40 Years Ago: Ping-Pong Diplomacy & China's Rise

Regard a ping-pong ball as the head of your capitalist enemy. Hit it with your socialist bat and you have won the point for the fatherland - Mao Zedong

Here's a timely scenario for you given the fortieth anniversary of ping-pong diplomacy between the US and China: What if the Cold War never ended, the Iron Curtain never fell, and the US failed to exploit the growing ideological divide between China and Russia? In general, international relations scholars treat counterfactual ("what might have been") research the same way Vogue magazine treats those with normal body weight: with complete and utter contempt. Still, prominent American IR scholar and rat-choice critic Ned Lebow encourages such research when conducted in an intellectually rigorous manner. See his recent work which I have on my virtual bookshelf, Forbidden Fruit: Counterfactuals and International Relations (the PUP site has excerpts of chapter 1).

An obvious point you can raise is that the Iron Curtain was inherently flawed and bound to collapse anyway regardless of developments in China. However, you can also argue that the budding economic renaissance of China in the mid- to late-nineties opened the eyes of many socialist regimes to the possibilities of co-opting some capitalistic activity. At any rate, I merely sketch out here the important international political economy implications of the counterfactual absence of a US-China detente circa 1971. That is, would Chinese development have progressed so far so fast had conditions not been laid out for Western firms experimenting with transferring their manufacturing operations to mainland China when Mao "Death to Capitalist Roaders" Zedong met his end (real Communists don't believe in makers)?

It's certainly a question manufacturing-obsessed and -romanticizing leftists would avidly ponder. Had China not become an FDI destination because MNCs shunned it during the time period in question due to still-lukewarm US-China relations, would it have developed quickly or meaningfully at all? As my erstwhile LSE IDEAS colleague Niall Ferguson likes to point out, Henry Kissinger has literally thousands of critics who froth at the mouth upon hearing his name. LSE IDEAS being a centre for researching strategy, however, give credit where credit is due.

Ping-pong diplomacy was an artful way of publicizing to the world the idea that the (then) arch-capitalist and the not-so-arch-communist had more than a few strategic interests in common. Inarguably, it served both countries' purposes. As early as 1967, Nixon already envisioned "Asia After Vietnam" in the pages of Foreign Affairs by allowing PRC involvement in world affairs. However, it took an accidental bus ride by a hippie US table tennis team member with his PRC counterparts to set things in motion. From there it is not at all a long stretch to trace the rise of modern China. Nixon's Secretary of State Kissinger prepared for such a fortuitous opening and never looked back.

While we can certainly quarrel with the eventual results--did the US dig its own grave by encouraging China's emergence, for instance--modern-day American international relations lacks similar grand strategy. Witness Hillary Clinton's laughingstock "Internet freedom" of an idea and compare it to a time when, to paraphrase Sidney Sheldon, real masters of the game still existed in the United States. In the 21st century world economy, they in all likelihood reside in the PRC with its long-term vision of how to shape the world to their advantage.

In any event, I much recommend a recent LA Times article that touches on the political significance of sport as well as how ping-pong diplomacy set the stage for US recognition of the PRC as China instead of American crony Generalissimo Chiang Kai-Shek's Taiwan:

"It's hard for us to really understand just how little direct contact Americans and Chinese had with each other," said Clayton Dube, associate director of USC's U.S.-China Institute. "It was a place that was much talked about, and it was a place where the imagination ran wild."

In the years leading up to 1971, however, leadership from both countries was sending signals that they might wish to normalize relations. Secret meetings were held in Warsaw in the 1950s, and before his presidency, Nixon had written that "China needs to be brought into the world community."

US and China table tennis teams interacting eventually led up to diplomatically significant gestures such as the former lifting trade restrictions on China:

What happens next is unclear. But officials from both teams expressed interest in a visit, and an invitation and acceptance came quickly. On April 10, nine [American] players plus officials, spouses and journalists crossed a bridge from Hong Kong to China. The group spent a week playing table tennis and sightseeing.

The visit paved the way for Henry Kissinger to conduct a secret visit to China in July, which set up Nixon's historic visit in February 1972. The U.S. then formally recognized that there was only one China and thereby set the Taiwan question aside to normalize relations.

Nixon called it "the week that changed the world," but Wei Wang remembers the words of Chairman Mao. She was a child in the early 1970s and says she doesn't recall much about the events. But the former U.S. Olympian and current Westside Table Tennis Center instructor does remember one thing clearly. "The prime minister [sic] said, 'The little ball moved the big ball' — a pingpong ball moved the earth,' " she said. "That was the metaphor. China opened up from that — from table tennis."

The Nixon Foundation also has a comprehensive and entertaining primer on this momentous occasion if you have some time to spare. Table tennis is renowned as the world's fastest sport, and international relations is probably not far behind in terms of pace. It seems to me and probably most of the rest of the world except for America#1-style flunkies, Palin acolytes, and other gullible Yankee toadies that the US has long since lost the ability to serve up something that befuddles, let alone outpaces, China. Those who succeeded Kissinger who were largely bereft of grand strategy did not fully realize what the consequences of integrating China into the world economy were for the US.

The great game has moved on and left slow-moving and slow-witted America behind.

Mexico Norte: Futbol & Hispanicization of the USA

CONCACAF should be ashamed of itself. I think it was a f***ing disgrace that the entire post-match ceremony was in Spanish. You can bet your ass if we were in Mexico City it wouldn't be all in English - Team USA goalkeeper Tim Howard after losing to Mexico 4-2 in Los Angeles during the Gold Cup

Sour grapes, Howard? This assertion is untrue. Watch the footage. Yet I suppose I too would be miffed if I allowed my toughest rivals four unanswered goals. Race riots aside, something that really blows apart the myth of the United States as a melting pot is when the Mexican national football (soccer) team El Tricolor plays its United States counterpart on the latter's home soil. Team USA is booed and jeered lustily, often by US residents with roots south of the border. Where's the love of country? It's not an isolated incident as this phenomenon has been going on for years, posing an interesting sociological question of where Chicano loyalties lie. With Hispanics accounting for over half of US population growth, these dynamics invite further examination.

The CONCACAF Gold Cup is a biennial regional competition for top football bragging rights among countries in North America, Central America and the Caribbean. Whatever the tournament, though--friendlies, qualifiers, and whatever else have you--the oddly enduring sight of Team USA being booed on home soil remains when matched up against El Tricolor . And so it was for this year's Gold Cup finals matchup. Despite taking an early 2-0 lead, Team USA was eventually overcome by a Mexican side featuring the emerging star Chicharito (of Manchester United fame) at the Pasadena Rose Bowl, urged on by strong home away from home support. It was not a pretty scene for the gringos as most of the 93,420 attendees were for El Tri. From the LA Times:

It was imperfectly odd. It was strangely unsettling. It was uniquely American. On a balmy early Saturday summer evening, the U.S soccer team played for a prestigious championship in a U.S. stadium…and was smothered in boos. Its fans were vastly outnumbered. Its goalkeeper was bathed in a chanted obscenity.

Even its national anthem was filled with the blowing of air horns and bouncing of beach balls. Most of these hostile visitors didn't live in another country. Most, in fact, were not visitors at all, many of them being U.S. residents whose lives are here but whose sporting souls remain elsewhere. Welcome to another unveiling of that social portrait known as a U.S.-Mexico soccer match, streaked as always in deep colors of red, white, blue, green...and gray.

With loyal "Americans" like these, who needs furriners?

Even when the U.S. scored the first two goals, the Mexico cheers stayed strong, perhaps inspiring El Tri to four consecutive goals against a U.S. team that seemed dazed and confused. Then when it ended, and the Mexican players had danced across the center of the field in giddy wonder while the U.S. players had staggered to the sidelines in disillusionment, the madness continued.

