Nowehere to Call Home

<This guest post is contributed by Alisa Gilbert, who writes on the topics of bachelors degree.  She welcomes your comments at her email ID: alisagilbert599 at gmail dot com.>

Shanghai developmentI grew up next door to some of the most inviting and charming neighbors any young child could ask for. They were a couple - Henry and Mei - who had immigrated to the United States in the 1980s from the bustling city of Shanghai in China. Having become fast friends with their daughter, I was often over in their home and learned much about the culture and history of the country they had left behind decades before. 

As the years rolled on, the formerly jovial couple became more and more restless. After a trip to China to revisit where they had spent their formative years, the couple returned to America feeling rootless. Numerous expatriates are like Henry and Mei, who feel as if they have nowhere to call home. 

At a time when money was tight and the chances of finding great financial success in Shanghai were slim, Henry and Mei grew restless.They had heard rumors about the positive prospects available overseas in America, the Land of Opportunity, so they jumped to take advantage of them. Over the next decade, Henry and Mei scrounged and saved all that they could before they finally had enough to pick up their things and move to the United States with their respective parents, siblings, and cousins. A new beginning was waiting for them there, and Henry and Mei were determined to start a new, prosperous life in a new, prosperous nation.

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Putting the Dollar on Steroids: Chinese Currency Intervention

Composite of Images by RightIndex from flckr CC

When China passed Japan to become the world’s second largest economy this summer,[i] the United States seemed resigned to its fate as a global also-ran.  While China has only one-tenth of the U.S. GDP per capita, the U.S. unemployment rate (9.6%) hovers just below China’s GDP growth rate (10.3%), making the future of U.S. global leadership seem bleak.  Not surprisingly, a plurality of U.S. respondents to a 2009 Pew Research poll named China the top economic power in the world.[ii]  In reality, China’s rise is far from accomplished; the U.S. has more to gain, than fear, from a wealthy China.  While Americans hold many misconceptions about Chinese policy – from debt to trade – the economic reality is more complex than it appears.

That China holds a massive amount of U.S. government debt has become a source of popular outrage for American politicians of every stripe.  What is less well understood, is exactly why  China keeps buying so much U.S. Debt.  In fact, China must purchase U.S. Treasury bonds, even though it often takes a loss in the process.  A complicated cycle has developed due to tight Chinese controls on currency outflows.  Chinese exporters must convert the dollars they earn into Chinese renminbi, leaving the central government with dollars and the Chinese economy with freshly printed currency.  To prevent inflation as the economy absorbs hundreds of billions of dollars worth of the new currency, the Chinese government sells domestic bonds to remove money from circulation, a process known as “sterilization”[iii].  Meanwhile, the dollars confiscated at the border are spent on the only good capable of absorbing that much money: U.S. Treasury bonds.  The gap between the low rate of return on Treasury bonds, and the bond rate, in a fast growing and poor country like China often entails negative arbitrage, the difference between the rate of return on two investments, for the People’s Bank of China.  To minimize their losses, China makes low rates on domestic bonds palatable by instituting price controls on necessities and banning certain types of speculative lending.  This process has led China to accumulate foreign reserves amounting to almost 50% of GDP[iv] which is a staggering 4% of global GDP.   This Rube Goldberg-style economic policy is not sustainable, but breaking it will involve a period of difficult transition to increased economic openness and increased Chinese domestic consumption as a component of GDP[v]. 

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More Mini-Postage

NRO says China should teach U.S. lessons about economic freedom, since apparently Chinese citizens enjoy more economic freedom than their counterparts in the U.S.  Joe tweeted:

"NRO says China could teach US lesson in economic freedom. I say: Stop smoking crack, wannabe edgy Obama critics!"

I agree and disagree with what Joe's saying here.  NRO should stop smoking crack, and they are wannabe edgy Obama critics, but as a an openly conservative magazine, NRO kind of has a duty seemingly to massage some Obama criticism into nearly everything that outfit puts out.  It's par for the course, which is why I rarely read NRO these days.  I prefer to get my "conservative news" from Sarah Palin's facebook page.  No, not really.

