Chart of the Day: The Dragon Eats Corn

WSJ story.

This is, of course, big news to those of us who own farmland in the Midwest (I do by extension through my wife), because China is already buying up all the soybeans (or so it would seem), and now they're moving in corn in such a big - and I believe, a permanent - way, that a state like Indiana, where damn near everything is corn or soybeans, is feeling pretty good.

Our acreage, BTW, is in NW Ohio - basically the farm my wife grew up on (her share).

With China sucking up this corn and the rest of the world's demand rising as well, it almost strikes me as criminally stupid, in a strategic sense, to continue with the economic farce that is corn ethanol.  I've seen estimates where one-third of our crop (!) is destroyed in this manner - and I do consider it "destruction" is a world where 1B are too fat and 1B are malnutritioned (Soylent Green anyone?).

Mini rant for the day. Up to Lambeau tonight to see Pack v Cards in preseason.  Taking the Mei Mei.

Chart of the Day: Chinese students continue to flood US schools

An interesting trend amidst the general deterioration of relations (of course, officially, everything is wonderful), and reflective of a growing middle class in China able to pay for overseas education.

But it also shows that far-sighted Chinese prefer the sort of "questioning"/critical thinking education that the US offers over the more rote version offered at home.  Last time I was in China, I heard that directly from college execs: they feared they just weren't developing the students the country needed.

Of course, that sort of academia would be harder to control, so China effectively outsources the function.  That does delay the eventual impact of making so many critical thinkers happen - but that's all.

Remember how the Middle East starting pushing so many young people into college across the last decade.  Yes, it kept off the streets for a while, but when they got back on the streets, my, were their expectations then even more "unreasonable."  The Arab Spring is a direct result of that.

Mr. Dalit Comes to Class

FT story on new Bollywood film depicting "untouchables" and the discrimination they suffer. The film is already banned in three Indian states out of fear of inciting social unrest.

Ask yourself, what period of US history does this remind you of?

Fair dynamic comparison, although here the pushback comes more from dalit politicians and those in favor of their rights.  Why? Film focuses on quota system for dalits/untouchables set up at time of independence. Upper castes say film makes them look bad, but dalits say film denigrates positive impact of quota system - aka, India's version of affirmative action. 

What I remember from visiting India: it seemed like the taller you were and lighter your skin, the more likely you were more powerful and thus from a higher class.  Conversely, lower caste people seemed shorter (poorer diet) and darker.  So when I mixed with elites, I looked them in the eye, but when I moved among ordinary people, I felt like a frickin' giant. The dichotomy rather stunned me.

If you mention that observation, you tend to get a strong response from Indians who find any comparison to racism in the West to be completely offbase. I'm not sure what you call it, but it strikes me as a deep legacy of discrimination based on birth (meaning you can't change who you are no matter what, which smacks of that "one drop of blood" logic) and thus is reasonably compared to racism elsewhere in the world, despite its "sophisticated" and multivariate application.

Point of post: rising India, like rising China, is racing through a lot of history and "phases" that US went through a much more leisurely pace.  That's incredibly hard but facinating to watch.

Blurb on film only hints at controversy (from Rotten Tomatoes), but understand that Prabhakar has a special space for dalits in his school and that Kumar, who is in love with Prabhakar's daughter, is himself a dalit. This is classic Bollywood (father-daughter conflict over undesirable match) with the twist that here the father is the perceived liberal:

Aarakshan is the story of Prabhakar Anand (Amitabh Bachchan), the legendary idealistic principal of a college that he has single-handedly turned into the state's best. It is the story of his loyal disciple, Deepak Kumar (Saif Ali Khan) who will do anything for his Sir. Of Deepak's love for Prabhakar's daughter, Poorbi (Deepika Padukone), of his friendship with Sushant (Prateik). It is the story of their love, their lively friendship, their zest for life, and of their dreams for the future. Centered on one of the most controversial issues of recent years, with the Supreme Court's order on reservation, the story suddenly becomes a rollercoaster ride of high drama, conflict, and rebellion, which tests their love and friendship for one another, and their loyalty to Prabhakar Anand.

Film is already in US, probably because Bachchan is the Cary Grant of Indian cinema. Done about 300k, so art-house limited.

Be interested if anyone has seen it and can provide impressions.

Our fiscal failure eventually achieves the global rebalancing sought

FT op-ed by former senior Chinese central bank official.

