The West is getting old
Chrystia Freeland
JUL 28, 2011 18:08 EDT
It’s the demography, stupid.
There are a lot of different reasons this is turning out to be such a politically hot summer in so much of the Western world. But one way to understand this season’s acrimony — from the protests of the indignati in Spain and Greece, to the budget deadlock in Washington and even to the tragedy in Norway — is as diverse symptoms of a shared condition: The West is getting old. That demographic fact is becoming a generational war, and there is every reason to believe that in the coming decades it will get worse.
The heart of the problem is arithmetical: The post-World War II social welfare state, created at a moment when the baby boom was still gestating, is built on a generational Ponzi scheme. As life expectancy increases and fertility declines, that population pyramid is being inverted — and in some countries, that is causing the entire economy to topple.
That’s true in Greece and Spain, where the young are taking to the streets partly because state pension commitments have become so heavy they are suffocating the economy and depriving the seniors’ grandchildren of any chance of a job. Likewise in the United States, where, notwithstanding the national self-image as a laissez-faire land that has eschewed Europe’s lavish social safety net, the budget battle is really a fight about the old: Programs for the elderly constitute almost half of non-interest government spending, about $1.6 trillion in 2010, of a $3.3 trillion total. That figure will swell as the baby boomers retire.
According to a paper by political economist Nicholas Eberstadt, who has done extensive research on the issue, “costs associated with population aging are estimated to account for about half the public-debt run-up of the O.E.C.D. economies over the past 20 years.”
It is not just at home that graying societies are creating wrenching political and economic tensions: The demographic squeeze may be contributing to one of today’s biggest dangers in international finance: the threat of sovereign default. Ali Alichi, an economist at the International Monetary Fund, argues in an essay published by the fund last month that “old folks may be less willing to repay sovereign debt.” According to Alichi, “As the number of older voters relative to younger ones increases around the globe, the creditworthiness of borrowing countries could decline — resulting in less external lending and more sovereign debt defaults.”
This demographic crunch has transformed the way a lot of us think about the relationship between economic growth and population growth. Not so long ago, the conventional wisdom was neo-Malthusian — for individuals, for families and for societies, one of the keys to prosperity was having fewer children. Now, that thinking has been turned upside down.
In a speech at the Aspen Ideas Festival a few weeks ago, former Treasury Secretary Robert E. Rubin cited the United States’ “favorable demographics relative to Europe, Japan and even to China and Korea” as one of the principal reasons to believe that the country has sunny economic prospects.
President Dmitri A. Medvedev is so worried about his country’s shrinking citizenry that the Kremlin is offering families that have a third child financial incentives.
Even China, the most brutal apostle of population control, now fears it will get old before it gets rich. Meanwhile, India, whose fertility was once seen as its national curse, is touted as a rising investment prospect thanks to its “demographic dividend.”
One solution to the demographic dilemma is immigration. But absorbing immigrants can be tough. And that’s true not just for the traumatized Norwegians, but also in U.S. states like Arizona, which have less homogenous populations and a history of immigration.
Moreover, immigration is a zero sum game that can’t work for everyone forever. As the world’s poor countries get richer, their citizens have less reason to emigrate — and they begin to suffer their own demographic squeeze.
Eberstadt points out that this is true not only of one-child China, but also of the economically prospering Indian south, where fertility levels are at, or already below, replacement levels.
The other answer is to persuade families to have more children. So far, that’s something no developed country has really figured out. As women get richer, better educated and more autonomous, they have fewer babies. That decline in fertility is driven by harsher economic forces, too: Most middle class families in the West need a mother’s wage to survive, and women in industrial and postindustrial societies can’t bring their babies to work in the way their peasant great-grandmothers could.
As countries awaken to the demographic squeeze, their first instinct is often fiercely conservative. That is the case with Medvedev: As well as giving families incentives to have a third child, the Kremlin is restricting abortion and making common cause with Russian Orthodox Church activitists and social conservatives who condemn “refusal of marriage and child-bearing” as a “social deviation.”
But there isn’t much evidence that a return to patriarchy will bolster fertility. After all, some of the societies where the birthrates are plummeting the fastest — like Japan or Italy — are the ones where women have made the least social and economic progress.
Yet there is one political movement that has long campaigned for societies to find a better way for women to be both workers and mothers: feminism. Until now, we have framed those efforts as being about expanding personal choice — and government and business have paid them lip-service, but not much more.
As graying countries become angrier and more dysfunctional, that could change. We think the most pressing issues in the rich West are budget deficits and job creation. To fix our economies in the long term, what we should probably be talking about is maternity and paternity leave and workplace day care.
COMMENT
SEE ALL COMMENTS (28) | ADD COMMENT
JUL 31, 2011
12:18 AM EDT
Some interesting and valid posts. You have thought about this Foxdrake, you should be in politics. Eric93 that is so true, I have always believed that nature will deal with it all, look at all the natural disasters, next will be pandemics and food shortages.
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Scenes from the Tea Party
Peter Rudegeair
JUL 11, 2011 18:00 EDT
Theda Skocpol, Vanessa Williamson, and John Coggin’s great paper “The Tea Party and the Remaking of Republican Conservatism” formed the basis of Chrystia’s most recent column. As part of their research, Skocpol and her team embedded themselves in the Greater Boston Tea Party, the thirty-third largest Tea Party organization in the country, as measured by membership in the social-networking website MeetUp. The trio of scholars attended the group’s local rallies and conducted an extensive survey with 79 of the group’s members. The portrait of Tea Partiers that emerged from their fact-finding reinforced what many had observed anecdotally: Tea-Party members tend to be older, white males who are avid viewers of Fox News and have a history of political activism.
