Tag Archives: Foreign Policy

Maybe Germany needs to be kicked out of the Eurozone

From Foreign Policy

Last year, Germany racked up a record trade surplus of 217 billion euros ($246 billion), second only to China in global export dominance. To some, this made Germany a bright spot in an otherwise anemic eurozone economy — a “growth driver,” as the German finance minister, Wolfgang Schäuble, puts it. In fact, Germany’s chronic trade surpluses lie at the heart of Europe’s problems; far from boosting the global economy, they are dragging it down. The best way to end this perverse situation is for Germany to leave the eurozone.

Germans usually respond to such charges with a kind of hurt confusion. We run trade surpluses, they patiently explain, because we are simply much more competitive than most of our trading partners. Can you blame us, they ask, if the world prefers to buy superior German goods (and has nothing we want in return)? So goes the argument: The rest of the world just needs to up its game, get its house in order, and become a bit more like Germany. In the meantime, don’t hate us ‘cuz we’re beautiful….

Contrary to popular mythology, however, there’s absolutely no reason why being “competitive” should mean running a trade surplus. As far back as 1817, the economist David Ricardo pointed out that the optimal basis for trade is comparative, not absolute, advantage. In other words, even if a country is better at everything, it should export what it is best at and import what it is less better at. Having an across-the-board advantage does not imply that it makes good economic sense to produce everything yourself, much less to sell more than you want in return. Or, to put it a bit differently, there’s no inherent reason why earning more can’t mean spending more, on consuming both public and private goods, as well as investing in future productive capacity.

Trade surpluses take place when a country chooses to spend less than it produces — when it has excess savings, beyond its domestic need for credit. It lends that excess savings abroad, financing another country’s ability to spend more than it produces and, by running a trade deficit, purchase the lender’s excess production. It’s true that a highly productive country might have the wherewithal to conjure up excess savings, while a less productive country might be inclined to borrow rather than scrape up the savings it needs. But fundamentally, trade imbalances arise not from competitive advantage but from choices about how much to save and where that savings should be deployed — at home or abroad.

Does it ever make sense to run trade imbalances? Sure it does. In the 19th century, Britain’s Industrial Revolution enabled it to reap vast earnings from expanded output, some of which it invested in the United States. The money lent to a rapidly growing American economy generated higher returns than it would have back home, while creating a market for British-made goods. The potential productivity gains made it a win-win: It made sense for the Americans to borrow and for the British to lend. But the case also highlights something that’s easy to forget: Running a trade surplus means financing someone else’s trade deficit.

The eurozone crisis is often called a debt crisis. But, in fact, Europe as a whole did not have an external debt problem, but an internal one: German surpluses and mounting debt in Europe’s periphery were two sides of the same coin. Germans saved (a lot), and the single currency induced them — rather than save less or invest it at home — to lend it to their eurozone trading partners, which used the money to buy German goods. By 2007, Germany’s trade surplus had reached 195 billion euros, three-fifths of which came from inside the eurozone. Berlin might call this “thrift,” but it’s hard to argue that Germany’s excess savings, which its banks often struggled to put to use, were well invested. Instead, they gave Germans the illusion of prosperity, trading real work (reflected in GDP) for paper IOUs that might never be repaid.

The solution? 

So what should be done? The best solution — and the least likely to be adopted — is for Germany to leave the euro and let a reintroduced Deutsche mark appreciate.

It will never happen but it is a solution that makes sense.

How Canada neighbor became a rogue, reckless petrostate.

From Foreign Policy of all places 

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For decades, the world has thought of Canada as America’s friendly northern neighbor — a responsible, earnest, if somewhat boring, land of hockey fans and single-payer health care. On the big issues, it has long played the global Boy Scout, reliably providing moral leadership on everything from ozone protection to land-mine eradication to gay rights. The late novelist Douglas Adams once quipped that if the United States often behaved like a belligerent teenage boy, Canada was an intelligent woman in her mid-30s. Basically, Canada has been the United States — not as it is, but as it should be.