Nevertheless, as I commented in Google Buzz a few days ago, I don't think it's at all controversial to claim that Chinese citizens enjoy more economic freedoms than their counterparts in the U.S., nor is it an attack on Obama. It's just a fact.  Without a strong regulatory state to impose things like safety standards and enforce zoning laws, people with money in China can pretty much do whatever they please, as long as they don't criticize the government.

People fallaciously assume that democracy and capitalism forever go together like peas and carrots.  I prefer to think that capitalism is the natural state of civilization.  Fighting free markets is like trying to grow European crops in the New World.  Democracy on the other hand, as history seems to attest to, is fragile, and must be protected by complex systems of law and civic robusticity.   

That is to say, imposing Democracy neccesarily entails curtailing economic freedoms.  I can't buy votes.  I can't bribe officials.  I can't pay you to kill a business rival.  etc.   

July 2010 News Time Capsule

This is from the EconomistI decided to celebrate the birth of my second daughter with a rehashing of news stories from the last time I really kept a continuous link with civilization via the mass media: here is July 2010 as a time capsule of our civilization's most idiotic component.

In the Black Swan, Nassim Nicholas Taleb discusses the famous fire hydrant experiment in which subjects were shown increasingly less blurry pictures of a fire hydrant until they were capable of identifying the object.  The experiment concluded that subjects were more likely to correctly identify the object sooner if they were shown fewer pictures.  Taleb interprets these counterintuitive results as proof that if we have discontinuous, intermittent exposure to something, we are more likely to understand that something.  He particularly discusses how intermittent exposure to news stories makes one more likely to know what's truly going on in the world than those who voraciously follow the news.

As an American living in Japan and returning to the U.S. twice a year on average, I sympathize with Taleb's premise (another post), but I think this particular overgeneralization is one of very few glaring faults in his book.  Either way, I'd like to present a news roundup of sorts.  I receive "the Slatest" everyday from Slate Magazine, which basically offers snapshots of news stories, and so I'd like to present some selected Slatest stories, and offer my visceral two cents.  Here it is:

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Democratic Militarism

One of the best known theories of Political Science is the "Democratic Peace Theory" which notes that democracies rarely go to war with one another.  The most prominent explanation for this historical trend is that voting brings accountability preventing leaders from unnecessarily engaging in war.  However, Daniel Larison emphatically skewers the notion that Democracies aren't particularly warlike:

States that do not respect international legal norms vis-a-vis other states tend not to abuse human rights at home (or at least they abuse them much less often), while states that abuse human rights at home want to maintain certain strong international legal norms if only to guarantee non-interference in their internal affairs. Internal and external policies are never entirely separable, because the same government is responsible for both, but looking at the last sixty-five years it is not at all clear that repressive and abusive states are more likely to disrupt or undermine international stability.

In other words, China does lots of nasty things to its own citizens, but the U.S. is a hell of a lot more likely to go invade another country and do nasty things to those citizens.

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Google v. China in the Court of Public Opinion

cartoon from China DailyGoogle's story: 

Google operations in China began in 2006, with a censored, Chinese-language search engine.  In the words of Google, this was because:

...(T)he benefits of increased access to information for people in China and a more open Internet outweighed our discomfort in agreeing to censor some results. 

On March 2009, Chinese authorities blocked access to Google's YouTube site and began denying users access to other Google services on a case-by-case basis.  Over the course of the last year, there were further attempts by the Chinese government to limit free speech on the web.  On January 12, 2010, Google announced it was considering ending its Chinese operations:

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The Gift that Never Gives

Jeffery Goldberg doesn't like the trend he sees in Israel's foreign policy:

A pattern has emerged in recent weeks of an Israeli government that seems to go far out of its way to alienate countries it has no business alienating. First, there was the gross insult directed at the Turkish ambassador to Israel by the deputy foreign minister, Danny Ayalon. [...]