Like their fellow Tea Partiers across the United States, those in Massachusetts are older, white, and predominately male. 97 percent are white; 57 percent are males; and 83 percent are over forty-six years old (with more than half are older than age fifty-six). In addition, Bay State Tea Party activists envelop themselves with the same conservative news sources used by other Tea Party participants. When we asked Massachusetts Tea Party activists an open-ended question about their preferred news sources, 51 out of 69 respondents reported being Fox News watchers. As has also been found in national studies, few Massachusetts Tea Partiers are seeking out neutral or left-leaning sources of information. Only 11 of 69 respondents claim to read the Boston Globe, and only seven Massachusetts Tea Party activists report getting their news from ABC, NBC or CBS News. Like Tea Partiers nationally, many in Massachusetts are campaign veterans. In our Boston sample, 37 out of 79 respondents claimed to have previously volunteered on behalf of a candidate or political organization.
Fox News viewership in particular seemed to be an animating force for the Party and a prime topic of their conversation:
At Tea Party meetings, Fox News stories are a common currency; activists share stories reported on the network and quote the opinions of Fox News commentators. Fox News personality Glenn Beck is an especially frequent source of political opinion and historical perspective. According to Krislyn, “We’re history buffs… and [thanks to Beck] our knowledge has gone through the roof. A lot of people dismiss him as a kook, but I think he challenges you to question the status quo.” In addition to Fox News programs, most other sources of political information cited by Tea Party activists are conservative. After Fox News, conservative radio programs (such as Rush Limbaugh and Laura Ingraham), and conservative websites (such as The Drudge Report and Red State) topped the list of Tea Party news sources. Several Boston-area Tea Party participants said that it was through watching Glenn Beck’s show that they found out about the Tea Party in the first place.
As Chrystia wrote, Tea Partiers divide the U.S. population into two groups: those who work and are worthy beneficiaries of government programs, and those who don’t who they believe should get nothing. More from Skocpol, Williamson and Coggin:
The distinction between “workers” and “people who don’t work” is fundamental to Tea Party ideology on the ground. First and foremost, Tea Party activists identify themselves as productive citizens. We began our Massachusetts interviews with an open-ended question about what brought interviewees to the Tea Party. A striking percentage of Tea Party activists responded by talking about themselves as workers. Emmy says, “I’m almost 66 years old and I’m still working.” Krislyn calls herself and her husband “blue-collar working-class people” who have “had to work very hard.” This self-definition is posed in opposition to nonworkers seen as profiting from government support for whom Tea Party adherents see themselves as footing the bill. As Charles put it, “people no longer have to work for what they earn.” Robert says, “we shouldn’t be paying for other people that don’t work.” A typical sign at the April 14th rally on the Boston Common read, “Redistribute My Work Ethic,” and similar signs have appeared at rallies across the country. Tea Party anger is stoked by perceived redistributions – and the threat of future redistributions – from the deserving to the undeserving. Government programs are not intrinsically objectionable in the minds of Tea Party activists, and certainly not when they go to help them. Rather, government spending is seen as corrupted by creating benefits for people who do not contribute, who take handouts at the expense of hard-working Americans.
What’s interesting to note here is that the Tea Partiers conception of working people is fluid and not necessarily tied to whether they are currently employed. A third of the Greater Boston Tea Party members that responded to their survey were students, unemployed people, or retirees. There were two categories of people, though, that were unquestionably included in the nonworking group: young people and unauthorized immigrants.
An April 2009 blog on the Greater Boston Tea Party website entitled “Oh SNAP! Foodstamps for College Kids?” begins “Call me crazy, but when I needed money for college, I got a job.” After telling the story of her nephew, Nancy concludes, “I think that a lot of [young] people… they just feel like they are entitled.” [...]When we polled Massachusetts Tea Partiers about the issues they thought were most important for the Tea Party to address, 62 out of 79, or 78% of respondents, thought that “Immigration and Border Security” was “very important.” In fact, immigration and border security came in a close second to the Boston Tea Partiers’ top-ranked concern about “Deficits and Spending” (rated very important by 69 of the 79 respondents). Moreover, discussions of immigration seemed to provoke an especially emotional response. One Boston member spoke of wanting to “stand on the border with a gun,” while another complained about the “free-for-all south of the border.”
A fuller version of the researchers’ work will appear this December when Oxford University Press publishes their book, The Tea Party and the Remaking of Republican Conservatism.
COMMENT
JUL 27, 2011
8:17 PM EDT
I get really tired of hearing people pretend that the lobbyist and corporate-funded astroturf Tea Party is anything other than the crazy, wingnut, racist, nativist brand that has always been the extreme right wing base of the Republican Party.
There is no comparison of Tea Party democraphics that shows them as even remotely resembling the same percentages of the American population. The Tea Party is disproportionately composed of individuals who have higher-than-average incomes, disproportionately composed of men, disproportionately composed of white people, disproportionately composed of self-identified conservatives, and disproportionately composed of self-identified Republicans.
And they are very, very sore losers.
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The winner-take-all economy
Peter Rudegeair
JUL 8, 2011 16:10 EDT
Cornell University economist Robert H. Frank sat down with Chrystia at the Aspen Ideas Festival to chat about the earnings potential of superstar dentists and world-class sopranos, the unlikelihood of an Atlas Shrugged-esque strike of the elites and Charles Darwin’s contributions to economic thought. Here’s a transcript of some of the highlights of their conversation.
