of American competitiveness as a key solution to our economic and employment problems. Yet despite soaring rhetoric about the need to invest in America and to create 21st century jobs here at home, the administration is pushing so-called “Free Trade” agreements that, despite some improvement in labor protections,  are really “Free Investment” agreements that help open up developing countries to foreign direct investment by US multinational corporations and financial risk taking and speculation by U.S. banks and other financial institutions like those that led us down the primrose path to financial crisis.

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Financial governance and the crisis: New developments on the horizon

Ilene Grabel

In what follows, I flag a number of new developments that relate to developing country and international financial institutions responses to the ongoing economic crisis.

1. Central banks to investors: “Don’t worry–no capital controls here!”

As Triple Crisis readers know, a great many developing countries have deployed controls on capital outflows and especially on inflows in response to the myriad challenges they face in the current environment. For some countries, controls on outflows have been implemented to mitigate financial instability and currency depreciation following capital flight. Rapidly growing developing countries, on the other hand, are using inflow controls to reduce inflationary pressures, cool asset bubbles, staunch currency appreciation, and protect economies from the financial instability induced by significant future reversal of inflows. Indeed, capital controls have emerged as a key weapon of choice in the modern day “currency war.”

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The Future of the EU: Shaping economic governance

Daniela Schwarzer

The Triple Crisis Blog is pleased to welcome Daniela Schwarzer, head of the European Integration research unit at the German Institute for International and Security Affairs, Stiftung Wissenschaft und Politik (SWP), as a regular blogger.

The EU is heading for a crucial European Council meeting. On March 24/25, all eyes (in particular those of market actors) will be on the 27 Heads of States and Government who will tackle important questions on Economic Governance and on the future architecture of the euro area.

A broad debate has developed in the last twelve months drawing conclusions from the way the financial, real economic and sovereign debt crises have struck the EU. There is a growing gap between the academic view on where the euro area should move and the likely outcome of the current reform process: More and more observers advocate a leap forward in terms of political and fiscal union. But there is no political consensus on substantial budgetary integration, e.g. a larger European budget (ideally with a stabilizing function) or a pooling of public debt by issuing joint Eurobonds (as has been suggested for instance by Eurogroup President Juncker and the Think-Tank Bruegel).

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The coming crisis of renewed soaring food prices

Martin Khor

The events in Egypt that incredibly propelled President Mubarak out of power after 18 days of protests have surprised everyone, probably Egyptians too.

The main reason for the protests was political, the yearning of the people for the ending of repression and for a new era of democracy. But part of the anger of the people, especially the young, arose from serious economic and social problems. Poverty has been growing in recent years, affecting one in four people. Unemployment jumped to 10% while the rate was one-third for young men.

And then there are the increasing prices of food.  Food accounts for almost half the average Egyptian household expenditure. In 2008 there were riots in Egypt over the rising price of bread, which was part of the dramatic global food price inflation in that year.  The global recession ended that round of inflation, but in recent months the prices of foods and other commodities have been jumping up again.

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Commodity Speculation: Krugman leaves questions unanswered

Timothy A. Wise

The debate on commodity speculation continues, generating lots of heat but not as much light as I was looking for in my last post. Paul Krugman has responded to those of us bewildered by his position, basically reiterating that because these are physical commodities speculation can only happen if there is evidence of inventory accumulation by, essentially, hoarders. He sees no evidence of that now, except maybe for cotton and copper but not for food commodities. Instead he points to real weather issues that have reduced supplies. Yves Smith, at Naked Capitalism, called his analysis flawed, but took issue not with dismissing financial speculation but rather by pointing to the many flaws in the available data on inventories.

Okay, sure, weather and imperfect information, but please: Are you two really saying that the influx of non-commercial speculative capital into futures markets has no impact on real prices, on the functioning of these markets? If it doesn’t, why bother re-regulating the commodity derivatives market, as Dodd-Frank mandated and the CFTC has proposed?

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The Environment as our Common Heritage

James K. Boyce

What does it mean to say that the environment is our “common heritage”? On one level this is a simple statement of fact: when we are born, we come into a world that is not of our own making. The air we breathe, the water we drink, the natural resources on which our livelihoods depend, and the accumulated knowledge and information that underpin our ability to use these resources wisely – all these come to us as gifts of creation passed on to us by preceding generations and enriched by their innovations and creativity.