Because nobody left. Rather amazingly, the Mexico fans kept bouncing and cheering under headbands and sombreros, nobody moving an inch, the giant Rose Bowl jammed for a postgame trophy ceremony for perhaps the first time in its history. And, yes, when the U.S. team was announced one final time, it was once again booed.

A long time ago, I tagged along with a Mexican-American friend to visit San Antonio from Houston (two increasingly Hispanicized cities themselves). Despite subsequently serving for the US military and one of those nefarious private security contractors besides in Iraq--the very definition of an ugly American to many--I will never forget his narrative explanation of a key event in US history. While diehard gringos know the battle cry of "Remember the Alamo" by heart, he simply said "We kicked their ass" without a trace of irony.

There are certainly reasons you can point to as to why this undercurrent of Chicano resentment keeps bubbling to the surface. Certainly, sporting events can be venues where latent discontent is manifested. Latinos are often discriminated against as "illegals" even if they are not. Discriminatory legislation is often bandied about as a result. There's also the fact that those of Mexican descent have had a more difficult time economically than others in this supposed melting pot.

Likely, many Latin Americans believe that they moved to "America" due to economic necessity and not out of any great abiding loyalty to a country presumptuous enough to name itself after two vast continents. With the US economy increasingly down in the dumps, this instrumental justification grows more specious. As the land of opportunity becomes more of a curse, expect even more overt displays of anti-American sentiment from this increasingly large yet often marginalized group. Yes, Team USA versus Mexico in the US of A with the former getting booed may portend similar dynamics on a larger scale.

Some parting thoughts:

• Football (soccer) as a popular sport in the US is still a faraway dream despite considerable grassroots participation judging from indifference to Team USA in "international" competition;
• Mexican-Americans have seriously divided loyalties;
  
• A supposed reason for the sport's prospects in the United States is its growing Hispanic population. But, if much of this population more or less throws the finger at the home team and cheers on Mexico, well, you can figure that one out;
• To remedy these unedifying spectacles, apparently clueless organizers Stateside should try to hold these competitions in states like Maine--the most homogeneous state with a 95% white population. New Jersey won't quite do. While the crowd is almost certain to be smaller, holding these events in border states is just asking for it;
• "Founding Fathers"-style national myths need reconsideration in this day and age given that Anglos will be the minority in not that many years.

I can certainly sympathize. It's pretty bad to hear "Yankee Go Home!" all over the world to come home and find that, gee, you're not welcome there either. What this phenomenon bodes for the United States is certainly an interesting question. Strangers in your own land--some melting pot, eh, muchachos?

India Needs Jets: Sweden's Saab, US Overstretch

[NOTE: This still is the IPE Zone, not Jane's Defence Weekly. Still, you may want to pull the bomber jacket out of the closet and groove to Steve Stevens for old time's sake.] Here's an interesting IPE angle on the machinations of defence procurement that I came upon totally at random alike much of the most interesting blog fodder. It's funny how time flies when Top Gun is 25 years of age this year. Back then the Cold War was still very much in full swing with Maverick and Goose encountering the (fictional) MIG-28. As late as 1986, India was still more sympathetic to the Soviet Union than the United States in the belief in central planning and a mistrust of unfettered markets. This was before Manmohan Singh started loosening the reins of the infamous "Licence Raj" that kept India on the infamous Hindu rate of growth.

So it will be of no surprise to anyone that aside from the custom of writing five-year plans, the Indians also purchased a lot of their military hardware from the Russians. They Still do--but even that may change. Manmohan Singh, now prime minister, famously signed a nuclear technology sharing agreement with the Yankees in 2006, causing his then-Communist allies great consternation. In the commercial realm with India becoming perhaps the offshoring destination of choice for Western firms, the globalization game was well and truly on.

Now resurgent India is flush with cash as its aging fleet of MIG-21s reaches the end of the red brick road. To be sure, the nation has a fair need for military hardware. India's main security concern remains nuclear-armed Pakistan--the suspicion is mutual--while its border dispute with China remains a point of contention. In geopolitical terms, it is troubled by both US-Pakistan and China-Pakistan military cooperation. Internationally, there is now a massive race to see who can get India's signature for a multibillion dollar deal that is arguably the most eagerly anticipated one in the international arms bazaar. Aside from the Soviets and the Americans, the French and the Swedes are also vying for this lucrative contract.

For comprehensive information on India's Medium Multi-Role Combat Aircraft(MMRCA) competition, let us turn to Defense Industry Daily for the first time ever:

“It’s the biggest fighter aircraft deal since the early 1990s,” said Boeing’s Mark Kronenberg, who runs the company’s Asia/Pacific business. India’s planned multi-billion dollar, 126+ plane jet fighter buy became a contest between Dassault, Saab, MiG, American competitors and EADS’ Eurofighter...

The original intent of India’s fighter purchase was to replace hundreds of non-upgraded MiG-21s that India will be forced to retire, with a complementary force of 126 aircraft that would fit between India’s high end Su-30MKIs and its low-end Tejas LCA lightweight fighter. While plans to develop a “fifth generation fighter” in conjunction with Russia have received a lot of press, they are uncertain at best, address a different requirement, and offer no solution to the immediate problem of shrinking squadron numbers as existing aircraft are forced into retirement.

Let us now segue into Saab's story. Unlike ill-fated Saab Automobile AB which was bought by GM in 1990, Saab Aerospace--maker of sleek fighters and other defence gear--has remained in Swedish hands. The Swedes are a go-it-alone sort, preferring not to join the Eurozone while keeping the krona, for instance. So it has been in defence: its jets are not Eurofighters but homegrown designs. Through persistence and individuality, Saab is now in the frame with the world's top defence concerns in a race to replace India's MIG-21s even if its name recognition handicaps it somewhat:

The biggest contract that everyone is fighting for at the moment is an anticipated $11bn (£6.7bn) Indian order for 126 fighter jets, set to become one of the biggest export orders in the history of the defence industry. Saab was recently told it had not been shortlisted for the Indian contract, due to be awarded in March 2012, but remains hopeful nevertheless...

Saab is convinced its lightweight single-engine multirole fighter aircraft is both as capable as and much cheaper to buy and operate than larger, twin-engined jets such as the Eurofighter Typhoon, Dassault's Rafale and Boeing's Super Hornet - not to mention Lockheed Martin's F-35 Joint Strike Fighter, which has suffered from cost overruns running into billions of dollars. By contrast, [Saab's] Mr Sindahl observes: "We made the Gripen demonstrator at 40% of the original budget because we introduced new ways of working.

At any rate, there are other customers for the Swedes even if India doesn't sign on:

Saab's gain is a commercial product that is marketable across the world, according to Lennart Sindahl, head of Saab Aeronautics, the largest of the group's five divisions. The Saab JAS 39 Gripen has so far been bought not only by Sweden, but also by the Czech Republic, Hungary, South Africa and Thailand, and the UK is using it as its advanced fast jet platform for test pilots worldwide...

Saab is convinced it can extend its list of customer countries considerably over the next decade or so, as some 5,000 of the 13,000 fighter jets currently in operation are scheduled for retirement, and as emerging nations prepare to gear up their air forces. "For the Gripen, there are new markets and market possibilities coming along all the time," Mr Sindahl tells BBC News in an interview.

Those crafty Swedes have used the oldest trick in the book, industrial policy, of keeping its defence industries competitive:

The Gripen project has emerged from Sweden's desire not to rely on foreign companies for its defence capabilities. The programme has been further strengthened by the country's supportive industrial policy.