On the upsides and downsides of the winner-take-all phenomenon
CHRYSTIA FREELAND: If the super-talented are getting super rewards, maybe in the past they were not getting the appropriate rewards. I mean, maybe this is really American capitalism working the way most Americans want it to work.ROBERT H. FRANK: Well there are two things in your question. One is the upside of the whole phenomenon is that we now get to listen to the best soprano rather than the hundredth best. In 1890 there were 1,300 opera houses in the state of Iowa alone. You had to listen to music live and in-person. You couldn’t hear the best soprano because she couldn’t be everywhere at once. Now there’s a contest to see who the best soprano is. That winner then records the master disc and get’s stamped out onto CD’s at virtually no cost so we could all listen to the best soprano.[...]That’s the upside. The downside is that there’s been a huge concentration of wealth and income that’s occurred because of this. If you thought you needed those concentrated rewards to get people to put forth effort in these domains, that would be one thing. But there’s absolutely no evidence of that. People just want to be the best performer whether or not–CHRYSTIA FREELAND: People don’t work for money?ROBERT H. FRANK: They do work for money. So if you didn’t give them any money, they — but there’s this odd vision that if the forty vice presidents of a big corporation who want to be CEO faced a slightly higher tax rate, they’d all knock off on Friday and play golf in the afternoon. There are lots of reasons to want to be the CEO of a big company. After-tax pay is not the primary one among them.CHRYSTIA FREELAND: You don’t think you would have a sort of Atlas Shrugged-esque strike of the super-competent?ROBERT H. FRANK: Absolutely you wouldn’t see that. Let one of those forty vice presidents go on strike. The other thirty-nine will silently cheer. “That means my chances of moving up just went up a little bit,” they’ll say.
Why inequality is not a result of elites gaming the political system
CHRYSTIA FREELAND: So Larry Bartels and Jacob Hacker have been advocating a different explanation as a primary one. Their argument is it’s much more about politics, and it’s much more about elites managing to shape the political system, to shape the legal system so that they get more of the gains. You don’t buy that?ROBERT H. FRANK: I think if you look specific sectors you can make a very strong case for exactly that.CHRYSTIA FREELAND: Maybe finance?ROBERT H. FRANK: The financial-services industry I think is people’s exhibit number 1 of that kind of phenomenon. But if you look more broadly at the data the same pattern shows up no matter how you slice it. If you look at dentists, you see the same pattern of income shift as you’ve seen in the population at large. Stagnation–CHRYSTIA FREELAND: And you don’t think dentists have a big lobby in Washington that is shifting the gains to–ROBERT H. FRANK: There’s nothing you can point to with dentists. Real-estate agents, it’s the same thing. You see it with technology experts. You see it with English majors.
Why Charles Darwin, not Adam Smith, will be remembered as the godfather of economics in a hundred years
ROBERT H. FRANK: The reason I predict Darwin will eventually supplant Smith is that he had a subtly different but profoundly important understanding of the way the competitive process plays out. Smith’s modern disciples, and he wasn’t really quite this narrow, but their version of his great idea was that if you turn selfish people loose and let them seek their own advantage in the marketplace you’ll get the greatest good for society as a whole. And oftentimes we do see results like that. Darwin’s view was that traits in evolution are selected because they help the individual survive and reproduce. Sometimes traits that meet that test help the group as a whole, but other times they’re bad for the group as a whole.[...]CHRYSTIA FREELAND: And you think economists have lost sight right now of that notion of behaviors that are good for the group needing to also be favored?ROBERT H. FRANK: Yeah, what I think economists have not recognized clearly is that when markets fail, it’s generally not because there’s not enough competition; that was Adam Smith’s view. It was because competition itself produces these failures.
COMMENT
JUL 11, 2011
4:31 PM EDT
The fundamental issue is that there’s an exceptionally weak correlation between wealth and social contributions in the form of innovation, talent, creativity, and so on.
While some wealthy people are genuinely productive and innovative, many – especially in the CEO and financial classes – are simply game players who understand corporate strategy and financial practices, but have no ability to make a *practical* positive contribution beyond that.
Put simply, we reward the wrong behaviours and talents for the wrong reasons, and mass unemployment – which is a mass denial of potential creative talent – is the result.
The most recent burst of innovation during the 50s and 60s happened during a period of intensive government subsidy of R&D.
The Randian mythology of the colossal genius individualistic inventor is largely nonsense. The reality is that we’re all embedded in cooperative frameworks, and no individual can survive without those frameworks – never mind innovate without their support.
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Only hard-working Americans need apply
Chrystia Freeland
JUL 8, 2011 10:16 EDT
What does the Tea Party want? As the debt ceiling debate rages in Washington, that should be the central question in U.S. political discourse. After all, it is the rise of the Tea Party that revitalized the Republican Party in 2009 and gave it the muscle to deliver a “shellacking” to the Democrats in the 2010 midterm elections. And it is the radicalism of the Tea Party and the freshman legislators it elected that is often blamed for the uncompromising stance of the Republicans in the current budget negotiations.
That’s why “The Tea Party and the Remaking of Republican Conservatism,” a recent study of the Tea Party by Theda Skocpol, a Harvard political scientist, and Vanessa Williamson and John Coggin, two graduate students, is so important. An expanded version of the paper, which appeared this spring in the journal Perspectives on Politics, will be published as a book by the Oxford University Press later this year.
Ms. Skocpol is an unashamed progressive, but what is striking about her team’s work is its respect for the Tea Party and its members. “Commentators have sometimes noted the irony that these same Tea Partiers who oppose ‘government spending’ are themselves recipients of Social Security,” the paper notes. “Don’t they know these are ‘big government’ programs?”
The usual assumption of the news media elites is that the Tea Party’s worldview is inchoate or just plain uninformed. “I think the pundit class tends to treat popular ideologies as products of ignorance,” Ms. Skocpol told me. But when she and her colleagues delved deeper, including distributing questionnaires to Tea Party activists and interviewing many of them, the scholars found that, “Rather than assume ignorance, we should recognize that what appear to be contradictory or uninformed views of federal government programs make better sense once we understand how Tea Party activists view themselves in relation to other groups in society.”
