Undoing Bush: the economy

Harper’s magazine – of Mr. Fish and the Harper’s Index fame – has in the June issue the series Undoing Bush: how to repair eight years of sabotage, bungling, and neglect. It covers:

• The Constitution
• The courts
• Civil service
• The environment
• Science
• The economy
• The marketplace of ideas
• Intelligence
• The military
• Diplomacy
• The national character

Impressive, no? Quite the breadth of critical discussion. We will discuss the economy, because I agree, more or less, with the argument, whereat:

Two economic calamities have occurred on George W. Bush’s watch. The first has been a radically overvalued dollar, which, it should be noted, is a legacy of the Clinton years: by the date of Bush’s inauguration in January 2001, the real value of the dollar was already 27 percent higher than its low in July of 1995, the surge due in part to the stock bubble, in part to the financial crises in East Asia and elsewhere, and in part to high-dollar cheerleading by the Clinton Administration’s treasury secretaries. And yet despite these unsustainable highs, Bush did almost nothing to reverse the run-up; the value of the dollar actually increased in 2002. It has fallen since then, but it is still 12 percent above its 1995 low. The problem that a high dollar poses for manufacturing is straightforward: if the dollar is expensive relative to other currencies, then it is very cheap for Americans to buy imported goods and very expensive for foreigners to buy U.S. exports. In effect, an overvalued dollar provides a subsidy to imports and imposes a tariff on exports. Not surprisingly, this high dollar has led to a rapidly rising trade deficit, which in 2006 grew to more than $760 billion, or nearly 6 percent of GDP. This, in turn, has been the major factor contributing to the loss since 2001 of 3 million manufacturing jobs, or more than a sixth of the entire sector.

The other major economic disaster under Bush has been the unchecked growth of the housing bubble, and although this, too, was inherited from his predecessor, Bush in this case deserves an even greater share of the blame. By the start of the Bush Administration, housing prices (which over the prior forty years had just kept even with the overall rate of inflation) had on average, and after adjusting for inflation, risen approximately 23 percent over their mid-nineties levels—a substantial but still containable surge. In 2001, however, when the stock bubble collapsed, Alan Greenspan, the Federal Reserve Board chairman, seized on the expanding housing bubble as the best tool for boosting the economy out of the recession. He pushed the short-term interest rate down to 1.0 percent—the lowest level in almost fifty years—and, more important, assured investors of the safety of the housing market, telling Congress in the summer of 2002 that “recent sizable increases in home prices . . . reflect the effects on demand of low mortgage rates, immigration, and shortages of buildable land in some areas.” By 2006, prices were 73 percent higher than their pre-bubble values, for a total of more than $8 trillion in unsustainable wealth.

The extent to which these were inherited problems is, I think, related greatly to the former Chairman of the Federal Reserve. Which I do not say lightly (“smash the IMF” is the sort of thing I say lightly). The extent to which these were inherited also in no way obsolves Bush or his administration of faulting for their handling of it. Show me a president who did not inherit problems. I say that I agree ‘more or less’. The ‘more’ is with regard to the problems, and at whose feet to lay them; the ‘less’ with the use of words like ‘calamity’ and ‘disaster’ – I would prefer we save those words, because I’m rather afraid we shall need them. In any event, using them now only facilitates being ignored (yes, I know, the other side gets to call things ‘crusades‘ and a ‘struggle for civilisation‘. No, it is not fair).

Policy and other responses suggested?

• Patiently and publicy (i.e. not just people like me railing at the darkness) explain – as the government – that house prices are wrong, and that they will once again, inexorably, return to representing market value. I.e., go down, and interest rates will rise. Anybody buying a house today had better realise that going in.
• Use regulatory tools at their disposal (the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of Federal Housing Enterprise Oversight – yes, it exists) to put a stop to risky lending.
• Make a serious and credible committment to lowering the value of the dollar – thereby preventing unwanted speculation. This would work well with the sort of thing the Bank of International Settlements has warned us about, but I’m not sure how it would go. Amongst other things there are many non-US reasons for the value of the dollar, and deliberately lowering it will have an effect on NGOs, corporations, and many smaller countries (especially those who happen to use it as official or semi-official currency – East Timor, for example, does).
• The Fed, along with the Treasury Department, should take the kinds of proactive measures detailed above to prevent the sort of asset bubbles that have afflicted the stock market, the dollar, and the housing market during the past decade. I’m all for independence of central banks – fewer things are more important for macroeconomic management, but one that managed to understand that boom-and-bust = bad would be nice.
• Tax cuts and the budget deficit. Frankly, this hardly needed to be written down at all. If the next administration doesn’t understand what a cock-up fiscal management has been, there’s no saving us.

