Monday, July 28, 2008

A New Keynes

Last week, Dani Rodrik -- a political economist at Harvard's Kennedy School of Government -- wrote a column entitled, "Globalizers Lose Their Faith." To my mind, the most significant paragraph contained a litany of highly regarded economists who have become skeptical about the benefits of globalization.

"So we have Paul Samuelson," wrote Rodrik, "the author of the post war era's landmark economics textbook, reminding his fellow economists that China's gains in globalization may well come at the expense of the U.S; Paul Krugman, today's foremost international trade theorist, arguing that trade with low income countries is no longer too small to have an effect on inequality; Alan Blinder, a former U.S. Federal Reserve vice-chairman, worrying that international outsourcing will cause unprecedented dislocations for the U.S. labour force; Martin Wolf, the Financial Times columnist and one of the most articulate advocates of globalization, writing of his disappointment with how financial globalization has turned out; and Larry Summers, the former U.S. Treasury chief and the Clinton administration's "Mr. Globalization," musing about the dangers of a race to the bottom in national regulations and the need for international labour standards."

It is the lack of regulation, Krugman argues, which is at the heart of the current financial crisis. In his column in today's New York Times, he writes: "The back story to the current crisis is the way traditional banks -- banks with federally insured deposits, which are limited in the risks they are allowed to take and the amount of leverage they can take on -- have been pushed aside by unregulated financial players." These players essentially lent money on the value of assets -- not on the borrowers' ability to repay; and they assumed that the value of those assets would do nothing but grow. They then divested themselves of the loans they arranged, selling them off to pension funds and individual investors. The theory was that failure would always come in small pieces; and, in that event, no one would be badly burned.

What they forgot was the lesson of The Great Depression: there is such a thing as catastrophic asset failure -- something which world financial markets are now experiencing. To government's credit, it is acting faster than it did in the wake of Black Tuesday. But, as Krugman reminds his readers, much more must be done. "The moral of this story seems clear," he writes, ". . . financial regulation needs to be extended to cover a much wider range of institutions. Basically, the financial framework created in the 1930's, which brought generations of relative stability, needs to to be updated to 21st century conditions."

Unfortunately, for the last generation, governments -- taking their cue from Milton Friedman -- have operated on the principle that financial regulation is the root of all evil. And, hence, we find ourselves in a situation similar to 1928, on the eve of The Great Depression. Wealth is concentrated in a few hands; and there is not enough purchasing power at the bottom of the ladder to keep the economic engine going. If this story sounds familiar, it's because it is. The situation is more complicated than in 1929, because fixing the problem in the United States will not be enough to set the world right. It will take international cooperation and wise policy. In the 1930's, John Maynard Keynes provided the policy prescriptions which eventually set things right. "The world," Dani Rodrik wrote last week, "desperately awaits its new Keynes."

Monday, July 21, 2008

Where Do We Go from Here?

In 1976, Milton Friedman received the Nobel Prize for Economics. In 1979, Margaret Thatcher was elected Prime Minister of Britain. And in 1980, Ronald Reagan was elected President of the United States. Thus began what Canadian political economist James Laxer has called, "the Age of Reaction." It has been a time, he writes, when "political ideas, cultural assumptions, the role of government, relations between the employed and their employees, and between the wealthy and the rest of the population have assumed a new shape."

In the United States in 2007, writes Laxer, "the relative income gap between the rich and the poor [was] wider than at anytime since 1928 (the eve of the Great Depression.) The lives of ordinary people have grown more uncertain. During the past quarter century, most people have been on an economic treadmill, precariously trying to make ends meet and to ward off the danger of crippling indebtedness."