When it comes to the central issue in U.S. political life today — the size of government and its proper role — Ms. Skocpol and her colleagues found the Tea Partiers had a clear and coherent point of view, but one that does not fully jibe with the orthodoxies of libertarian ideologues or of elite, ultraconservative, Republican Party doctrine.
The central tension for the Tea Party grass roots isn’t between the Big Brother state and the freedom-loving individual, or between inefficient government spending and effective free markets. Instead, Ms. Skocpol and her fellow investigators argue that “Tea Partiers judge entitlement programs not in terms of abstract free-market orthodoxy, but according to the perceived deservingness of recipients.” The fundamental distinction for them is not state vs. individual, it is the division of the United States into “workers” vs. “people who don’t work.”
Some of those “people who don’t work” are the young. Deficit hawks on the think tank circuit like to talk about ballooning government spending on Social Security and Medicare— programs that benefit the elderly — as “generational theft.” But the Tea Party rank and file, 70 percent to 75 percent of whom are over 45, are concerned about a very different generational struggle.
This is a revolt of the grandparents’ generation — at least the conservative grandparents — and they are worried the feckless youth are taking over the country and emptying the state’s coffers. These young “freeloaders” include the Tea Partiers’ own relatives. “Charles” told the researchers, “My grandson, he’s 14 and he asked, ‘Why should I work, why can’t I just get free money?”’ “Nancy” complained about a nephew who had “been on welfare his whole life.”
“The conditions for young adults to establish themselves have changed radically,” Ms. Skocpol told me. “It is harder for young adults. They may live at home longer. And that manifests itself in ways that are easy to condemn morally. The older generation is having a little trouble understanding what is happening to their children and especially grandchildren.”
The other group of government-supported nonworkers the Tea Party fears is illegal immigrants. The Harvard scholars found immigration to be a core, and highly emotive, Tea Party issue, even in Massachusetts, which has relatively low levels of illegal immigration and no foreign borders.
This impassioned opposition to illegal immigrants is often equated with racism, but Ms. Skocpol and her colleagues take great pains to point out that the Massachusetts Tea Partiers, whom they studied most closely, are vocally and actively opposed to overt racism. A racist poster to their Web site was publicly reprimanded and a plan was made to take down racist signs at a rally (though, in the event, the researchers didn’t spot any that needed removing). For the Tea Partiers, the major intellectual distinction isn’t between black and white — although that is the color of most of them — it is between deserving, hard-working citizen and unauthorized, foreign freeloader.
The Harvard scholars’ careful parsing of the thinking of the Tea Party has some important political implications. The first is that there is a latent but potentially vast divide between the grass roots and the conservative elite on the United States’ most important fiscal issue — the twin entitlements of Social Security and Medicare. Cutting these programs is a core tenet of faith for the party’s funders and its intellectuals. But the Tea Party’s rank and file views them as earned benefits that belong to hard-working Americans as surely as do their homes and private savings.
What makes this conclusion particularly persuasive is its timing — Ms. Skocpol and her team reached this view months before Kathy Hochul’s surprise victory in the May special election in New York State, an upset largely driven by the conservative base’s fears that the Republicans in Washington wanted to partially privatize Medicare.
The second take-away is for the Democrats, particularly the technocrats among them. It has become conventional wisdom, including on the left, that the way to make social welfare programs affordable is to direct them at the people who really need them. If politics were a math exercise, that view would make a lot of sense.
But Ms. Skocpol and her colleagues’ study of the Tea Party suggests that the government spending programs that earn widespread, long-term public support, including among people with strongly conservative views, are those that are perceived to be both universal and deserved. Helping the poor is well and good, but when times get tough the institutions we are willing to pay for are those that assist virtuous, hard-working people — in other words, ourselves.
COMMENT
JUL 11, 2011
6:37 PM EDT
Come on commenters, talk about the research. Is “deservingness” (mediated through notions of race/ethnicity) a good way to understand the TP’s or not? My view is no. They rightly try to show the complexity of the relationship to “government” and entitlement, but its too simplistic to reduce the whole thing to another black/white type binary, and one so materialist at that. Like everyone else, they’re rushing to market with their tea party research, trying to capitalize, but depth of insight suffers. Reach deep, the truth is out there.
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The future of power
Peter Rudegeair
JUL 6, 2011 14:48 EDT
At the Aspen Ideas Festival last week, Chrystia’s discussion of war, economics and America’s role in the world featured a who’s who of leading voices: Robert Hormats, the Undersecretary of State for Economic, Business, and Agricultural Affairs; Joseph Nye, a professor at Harvard’s Kennedy School of Government; and Liaquat Ahamed, the Pulitzer-prize winning author of Lords of Finance: The Bankers Who Broke the World. Here’s a transcript of some of the highlights of their conversation.
How the deficit debate affects U.S. diplomacy:
JOSEPH NYE: In congressional discussions we get the short-, the medium-, and long-term mixed up. Here we have a problem often estimated as a $2 trillion problem about getting the debt under control, or the deficit under control, related to the debt. And what did Congress do in April when they were trying to balance the budget? They cut $8 billion out of the State Department budget and thought that that was doing something about the deficit. That is absolute nonsense. It’s like a drop in the wind that’s gone immediately. But from the point of view of the State Department where you have a $50 billion budget, that’s a huge hit.CHRYSTIA FREELAND: Did Bob take you out to supper last night to ask you to say that?JOSEPH NYE: No, no, this is all on my own, and I’ve actually published this inForeign Policy. But the point is it’s an illustration of the confusion of time horizons. We do have to do something about the question of the deficit, but there’s an enormous confusion about time horizons.