But a dark secret lurks in the northern forests. Over the last decade, Canada has not so quietly become an international mining center and a rogue petrostate. It’s no longer America’s better half, but a dystopian vision of the continent’s energy-soaked future.

That’s right: The good neighbor has banked its economy on the cursed elixir of political dysfunction — oil. Flush with visions of becoming a global energy superpower, Canada’s government has taken up with pipeline evangelists, petroleum bullies, and climate change skeptics. Turns out the Boy Scout’s not just hooked on junk crude — he’s become a pusher. And that’s not even the worst of it.

With oil and gas now accounting for approximately a quarter of its export revenue, Canada has lost its famous politeness. Since the Conservative Party won a majority in Parliament in 2011, the federal government has eviscerated conservationists, indigenous nations, European commissioners, and just about anyone opposing unfettered oil production as unpatriotic radicals. It has muzzled climate change scientists, killed funding for environmental science of every stripe, and in a recent pair of unprecedented omnibus bills, systematically dismantled the country’s most significant long-cherished environmental laws.

The author of this transformation is Prime Minister Stephen Harper, a right-wing policy wonk and evangelical Christian with a power base in Alberta, ground zero of Canada’s oil boom. Just as Margaret Thatcher funded her political makeover of Britain on revenue from North Sea oil, Harper intends to methodically rewire the entire Canadian experience with petrodollars sucked from the ground. In the process he has concentrated power in the prime minister’s office and reoriented Canada’s foreign priorities. Harper, who took office in 2006, increased defense spending by nearly $1 billion annually in his first four years, and he has committed $2 billion to prison expansion with a “tough on crime” policy that ignores the country’s falling crime rate. Meanwhile, Canada has amassed a huge federal debt — its highest in history at some $600 billion and counting.

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Liberal critics like to say that Harper’s political revolution caught many Canadians, generally a fat and apathetic people, by surprise — a combination of self-delusion and strategic deception. That may be true, but though Canadians live in high latitudes, they’re not above baser human instincts — like greed. Harper is aggressively pushing an economic gamble on oil, the world’s most volatile resource, and promising a new national wealth based on untapped riches far from where most Canadians live that will fill their pocketbooks, and those of their children, for generations. With nearly three-quarters of Canadians supporting oil sands development in a recent poll, Harper seems to be selling them on the idea.

It gets better

THE SINGLE-MINDED PURSUIT of this petroproject has stunned global analysts. The Economist, no left-wing shill, characterized Harper, the son of an Imperial Oil senior accountant, as a bully “intolerant of criticism and dissent” with a determined habit of rule-breaking. Lawrence Martin, one of Canada’s most influential political commentators, says that Harper’s “billy-club governance” has broken “new ground in the subverting of the democratic process.” Conservative pollster Allan Gregg has described Harper’s agenda as an ideological assault on evidence, facts, and reason.

To be fair, Harper’s government does have a plan for climate change — pumping the problem to the United States and/or China. Oil sands crude transported to the United States by the proposed Keystone XL pipeline, for example, could over a 50-year period increase carbon emissions by as much as 935 million metric tons relative to other crudes. And the planned $5.5 billion Northern Gateway pipeline from Alberta to the Pacific Ocean would result in up to 100 metric tons of carbon dioxide emissions a year, from extraction and production in Canada to combustion in China — more than British Columbia’s total emissions in 2009. The 2012 National Inventory Report by Environment Canada, the country’s environmental department, actually boasts that Canada has partly reduced overall emission intensity in the oil sands “by exporting more crude bitumen.”