Then came the assassination of a Hamas official in Dubai. Israel hasn't claimed responsibility for the assassination, but evidence points to the Mossad. It is one thing to kill Hamas officials -- Hamas, after all, has declared a war of destruction on Israel -- but it is another to do so in the United Arab Emirates, the most open-minded country in the Gulf, especially on matters related to Israel, and a country that is obviously important to the formation of a broad, anti-Iran coalition. 

Then, of course, came the humiliation dealt to Vice President Biden on his visit to Israel, about which enough ink has been spilled. [...]

Then this week came a snub by Danny Ayalon's boss, Avigdor Lieberman, the foreign minister, who boycotted a speech to the Knesset by the president of Brazil because Lula apparently wouldn't pay a visit to the grave of Theodore Herzl, who is now spinning in said grave, because he was a pragmatist as well as a dreamer and he knew that the Jews, a small, embattled people, need friends to survive. [...]

Bibi Netanyahu is not in control of his government. He has brought into his coalition parties -- Lieberman's party, the Shas Party -- that are narrow-focused, excessively-rightist, stubborn and prideful, and now he's paying the price. The problem is that Israel is paying the price as well. America can afford stupid politicians. Israel can't.  

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China Diplomacy: Dalai Lama, Google, Taiwan, Trade

Everywhere you turn, the media is pouncing on the President's apparent rough start with China Diplomacy.  Having today met with the Dalai Lama fresh on the heels of a widely publicized Taiwan weapons deal, a feud over Google censorship, and an escalating trade war, President Obama has done nothing radical or out of the ordinary as far as U.S.-China diplomacy goes.  Rather, the current political and economic climates are stacked against the administration, and much of the rhetoric amounts to nothing more than muscle-flexing.  The Administration's dealings with China have been rooted in measured, compromised positions

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ESL Economics

symbol of the Chinese economic menaceI teach English to Japanese students in my spare time.  I had a student today who wanted to talk about the Lehmann shock, the sub-prime loan crisis, and China.  The student was of the high-intermediate variety and ignorant of economic terms, so the resulting explanation was in simple (oversimplified?) language.

The student asked me what the difference was between savings and investment.  I told her savings basically means doing nothing with your money.  Investing is buying something that will make you money in the future: a car can be considered an investment, and even a "savings" account is actually an investment.  Saving is basically a waste, but it's necessary to save a little in case investments turn sour. 

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How to Lose an Arm's Race in One Year

Herbert Block's "Speak Loudly and Poke them with a Big Stick"A recent Harvard simulation of the next year of geo-political wrangling over the Iranian nuclear program concluded with a startling result: Iran succeeded and in the process strained U.S. diplomatic relations with Europe, Russia, China and especially Israel.  In the scenario, which featured senior diplomats and academics role-played as various heads of state, the U.S. initially focused exclusively on implementing broad sanctions.  Iran ignored the sanctions entirely and continued its program apace.  Eventually, China and Russia balked at the sanctions and secretly offered to help Iran.  The U.S., realizing that it was incapable of stopping Iran diplomatically and unwilling to intervene militarily, decides to adopt a policy of containment based on its earlier experience in the Cold War.  Israel, however, refuses to accept a nuclear Iran and the U.S. threatens to publicly condemn an attack on Iran by Israel.  The game ends with Iran gaining strengthened ties to Russia and China, and hard break between Israel and Washington.

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Sullivan: America Wakes up to the Shift in Global Power

Andrew Sullivan recently wrote a column for the Times Online called "America wakes up to the shift in global power."  Sullivan's column is a response to recent Pew Research Center polls that have found record levels of support for positions on international affairs commonly labeled "isolationist."  According to the polls, 44 percent of Americans feel the U.S. should "go its own way" on international affairs; 49% of Americans believe the U.S. should "mind its own business."  The same poll shows a majority of Americans think of China as the world's pre-eminent economic power and that 47% think Afghanistan will revert to the Taliban after U.S. troop withdrawal. 