The big lesson of the past few weeks, he says, is that China must end its dependency on the dollar.

China has run a current account surplus and a capital account surplus almost uninterruptedly for more than two decades. Inevitably this has led to an accumulation of foreign reserves. It is clear, however, that running these surpluses persistently is not in China’s best interests. A developing country, with per capita income ranking below the 100th in the world, lending to the world’s richest country for decades is not reasonable. Even worse is the fact that, as one of the largest foreign direct investment-absorbing countries in the world, China essentially lends money it borrowed at a high cost back to its creditors, by buying US Treasuries, rather than importing goods and services.

Internationalizing the yuan, stimulus packages, letting it rise slowly, bundling up all those bucks in sovereign wealth funds - nothing has really stopped the preciptious accumulation because the government remains committted to keeping the yuan low, seeing in inflation an unacceptable risk.

But by staying so married to the dollar, it runs the same risk extended, as the US will inevitably inflate its way out of a certain amount of its unsustainable debt.

As Yongding puts it, "The longer it continues, the more violent and destructive the final adjustment will be."

Of course, the same holds for the US in this game of chicken.

WPR's The New Rules: U.S. Must Get Back in Touch With Its True Exceptionalism

This month's debt-ceiling deal in Washington did little to quell the growing chorus of complaints around the world concerning America's continued inability to live within its means. As those complaints invariably translate into corporate hedging, government self-defense strategies, credit rating drops -- Standard and Poor's is already in the bag -- and market short-selling, the U.S. will most assuredly be made to feel the world's mounting angst. This is both right and good, even as it is unlikely to change our path anytime soon: Until some internal political rebalancing occurs, America will invariably stick to its current cluster of painfully outdated strategic assumptions.

Read the entire column at World Politics Review.

Rogoff's "second great contraction" and why I'm mad as hell at Washington

Got this by way of Thomas Friedman's Sunday NYT column, which is pretty good (for a blog post!), but the direct source approach is much better. Still, Friedman's upcoming book on fixing America couldn't be better timed, so expect another mega-bestseller there.

Rogoff's point is simple but very revealing: we've all known this crisis to be a financial one versus the usual biz cycle.  Recovering from biz-cycle contractions is historically a quick affair, but recovering from a financial crisis is typically more the 5-7 years horizontal scenario. Rogoff's key insight is to state the obvious (for most of us consumers): the "recovery" of the business cycle has already arrived and it changed nothing for most people, because the hangover is a long-term credit contraction - i.e., the huge deleveraging.

Many commentators have argued that fiscal stimulus has largely failed not because it was misguided but because it was not large enough to fight a “great recession.” But in a “great contraction,” problem No. 1 is too much debt. If governments that retain strong credit ratings are to spend scarce resources effectively, the most effective approach is to catalyze debt workouts and reductions.

Governments, for example, could facilitate the writedown of mortgages in exchange for a share of any future home-price appreciation. An analogous approach can be done for countries. For instance, rich countries’ voters in Europe could perhaps be persuaded to engage in a much larger bailout for Greece (one actually big enough to work), in exchange for higher payments in 10 to 15 years if Greek growth outperforms.

Is there any alternative to years of political gyrations and indecision?

I have argued that the only practical way to shorten the coming period of deleveraging and slow growth would be a sustained burst of moderate inflation, say, 4 per cent to 6 per cent for several years. Of course, inflation is an unfair and arbitrary transfer of income from savers to debtors. But such a transfer is the most direct approach to faster recovery. Eventually, it will take place one way or another, as Europe is painfully learning.

I feel this personally in spades: built a nice big house in 05-06 at the height of the bubble (of course, I walked away from the old house with an inflated sum, so no complaints), so the house is priced in that way - as is my mortgage.  At the time, no problem, because I'm getting paid in a bubblicious way.

Then the crisis.  All of a sudden everyone says my labor is worth a whole lot less.  Still love me and the work, just want to pay a lot less.  Everybody is doing this, except my mortgage holder.  He wants that to stay the same.

I'm lucky. Despite losing a ton of income over the past three years, I've scrambled and replaced the vast majority.  I have to work three times as hard for 5 times as many customers, but I'm managing because I'm not reliant on any one job and I'm willing to hustle.