Sweden has realised that targeted investment in hi-tech sectors, such as the military aircraft industry, can be hugely beneficial for the nation as a whole, according to Gunnar Eliasson of Sweden's Royal Institute of Technology and the Ratio Institute, a free-market think tank. "Long-term competitive sustainability of an industry requires the local presence of one or more technology-leading firms for the rest of industry to learn from," he says in a book on advanced public procurement as industrial policy. Investment in the Gripen project "has generated an additional social return to society on the order of magnitude of at least 2.6 times the original development investment", according to Mr Eliasson.

Now let us turn to the Yanks. Lockheed's F-35 Joint Strike Fighter (JSF) programme has famously been beset by delays and cost overruns. Like America itself, US defence contractors are seldom on time or on budget. That figures. While it is certainly one of the more advanced and highly rated designs in the race to replace the ageing MIGs, it is beset by--you probably guessed it--industrial policy, this time on both sides. On one hand, while the Indian economy has certainly liberalized compared to the pre-Manmohan Singh days, it seems they are still keen on not just being paying customers by availing of technology transfer and accompanying "offsets" that benefit local industry:

The vendor who finally wins will be required to undertake 50% offset obligations in India. That’s a boost from the usual 30%, which is required for Indian defense purchases over $70 million. The additional 20% was added because India is looking for a large boost to its aerospace and defense electronics industries, and understands that the size of their purchase gives them additional leverage. The Indian MoD’s RFP release adds that “Foreign vendors would be provided great flexibility in effecting tie up with Indian partners for this purpose.”

On the other hand, you also have American defence firms alike Lockheed being obliged to keep proprietary knowledge in-house that are not keen on sharing this knowledge--even at a price:

India has been invited to F-35 events. With potential US [domestic] order numbers dropping, India might even be accepted into the program if they pushed for it. The F-35’s killer weakness was timing that coudn’t deliver the fighters in India’s timeframe, and India’s pursuit of its FGFA program with Russia offers it a semi-indigenous alternative. Even if India changed its mind, the F-35’s advanced systems, established industrial partnership structure and program procurement policies could also make it nearly impossible to meet India’s technology transfer and industrial offset rules.

Just as international trade policy largely fashioned on American preferences as exemplified by the WTO discourages subsidies, so does US foreign military sales (FMS) procurement policy discourage "offsets":

The general policy of the Department of Defense with regard to offsets is that they are market distorting and inefficient. In accordance with an April 16th, 1990, Presidential Policy statement, the decision whether to engage in offsets, and the responsibility for negotiating and implementing offset agreements, resides with the companies involved. The Presidential Policy mandates that "no agency of the U.S. Government shall encourage, enter directly into, or commit U.S. firms to any offset arrangement in connection with the sale of defense goods or services for foreign governments."

Let's be honest here: Americans have BS artists from here to eternity, and the defence industry certainly isn't free from them. Even when the US military cannot afford jets due to overstretch--broke America probably has more pressing priorities--it still turns up its nose to countries that can actually pay for these killing machines.

Security matters often receive less IPE attention, but we have an interesting triple comparative political economy here depicting countries on different trajectories. India is definitely shining with many keen on sharing design know-how with it. Sweden is maintaining its reputation for engineering through well-applied industrial policy. And the US is, industrially speaking, a beggar being a chooser that is flushing itself down the toilet of history through overstretch. That's about par for the course as far as the global pecking order is concerned.

Modern American defence policy isn't up there with the best of the best, to put it mildly. It's funny what a difference a quarter of a century makes.

The Inevitable National Sales Tax in America

With more and more American retail spending happening online and not in bricks and mortar outlets, a previous cash cow of American towns has gone the way of, well, many retail chains. Montgomery Ward, Circuit City...the list of outlets that have found their way to the Great Mall in the Sky is long. Building shopping centres used to be an American local government pastime designed to generate sales taxes for revenue. But, with the shift to online shopping and a generally shopped out populace, things are not what they used to be. Let's begin with the increasingly desperate "you build it, but the shopper don't come" scenario care of the WSJ:

Municipal sales-tax receipts have declined in six of the past 10 years, compared with the year before, according to the National League of Cities, including drops of 6.6% in 2009 and 5% in 2010. That has city leaders from Texas to California waking up to the likelihood their sales-tax decline isn't just a result of the bad economy. Instead, it is problem that will persist after a recovery, as demand for retail complexes is whittled by online shopping and the waning popularity of the big-box store selling everything from groceries to electronics.

"I am not sure cities can go back to playing the retail game the way they have over the past 25 years," said William Fulton, mayor of Ventura, Calif., and editor of the California Planning and Development Report newsletter. For decades, cities have engaged in an escalating competition with their civic neighbors to encourage the building of bigger and bolder shopping palaces—often with public subsidies—to enlarge their coffers.

It was a recipe for sprawl, pure and simple. What to do? As you would imagine, pressure is in turn growing from states to apply sales taxes to online retailers. Another recent article in BusinessWeek suggests that, actually, Amazon in particular would still charge less than stores with a physical presence do even if a national sales tax was applied. End result: it would end government pressure for it to do so while presumably not having much of an impact on its business:

There's a growing sense among state and federal lawmakers that the online sales-tax reprieve, once meant to support and nurture a fledgling industry, constitutes an advantage that Amazon, with 90 million customers and $34 billion in annual sales, no longer needs. Over the past year an escalating war over online sales taxes has spread to Texas, Connecticut, California, and dozens of other states. Later this month the battle will reach Capitol Hill. Senate Majority Whip Dick Durbin (D-Ill.) says he plans to introduce a bill, called the Main Street Fairness Act, mandating that all businesses collect the sales tax in the state where the consumer resides.

Such measures have been proposed and disregarded by Congress for years, but Durbin believes the winds are shifting. "This idea is overdue," he says. "Online retail sales are now very fulsome and are growing at the expense of local units of government." Many state budgets are bleeding red, despite some recent revenue upswings around the country, and Internet sales-tax revenue has the gleam of found money. In many states, customers are supposed to declare their online purchases on their income tax forms but rarely do. A University of Tennessee study recently estimated that states will collectively lose $10.1 billion in uncollected online sales-tax revenue this year and $11.3 billion next year.

And then there are the studies that suggest Amazon has little to lose from finally giving in on collecting these sales taxes:

Actually, being forced to collect sales tax may not turn out to be so bad for Amazon. Analysts at Wells Fargo Securities (WFC) recently surveyed a range of products and found that even without factoring in sales tax, Amazon's prices were, on average, 5 to 6 percent lower than Wal-Mart's and 12 to 13 percent below Target's. And without having to worry about sales-tax consequences, Amazon will be able to freely add shipping centers near every major city and accelerate its push toward delivering products overnight, or even on the day they're ordered. "Each year that passes, the relevance of sales tax to Amazon's success is less and less," says Morgan Stanley (MS) analyst Scott Devitt, who notes that the company keeps getting more efficient as it gets larger. "If you look five years out, when there's probably a policy in place, it's possible Amazon will be better off for it. That's not something I would have said before."

I am of two minds about this. Having been a longtime beneficiary of having friends and relatives visiting or living in the United States bring back things for me purchased online, retail prices there remain the lowest for consumer goods anywhere in the world. It's a fascinating application of modern world systems theory how things made in LDCs for export to markets alike the US actually cost less than buying them in LDCs or regions they were made in.

Still, I believe this situation may not last for much longer of not having a unified sales tax that could be applied to online outlets given the bedraggled finances of US local governments up and down the United States. Local governments are in no better shape than that at the federal level, to say the least.

Junk Treasuries: Time for US 'Technical Default'

In three simple points, let me explain the concept of subprime globalization before moving on to the enticing prospect of American sovereign debt being junked in 2011:

1. Free money policies have done America next to no good;
2. These free money policies are ultimately costly in adding to the burden of already heavily indebted future American generations;
3. LDCs that should know better are piling public monies better spent on public goods alike health and education into funding wasteful, pointless American spending.