The series of articles as a whole are a bloody interesting read. I think there ought to be a lot more on there – telecommunications, transit, etc., but those are merely missed opportunities. They aren’t very big, very dark clouds, on the horizon for (one would have thought) all to see. Sadly, the immediate economic health needs to be assured before long-run economic growth can be built back into the economy.

New labour laws in china

China enacted a labour law Friday meant to improve workers’ rights amid complaints about unpaid wages and other abuses, and an official tried to assure wary foreign investors they will not be hurt by the new standards.

That last piece is the interest part, for me. I told my students last October about a new set of labour regulations – including more protection for collectivism/unionisation – upon which China was working. When I asked them who was most against the idea, the guessed correctly: the US, or rather US corporations.

Some of the world’s big companies have expressed concern that the new rules would revive some aspects of socialism and borrow too heavily from labor laws in union-friendly countries like France and Germany.

To some extent it has; not with regards to socialism, or anything so knee-jerkingly stupid as that, but with regard to prior fears that some rules would come into place governing the treatment by corporations of temporary workers, laying-off of employees, the right to unionisation – in fact early versions insisted upon union approval of layoffs. Now they just insist that unions be told. Which is fair, the early version would not have worked (for domestic employees and a foreign company? There’s no common good. There’d be no collective rescues a la Delta airlines, for example).

In a very positive move, the legislation was open for public discussion and input, giving the government some 190,000 pieces of same from domestic workers and companies, as well as foreign companies (there’s an American Chamber of Commerce in China, for Cliff’s sake).

Unfortunately the short-sighted media is a little off-perspective. Most of the stories I saw tied this to the recent scandal of slave-labour. A lot of use of the word ‘amid’, which I don’t think is fair (to China or to readers). This legislation has been kicking about since 2005, and it was only a matter of time before it came together and went ahead. Newspapers would do well to remember Tony Abrams, Tom DeLay and the Mariana Islands before getting too worked up about it. For its level of development, China is actually pretty progressive in this area.

Blue Hotel, on a lonely highway

Via (wait for it): Inhabitat, Greenroofs, Designflute and the architects, Atkins.

Songjiang Hotel in Songjiang, China, would have to be the coolest I’ve ever seen (or it will be, once built).

Built directly into the side of a former quarry, it has minimal environmental impact (I mean, for a hotel that size), and uses geo-thermal energy for power and heating, as well as green roofing (hence the link to greenroofs.com, as well the natural vegetation and waterflows.

An aquatic theme runs through the design both visually and functionally. Curved wings of the main body of the guestrooms enclose a naturally lit internal atrium, which uses the existing rock face with its waterfalls and green vegetation. This will be overlooked by guestroom balconies and contain restaurants and cafés at the base. Two underwater levels will house a restaurant and guestrooms facing a ten-metre deep aquarium. The lowest level of the hotel will contain a leisure complex with a swimming pool and water-based sports. An extreme sports centre for activities such as rock climbing and bungee jumping will be cantilevered over the quarry and accessed by special lifts from the water level of the hotel.

So next time you’re in China (after this is built), consider a trip to Songjiang.

Drugs that won’t make you vomit enough to stop using them?

I have a neighbour with really terrible taste in music. If they have any at all. Does that sound snotty? Forgive me if it does, but I’m being tortured by some kind of prog-rock trauma machine.

Fun with advertising! Australians, the US has no law – as we do – forbidding Direct-to-Consumer advertising. Don’t, by the by, ever let that change (I mean, don’t allow it in Australia – by all means try to get it banned in the US too).