So I do the right thing and don't strategically default on a mortgage, which is tempting, not because I can't pay it because I can - and am. It's tempting because, geez, why should I pay off this debt honorably across this long crunch while so many others get help or simply run away?  Because when I do, I subsidize all their behavior.  If I strategically default, I suffer some serious inconveniences, but I can put us in a rental tomorrow for a fraction of what I'm paying on my mortgage.  You hear these tales all the time, but usually from couples with few or no kids, because making that sort of move would be a mega-bitch for a family of 8.

But I built a big house (six kids, go figure) and I'm above the usual government help parameters, so - again - I do the right thing but feel mightily screwed by the turn of events.  I keep wondering, where's my haircut - you know, the one everybody else seems to be receiving?

Worse, I have a White House that claims I'm the problem because I don't pay enough taxes and so it wants to soak me because that's an evil state of affairs.  Funny thing is, I pay the Fed a whopping sum every year - about three times as much as my dad ever made in a year while he supported us seven kids.  So naturally, when more than one out of every three dollars I make goes to the government, I feel like I'm supporting all sorts of programs for the needy, plus I'm doing the right thing by the mortgage, plus I keep up my charity donations, plus I pay 3 private grade school tuitions (saving the public schools) and two public college tuitions (eldest daughter and wife).  I don't ask for any hand-outs from the government.  Hell, I fund them and am glad to do so.  But then I'm told I'm the reason why the government is so in debt (not enough taxes from the "rich") and yet I'm the dupe who continues honoring that mortgage from another era while paying for the bail-outs of those who can't. And you know, I don't feel like I'm the problem - or evil for doing all that.

In short, I'm doing everything I can to help this economy. I'm working my ass off, I'm honoring all long-term debts and keeping myself out of any short-term credit. But you know what that takes in this economy?  It means I am as stingy as possible on consumer spending. It means I put off business investments for as long as possible.  It means I've got nothing for venturing investments.  It means I'm more incentivized than ever to stuff as much into retirement funds to avoid the tax man.  It means I will vote for anybody who seems to spell reasonable restraint and relief - and that sure as s--t ain't Obama.

I'm not a Tea Partier.  I'm very middle-of-the-road: a conservative Democrat on domestic and a liberal Republican on foreign. I crave compromises in Washington because our political elite's inability to make those deals happen reasonably means I compromise across the board.  They do nothing to lift the economy out of its doldrums and I reciprocate. Everything I read from them says, "Screw you" and I can't help wishing them the same.

There's your national angst in a nutshell. I've been laid off.  I've had my salary cut plenty of times. I've been asked to work twice as much for half as much money. I've seen hours slashed. I've had to arrange my own health insurance for the first time in my career.  Moreover, virtually every risk I once shared with employers has, over the years, shifted to me as an individual. As somebody who studies globalization, I've learned to accept that tough reality, because the economic models we relied upon before globalization went big time are now unsustainable.  I don't regret that transformation, because it's part of the globalization process that's lifted hundreds of millions out of poverty globally. But it does mean this country needs to retool most of how it's dealt with economic "losers" and those made vulnerable by these changes. But Washington seems clueless in this regard, with everybody holding firm when a bit more imagination is needed (my column tomorrow).

So yeah, as a small businessman (Barnett Consulting), I've had it all across my various endeavors across this Second Great Contraction - sometimes voluntarily but oftentimes not. Everybody has had to tightened up dramatically - that's the basic inescapable reality in this business environment.

Yes, I've been lucky because I never had all my eggs in any one basket, but I survive only because I've refused to lay down. I lose one job (and I've lost several since 2008), I go out and immediately get two or three more - because that's the terrible math.

So - again- I do the right thing. I honor all my obligations and simply work that much harder. But no, I have no optimism about the future of our economy right now. I don't how I could. I know what I know about globalization and America's long-term strengths, but I look at Washington and I see clueless politicians with no business experience spending all their time trying to tear each other down and I wonder why I must suffer these fools.

I don't have any choice.  We made the "mistake" of having three kids.  We made the "mistake" of adopting three needy kids from around the world (there are worse ways to spend your money, but it's essentially my helping the world without the same tax breaks as when I give to international charity X). I built that nice house (which I love, BTW) in a nice school district (so I don't pay tuition to my son's excellent public HS, which I support with property taxes, even as I privately fund his show choir's appearance at the London Olympics next summer because that's what excellent public HS's do - damn it!).  Frankly, I am very happy with my family's existence here in Indy, which is a state that's cheap but well run (and yes, I would have liked to see Mitch Daniels run).  