All this underscores Canada’s new reality: Just about any kind of rational evidence has now come under assault by a government that believes that markets — and only markets — hold the answers. Any act that industry regards as an obstacle to rapid mineral extraction or pipeline building has been rewritten with a Saudi-like flourish. One massive omnibus budget bill alone changed 70 pieces of legislation, gutting, for example, the Fisheries Act, which directly prohibited the destruction of aquatic-life habitats but stood in the way of the Northern Gateway pipeline, which must cross 1,000 waterways en route to the Pacific Ocean. Meanwhile, funding for Canada’s iconic park system has been cut by 20 percent in what critics have called a “lobotomy.” The CBC, the respected state broadcaster long scorned by Harper as an independent check on power, has suffered a series of cutbacks. The Health Council of Canada, which once ensured national health standards and innovation across Canada’s 13 provinces and territories, also got the ax. Furthermore, with the élan of a Middle Eastern petroprince, Harper appointed the head of his security detail to be ambassador to Jordan. And he did it all with nary a peep from your average Canadian.

More than a decade ago, American political scientist Terry Lynn Karl crudely summed up the dysfunction of petrostates: Countries that become too dependent on oil and gas riches behave like plantation economies that rely on “an unsustainable development trajectory fueled by an exhaustible resource” whose revenue streams form “an implacable barrier to change.” And that’s what happened to Canada while you weren’t looking. Shackled to the hubris of a leader who dreams of building a new global energy superpower, the Boy Scout is now slave to his own greed.

I would argue some of these points.  Canadian’s have risen up through Idle No More and we have protested much of what is going on.  The issue seems to be that neither oppositon party seems to be able to get any traction on these issues and articulate them in a way where it hurts the Conservatives until recently.

A new grand US strategy includes walkable streets and sustainable communities

From Foreign Policy

“America has never confronted a global challenge of the type or magnitude it faces today,” concludes Doherty. “If it does not change course, the United States will be racked by violent storms — both figurative and literal — as the global order breaks down. The country cannot delay. For a few short years, it has a window in which it can choose an incredibly prosperous 21st century, but that window will close. It is time once more to lead the world through difficult change.”

As Planetizen summarizes it

The U.S.’s economic engine, foreign policy, and infrastructure are all out of date, argues Doherty, and to meet the interdependent challenges of the 21st century’s strategic landscape – inclusion, depletion, depression, and resilience – the country will need to develop a new strategy: to “lead the global transition to sustainability.”

As part of that strategy he envisions a new economic engine for the United States oriented around walkable communities, regenerative agriculture, a revolution in resource productivity, investment in regional growth, and the transition to a reduced carbon emitting energy sector. This strategy will have major implications for the country’s foreign policy and governance structures.

Some lessons for Saskatoon and Saskatchewan in there as well.

Obama’s Foreign Policy

From Robert Kaplan in Foreign Policy

Obama has substantially withdrawn from Iraq, positioned America for a 2014 withdrawal from Afghanistan, killed bin Laden, avoided war with Iran (even as industrial espionage slows Tehran’s drive for nuclear weapons), and overseen a more vigorous and creative foreign policy towards East Asia than did President George W. Bush, particularly in the way that he has reassured our allies in the South China Sea. Yes, there is uncertainty surrounding Libya — but without boots on the ground there, a quagmire is unlikely. Thus, despite all the criticism he gets from the elite, this could well end up as the most competent foreign policy administration since President George H. W. Bush.

Ducking Responsibility

Bob Woodward takes over Thomas Rick’s blog and talks about Donald Rumsfeld’s memoir.

Rumsfeld’s memoir is one big clean-up job, a brazen effort to shift blame to others — including President Bush — distort history, ignore the record or simply avoid discussing matters that cannot be airbrushed away. It is a travesty, and I think the rewrite job won’t wash.

The Iraq War is essential to the understanding of the Bush presidency and the Rumsfeld era at the Pentagon. In the book, Rumsfeld tries to push so much off on Bush. That is fair because Bush made the ultimate decisions. But the record shows that it was Rumsfeld stoking the Iraq fires — facts he has completely left out of his memoir.

Wow Bob, tell us what you really think.

As numerous accounts have documented, the post-war planning and organization was close to a disaster. Rumsfeld blames the lack of "effective interagency coordination" and "the way the United States government is organized." (p. 487)

As secretary of defense he was responsible. Under our system, he was next in the chain of command after the president, effectively making him the deputy president for war. But he sidestepped his responsibility time and time again.