While slagging America is admittedly a pastime in these parts because it is so fun, easy, and morally justified with generous helpings of righteous fury, I am of the mind that the free-spending fool is just that bit less stupid than those footing the bill of the free-spending fool (LDCs purchasing Treasuries).

No matter; we have some very encouraging news that, while not in the realm of immediate probability, still points to the famously tardy credit rating agencies--those same folks whose rating prowess was on display during both the Asian financial crisis and subprime crises--recognizing what the rest of us already know. Yes, American Treasuries are utter rubbish. Following S&P, last week Moody's placed the US under credit watch for a downgrade from AAA status if nothing was done to improve its fiscal picture as soon as July. Now, however, comes news that Fitch will consider a "technical default" by the US as a credit event worthy of dropping the status of Treasuries to junk as soon as August. A technical default simply means that, the US Treasury having exhausted all artifices in avoiding a breach of the $14.3 trillion debt ceiling which has not been raised, fails to honour American obligations.

So, it seems to me that we have two options here. First, we can continue with subprime globalization from which no one benefits--the US and its similarly brainless creditors, or receive a taste of America's bankrupt future via "technical default." I am all for the latter. You can call me a dreamer, but it seems Republican Tea Party folks are not ruling out such a default to (they say) prod the US on a more sustainable fiscal path. See some representative responses [1, 2, 3]--especially to an earlier WSJ interview urging it. Even the Chinese are affecting displeasure at this possibility--I wonder why. Anyway, to this informative Reuters story:

U.S. Treasury bonds, seen worldwide as the risk-free investment [yeah sure], could be labeled "junk" if the government misses debt payments by Aug. 15, credit agency Fitch Ratings warned on Wednesday. The ratings would go back up once the government fulfills its debt obligations, but probably not to the current AAA level, Fitch said on Wednesday in a stark statement about the impact of a short-lived default on U.S. credit-worthiness.

The statement follows similar warnings by Moody's and Standard & Poor's, but Fitch was the first among the big-three rating agencies to say U.S. Treasury securities could be downgraded, even for a short period of time, to a non-investment grade.

Of course, I am fully encouraging the Tea Partiers to pull the trigger (or flush America down the toilet) now since even worse things are in store for their debt-loving country anyway on its present, unsustainable trajectory:

The idea of a brief U.S. default, sometimes called a technical default, has been growing among some members of the Republican Party, who believe it would be an acceptable price to pay if it forces the White House to deal with runaway spending.

"Even a so-called 'technical default' would suggest a crisis of 'governance' from a sovereign credit and rating perspective," Fitch said in a statement...Clearly the political signals which are coming (from Washington) are a source of concern," David Riley, head of sovereign ratings at Fitch, told Reuters in an interview.

Treasury bonds could be rated "junk" by Fitch Ratings if the government misses some $82 billion in debt payments by Aug. 15 due to disagreement over the debt ceiling. The ratings would go back up once the government fulfills its debt obligations but probably not to the current AAA level, Fitch said.

President Barack Obama is trying to win congressional approval to raise the borrowing authority before an Aug. 2 deadline. The Treasury Department said on Wednesday the Fitch warning was "another stark reminder" of the need for Congress to act quickly.

Mark 2 August on your calendar; hopefully, Congress will have done nothing by then:

Fitch said it would first place U.S. ratings on "watch negative" if lawmakers fail to enact an increase in the U.S. debt ceiling by Aug. 2, the date when the Treasury Department will have run out of extraordinary measures to avoid a default.

The first test for U.S. ratings will come two days later when $30 billion in Treasury bills mature. If the government fails to repay them in full, Fitch will lower the rating on those specific securities to B-plus, four notches into junk territory.

But the real deadline comes on Aug. 15 when $27 billion in Treasury notes and $25 billion in coupon payments come due. If the government misses those, Fitch would downgrade the U.S. sovereign issuer ratings to "restricted default" and lower all Treasuries securities to B-plus.

"Though such an event (such as a short-lived Treasury bill default) may not permanently impair the capacity of the U.S. government to service its obligations, it is unlikely that its 'AAA' status would be retained in the short to medium term," it added...Moody's credit rating agency warned last Thursday that it could consider cutting the United States' top-notch credit rating if there was not progress by mid-July on a deal to reduce the deficit and raise the $14.3 trillion U.S. debt limit.

It's time to call a spade a spade. Americans love all sorts of junk: junk food--witness their gut-busting levels of mega-obesity; junk mortgages--witness the subprime fiasco; junk assets (ditto); junk as in making the most garbage--see here...and they'll learn to love junk Treasuries, too. Life is what you make of it, and modern American finances are, well, you can figure that one out. To save the world from subprime globalization, America must literally pay the price for its boorish behaviour.

Only in America: God Gets a 33% Approval Rating

I found this Yahoo! News article discussing a recent Newsweek survey rather amusing. So much so that I had to check the calendar to be sure that it wasn't April Fool's Day. While I may have some qualms over the small sample size (n=600) and probably some other technical details if they were disclosed, the overall finding that Americans are angry at anything and everything was illuminating. Having encountered some ornery gringos in the past few days, it all makes perfect sense expressed in dollars and cents, pound, shilling and pence. For such materialistic people, Americans' mood swings are highly conditioned on their economic situation. With no real rays of hope in sight, their lot has become very hot under the collar. (That's if they haven't lost their shirts yet.)

In a grimly hilarious fashion, the American public has given God a negative job approval rating of 33% [?!] I'm not quite sure how His management chops are implicated here--maybe "In God We Trust" on dollar bills has gotten them all whiny--but one thing's for certain: those Yankees are acting out Michael Fay style:

A new Newsweek poll finds that Americans are angry about…pretty much everything. From President Obama to congressional Republicans to even God (who has a 33 percent approval rating), everyone needs to watch out for an angry mob coming their way.

Unemployment is at 9.1 percent, gas and grocery prices are skyrocketing, the housing market is in the dumps, and people aren’t happy. Three quarters of Americans think the country is on the wrong track, and 81 percent say the job market is not where it needs to be. Half of respondents don’t think Obama has a plan to balance the budget, and 58 percent think Republicans aren’t doing their part to balance the budget either.

The poll finds that Americans are being affected by their anger in other parts of life as well. Fifty-six percent are so angry that they can’t even sleep and 13 percent say the anxiety has affected their sex life. Twenty-six percent of married respondents claim the country’s economic problems have affected their marriage, with more than half of those people saying it has made their marriage worse.

Perhaps it's time for the subprime solution, but I digress. In the end, we must live with the choices we make, and they have no one to blame but themselves.

Fire Sale USA or the Desperate States of America

Here's a very pertinent news article I almost forgot to post about. Imagine America as one big pawnshop and you wouldn't be far off as federal, state, municipal, household and individual entities are in various states of distress. In particular, what's an increasingly desperate collection of United States (in debt) to do but hock the family jewels? It's the same strategy for households on the brink of bankruptcy or an equally sorry collection of states whose finances are very nearly beyond salvation. In North Carolina, for example, some observers believe that the state intends to mostly do away with providing K-12 education altogether. Maybe it's time to sign up to the NC Hope Coalition for those being affected.

A few weeks ago, we had LSE IDEAS' very own Niall Ferguson write about how selling off the good bits of America can be a measure to help raise American revenue. Given that all American states except Vermont have some sort of balanced budget law, recent hard times have been accompanied by Greece-inspired fudges and kludges. Like with all Cheneynomic commentary, the numbers just don't add up for these states. No matter; eventually, the stench of US fiscal decay escapes and the odour ain't pleasant. So, aside from slashing services left, right and centre--taxes are still a bit more difficult to push through with the American electorate--what is this motley collection of states to do? You got it--Fire Sale of the States is well underway:

The Great Government Tag Sale is on. As states and cities struggle with billions of dollars in shortfalls, elected officials are increasingly selling public assets to cover their costs. Sometimes municipalities sell the buildings to pocket a one-time pile of cash and then lease them back so they can continue to use them.