And in a recent article entitled, "A Nation in Debt," -- in The American Interest -- Barbara Defoe Whitehead chronicles how, in this same period, "the institutions that encourage thrift have moved uptown, catering to upper income Americans with an ever expanding array of tax advantaged opportunities to invest and build wealth. The potential "small saver" has been left behind as prey to new highly profitable financial institutions: sub prime credit card issuers and mortgage brokers, rent to own merchants, payday lenders, auto title lenders, tax refund lenders, private student loan companies, franchise tax preparers, check cashing outlets and the state lottery. Once existing on society's margins, these institutions now constitute a large and aggressively expanding anti-thrift sector that is dragging hundreds of thousands of American consumers into profligacy and over indebtedness."

And the contagion is spreading to Europe and Canada -- as any recently cashiered auto worker (one out of seven jobs in Ontario is related to automobile production) can verify. The government of Stephen Harper has bet its and the country's future on Friedmanesque economic theory; and, like the Bush administration to the South, it has squandered the surpluses which it inherited.

Indeed, as Douglas Peters, the former chief economist at the Toronto Dominon Bank, wrote in The Toronto Star last week, "it appears that this was exactly what both the U.S. and Canadian conservative governments intended. The purpose of the tax cuts was to make it more difficult for governments to raise spending and introduce new programs." The people who bore a visceral hatred of government set out to make sure it would fail. Now the bill for this folly has come due. World markets -- which these folks raised to iconic status -- are teetering; and the future of the planet hangs in the balance -- as we fight wars in the Middle East, the largest repository of the stuff which is a major cause of our economic and planetary woes.

We are at a precarious moment. But, as Al Gore also reminded us last week, there is a common thread which runs through the multifaceted problems we face, "which is deeply ironic in its simplicity: our dangerous over reliance on carbon based fuels is at the core of all three of these challenges -- the economic, environmental and national security crises. We're borrowing money from China," said Gore, "to buy oil from the Persian Gulf to burn it in ways that destroy the planet."

Gore suggested that the way out of our morass is to rebuild our electricity grid and take advantage of renewable energy sources -- wind, solar and geothermal. It would be an expensive project. But oil at just under $150 a barrel is expensive; and it kills jobs, not to mention the lives which have been lost in the sands of the Gulf. Gore believes that we can do this in ten years -- the same critical path which President Kennedy set to put a man on the moon. It would mean abandoning Friedman's economic model; and it would mean taxing carbon, or as Gore put it, "we should tax what we burn, not what we earn."

That, coincidentally, is the policy on which Stephane Dion has staked his and his party's future. There will be an election in the United States in November. There will be an election in Canada shortly thereafter. During the Age of Reaction, Laxer writes, "in the developed countries . . . democracy has been in decline, increasingly replaced by a plutocracy in which money dictates political outcomes." No one should be foolish enough to believe that money can, or should, be banned from politics. But, if the Obama campaign has proved anything, it is that small donors have a voice. The question is, can the non-plutocrats once again grasp the levers of power? And do they care enough to fix the mess Mr. Friedman, Mrs. Thatcher, Mr. Reagan -- and their hundreds of thousands of acolytes -- have left us?

Tuesday, July 15, 2008

Standing Firm -- and Doing Nothing

Like the case of Maher Arar (see my post of September 29, 2006) the case of Omar Khadr is deeply troubling -- and Canada's two major political parties bear responsibility in both cases for violating the rule of law.

Khadr was fifteen years old when he was captured in Afghanistan and accused of killing a U.S. Army medic. His father had encouraged him to go fight for the Taliban; and the Canadian government clearly was uncomfortable with the elder Khadr's presence in the country. But Omar was a Canadian citizen -- he was born here -- and, thus, he should have been accorded the rights of any other Canadian citizen who found him or herself imprisoned in a foreign country. Having said that, there are some foreign countries which pay little attention to Canadian requests for humane treatment of its citizens. But, in this case, the country was the United States -- which officially holds that it is a nation of laws, not men.

When Canadian officials first met with Khadr, according to The Toronto Star, "he was lying in a military hospital bed in Afghanistan with two gaping holes in his chest -- the exit wounds of the bullets which were shot through his back before his capture by U.S. Special Forces."