Yet once we take seriously – as I do – the proposition that this common heritage belongs in common and equal measure to us all, we move beyond a positive statement of facts to a normative declaration of ethics. We move beyond an understanding of what is to an assertion of what ought to be.

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High food prices cause for concern

Triple Crisis blogger Martin Khor published the following opinion article in The Star on the causes and implications of recent spikes in global food prices. Read more about this issue in recent posts from Triple Crisis bloggers Jayati Ghosh and Timothy Wise.

High food prices cause for concern

Food prices across the world have soared to their highest ever level, even exceeding the previous peak levels in mid-2008 before the recession caused by the global financial crisis dampened the prices.

The food price inflation is causing concern in many countries, as access to food is important for social stability.

The last time prices shot up to such high levels, in 2008, there were riots in many countries.

The soaring prices also contributed to the discontent that led to the current protests in Egypt and elsewhere in the Middle East, according to the World Food Programme.

“In many of the protests, demonstrators have brandished loaves of bread or displayed banners expressing anger about the rising cost of food staples such as lentils,” said its executive director Josette Sheeran.

Read the full article at The Star.

CDS Deja Vu: Speculation, stabilizing or destabilizing?

The following is a cross-post from Perry Mehrling’s new blog The Money View.  Mehrling is a Columbia University economist and his blog is part of a broader effort to re-think macroeconomics and finance sponsored by the Institute for New Economic Thinking.

CDS Deja Vu: Speculation, stabilizing or destabilizing?

Today’s Financial Times articles: US muni smackdown (Feb 2, 2011), Wall St looks to boost market in US muni CDS (Feb 6, 2011)

“Muni veterans are from Mars, Meredith Whitney is from Venus,” so says Lex, commenting on the wide divergence in current views about the future of the US municipal bond market. Whitney sees a coming wave of defaults; veterans see municipal debt/income ratios far below those that sovereign states routinely bear.

Lex frames the divergence as a matter of political judgment. Municipalities have made promises to bond investors, but they have also made promises to public sector unions in the form of wage and pension contracts. When the numbers do not add up, which promises will wind up being honored and which breached?

From a money view perspective, an alternative frame presents itself, namely the possibility of refinance. Quite apart from the possibility of public refinance, already we hear isolated stories of private refinance, which involve purchase of distressed municipal debt as a way of gaining control over the underlying assets, perhaps a hotel, or a stadium, or an airport.

Read the full piece at The Money View.

Environmentalism of the Poor: What democracy is teaching us

Sunita Narain

Triple Crisis is pleased to welcome Sunita Narain, Director of India’s Center for Science and the Environment and editor of “Down to Earth” magazine, as a regular blogger.

In India, where I live and work, the environmental issue is at an important juncture, which has important lessons for the world, if we care to listen.

Today, all over the country, there are growing protests against what are considered development and infrastructure projects. At the site of the coal power plant in Sompeta in Andhra Pradesh, the police opened fire on some 10,000 protesters, killing two. People were fighting against the takeover of their water bodies by the thermal power project. In the alphonso mango-growing Konkan region farmers are up in arms against a 1,200 megawatt thermal plant, which, they say, will damage their crops because of pollution. In Chhattisgarh, people are fighting against scores of such projects, which will take away their land or water. I have just written about yet another such fight, where farmers told me that the proposed cement factory, being built in their watershed, can only be built after killing them.

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Full Employment For Growth

Triple Crisis blogger Jayati Ghosh published the following opinion article in Boston Review as part of the forum Back to Full Employment, in which Robert Pollin urges the Obama Administration and Congress to put full employment back on the agenda. Her article responds to Pollin’s piece and highlights how developing countries have struggled with the policy challenge of full employment over the past 20 years.

Full Employment For Growth

Robert Pollin has identified the central challenge of economic policy today: how to sustain high employment levels and jobs with decent wages and conditions. This argument is relevant not only for the U.S. economy, but also for much of the developing world, including its “successful” countries in which large increases in GDP have not translated into high-quality employment.

Over the past two decades, most developing countries have relied on an economic strategy focused almost exclusively on exports to rich markets. This strategy delivered rapid growth in a few countries, such as China, but failed to do so in most others. Furthermore, countries that rely on exports for growth need to prioritize competitiveness in global markets, which means low wages and a currency kept cheap relative to the dollar, euro, yen, and British pound. This is why, even in the economies that showed great success as exporters, levels of consumption by the overwhelming majority of working people have largely remained stagnant.

Read the full article at Boston Review.