On America’s historically low taxes:
LIAQUAT AHAMED: I do think the one striking is how low the taxes are as a percentage to GDP.CHRYSTIA FREELAND: In America?LIAQUAT AHAMED: In America.CHRYSTIA FREELAND: Tell that to American voters. They don’t seem to agree with you!LIAQUAT AHAMED: Taxes as a percentage of GDP — federal taxes — are currently 15%. That is the lowest level–CHRYSTIA FREELAND: That’s like Hong Kong, right?LIAQUAT AHAMED: That’s the lowest level they’ve been in thirty, forty years. With all the enormous commitments that our federal government has entered into, I think that’s crazy.[...]LIAQUAT AHAMED: I’m going to go down on this program as the high-tax guy. If you’ve got commitments, you should pay for them, and I think it will involve raising taxes. Britain was able to beat France during the Napoleonic wars largely because the British had higher tax rates and were able to sustain a higher tax burden than the French.
“The greatest unforced error in economic history”
JOSEPH NYE: I tend to be relatively optimistic in my book The Future of Powerabout the American economy in the long run. The World Economic Forum says we’re the fourth most competitive in the entire world; China is 27. If you look at nanotechnology, biotechnology, these are areas where we’re clearly in the lead. The fundamentals are there; it’s just that we’re doing such a lousy job of managing it right now. We’ve got two political parties like teenagers playing a game of chicken where the cars go towards each other. Sometimes those cars crash.CHRYSTIA FREELAND: This would be the debt ceiling debate. Do you think there could be a crash?JOSEPH NYE: Somebody said at the opening session of the Ideas Festival a couple of days ago, if that occurs, if we undermine the credibility of the U.S. Treasury to meet its debts, it will be the greatest unforced error in economic history.CHRYSTIA FREELAND: Gentlemen, quick flash question: is it going to happen or not? Likelihood of unforced error?ROBERT HORMATS: I think it certainly can be avoided and should be avoided. I think it is unimaginable to me that anyone would want to put the creditworthiness of the United States in doubt, much less take these kinds of actions. And it would be harmful from a financial point-of-view; it’d be harmful from a foreign-policy point-of-view and harmful from a national security point-of-view because it would undermine faith in the United States around the world.I dug out an odd factoid that in 1840 the country with the largest GDP was Russia, because there are so many Russians and it was larger than Britain. But no one would have said that Russia was the leader of the world or the global economy… Total GDP is a very poor measure [of economic power].
U.S. power under an “Eisenhower foreign policy”
JOSEPH NYE: In my book I call this an Eisenhower foreign policy. Eisenhower said your foreign policy starts with strengthening your domestic economy; you spend too much on the military, you weaken your domestic economy. Remember, the Russians by the time when the Soviet Union was about to collapse were spending over 22% of their GDP on the military — that’s huge. America by comparison today is 5%, so we’re a long way from a–CHRYSTIA FREELAND: We’re not quite in a Soviet scenario — that’s reassuring!ROBERT HORMATS: Joe has made a very interesting point. One thing that — I did a book on how we pay for our wars — of the early part of the cold war the view of Americans was that the Russians felt they could win the cold war by bankrupting the United States so that we would have such a terrible domestic scene that we would pull back from engagement from Europe and elsewhere. It turned out exactly the opposite: the Russians bankrupted themselves and they had to pull back.JOSEPH NYE: And the other thing of an Eisenhower foreign policy is his advice, “Don’t get involved in land wars in Asia.” In that sense, it’s not the same as isolationism to say that we don’t have a strong enough national interest to be worth spending $110 billion a year in Afghanistan. On the other hand, if you look at American presence in East Asia, 50,000 troops in Japan — Japan pays for most of them. The troops in Korea — Korea pays a good chunk of that.CHRYSTIA FREELAND: So if Afghanistan wants to pay for U.S. involvement, that’s OK?JOSEPH NYE: No, we shouldn’t be in Afghanistan. Now, with policy you have the problem of you start from where you are, not from where you want to be. But I think what Obama has said is that we’re not going to make the mistake we made in Vietnam of thinking that with counterinsurgency we can suddenly make this all work out. What we’re going to do is switch our strategy from a very expensive counterinsurgency to a much more affordable counterterrorist strategy. And that means you have a lighter footprint which you can sustain for a longer duration. That’s what I call a smart strategy. And you don’t measure that by percentage of GDP spent on the military or the numbers in the defense budget. You measure it by whether it is actually accomplishing the goals you’re looking for. I think we’re going to take 10 or 15 percent cut in the defense budget over the next several years as we work through something that looks like Simpson-Bowles [deficit commission report]. I don’t think that necessarily means a 10 or 15 percent cut in U.S. influence in the world if we use the resources in the defense budget wisely.
Guns vs. butter, Afghanistan edition
Peter Rudegeair
JUL 6, 2011 14:48 EDT
Steve Clemons, Washington editor at large for The Atlantic, chatted with Chrystia at the Aspen Ideas Festival about the politics of the deficit debate, the 2012 presidential race, and whether the U.S. is in a trap in Afghanistan. Here’s a transcript of some of the highlights of their conversation:
STEVE CLEMONS: When you’re in a country whose GDP is $14 billion, and we are in this next fiscal year spending $119 billion in Afghanistan — that’s only our dollars; that’s not our allies; that’s not non-military aid. This is the military expenditure for what we’re doing. You can buy and sell Afghanistan eight times over for what we’re spending. So I’ve been, with Afghanistan Study Group which I helped create, putting on the table that there are better ways to chase al-Qaeda and to keep it from becoming a safe haven–CHRYSTIA FREELAND: Well, hasn’t the hunt for al-Qaeda worked? Osama bin Laden has been killed, so there you go.STEVE CLEMONS: The hunt for al-Qaeda has worked. Yeah, exactly. So you can check that box off, and this big, clunky, large-sized military footprint maybe creating other problems for us. In fact, rather than making it look like we’re leveraging and extending American power in the world, this looks like a trap. And Iran and China and other nations in the neighborhood are saying, “Wow, the United State is pretty limited, pretty constrained.” And they look like they’ve got more latitude as long as we’re stuck there. So when you take in this climate where there’s this giant spotlight on spending and people are losing teachers and police and cutting back just on all sorts of programs as we are struggling through our own budget battles here, to look at the fact that we’re spending $120 billion in this slightly irrelevant country abroad has raised a lot of issues. And so what has happened is you see — it was shocking — where Jon Huntsman and Michele Bachmann — we heard Haley Barbour earlier. You have people like Grover Norquist and Ann Coulter — Bing West, who’s no softie on the war — there’s more and more of a Republican voice, and they smell I think –CHRYSTIA FREELAND: A Republican voice saying what?STEVE CLEMONS: A Republican voice saying this war makes no sense.