Khadr was no innocent. He had been living with Taliban forces along the Pakistani border; and he well might have known about upcoming attacks. And, therefore, over the next two years, he was questioned more than forty times, in an effort to extract information from him. What is at issue, however, are the methods used in those interrogations, the acquiescence of the Canadian government in those methods, and the legitimacy of the legal process upon which Khadr -- now twenty-one years old -- is about to embark.

On July 10th, the Ministry of Foreign Affairs revealed that Khadr had been subjected to what the Americans called their "frequent flyer program," a regime of sleep deprivation -- where the prisoner was moved every three hours for a period of three weeks. This information would not have come to light had not the Supreme Court of Canada ordered the release of the report. Also mentioned in the report was Khadr's claim that he had been tortured.

Khadr's claim carries some weight, in light of the fact that one of his first interrogators at Bagram Airbase in Afghanistan was convicted for his role in the death of an innocent Afghan taxi driver. Add to that the revelations about what went on at Abu Ghraib Prison in Iraq, and three U.S. Supreme Court rulings which have rejected the process behind the tribunals under which Khadr is to be tried, and it is not difficult to see why many have concluded that Khadr is about to enter a kangaroo court.

In spite of all this evidence, Prime Minister Harper claims that Canada has no "real alternative" than to let the process at Guantanamo play itself out -- even though Britain, Australia and other nations have sought and received the right to remove their citizens from Guantanamo and subject them to the legal processes of their respective countries. The reason for Harper's position, says an editorial in The Globe and Mail, is clear: "What Canadian Court would accept any statements made by a 16 or 17 year old under such duress and without being allowed to see a lawyer? (He was denied a lawyer for the first 27 months of his incarceration.)" The prospect that a Canadian Court would set Khadr free is a prospect Mr. Harper would rather not face.

Some claim that Harper has replaced Tony Blair as Mr. Bush's poodle. The truth is that Mr. Harper, like Mr. Bush, is a true believer -- who holds that extraordinary circumstances put the leaders of democracies above the law. And, sometimes, being above the law simply means not responding to injustice. But, yesterday, the World Court charged Umar Hassan Ahmed al-Bashir -- the president of Sudan and a sitting head of state -- with war crimes. In the aftermath of that event, there are those who suggest that Mr. Bush, Mr. Cheney and Mr. Rumsfeld should have grave reservations about travel abroad after January, 2009. Mr. Harper might also consider that advice. Mere private citizens could find themselves incarcerated for a long time.

Tuesday, July 08, 2008

Whose Partriotism?

Last week, the American election campaign was all about patriotism -- specifically, who was the better patriot, Mr. McCain or Mr. Obama. To answer that question, as David Greenberg pointed out in Slate, it's important to realize that McCain and Obama were arguing from different premises and definitions.

McCain's definition of patriotism, best articulated by Ronald Reagan, has been popular for the last twenty-five years. According to Greenberg, Reagan's patriotism "rested on a steadfast protectiveness of American values in the face of enemies -- proven through a muscular nationalistic military posture." It was "impatient with critical perspectives" and "advocate(d) an unhestitant participation in collective rituals like waving the flag, saying the Pledge of Allegience and even public prayer."

Obama's definition of patriotism was perhaps best articulated by Adlai Stevenson during his presidential campaign of 1952. Speaking at the height of Senator Joseph McCarthy's witchhunt, Stevenson told the American Legion, "True patriotism is based on tolerance and a large measure of humility." It, Greenberg wrote,"respect(ed) dissenting speech in the service of collective improvement."

The former definition lends itself to symbols like lapel pins and flags. The latter is diverse and not easily reducible to a symbol or a motto, like semper fidelis. It is not surprising, then, that Stevenson was soundly trounced by Dwight Eisenhower in 1952 and 1956.