But I am plenty angry about the economy and the place it has put me in. I am forced to scramble non-stop.  I hustle like a maniac. I am full of angst and it's mostly about debt (what I honor while others do not, and what I work like a demon to avoid, but honestly, what's the value of a stellar credit rating at this point - except to subsidize others?).  I pay huge taxes and am denied any haircut-like relief on my mortgage - when everything else I see in this economy has been negotiated downward to account for the new reality (I know, because I've done it myself with all sorts of counterparties).  

But most of all, I f--king hate the government right now for being such incompetent boobs.  I would be happy to see them all lose in 2012 - and will vote that way.

WPR's The New Rules: The New World Order-After-Next

There is no faster route to second-tier great power status than for an actual or aspiring superpower to fight a crippling conflict with another country from those same ranks. Moreover, if history is any guide, the glass ceiling that results is a permanent one: This was the fate of imperial Britain, imperial Japan and Germany -- both imperial and Nazi -- in the first half of the 20th century, and the same was true for Soviet Russia in the second half of the century, despite Moscow's conflict with the West being a cold one. The lesson is an important one for Washington, Beijing and New Delhi to keep in mind in the years ahead, given that the two most likely dyads for major war in the 21st century are America-China and China-India. 

Read the entire column at World Politics Review.

What is eternal and ephemeral about China - and this modern world system we call globalization

Fabulous op-ed in WSJ on 6 July by Liu Junning, an "independent scholar in Beijing."

You should read it all.  Here are my favorite bits:

First, Liu speaks to the infatuation in the West for the alleged "Beijing consensus":

This view fundamentally misunderstands the country's growth progress. China has indeed made great strides since 1978's "Reform and Opening" in alleviating poverty, opening up to the world, and making slow steps down the road of legal reform. Yet on closer inspection, the most significant transformations from the perspective of boosting prosperity have involved loosening of control over the people, not some alchemy of power and Marxism.

This becomes clear in comparing China's economic performance during periods when Beijing has been more closely versus less closely following the Beijing Model. According to MIT economist Yasheng Huang, "[W]hen measured by factors that directly track the living standards of the average Chinese person, China has performed the best when it pursued liberalizing, market-oriented economic reforms, as well as conducted modest political reform, and moved away from statist policies."

I have read such analyses too many times to count, and yet it still amazes me how many don't get it: China does best when it moves in the direction of the allegedly discredited Washington consensus and does significantly less well when it goes more statist.  But the mythology (like Reagan "reducing the size of government") lives on.

Liu also dismisses the notion that defenders of Chinese authoritarianism make: that the Chinese naturally abhor Western-style rights:

This too is at odds with current experience. Simply talk to those peasants who have had their land arbitrarily taken, and we see that property rights are implicitly cherished by all, regardless of race or ethnicity. Despite Beijing's crackdown, lawyers and activists continue to press for Western-style rights.

The rest of the piece is a tour of Chinese history that shows that the ideas and practices of liberalism have flowered throughout. Again, Mao gets credit for reunification but also for perverting the system profoundly. China has always been far more capitalistic than realized. It was Mao's 30-year rule that was the historical aberration, as was his erratic authoritarianism.

Then the solid finish:

To say that the narrative of liberty vs. power is uniquely "Western" is to turn a blind eye to the struggles of those who have gone before us. Individual rights are not a Western development any more than paper and gunpowder are inventions that are uniquely Chinese. Is Marxism "German"? Is Buddhism "Indian"? Of course not. When ideas are born, they take flight into the world to be used, improved or discarded by all of humanity. Constraints on political power and the protection of individual rights belong to all.

The tragedy is that we Chinese don't have full access to these protections. That increasingly will hold us back instead of propelling us forward as proponents of a Beijing consensus believe. Real success for China in the 21st century will depend not on the Communist Party itself, but on the establishment of the rule of law, limited government, and further economic liberalization that opens China's market to the world.

Fundamental to this is the right to speak freely. China will truly prosper only when individuals such as Liu Xiaobo, Ai Weiwei and the many other Chinese patriots who speak for reform are safe in the knowledge that they can do so without a late-night knock on the door from the government.

I continue to believe that the Chinese need a certain historical distance from the Cultural Revolution, plus time to get used to their new-found wealth/development before democracy arises naturally from within - meaning the popular push gets so strong that the Communist Party is forced to birth two or more successor parties in order for the system to survive.