To proponents, selling government property is an efficient way to plug budget holes. That's one reason the Obama administration has looked at unloading office towers, courthouses, warehouses and shacks. Private owners who develop the properties can inject vibrancy into municipal dead zones, the thinking goes. Buildings that were once exempt from property taxes are put back on the rolls.

But to critics, these sales are as misguided as pulling money out of your house to pay your bills. They point out that the government is letting go of a long-term, valuable asset in exchange for a one-time payment. When the asset is a building, a municipality then has to spend more money on leasing it back or renting another facility...

There is no alternative? Well, it's pretty close:

Years of wishful budgeting and fiscal gimmickry have finally caught up. The states' "ridiculous" budget and pension accounting would "make Enron blush," as Microsoft founder Bill Gates recently put it. For fiscal 2012, states face a $125 billion shortfall, according to the Center for Budget and Policy Priorities.

Elected leaders have already raided road-repair budgets and borrowed from emergency-service coffers. They've nabbed citizens' unclaimed checking account cash and sold future proceeds from lotteries. Detroit and Omaha just reduced the pensions of the police. Now that other options have been exhausted, officials say that to avoid mammoth tax hikes — or any tax hikes, in some cases — they have no choice but to sell municipal assets.

Also see the informative TIME "Broken States of America" piece detailing this lot's sorry fate. The downside of these one-off sales is precisely that they can be only done once. So the stock of saleable assets will only keep dwindling unless some major turnaround in state finances occurs. Don't count on it, however.

Migrants Agree America Stinks, H-1B Visa Edition

Let's have a look at some figures that indicate the relative attractiveness of the United States as a destination for economic migrants at the current time. Sometime ago I wrote about Chicago School economist Gary Becker's plan to charge foreigners $50,000 for the privilege of America citizenship [whoopee!] Or, more accurately, the privilege of being saddled with $14.3 trillion in US debt with far more to come--a significant part of which will likely be owed to countries they brainlessly left in the first place. I'm proud not to be American, for at least I know I'm free from being a debt slave to the grind.

Anyway, I have been a keen follower of migration trends in general--especially under the H-1B visa category for skilled workers AKA the "green card." See my previous post on the matter. In previous years, the cap of 65,000 eligible petitions would be filled literally within days of becoming available. Since the subprime crisis, though, let's say many have come to their senses and began contemplating a number of things:

1. There are more jobs to be found in India and previous H-1B-heavy sending countries than America at the current time;
2. The United States is scaring away productive migrants with its heavy-handed post 9/11 tactics;
3. American employers are hard up;
   
4. America is an increasingly unattractive destination due to its ever-declining global standing.

The Economic Times has a pretty good article relating how Indian IT professionals have become, as The Clash once sang, so bored with the USA. Like during the past two years, H-1B is drawing flies once again this year:

The H-1B visa, the most sought after by India. IT professionals has opened to a lackluster response, with less than 6,000 applications received after it opened on April 1...US businesses use the H-1B programme to employ foreign workers in specialty occupations that require theoretical or technical expertise in specialized fields, such as scientists, engineers, or computer programmers.

The H-1B cap for the fiscal 2011 was reached in January this year and on December 22 for the fiscal 2010. Till a few years ago the cap was reached within the first few days of USCIS starting to accept H-1B petitions. As a result, USCIS had to resort to computerized draw of lots to determine successful applicants.

Because of stringent monitoring provisions and general economic recession, there has been a sharp drop in the number of Indian receiving H-1B visas in the last few years, official figures reveal. For instance the Infosys which received as many as 4,559 H-1B visas in the fiscal 2008 and was on top of the list of companies receiving this coveted work visa for professionals; received just 440 H-1B visas in the fiscal 2009 (October 1, 2008 to September 30, 2009), according to the latest figures released by the US immigration services. Similarly, Wipro, which in 2008 got 2,678 H-1B visas, received just 1,964 H-1B visas in 2009; but still topped the list in the fiscal 2009.

US Citizenship and Immigration Services (USCIS) figures pretty much back up this trend as April draws to a close:

If skilled (read: smarter-than-average) migration under H-1B is a useful barometer for the attractiveness of living in America a decade into the twenty-first century, consider it a big "NO." I hope Gary Becker, Nobel Prize winner in Economics, can understand what the supply and demand curves imply here for his far-fetched ideas. Framed properly, it's a matter of paying migrants to come and work in America (land of the bankrupt) given their ever-dwindling appetite for doing so. As the title of this post says, smarter migrants agree America stinks by simply not going there. Face it: nobody's beating a path to America's door. And it should read:

Attracting the best and brightest? You must be joking.

The UN Should Be Anywhere But New York

Where, after all, do universal human rights begin? In small places, close to home - so close and so small that they cannot be seen on any maps of the world. Yet they are the world of the individual person; the neighborhood he lives in; the school or college he attends; the factory, farm, or office where he works. Such are the places where every man, woman, and child seeks equal justice, equal opportunity, equal dignity without discrimination. Unless these rights have meaning there, they have little meaning anywhere. Without concerted citizen action to uphold them close to home, we shall look in vain for progress in the larger world - Eleanor Roosevelt

There is no such thing as the United Nations. There is only the international community, which can only be led by the only remaining superpower, which is the United States...The Secretariat Building in New York has 38 stories. If you lost ten stories today, it wouldn't make a bit of difference - John Bolton, former US ambassador to the United Nations

Given that his campaigning self promised a more internationalist outlook, it is striking how Barack Obama hews more closely to the John Bolton School of International Relations (now there's a thought for you) than that of Eleanor Roosevelt. In addition to keeping that shining example of American justice Guantanamo Bay alive and strong, the Obama administration has done little in terms of Roosevelt's "concerted citizen action" at home. As Eleanor Roosevelt suggested, a likely reason why we often "look in vain for progress in the larger world" is because of unyielding negativity about the UN from the country it is headquartered in. Home ain't where the heart is.

As I will enumerate, the US routinely flouts conventions people from other parts in the world consider valuable--especially in terms of advancing rights. Given the plenitude of such examples, it is best to consider the US a delinquent parent of the organization. Unfortunately, John Bolton's flippant suggestion that nothing much would be lost if ten floors of the UN were blown off is not far from actual US policy. Indeed, the Obama administration is next to no improvement seen in this light -

"The United States is concerned about children's rights and welfare."

Americans blather on and on about human rights. Call it the white man's harangue. So much so that you'd expect it to have ratified the well-meaning UN Convention on the Rights of the Child (CRC), right? If you read my lengthy post on why the shameless publicity seeker Amy Chua is more American than Chinese, then you would know that it isn't. How embarrassing is this? Well, aside from a failed state (Somalia), the US is the only other country that hasn't ratified it. Alike Guantanamo, it appears Obama has not been more talk than action in behaving in an internationally acceptable manner.

For all its human rights happy talk, the truth, dear readers, is this: the United States is a miserable place to be a kid. But don't take my word for it. The OECD recently compared the well-being of children across developed countries and found that the US ranked second worst next to the UK--and by quite some margin. Perhaps you and I should be concerned about this American failing that is only reinforced by its failure to ratify this convention. Child misery, thy name is America:

"The United States wishes that women have equal rights to men."

While the US does somewhat better on measures of gender equality such as the pay gap, it has yet to achieve several milestones others have alike having a female head of state. Most plausibly, America's chauvinistic tendencies are behind it not inking the UN Convention on the Elimination of All Forms of Discrimination Against Women (CEDAW). In another shameful display, the US is noted by commentators to be the only developed nation not to ratify CEDAW. A shining beacon of gender equality for the world to follow? I think not.