The problem with Reagan's and McCain's definition of patriotism, however, is that it can -- and has -- been used to justify abridging the Constitution. It was generally accepted during the McCarthy period. And it reared its head again during the Watergate Crisis, when Richard Nixon declared, "When the president does it, it's not illegal." And, during the last eight years, it has been this definition which has been used to justify the prison at Guantanamo, warrantless wiretapping and the War in Iraq itself. It is no accident that the legislation which was passed after September 11th -- legislation which curtailed various civil liberties -- was labelled The USA Patriot Act. Anyone who questioned the legislation was attacked by the Bush Administration for his or her lack of patriotism.

But as public support for the war has gone south, so has the traditional Republican definition of patriotism -- so much so that members of the military, who typically accept it as doctrine, have begun to give voice to the other definition. In a recent opinion piece on , Michael Winship quotes Air Force Reserve Maj. David J.R. Frakt -- a military lawyer -- who argued last month that his client, Mohammed Jawad -- an Afghan imprisoned at Guantanamo -- should be released, because the two weeks of sleep deprivation he had endured amounted to torture. "After six and a half years," Frakt said, "we know the truth about the detainees at Guantanamo: some of them are terrorists, some of them are foot soldiers, and some of them are just innocent people, caught in the wrong place at the wrong time. But the detainees at Guantanamo have one thing in common -- with each other and with us -- they are all human beings and they are all worthy of humane treatment." Frakt was arguing for tolerance and humility.

Some will argue that, during a war, a nation can ill afford tolerance and humility. But a nation which proclaims "we hold these truths to be self-evident: that all men are created equal and endowed by their creator with certain inalienable rights" cannot afford the folly of the last eight years. If Mr. Obama wins the election, he will have convinced his countrymen to accept a different definition of patriotism.

Tuesday, July 01, 2008

Oh, Canada

Today this country marks its 141st anniversary. For a nation which was cobbled together out of a collection of dissimilar colonies -- one which has always considered itself a nation rather than a province -- the fact that the marriage has lasted for one hundred and forty-one years represents, indeed, the triumph of hope over experience.

We owe at least some of our longevity to luck. We have been blessed with an abundance of natural resources and space. Lately that has meant that, in a world gone wild for commodities, we have prospered. And all that space has given us room to blow off steam when we got on each others' nerves.

But we also have survived. We have done so in the darkest of winters; and we have done so despite geographical and cultural barriers -- by, more often than not, finding a way around them, instead of confronting them head on. It's not a particularly heroic way to solve problems; but it leaves behind less scar tissue. In the process we have built institutions -- first a railway, then a telecommunications system and, finally, a publicly financed health care system -- founded on the principle that survival requires sacrifice -- at times, unequal sacrifice.

That ethic of sacrifice has been under attack for a generation by those who have maintained that self interest is in the public interest. They have told us that such is the way of the newly globalized world -- and it is time we got with the program. But in a country which is (geographically) the second largest in the world and which is home to a surprisingly small population, self interest has always run up against the needs of the community. And, most of the time, the community has triumphed.

However, as James Travers points out in today's Toronto Star, we live in an era when our community is now the world. We can no longer afford, he writes, "to live in splendid northern isolation." Besides having obligations to our fellow citizens, we have an obligation to the planet and its citizens. This means we must work to establish trading systems which fairly distribute our own and others' resources; we must sell our oil and reduce the greenhouse gases it generates. Most of all,we must work to see that the grain and other foodstuffs, which have made us wealthy, feed an increasingly hungry planet.

The challenges are more than daunting. But they were just as daunting in 1867, when this seemingly impossible country looked like it would be the victim of American Manifest Destiny. We are not perfect. The Prime Minister's recent apology for the treatment of native children in residential schools should remind us of that. On the other hand, our belief in "peace, order and good government" -- as prosaic as they are -- have got us this far. Those values have built a considerable nation. They also have their place in the world of the 21st century.