Pulitzer-winner David Rohde’s hostage experience
Peter Rudegeair
JUL 1, 2011 15:57 EDT
David Rohde, the two-time Pulitzer-Prize winning foreign correspondent, is the newest member of the Reuters digital family. He and his wife Kristen Mulvihill sat down with Chrystia at the Aspen Ideas Festival to discuss A Rope and a Prayer: A Kidnapping from Two Sides, their book about the seven months David spent in captivity Afghanistan and Pakistan. Here’s a transcript of some of the highlights of their conversation:
On the interview he did with a Taliban commander that led to his kidnapping:
DAVID ROHDE: This young commander, he had done two interviews with other journalists. They were Europeans; he didn’t kidnap them. In hindsight–CHRYSTIA FREELAND: So an American guy is better?DAVID ROHDE: Yes. I think he was gaining the trust, a good reputation among journalists that he didn’t kidnap journalists. And then I came along and he grabbed me. I did the interview just outside of Kabul, the Afghan capital. I thought it would be safer there. Again, I thought there was a safe track record. I met with a journalist who had done two interviews with him the night before I went to my interview. She said, “You’re in more danger as an American, but I don’t think he’ll kidnap you.” And what this young guy did was grab me and take me over the border to Pakistan to this very powerful group, the Haqqani network. And he wanted to get money but also wanted to boost his reputation among other Taliban.
On whether the interview with the commander was worth it:
CHRYSTIA FREELAND: Did you feel guilty for letting this happen and for what it meant for Kristen?DAVID ROHDE: Absolutely. The moment the kidnapping happened, waves of guilt washed over me. I was with two Afghan colleagues: an Afghan journalist, Tahir Ludin, and an Afghan driver, Asadullah Mangal. And this interview which seemed so crucial sort of felt really foolish in that moment. I got kind of carried away. It was frankly competition. I wasn’t based in the region anymore. Dozens of journalists have safely interviewed the Taliban. I was working on this book and I wanted it to be the best book possible, and I lost my perspective. It’s a danger in journalism. In a sense in terms of taking risks, it can be a race to the bottom. Other big stories were worth it. I took risks in Bosnia, helped expose executions there, and was detained.CHRYSTIA FREELAND: Right, exactly. Had you not done that, the world would be a different and maybe less good place.DAVID ROHDE: Well, I stand by taking the risk in Bosnia. In hindsight, getting an interview with a Taliban commander — it wasn’t worth the risk and played out disastrously.
On his treatment in captivity and the great escape:
DAVID ROHDE: We were held in this large town in Pakistan. I was treated very well. The tribal areas of Pakistan aren’t this sort of wild place with no infrastructure. I was given bottled water everyday I was in captivity. I was given copies of English-language Pakistani newspapers to read. And we were held in the end very close to a Pakistani military base. And throughout the seven months I never saw the Pakistani military come off that base and challenge the Taliban. The Taliban had complete control of the town. They taught bomb-making classes. Huge explosions went off and nothing happened.And essentially we decided to escape at night while our guards were asleep. I had found a car tow-rope, and we used it to lower ourselves down a wall. And we made it to a Pakistani army base. And this very brave and moderate Pakistani army captain let us inside and apologized to me and Tahir for what had happened and let me call home. And all of the months of meetings in Washington paid off because Kristen reached out to all these American officials, including Holbrooke. The Pakistani military then flew us out of this base.
Ending poverty via urban planning
Peter Rudegeair
JUL 1, 2011 12:10 EDT
NYU economist Paul Romer is what Chrystia calls an “ideas entrepreneur.” He revolutionized the study of economic growth with his research on the power of ideas. He shook up the field of higher education with his company that offered online homework problems that were graded by computer. Now Romer has set out to alleviate world poverty. For his new project, Romer set up a nonprofit organization dedicated to convincing governments across the developing world that they should cede a portion of their territory to an external authority in order to create a “charter city” in which new rules would make it attractive for skilled immigrants, unskilled migrants and businesses to come and settle.
This radical idea is slowly catching on. Honduras is poised to be the first country in the world to host a charter city after its Congress approved a constitutional amendment enabling such a plan in January.
He talked with Chrystia at the Aspen Ideas Festival about the Charter Cities project. Here’s a transcript of some of the highlights of their conversation.