"The United States condemns crimes against humanity."

The Bush administration was famously hostile to pursuing the ratification of US membership in the International Criminal Court (ICC) based in the Hague. While the Obama administration has stopped its predecessor's outright hostility to the body, it still remains aloof to the idea of ratifying participation. Then again, given the United States' continuing penchant for extrajudicial imprisonment, I guess membership in the ICC is not on the game plan for the immediate future despite more internationalist voices calling for it.

"The United States cares about the welfare of migrants."

It is well-known that virtually all signatories to the UN Convention on the Protection of the Rights of All Migrant Workers and Members of Their Families are migrant-sending nations. Despite calling itself the land of opportunity, a melting pot, and so forth, the truth is that the US is just as reluctant as other developed nations to sign on to something which concerns guaranteeing the welfare of migrants. In trade terms, it is unsurprising a country that has so far been unwilling to implement WTO provisions concerning temporary migration is also unwilling to extend them substantive international rights.

"The United States does not want to deploy land mines indiscriminately."

Activists have, for a long time, been championing the reduction in the use of land mines for the simple reason that they tend to kill and maim civilians--often long after conflicts that resulted in them being deployed have ended. However, the US has once again not ratified the Anti-Personnel Landmines Convention. For a country that is already malodorous in so many parts of the world due to its militaristic excursions, this shameful omission only reinforces America's negative image.

"The United States cares about the environment."

Kyoto Protocol. Nuff said.

"The United States has a national interest in respecting international maritime law."

Of all the conventions left unsigned by the US at the UN, the Convention on the Law of the Sea (UNCLOS) is perhaps the most interesting one in terms of geopolitical implications. In fact, Hillary Clinton alluded to it last year during the non-controversy over the South China Sea the US fomented at the ASEAN Regional Forum. As I have explained, the utterly hypocritical point is that the US has not ratified UNCLOS but claims that its stipulations should be followed when it comes to resolving others' disputes. Hypocrisy aside, meddling in others' disputes without a discernible legal basis to do so takes a lot of nerve.
-----------------------------

All in all, here is the bottom line when it comes to the US and the UN: If you don't bother with much of anything people of the world devote their valuable time and effort to, then you might as well not host the United Nations. Let's face it: Americans tend to be very parochial in outlook. This negative kind of American exceptionalism poisons international relations through thinking that what goes on in the UN is not in US interests in so many instances. Alike with the IMF which really ought to be in Beijing, the time has come to move the UN elsewhere. The world has moved on. I won't even get into the US offering the sole veto over discouraging continued Israeli settlement of the occupied territories.

There's a saying that you shouldn't stick around where you're not wanted. I guess now is as good as time as any for the UN to move from a country of the past that doesn't care much for it (by brushing off any number of conventions) to a country of the future that at least embraces its core belief in the value of multilateralism. There is no point remaining in a location which undermines it at almost every turn like the United States does. A reason why the UN is often ineffective is because of America's delinquent parenting as its host nation. Think of a child continuously being belittled, insulted and threatened by its parents and modern US treatment of the UN comes to mind. (Not that actual American parenting is much better--see above.) That it even functions at all is a wonder.

When the United States is such an all-around bad example for core UN principles alike human rights, justice, opportunity, and non-discrimination, it's best to skip town. That's something John Bolton and I can probably agree on. Does modern America do Eleanor Roosevelt proud? As I said, the UN should be anywhere but New York.

When the "Fox News Babes" Met al-Jazeera

As a business major, I've always had a problem with the American cable network Fox News. On one hand, it's a master stroke of marketing in selling to a Middle American demographic; an odd mix of conservative righteousness combined with titillation via the omnipresent "Fox News Babes." It's always odd to see gents fully dressed in suits alongside the aforementioned FNBs in ever-shorter skirts (maybe the male anchors should be attired like DJs at strip joints at this rate), sleeveless blouses and tight sweaters. But hey, I guess Roger Ailes doesn't mess with a formula that works. On the other hand, Fox News is next to worthless in its primary purpose as a news outlet. Although I disagree with Hillary Clinton on most things, one thing we can agree on is that Fox News is a lowest common denominator manifestation of modern America--a sort of endless WWE newscast (Americans have big guns! American women are all leggy conservatives!)

Anyway, I bring this matter up in the wake of Hillary Clinton testifying before Congress. Thankfully, she recognizes the utter feebleness of American television of which she says, in her own words not mine, "we are in an information war and we are losing that war." While I dislike the war references, she actually makes a good point that al-Jazeera is more like real news instead of Fox News--especially with regard to goings-on in MENA. Something very notable though is the sparseness of broadcasters carrying al-Jazeera in the United States. While some local stations carry it, cable giants alike Comcast do not carry it, unlike one featuring Tea party favourites and all the rest. What is the reason for this omission? It's an open question, though I will (perhaps surprisingly) discount one that reflects badly on the US government:

(1) The US government actively discourages cable providers from carrying al-Jazeera for ideological reasons. Today, I had the opportunity to meet an honest-to-goodness State Department official prior to Alec Ross speaking about his digital statecraft efforts at the LSE. When I asked whether the US government actively discouraged cable providers from carrying the pan-Arabian channel, he said "no." While it's true that the Bush administration did not view al-Jazeera favourably, and perhaps did not apply direct pressure to the likes of Comcast, it may nonetheless be true that government regulators could have made life difficult for those that did carry the channel. I will give the benefit of the doubt here. At best with Hillary Clinton now lauding al-Jazeera, perhaps it's the Fox News crowd more than the US government that Comcast et al. fear offending during the Obama administration.

(2) Cable service providers are reluctant to pay al-Jazeera's licensing fees when it's cheaper to provide their own content. The State Department official then suggested that the real reason is cable providers prefer providing a vehicle for channels they produce since they don't have to pay for license fees alike those they would have to pay for carrying al-Jazeera. This is a plausible argument. However, it is also possible for cable providers to create a separate, additional package for those who want to watch al-Jazeera and other MENA content and charge viewers accordingly.

(3) By and large, Americans prefer a rose-tinted view of how they are such a positive influence on the world. In its own way, Fox News is a highly advanced manifestation of the white man''s burden. What's more, there are many parts of the Amerocentric blogosphere where you can get this sort of reasoning on a daily basis, so I needn't rehash it here. In this manufactured approach, while US has problems, they are inconsequential compared to those of the rest of the world. Strictly speaking, (1), (2) and (3) are not mutually exclusive. However, my own view is that this explanation is best.

While certain (obviously more on the left than Fox News) Huffington Post readers are now clamouring for al-Jazeera to be carried by US cable service providers, I would be very surprised if Middle America will switch over in droves. For the same reason that the more straightforward CNN is literally walloped by Fox News, I doubt whether the Qatari's erstwhile gift to world media will gain much traction. Fox News redefines mendaciousness by calling its coverage fair and balanced. While you can of course say I am equally slanted, the main difference is I disclose that I am offering my own opinion instead of parading what I say as fair and balanced.

So there you are. To paraphrase Jack Nicholson, the majority of the American public cannot handle the truth. I may be proven wrong, but I simply don't think anyone will dethrone the news T&A crowd anytime soon. Ironically, another place where a media revolution is long overdue is the United States of America.

UPDATE: In case you were wondering, I couldn't name the State Department official in question since the aforementioned meeting was held under a (weaker form) Chatham House rule. My LSE colleague Charlie Beckett who heads POLIS, Media and Society, blogs more about the meeting.