So every now and then I’m exposed to this. Today for example, cleaning while appreciating tbs taking a break from Law and Order re-runs (Australians: forget it. That’s a joke for the Americans) and showing those Noah Wyle Librarian movies, cleaning the apartment. Avoiding work, basically.

Ooh, the bad guy just died. This is such a poor man’s Indian Jones, but I’ll take it until the real one rises again.

Anyway. An advertisement for the drug Requip, a pharmaceutical treatment for Restless Leg Syndrome (it has it’s own foundation, though I’d like to see who stumps up the money for it). As the nice lady on the telly ran through in her most cheerful voice, the side-effects of Requip (potentially) include:

• Nausea (40 percent)
• Excessive tiredness, which is known as somnolence (12 percent)
• Vomiting (11 percent)
• Dizziness (11 percent; also fainting when you stand up for some people)
• Fatigue (8 percent)
• Diarrhea (5 percent)
• Sore throat (9 percent)

For between 2% and 5% of people:

• Spinning sensation (vertigo)
• Indigestion (dyspepsia)
• Diarrhea
• Dry mouth
• Abdominal pain
• Swelling
• Influenza
• Pain in the joints (arthralgia)
• Muscle cramps
• Pain in the legs or arms
• Numbness or tingling
• Cough
• Nasal congestion
• Back pain
• Inflammation of the sinuses (sinusitis).

This is for restless legs. There are even more, believe it or not – but less than 1%, and not required by law to be mentioned in the advertisement.

What I loved – loved – about all this was one line in particular (although a woman running through this list as though it was groceries was entertaining enough): that people vomited, but not enough to stop using the treatment. Eh? So you may become nauseated, you may vomit, but manufacturer GSK is betting you won’t vomit enough to stop taking their pills. Alternatively they’re telling you that although may vomit, everyone else can handle it so don’t be such a sook.

Ramos Horta pushes for tax-free East Timor

No sooner do I post about Indonesia than I see a story about East Timor. Background:

The Democratic Republic of Timor-Leste. They’re having elections again, parliamentary this time, not Presidential. Last year Jose Ramos-Horta, former Foreign Minister-then-Prime Minister, won (resoundingly) that one, succeeding clear hero of independence Xanana Gusmao who is now running for Prime Minister in these parliamentary elections. To be fair they only won independence in 2002, suffered rampaging militant loyalists and UN intervention – a poor enough start for the first new nation of the century.

On to the story. With a PPP-adjusted GDP of USD800 per capita they’re among the poorer end of the nations of the world – according to the CIA factbook (2005). According to the IMF, GDP is USD1700, from 2004 estimates. Given that East Timor is pretty drought-prone, I wouldn’t be surprised.

So Ramos-Horta has said he wants to follow Hong Kong’s model of very low, very simple taxation. No estate taxes, stamp duties (such as they are) are due to be removed, earned-income taxation is simple and with very low marginal rates, as are corporate taxes on earned-income. Those two are just about it, and they’ve proved remarkably good at bringing prosperity to Hong Kong (being rented out by England and made a trade/finance hub helped, too…).

It’s pretty interesting. The differences between the two are substantial:

• Hong Kong has few natural resources. East Timor has the Greater Sunrise gas field, worth around USD30bn. The sharing between East Timor and Australia has proved to be very entertaining (we tried to screw them over, and eventually settled for a very small share of the revenues).
• Hong Kong is a technocracy; East Timor is a republic. More importantly, a republic that fought like hell for its independence, at the hands of the people (rather than the capitalists, distinguishing it also from the US). This will alter government intervention in markets and social infrastructure, which is minimal in Hong Kong.

So slightly different. Ramos-Horta wants to use the oil and gas reserves – a common treasury – to rebuild after Indonesian loyalists laid waste to what infrastructure they had. By doing this with those revenues, and keeping the tax system very neat and simple, he’s setting East Timor up for the sort of streamlined capitalist economy that Hong Kong has. Which may or may not work as well as it did there. It certainly won’t work out as badly as other nations – say, Nauru or Liechtenstein – but it has to start from scratch, without a British Empire on one side and China on the other, to build there first.

Also, the best coffee comes from East Timor. Buy some if you ever see it.