CHRYSTIA FREELAND: What kind of legislation — what does it take to build these new cities, these reform zones?PAUL ROMER: Let me give you a “for instance.” This new zone [in Honduras] will have its own judiciary. The hope is that a partner country will agree to let its Supreme Court act as the court of final appeal for the judiciary within this zone. If the treaty can be negotiated soon enough, the enabling legislation will specify that country X is–CHRYSTIA FREELAND: So subcontracting your legal system to a lovely place like Canada or the Netherlands or something like that? Is that the idea?PAUL ROMER: That’s the principle, so that you can get instant independence for your judiciary from both the existing government in Honduras or the government that will be set up in this new zone.CHRYSTIA FREELAND:And when you talk to the government of Honduras, don’t they sort of say, “But wait a minute, Paul. Are you saying that we’re just terrible at governing? And how come we shouldn’t be ruling this part of our country?”PAUL ROMER: No. They totally get the principle which I think everybody is missing right now. Let me go back. If you think of the theory of economic development 40 or 50 years ago, people were obsessed about self-sufficiency, that every country had to develop its own technology. Even not that long ago, Brazil was trying to develop their own PCs because they didn’t want to import PCs. Everybody understands now that that’s crazy. If there’s good technology in the world, import that. If you want–CHRYSTIA FREELAND: If there are good judges, import them? Is that the idea?PAUL ROMER: It’s the same principle. Instead of just importing the best technology through DFI or capital equipment, there are good systems of governance around the world and why not take advantage of those instead of trying to develop your own. The saying in Britain is when you’re trying to set up an institution like the legal system, the first five centuries are always the hardest. If somebody’s already gone through that process, take advantage of it. Don’t take five centuries to try and do it again.
COMMENT
JUL 2, 2011
9:09 PM EDT
The headline is misleading. This has little to do with urban planning as such.
Anyway, it is an interesting idea. The only downside I can see is that the central government can rescind the plan any time they think the judiciary is too independent.
Posted by mnhsty | Report as abusive
Winners and losers in the Apple economy
Chrystia Freeland
JUL 1, 2011 10:16 EDT
ASPEN, COLORADO — Once upon a time, the car was the key to understanding the U.S. economy. Then it was the family home. Nowadays, it is any device created by Steven P. Jobs. Call it the Apple economy, and if you can figure out how it works, you will have a good handle on how technology and globalization are redistributing money and jobs around the world.
That was the epiphany of Greg Linden, Jason Dedrick and Kenneth L. Kraemer, a troika of scholars who have made a careful study in a pair of recent papers of how the iPod has created jobs and profits around the world. The latest paper, “Innovation and Job Creation in a Global Economy: The Case of Apple’s iPod,” was published last month in The Journal of International Commerce and Economics.
One of their findings is that in 2006 the iPod employed nearly twice as many people outside the United States as it did in the country where it was invented — 13,920 in the United States, and 27,250 abroad.
You probably aren’t surprised by that result, but if you are American, you should be a little worried. That is because Apple is the quintessential example of the Yankee magic everyone from Barack Obama to Michele Bachmann insists will pull America out of its job crisis — the remarkable ability to produce innovators and entrepreneurs. But today those thinkers and tinkerers turn out to be more effective drivers of job growth outside the United States than they are at home.
You don’t need to read the iPod study to know that a lot of those overseas workers are in China. But, given how large China currently looms in the U.S. psyche, it is worth noting that fewer than half of the foreign iPod jobs — 12,270 — are in the Middle Kingdom. An additional 4,750 are in the Philippines, which, with a population of just 102 million compared with China’s 1.3 billion, has in relative terms been a much bigger beneficiary of Mr. Jobs’s genius.
This is a point worth underscoring, because some American pundits and politicians like to blame their country’s economic woes on China’s undervalued currency and its strategy of export-led growth. In the case of the Apple economy, that is less than half the story.
Now come what might be the surprises. The first is that even though most of the iPod jobs are outside the United States, the lion’s share of the iPod salaries are in America. Those 13,920 American workers earned nearly $750 million. By contrast, the 27,250 non-American Apple employees took home less than $320 million.
That disparity is even more significant when you look at the composition of America’s iPod workforce. More than half the U.S. jobs — 7,789 — went to retail and other nonprofessional workers, like office support staff and freight and distribution workers. But those workers earned just $220 million.
The big winners from Apple’s innovation were the 6,101 engineers and other professional workers in the United States, who made more than $525 million. That’s more than double what the U.S. nonprofessionals made, and significantly more than the total earnings of all of Apple’s foreign employees.
Here in microcosm is why America is so ambivalent about globalization and the technology revolution. The populist fear that even America’s most brilliant innovations are creating more jobs abroad than they are at home is clearly true. In fact, the reality may be even grimmer than the Tea Party realizes, since more than half the American iPod jobs are relatively poorly paid and low-skilled.
But America has winners, too: the engineers and other American professionals who work for Apple, whose healthy paychecks are partly due to the bottom-line benefit the company gains from cheap foreign labor. Apple’s shareholders have done even better. In the first of their pair of iPod papers, published in 2009, Mr. Linden, Mr. Dedrick and Mr. Kraemer found that the largest share of financial value created by the iPod went to Apple. Even though the devices are made in China, the financial value added there is “very low.”
In an essay to be published in the July/August issue of Foreign Affairs magazine, the Nobel economics laureate A. Michael Spence describes the same phenomenon: “Globalization hurts some subgroups within some countries, including the advanced economies.
“The result is growing disparities in income and employment across the U.S. economy, with highly educated workers enjoying more opportunities and workers with less education facing declining employment prospects and stagnant incomes.”
These contradictions of the Apple economy help to explain the defining paradox of the Aspen Ideas Festival this week, an annual gathering of business people, politicians and writers in the Colorado Rockies.
On one hand, the assembled cognoscenti took a rather bleak view of the U.S. economy. Justin Wolfers, an economist at the Wharton School at the University of Pennsylvania, captured the collective concern, when he told me America was already halfway through a “lost decade” and warned that it was a mistake to assume that the economy would heal of its own accord.
But, in contrast with 2008, when America’s affluent were collectively terrified, the festivalgoers this summer are in high spirits. They should be. Keith Banks, president of U.S. Trust, the private wealth management arm of Bank of America, said that for his millionaire and billionaire clients, the recession was over.