On Out-of-Wedlock Births Becoming Western Norm

A ghetto bastard, born next to the projects
Livin' in the slums with da bums; I sit and watch them
Why do I have to be like this? Momma said I'm priceless
So I am all worthless, starved, and it's just for being a nice kid

A few weeks ago, Charles M. Blow came out with a widely commented op-ed on, well, how crappy America is compared to its industrialized counterparts on any number of social metrics--health, education, inequality, incarceration rates, etc. Reader of the IPE Zone should be well aware of these since I'm in the habit of pointing them out myself. Even in this day and age, Americans are exceedingly fond of preaching to others how their way of life is so superior, when the sad reality is that the US is quite backward on a great many social indicators. I could add more to Blow's list--fatten it up, perhaps--but I'll refrain for now.

Continuing this train of thought, I started to look around for statistics on out-of-wedlock births in the US compared to the rest of the world. Being a fairly observant Catholic (notice the name), I was thus stunned to find that pretty much the entire West is heading towards a situation wherein the majority of births will be out of wedlock. Hence the classic video clip above of Naughty By Nature's catchy, autobiographical hit "Ghetto Bastard." Back in 1991, it was a statement of everyday life in highly racialized and inequitable America. Now, they might as well make it an OECD kindergarten anthem (my bad; the evil twin hijacked the keyboard). All the same, you have to wonder if the stigma is still there especially in the States. After all, these figures were collated by the Centre for Disease Control (CDC). Hint, hint?

There is a political economy behind these figures I am more familiar with in Europe. Given that birth rates in most of Europe remain well below the replacement rate (2.1 births per woman), many welfare supports and rights for mothers have been retained even for those with children out of wedlock births to discourage further erosion of fertility rates. What is more, the commonality of single motherhood has generally lessened the social stigma associated with "Papa Don't Preach" events. So, with fewer economic and social handicaps attached to single motherhood, many begin to women begin to wonder, "Why bother with marriage?"

Alas, things are not that simple back in the States. As it turns out, the lack of quality public health care support the US is infamously unable to provide still causes a penalty even if 40% of children are now born out of wedlock there. You also need to consider that live-in unions are less stable:

But experts say the increases in the United States are of greater concern because couples in many other countries tend to be more stable and government support for children is often higher. “In Sweden, you see very little variation in the outcome of children based on marital status. Everybody does fairly well,” said Wendy Manning, a professor of sociology at Bowling Green State University in Ohio. “In the U.S., there’s much more disparity.”

Children born out of wedlock in the United States tend to have poorer health and educational outcomes than those born to married women, but that may be because unmarried mothers tend to share those problems.

It's unsurprising that out-of-wedlock births have hardly shot skyward in Japan. In contrast to the newfound permissiveness you find in the West. there is still strong ostracism and social pressure working against such phenomena. The same thing holds true in South Korea as well to keep the comparison valid by including Asia's more industrialized nations.

Once more, I think these phenomena represent how cultural differences still hold. Asians by and large still frown on this practice, while it's become utterly unremarkable in the West. As any number of Western countries head towards the over 50% out-of-wedlock mark--some are already there reinforcing certain stereotypes--I know where I stand. Call me old-fashioned, but Naughty By Nature tunes are best listened to rather than lived. So much change in so little time; debates on Western decadence should include discussions on these figures.

Ever in search of manufactured controversy, Amy Chua will probably begin brandishing the idea that Asian mothering techniques work since their offspring still have fathers or something to that effect.

NAFTA: Game Over for US Ban on Mexican Trucks

Here's something I hope that we can all agree is a good outcome. A sore point among many in US-Mexico relations has been the truck ban imposed on trucks making deliveries from Mexico to its ertswhile NAFTA "trade partner" the US of A. You see, trucker-protectionists were successful in convincing rather gullible lawmakers (who count on union votes) that Mexican truckers were a road safety hazard. This despite Mexican truckers actually having a better safety record than their US counterparts prior to the ruling, but that may be behind us now (hopefully). For more on the background of this conflict, see my earlier post.

Aside from the soft bigotry of no border-crossing expectations--"driving while Mexican" became an offence to critics of the practice like myself--there were also associated costs passed on to consumers of burdensome loading at the border so American trucks could carry on these goods to their CONUS destinations. Wasted gas, wasted labour, and environmental effects due to the border hold up were all in evidence.

What may have swayed the--I can't say Americans here out of confusion--"USers" is that NAFTA's dispute settlement body rightly ruled against the US government's law and enabled the Mexicans to apply tariffs in retaliation. The deal Obama and Calderon struck involves gradually removing these tariffs subject to Mexican trucks being allowed to ply their trade Stateside based on safety verifications. From the WSJ:

President Barack Obama and Mexican President Felipe Calderon unveiled a deal resolving a longstanding dispute over cross-border trucking that has subjected the U.S. to billions of dollars in punitive tariffs. The plan, announced at a news conference by the two presidents, will allow for half of those tariffs to be lifted immediately. It will establish a reciprocal, phased-in pilot program that allows Mexican trucks to operate inside the U.S. provided they comply with a series of safety, driver-skills and language tests monitored by the U.S. Department of Transportation.

The U.S. had effectively banned Mexican trucks from crossing the U.S. border, after the Teamsters union and others said the trucks weren't safe. The ban was ruled a violation of the North American Free Trade Agreement, and subjected the U.S. to punitive tariffs by Mexico on a range of goods, from foods to Christmas trees. The deal to end the dispute "is built on the highest safety standards that will authorize both Mexican and U.S. long-haul carriers to engage in cross-border operations under Nafta," a senior administration official said.

Mexico would lift 50% of the tariffs when the final agreement for a new program is signed by both nations. The remaining 50% would be lifted when the first Mexican carrier receives authorization under the new program. The U.S. Trade Representative's office would ensure the tariffs are lifted as agreed...

Ultimately the agreement to end the dispute would suspend $2.4 billion in annual punitive tariffs on the U.S. It was billed by the White House as a job creator for both nations. The Transportation Department hopes to have a proposed agreement available for congressional briefings and public notice and comment by late March or early April. After responding to public comments, the U.S. would finalize the agreement with Mexico. "This is a very positive development, but it is not a done deal," an administration official said, adding some details are still being negotiated.

The dispute has simmered for more than 20 years, fanned by labor unions and their allies in Congress who secured repeated bans on Mexican trucks in the U.S. The disagreement has forced goods headed from Mexico into the U.S. to be re-loaded into U.S. trucks at the border.

Under the agreement, trucks will be required to have electronic on-board recorders to track compliance with U.S. hours-of-service laws. Mexican trucks would further be required to comply with all U.S. motor-safety standards. Drivers would have to undergo testing for knowledge of English and U.S. safety laws and would be screened for illegal drug use.

I have no doubt Mexican truckers will meet these stipulations since the charges against them that led to the previous rule was trumped up to begin with.

Fire Sale America, Way to Fix US Budget Woes?

Here's a fun Newsweek article I missed by none other than LSE IDEAS' own Niall Ferguson. Yes, the same Newsweek sold for $1--a once-great American institution fallen under hard times like so many others. While I suspect that I may be writing more about shutting down American government for a prolonged period of time in the next few days--something I want to do, mind you--here's some food for thought in the meantime.

There are a number of things obvious about the modern-day United States. It's mind-bogglingly broke at the federal level. Many states and cities there are no better off, either. At the same time, though, Americans are reluctant to given in to the natural solution of selling off valuable assets. Say, corporations at the sharp end of the innovation league tables due to "security" concerns. If you thought that solution was pretty severe, Professor Ferguson has come up with something that should raise a true patriot's hackles even more. For, he says that the US should get real and sell off its vast holdings to help raise revenue. In America? Getouttahere! Given characteristic US inability to balance the books (what's that?), it's certainly something they should consider, though:

Yet there is another fiscal option that neither party seems to be considering. The U.S. needs to do exactly what it would if it were a severely indebted company: sell off assets to balance its books...The mystery is why freedom-loving Americans are so averse to privatization—a policy that has been a huge success nearly everywhere it’s been tried. From Margaret Thatcher’s Britain, where the word “privatization” was coined, to present-day China, selling off government-owned industries has not only improved the fiscal position of governments; it has usually enhanced the efficiency with which the sold assets are managed...