I will readily admit that, until that tumultuous process unfolds, there will be plenty in the West who buy into the Beijing-sold notion that somehow the Chinese are "unique" in their history and developmental trajectory. I personally think that's nonsense.

I also think that the real genius of the American System projected onto a global stage these past seven decades as an international liberal trade order-cum-the West-cum-globalization is that it enables countries like China to start the developmental jump and continue it with enough force - via a package that remains far closer to the Washington consensus than any other I've seen - to trigger the pluralization process that best fits the society in question (aka, what we call "democracy" but really mean as a republic or a government based on law). The timing is variable but inevitable if economic success is had (show me the large rich country that is both politically mature and not a democracy).  Yes, in the era following the Cold War's end, we must suffer waiting out a host of countries and their evolutions, but as the Arab Spring shows, the people themselves will keep on trying - no matter the costs and frustrations.

To imagine democracy is on the wane in this era is, in my opinion, simply wrong-headed and stubbornly so. Ditto for free markets, understanding that we don't live in a world of pure or absolute anything and that these things ebb and wane with events.  

But the march of history is beyond clear, as is America's supremely positive impact on it these past seven decades.  Most of everything we consider to be good in this world has come about in the last seven or so decades.  Go back before them - before America's ascension to global power - and you find everything much worse and on the path of self-immolation. Instead, we now have unprecedented peace, wealth, development and freedom - especially for women. These are not accidental events; the timing is incontrovertibly linked to America's role.

Which is why maintaining that role in a sustainable fashion is so crucial. "Post-American" is a self-defeating lie - a cancer within our ability to think in grand strategic terms. There is most definitely a "pre-American" world. There will never be a "post-American" one - nor should there be in a world that will be ruled by the middle - again, thanks to the system we created, nurtured and defended all these years.

WPR's The New Rules: A Post-NATO Europe Should Look East

Among the mutual recriminations ringing out between the U.S. and Europe regarding NATO's already stressed-out intervention in Libya, we have seen the usual raft of analyses regarding that military alliance's utility -- or lack thereof. As someone who has argued for close to a decade now that America will inevitably find that China, India and other rising powers make better and more appropriate allies for managing this world, I don't find such arguments surprising. You don't have to be a genius to do the math: Our primary allies aren't having enough babies and have chosen to shrink their defense budgets, while rising powers build up their forces and increasingly flex their muscles. In terms of future superpowers, beyond the "CIA" trio -- China, India and America -- nobody else is worth mentioning.

Read the entire column at World Politics Review.

Time's Battleland: Cyber-espionage: We're #2! We're #2!

V is for Vendetta

Economist story (6/18) about the recent wave of high-profile attacks by hacker collectives references "SQL injections," or the technique of penetrating databases of companies, agencies, etc. McAfee, the web security firm, says about half of those it tracked over the first quarter of 2011 were made by Chinese "cyberspies" - a rather imprecise term for the Economist because it implies all are working for the government when, you know, China isn't exactly without criminals or hacktivists.

Read the entire post at Time's Battleland.

Pic above if from actual Economist story.  Damn those Wachowski bros!

Just rewatched the film (2006) about a month ago.  Big fun for fans of Natalie Portman and Hugo Weaving - and Stephen Rea.  Also a great turn from my big favorite John Hurt (he gets to play Big Brother this time!).

The real continuity goof with the film: the West's fictional descent into fascism begins with a US-led invasion in the Middle East in response to a terror strike. Oh well, guess we have to settle for the Arab Spring instead.

Dang!

WPR's The New Rules: Don't Fear U.S. Cyber Deterrence

It is tempting to view the Obama administration's new cyber strategy as the creation of yet another "conflict domain" to worry about in U.S. national security. Thus, in our enduring habit of piling new fears on top of old ones -- nuclear proliferation, terror, rising powers and failed states, among others -- we imagine yet another vulnerability/threat/enemy to address with buckets of money. In truth, the strategy document is just our government finally acknowledging that, as usual, any fruitful international dialogue on this subject awaits the first move by the system's most advanced military power.

Read the entire column at World Politics Review.

Time's Battleland: "The CIA-After-Next: Who's Gonna Run This World"

Outgoing Defense Secretary Robert Gates has done a lot of good things over his tenure:  he carved out a bureaucratic space for the small-wars crowd (Army, Marines, SOF) and he engineered the Navy-Air Force Full Employment Act (otherwise known as the AirSea Battle Concept) to keep the rest of the Building happy; he was tough enough on the budget but likewise hard enough to make sure he got more for the frontline troops.  All in all, I can't fault him on anything major. He was just what we needed after Rumsfeld.