Sullivan interprets the polls as showing a new public recognition of global realties.  It is rare for me to disagree with Sullivan, however, I feel the poll results are skewed by disappointment with current U.S. international policy, a populace manipulated by politicians and media, public recognition of American hypocrisy, a poor economy with unsustainable debt, a very short-term perspective, a widespread zero-sum worldview, and a more-interconnected world.  That is to say, the poll results reflect pessimistic dread and misunderstanding more than reality.  That is not to say, however, that America isn't on a dangerous path.  I have clarified my position on America's standing in the world in my article, The Default Power and the Sword of Damocles.

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The Default Power and the Sword of Damocles

Josef Joffe's recent article in Foreign Affairs, "The Default Power", argues that despite recent suggestions that American power may be waning, America remains firmly on top: its military is unmatched, its leadership in resolving the financial crisis is evidence of its unparalleled economic strength, and its ideals are attractive enough to ensure American rule for a long time to come. While there is no denying American military power, this power could become a liability if America feels compelled to bear the burden of policing an increasingly multi-polar economic world alone. American ideals are indeed attractive to the world's peoples, but America's conduct in Iraq especially has called that into question.

Joffe's main thesis relies on straw men, oversimplifications, and far-fetched extrapolations.  He attacks what he calls "declinism" as a form of cyclical panic, citing the "prophecies of doom" that followed Soviet detonation of a nuclear weapon, the launch of Sputnik, and the general missile gap of the late-fifties, as though a false argument to an effect proves the effect itself false.  However, it was these "prophecies of doom" that compelled the Kennedy Administration to start the Apollo program and prevent the Soviets from placing missiles 90 miles from Key West.  Perhaps Joffe's "prophecies of doom" would be more aptly called "trenchant criticism taken seriously by elites."  Joffe continues to detail the history of "declinism" under the false premise that because past predictions of the demise of American power turned out to be false, all current and future predictions of the demise of American power must also be false:

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Status of Forces Agreements Worldwide

This map of US military presence throughout the world reveals four things:

1.  The US military is definitely worried about Iran.

2.  The US military is definitely worried about Russia.

3.  The US military is definitely worried about China.

4.  The proposed Polish base has nothing to do with defending Denmark from Iranian missiles.

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Tamerlane for the Twenty-First Century

Several months ago, I read John Darwin's book "After Tamerlane".  It chronicles the history of empire-building from the Central-Asian-controlled world empire paradigm to the coastal-powers paradigm with which the world is now most familiar.  China, India, Persia, the Ottoman Empire, Russia, and the West all originated or suffered sweeping dynastic and social changes from this paradigm shift.

Money to be made by controlling the Silk Road had before 1399 created an incentive for consolidation.  The conventional wisdom is that, as sea power became more important for global trade, control of the Silk Road became obsolete.  Naval powers such as Portugal, Britain, Japan, and the United States took over, while cities such as Samarkand, once the cultural, military, and commercial center of the world, were forgotten.

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Welcome to the Club

In discussing Carr’s excellent post with friends, I ended up noting how overrated the nuclear peace theory is.  The theory is that nuclear weapons actually lead to a more stable international system by raising the stakes to a level beyond which rational actors will not escalate a crisis.  This is the realist version of democratic peace theory, but I think it suffers from ignoring the other variables that have produced international peace since the creation of the bomb, and ultimately, from being far too risky in practice to justify its limited benefits.

It is undeniable that two countries with nuclear weapons have never fought a war against one another, though the U.S. and the U.S.S.R. frequently contributed material support for whomever happened to be fighting against the other one at the time.  However, to give all of the credit for that peace to nuclear weapons slights the amazing progress of international institutions since WWII.  The UN, NATO, WTO, EU, G-8, G-20 et al. have created international stability and interdependence, while universal nationalism and sovereignty have necessitated acquiring legitimacy for military intervention.  Most wars in this period have been civil wars or proxy wars, often both.  Even the most glaring counterexample, the U.S. invasion of Iraq, was only possible because U.S. leadership flaunted international institutions philosophically.  As the U.S. has paid dearly for its hubris, it is hard imagine that any other great powers are in a hurry to follow that example

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