Nor, Mr. Banks told me, were they overly worried by the lackluster U.S. economy or Europe’s even weaker performance. That’s because the global economy overall — powered by the emerging markets — continues to grow strongly, and Mr. Banks’s American “high net worth individuals” are not just U.S. citizens, but global capitalists.
A second theme of the festival is hand-wringing about the overly polarized American political debate. The worriers are referring to the divide between Republicans and Democrats. But the truth is that not much separates the Republicans and Democrats gathered here.
The summer issue of Aspen Magazine called these affluent festivalgoers “internationalists.” They are the winners in the Apple economy, and the reason American politics is becoming so raucous is that the gap between them and the losers is growing.
COMMENT
JUL 8, 2011
11:11 AM EDT
You wrote, “One of their findings is that in 2006 the iPod employed nearly twice as many people outside the United States as it did in the country where it was invented — 13,920 in the United States, and 27,250 abroad.
You probably aren’t surprised by that result, but if you are American, you should be a little worried”
Worried, why? Without the iPod, would we have those 13,920 US-based jobs?
Your statement reminds of a survey Time Magazine did a long while ago, when Japan was ascendant. They asked Americans something along the lines of which would they prefer:
A) Japan GDP growth of 20% and US GDP growth of 10%, or
B) Japan GDP growth of 5% and US GDP growth of 3%.
A) Japan GDP growth of 20% and US GDP growth of 10%, or
B) Japan GDP growth of 5% and US GDP growth of 3%.
The respondents overwhelmingly chose B. This makes no sense to an economist, as choosing A would mean US GDP growth of 10%! However, the respondents would rather get lower GDP growth if they felt that they were losing less ground to another country. They overwhelmingly chose B, because Japan had slower growth.
This is analogous to your statement. We shouldn’t worry that foreigners got 27,250 jobs. We should be extremely pleased that American innovation created 13,920 US jobs, with half of them being high-quality engineering jobs.
Posted by ChKen | Report as abusive
The super-wealthy bounce back
Peter Rudegeair
JUN 30, 2011 18:28 EDT
Keith Banks is the president of U.S. Trust, the private wealth management arm of Bank of America. He stopped by the Reuters studio in Aspen to chat with Chrystia about the resurgent risk appetite among the world’s super-wealthy investors, his tripartite outlook for the global economy and the alternative asset classes that are currently in vogue. Here is a transcript of some of the highlights of their discussion:
The super-wealthy have gotten their groove back:
KEITH BANKS: The thing that was very interesting to me was even the super wealthy, people with hundreds of millions of dollars, how impacted they were psychologically by the crisis. So even though arguably their standard of living didn’t change, yeah their net worth was down, but it was not down to a point where they had to change their lifestyle. But psychologically, they were very impacted by it. If they happened to be business owners on top of that, they were really feeling pretty beaten up, because not only were they dealing with the personal aspects of that, but they were running businesses that were looking at higher taxes, more regulation, higher health care costs, and a lot of uncertainty and generals. They were getting kind of a double whammy. So I would say our clients came out of the crisis really hunkered down, were really impacted psychologically. And what it really changed was their thinking about what they wanted to do from an investment standpoint… I’d say about six, nine months ago, we slowly began to see that shift where clients began to engage. We’re able to engage clients more in a discussion about areas they should be thinking about moving their assets into to get somewhat higher returns, still managing the risk. So I think the psyche has improved. They’re doing more and they’re more willing to move money around, whereas 12 months ago, not interested.
A tale of three cities in the global economy:
There’s a tale of three cities going on. Number one is the U.S. And the U.S. — think about right now is a two to three percent grower, okay. Not what we want to see, but certainly not the worst-case scenario. The– the second city is Europe, Eurozone. Now it’s going to be a one to two percent growth, right, even more anemic, with a very wide range of outcomes by country. But again pretty anemic stuff. And then the stars of the show continue to be the emerging markets. In general, China and Asia in particular. But when you blend that all together, we’re still looking at growth north of four percent globally. That’s a fantastic number. And a lot of our– our multinational firms, the S&P 500 types of companies get as much of 50 percent or more of sales [abroad]… So if you’re a company that has a global market place that you’re serving, you’re probably looking out there saying this is pretty good, right. I’m seeing good growth, I’m seeing good sales, I’m seeing good profits because I have the streamlined core structure. So those companies and those executives are feeling good about things. If you’re a smaller company that’s pretty much a U.S. domiciled, U.S.-centric company in terms of who your customers are, you’re probably not feeling nearly as buoyant, [or] nearly as robust because you’re feeling more the effects of that two percent, two and a half percent growth dynamic that we’re seeing just here in the U.S. And obviously, if you’re U.S. and Europe, then you’re really not too pumped up because then you’re too mired in two of the areas that again are seeing the least robust growth. So it really depends on what your market is, who you’re serving, where your sales come from.
The smart money bets the farm:
KEITH BANKS: And so now the question’s going to be how fast can we grow, both in the U.S. and globally, what opportunities does that create for them both from a business standpoint as well as a personal investment standpoint, and then positioning them accordingly. One thing that’s also very interesting is our clients, in addition to the traditional financial assets, stocks, bonds, all that, they’re getting increasingly interested in hard assets. Hard assets to find as timberland, farmland, oil and gas properties. We have the ability–CHRYSTIA FREELAND: Real estate?KEITH BANKS: Real estate. But not so much, not residential. There are opportunities in the commercial side just because values have gotten depressed. But what’s interesting is if you believe that global growth will continue at a four percent plus rate, you’re already seeing inflation picking up in those countries that are seeing the faster growth, but it’s a reflation (PH) dynamic. And so what people are saying is own — owning the hard asset is not only a good diversifier with respect to financial assets, the traditional assets, but it’s a place you want to be if ultimately inflation will begin to slowly but surely tick up. So we have a group within U.S. Trust that can do that. We’re engaging a lot of clients in that discussion.
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