REALITYBASE

The Onion has the story here.  Thanks to Ezra Klein's blog for the find. 

The National Academy of Sciences published in June 2008 a peer-reviewed study in which a team of climatologists and earth scientists reconstructed average global temperatures over the past 2 millennia using records in tree rings, coral growth rings, ice cores, and other proxies for temperature. The paper concludes that the sharp rise from the late 19th Century to now, in both northern and southern hemispheres, is unprecedented in the interval studied. A good summary of the paper, with its startling graphs, is at Climate Progress, which also links to the NAS paper. The work confirms and extends earlier work based only on tree rings and is further compelling evidence of anthropogenic global warming over the last century.

In adopting its new platform, the Republican Party reiterates a policy on trade promotion that is indistinguishable in my eyes from policies that the Bush Administration has been following.  Although it speaks of exports of products and commodities, it gives equal prominence to sale of services and increased protections for intellectual property in foreign nations.  It specifically calls for an "aggressive trade strategy" with respect to agriculture.  This appears to be a continuation of the Bush Administration policy of favoring the traders of agricultural commodities (e.g., Cargill and ADM), for whom all trade is good, over growers, whose US subsidies will be bargained away.  There is no recognition in the platform that globalization is different from trade, or that the US is suffering any ill effects at all from trade or globalization. 

This Bloomberg piece reports a growing sentiment among energy traders that further price declines are likely because, as one analyst described it, "commodities have fallen out of fashion with investors." Nate Hagens over at The Oil Drum reports here that Ospraie, a $4 billion commodities hedge fund run by Lehman Brothers, lost 26% of its value in August alone and is closing its doors. His long post also describes the "animal spirits" of the energy futures markets and how relatively cheap it is for investors to take positions that dwarf the quantity of underlying commodities to which the futures contracts nominally relate. If several big investors fail, or otherwise greatly reduce their exposure to energy futures, it may become as hard to see a bottom for crude oil prices as it was to see a top two months ago.

"Labour . . . is the real measure of the exchangeable value of all commodities. . . . It was not by gold or by silver, but by labour, that all the wealth of the world was originally purchased; and its value, to those who possess it, and who want to exchange it for some new productions, is precisely equal to the quantity of labour which it can enable them to purchase or command." Book I, chapter V, at 36.

"The real value of all the different component parts of price, it must be observed, is measured by the quantity of labour which they can, each of them, purchase or command. Labour measures the value not only of that part of price which resolves itself unto labour, but of that which resolves itself into rent, and of that which resolves itself into profit." Book I, chapter VI, at 53.

"No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, cloath and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, cloathed and lodged." Book I, chapter VIII, at 83.

This New York Times editorial says, "There are multiple reasons why Americans are working harder and not getting ahead, including a weak labor movement, globalization, technological change and a slowdown in educational attainment." Now that the Times editorial board is acknowledging that globalization is partly responsible for the Middle Class economic plight, I hope it will stop telling us to "embrace" globalization.

"Embrace" sends the wrong message about something that is doing us harm even if the Times thinks globalization is inevitable. Death is inevitable, but we're not urged by the Times to embrace or hurry into it. With respect to global climate change, the Times urges us to stop denying its inevitability and take collective action to stop it, not to embrace it.

If the Times is ready to replace "embrace globalization" with another concept but is at a loss for words, here are some suggestions: Manage, channel, slow down, overcome, stop denying there's a problem, manipulate to the advantage of ordinary working Americans, have a national strategy to meet the challenge, stop outsourcing US policy to the elites who exclusively benefit from globalization and advisors who didn't foresee the bad results for the Middle Class.

This Financial Times piece by Larry Summers makes the points that the global economic situation he helped create is a huge mess, that the US is in a strategic bind vis-à-vis oil producing nations (I posted about that here), that other nations such as China and Russia are subordinating the economic well-being of their citizens to geopolitical considerations, that key US and world economic policies are unsustainable, and that the consequences of not sustaining them are pretty much unthinkable. Thanks to Mark Thoma for bringing this to my attention. I consider it quite good news that the Rubinistas are acknowledging the problem and, presumably, thinking about it and getting more flexible about policy directions.

Ecomist Mark Thoma has this post applying textbook theory to spikes in commodities prices.  Most telling is his statement that the theory does not explain coordinated price movements across all or many commodities, leading to the possibility that something other than classic supply/demand fundamentals is driving prices.  Could that something be large influxes of speculative money looking for a new asset class and trying to hedge against a declining dollar, which is what non-economists in these markets have been saying for many months?  He doesn't say, but he does get ahead of the herd of mainstream economists by noticing that the real world data don't fit the mainstream theory. 

I posted this comment on Thoma's blog: 

If coordinated moves among many commodities suggest their prices are not being moved by "fundamentals," that proves that some unknown force(s) other than "fundamentals" can move the price of a commodity, and there would be no reason to believe that "fundamentals" are the most likely force behind, or even relevant to, a particular price move.  Sic transit theory. 

 

This post reports Mexican government data that 1.7 million Mexican farm workers lost their livelihoods as a result of NAFTA. Initially 700,000 manufacturing jobs were created by shifting work from the US, but more than half of those jobs have since been moved again—to China. (I personally observed several hundred jobs move from USA to Mexico to China.) In addition 20,000 small Mexican businesses were displaced by NAFTA-facilitated trade in just the first 7 years. The Labor Council for Latin American Advancement says these severe dislocations have caused increased immigration to the USA. That put further downward pressure on US wage rates. And the benefits of NAFTA were . . . . ?