So let’s get down to business...the U.S. government currently has about $233 billion worth of nondefense “property, plant, and equipment,” according to the Treasury’s Financial Management Service. That is almost certainly an understatement. The government owns somewhere between 600 million and 700 million acres of land, or about 30 percent of the country’s land surface, much of it in the Western states, where as much as half the land is federally owned.

Washington could also sell its stakes in the Southeastern Power Administration and related assets as well as the Tennessee Valley Authority’s electric-power assets. There’s Amtrak (which runs at a loss) and the extensive hydroelectric empire of the U.S. Army Corps of Engineers.

And then there are the assets that have the potential to be among the most lucrative of all: America’s highways. Plenty of other countries—Japan, Turkey, and even China, to name just three—have already privatized substantial parts of their transportation infrastructure, leaving private companies to manage both revenues and maintenance.

American highways sold to foreign investors? It may sound unthinkable, but it’s already happening. Indiana recently leased the operation of the state’s principal 157-mile highway to a consortium led by the Spanish company Cintra and the Australian investment bank Macquarie. For the next 75 years, the consortium will collect the tolls from motorists. Indiana got $3.85 billion upfront. The city of Chicago has done a similar deal, leasing out its Skyway toll bridge for $1.83 billion. A few other state governments have been moving hesitantly down this same path, usually by setting up public-private partnerships to manage stretches of highway.

But there’s so much more that could be done. California’s government has an estimated $103 billion in assets, including state highways with a book value of $59 billion. Are you telling me a sovereign wealth fund from, say, Singapore couldn’t do a better job of running those choked and often potholed roads? Yet one of Gov. Jerry Brown’s first acts since returning to office was to cancel a planned privatization of state-owned office buildings.

From sea to shining sea, American politicians are running scared from the only credible solution to the country’s fiscal crisis. Rather than publishing honest balance sheets with meaningful valuations of both their assets and liabilities, they’d rather maintain the fiction that it’s their job to invest billions in high-speed railroads and the like.

Let’s face it: if you want to see serious investment in America’s infrastructure—and the American Society of Civil Engineers estimates that a full upgrade would cost $1.3 trillion—it isn’t going to come from the likes of Governor Brown, much less President Obama. They’re broke, folks [Amen to that].

There are, remember, two kinds of economies in this world: those with guns and those who dig—those with piles of cash and those with mountains of debt. Sure, the debtors can keep on borrowing until their creditors revolt, or they can try to dig their way out with austerity budgets. But a better idea would be to get smart and start inviting bidders to what could be the sale of the century.

I am thoroughly in agreement with this. Having encouraged the Chinese to run US K-12 schools, I also think broke public American universities (alike the much-vaunted but now struggling for survival UC system) should be sold to foreigners too. To tweak my colleagues at IPE@UNC, their highly reputable but down-at-the-tar-heels institution could probably be sold to LSE IDEAS' partner institution, Peking University! I can see it now: the Tar Heels, property of the PRC.

Fire sale America: it's long overdue. To be fair, however, Niall Ferguson may have overlooked resistance here in the UK against similar plans. Although the UK isn't nearly as broke as the US, Environment Secretary Caroline Spelman recently had to withdraw the idea of selling 258,000 hectares of state-owned woodlands over alleged environmental grounds:

Controversial plans to sell 258,000 hectares of state-owned woodland in England have been abandoned. Environment Secretary Caroline Spelman told MPs the government had "got this one wrong", as she announced the current consultation was being halted. Instead, it is understood a new panel of experts will be set up to look at public access and biodiversity within the publicly owned woodland. Labour said it showed the government was "incompetent" and "out of touch". The plans were intended to give the private sector, community and charitable groups greater involvement in woodlands by encouraging a "mixed model" of ownership.

But critics argued it could threaten public access, biodiversity and result in forests being used for unsuitable purposes. The public outcry over the plans led to half a million people reportedly signing a petition against the sell-off.

In a statement to MPs, Mrs Spelman announced the policy was being removed from the Public Bodies Bill currently going through Parliament. She said: Ms Spelman said: "I would first like to say that I take full responsibility for the situation that brings me before the House today. "Let me make it clear that we have always placed the highest priority on preserving access and protecting our forests...But the forestry clauses in the Public Bodies Bill, published well before we launched the consultation, gave the wrong impression as to the government's intentions."

I doubt whether the Yanks will long be able to afford to make similar excuses. Moreover, $233 billion worth of non-defence plant, property and equipment by Niall Ferguson's calculations is a drop in the bucket compared to trillion-dollar plus deficits the US has run and will continue to run. What happen after the US has fully unloaded the family silver? Then again, desperate times call for desperate measures.

IPE Zone Fully Endorses US Gov't Shutdown

It was quite an easy decision. After all, I am the sole author of the IPE Zone ;-)

But seriously, I gather that one of the most popular video game series in the United States is called Unreal Tournament. In fact, I get the same feeling of unreality with budgetary discussions in the country that spawned Unreal Tournament. States alike Wisconsin, Indiana, and Ohio are becoming battlegrounds for the mother of all showdowns in Washington. That is, the looming March 4 cut-off point at the federal level. The combatants in the American arena line up thusly: Republicans do not understand that revenue generation can be part of the solution, preferring to keep Bush II-era tax cuts that have quite obviously resulted in epic trillion dollar-plus deficits. Democrats on the other hand have no wish to offend traditional constituencies--organized labour, public sector workers, and so forth. With starting points that are difficult to square with reality, you end up with paralysis. At the federal level as well as in various states, there is discussion of shutting down governments at various levels given the inability to pass budgets.

While I am equally appalled by Republicans and Democrats alike, I am naturally very curious about the prospect of having major chunks of the American government shut down. Especially since the era of subprime globalization, with the US sucking capital from the world for no obvious benefit for either those of us who lend it or the Americans themselves, my inclination has been to believe that America is a malign global influence on the balance. While I do recognize that the United States is not the US government alone, it is the conduit by which much American presence is manifested around the world. Moreover, it is the nation-state that is theoretically accountable to "We the People."

Being a scholar of international political economy, it is thus an enticing prospect: what would life be like if (parts of) America just went away? For Amerophiles (that I had to invent the term may indicate the sheer uncoolness of being identified as such), anti-Americans, and those somewhere in between, we can actually learn about a lot of things from such a shutdown. To paraphrase some questions that have long puzzled IR and IPE scholars:

1. Is America really the indispensable nation? Can us little brown brothers and assorted primitives cope without such enwhitenment?
2. How would the world economy fare without its largest consumer market not fully functional?
3. Would international organizations suffice in running the world's everyday affairs, or does the country that helped build most of them have to be there?
   
4. For that matter, would anyone miss the United States that much, bona fide American lackeys like Mikhail Saakashvili aside?

As the saying goes, there's only one way to find out. So, dear Republicans, just do it. Pull the plug at the national, state, and municipal levels. Stem the tide of red ink by closing down government full stop (the most comprehensive "starve-the-beast" strategy). It's happened in 1995 and 1996, but this year will likely be a more drawn-out affair if nothing changes. The hammer of the cyber-heretics welcomes this natural experiment. Americans may be surprised to find out that, gee, life goes on elsewhere while they engage in a long overdue, all-American "Last Man Standing" match. If not that, a fiscal "Death Match" will suffice.