Today's weekly Bloomberg survey of oil analysts and traders projects that prices will rise during the week of August 25. The story reports that the survey, which has been done weekly since April 2004 has correctly predicted the direction of market movement 49% of the time. It seems Bloomberg could improve the accuracy of its prediction if it just reported each Friday the results of a coin flip. And, since the coin flip would take much less time and money than the survey, maybe Bloomberg could afford to expand its service and give us a daily prediction.

Updated on Wednesday, August 20, 2008 at 08:42PM by Skeptic

Updated on Sunday, August 24, 2008 at 08:12PM by Skeptic

Updated on Monday, August 25, 2008 at 02:44PM by Skeptic

This New York times article highlights the geopolitical peril of continuing high oil prices. The big Western oil companies like Exxon Mobil and BP have the best technology and people for finding and developing petroleum, but continuing nationalization of petroleum gives them few and decreasing opportunities to apply their skills in the places around the world that have the best potential. I have never bought the idea that the world is approaching "peak oil" in a geological sense, but we may be there geopolitically. I note some implications for the geopolitical strategies of the US and our global adversaries and for the business strategies of Western oil companies.

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When asked by Rick Warren to define "rich," John McCain said an American family needs an income of $5 million to be "rich." Get a grip, John! Any family that brings in at least $1.6 million is richer than 99.9% of American families. Even Obama's answer stretches the word "middle" beyond recognition. He said a family earning less than $150,000 per year is "middle class" or poor.  Does he know that about 94% of American families earn less than $150,000? Indeed, 80% earn less than $88,000. Ezra Klein has a good post and a nice chart here.

For a very useful analysis of what's going on in Georgia and why, read this piece by Michael Dobbs in the Washington Post. Dobbs reported on the collapse of the Soviet Union and visited South Ossetia shortly after it was first occupied by Georgian troops in 1991. He does not explain why Saakashvili, who leads a nation of only 4.6 million souls and is to all outward appearances sane, would attack Russian troops already in South Ossetia or why the Bush Administration did not make absolutely sure it didn't happen. Was this more Bush Administration incompetence, or did it secretly want a foreign policy crisis to help McCain win the election?

President Mikhail Saakashvili of Georgia says he will "never, ever surrender" to Russia. I can't stop thinking of the Black Knight in this clip from Monty Python and the Holy Grail.

This is the headline on an excellent short piece in today's Emirates Business 24/7 by Dani Rodrik, Professor of Political Economy at Harvard's Kennedy School of Government. Rodrik's main point is that it is no longer possible for globalization boosters to dismiss their opponents as "violent anarchists, self-serving protectionists, trade unionists, and ignorant, if idealistic youth. . . . What makes news nowadays is the growing list of mainstream economists who are questioning globalisation's supposedly unmitigated virtues."

So we have Paul Samuelson, the author of the post-war era's landmark economics textbook, reminding his fellow economists that China's gains in globalisation may well come at the expense of the US; 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 US Federal Reserve vice chairman, worrying that international outsourcing will cause unprecedented dislocations for the US labour force; Martin Wolf, the Financial Times columnist and one of the most articulate advocates of globalisation, writing of his disappointment with how financial globalization has turned out; and Larry Summers, the US Treasury chief and the Clinton administration's "Mr. Globalisation", musing about the dangers of a race to the bottom in national regulations and the need for international labour standards.

While these worries hardly amount to the full frontal attack mounted by the likes of Joseph Stiglitz, the Nobel-prize winning economist, they still constitute a remarkable turnaround in the intellectual climate.

Thanks to Brad DeLong's blog for linking to the Rodrik piece.

George Soros says here that the recent Congressional grant of authority to Treasury to bail out Fannie Mae and Freddie Mac is the worst possible solution and persuasively explains why.  He suggests it would be better to institute a system in use in Europe and which Soros implemented in Mexico. 

China now "churns out more than 4 million university graduates yearly, but only 1.6 million new college level jobs," according to this article in Psychology Today. These statistics have at least two grim implications for the nostrum that Americans will prosper despite globalization because we have the best colleges and universities.

One, putting a higher proportion of American students through college won't mean there will be appropriate jobs for them when they graduate. It is reported here that we already have a shockingly large number of B.A. holders working in jobs for which no college is required, including one-quarter of travel agents and retail sales supervisors, one-third of flight attendants, and one-half of aerobics instructors.

Two, there are lots of Chinese college graduates competing with Americans. Perhaps that is why real wages for American college graduates are declining along with the real wages of all groups with less education. And now even MBA jobs are being outsourced to India; think that won't impact the wage levels for these entry-level elites?

Trade liberalization is often portrayed as a moral imperative because it is claimed to be good for the masses of impoverished people in the Third World. This summary post at Eyes on Trade, linking to this long, fact-filled analysis at Fairness and Accuracy in Reporting, reveals that the elites of the Third World are as much at cross purposes with what their populations want as are US elites like Fareed Zakaria, whose claim to speak for the global poor is refuted in detail. For example, polls show that populations in the Third World believe their governments should include higher labor and environmental standards in trade agreements, but standards are opposed by their own governments and elites, as well as by ours. Governments must choose between promoting trade and globalization and promoting democracy.

This lurid and misleading MIT press release claims a recent energy technology discovery is "revolutionary," has "enormous implications for the future prosperity of humankind," and is "nirvana." The New York Times and Los Angeles Times ignored the hype but gave the story so little space it was impossible to figure out what was discovered or why it might be useful. The MIT spin remained intact in several prominent blogs, with comments showing many were misled into thinking hydrogen will now be abundant and cheap. Here is my reporting with the context and probably more enthusiasm than the MIT discovery deserves.

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