Now he does us the final favor of speaking the truth about our European allies and a relationship that has clearly run its historic course.  I have been writing about needing to shift from West to East for almost a decade ("Forget Europe:  How About These Allies?" 11 April 2004, WAPO; "The Chinese Are Our Friends," November 2005, Esquire), and for years my suggestion that our future strategic partnerships will be with India and China instead of the UK and the rest of NATO were greeted with wide-eyed shock by briefing audiences.  But the global financial crisis opened a lot of eyes.

Read the entire post at Time's Battleland.

Nobody who matters really wants a weak US

Argument from Lee Kuan Yew that fits with everything I've come across in recent work for the USG: those who understand how this world got built are not eager to see the US retreat from its power and influence in continuing to undergird its further development.

LKY:

The world has developed because of the stability America established . . . If that stability is rocked, we are going to have a different situation.

Singapore's old leader (now officially "mentor" to the government) shows how the strong man leaves behind the right sort of system:  he builds it up and then retreats to the background, like Deng Xiaoping and plays mentor.  America, to a certain extent, faces the same evolution.  It's just that we're so given to fits of pique - as in, we're either all-in or all-out.

But the real message here:  it's okay to retreat a bit from the world if the outcome is regeneration.

On the US and China in special interview with WSJ:

Mr. Lee said he thinks a "challenge may come gradually from China," but he doubts China and the U.S. will come into serious conflict anytime soon.  China needs American markets, American investments and American technology, and won't want to "upset the apple cart," he said.

My addendum: and when they may care to, it will be too late, as they'll hit those various walls (demographics, environmental and social decrepitude, resource dependencies, defensiveness and - ultimately - the strong impulse toward democracy) I described last Jan in Esquire.

In the end, says LKY:

I believe the Americans will always have the advantage because of their all-embracive society, and the English language that makes it easy to attract foreign talent.

One of the smartest guys of the 20th century, who blesses us with his wisdom in the 21st.  I rarely disagree with the man, he is so sensible.

Paging Commissioner Roosevelt

I will admit that I wasn't that happy to hear the court ruling in favor of the players.  My small-town team, the Packers, need the owners to do fairly well, otherwise, like the Marines and their persistent bureaucratic fears of extinction, may face too tough a financial road.  The owners, who don't want to make public their finances, always use the Packers' data as proxy.  As a public corporation, the Packers are required to release the info.  Simply put, the Packers have progressively suffered under the Collective Bargaining Agreement, and either they get more revenue or their outlook is bleak.

But I suppose any movement is good movement at this point.  

The citation here is a WSJ op-ed about when Teddy Roosevelt stepped in and helped mediate a summit of sports luminaries who were considering banning football because of a death in play.  Teddy naturally saw a boys2men process in football and inserted himself like it was the Russo-Japanese war all over again, inviting the game's big shots for a summit at the White House.  As there, he dictated no demands.  He just pushed hard for agreement.

Today, of course, everything goes to the courts, which is its own progress and frustration.

I just feel a special concern for the Packers and - by extension - the League because of my grandfather's role in keeping the Packers alive and in Green Bay.

*                                   *                            *

Yesterday I got the results of my biopsy at the dentist: what was discovered on the underside of my tongue was just scar tissue from a scraggly back tooth pushed up because there isn't enough room on my right side. The dentist and I had agreed to crown that tooth no matter the outcome of the biopsy, so I was there yesterday for that procedure when the news came in.

Crown hurt less than having a piece of my tongue sliced away!

WPR's The New Rules: Long-Term U.S. Presence in Afghanistan a Mistake

The Obama administration has begun talks with Afghanistan designed to quell the Karzai government's fears about being abandoned by the West come 2014. Those talks are said to involve negotiations for long-term basing of U.S. troops involved in training Afghan security forces and supporting future counterterrorism operations. This can be seen as a realistic course of action, given our continuing lack of success in nation-building there, as well as our inability -- although perhaps unwillingness is a better term -- to erect some regional security architecture that might replace our presence. But there are good reasons to question this course.

Read the entire column at World Politics Review.

State capitalism's real weakness: an inability to control the economy

Interesting piece in the WSJ on China's inability to control inflation, which is really taking off.  Food, for example, is 10% higher than this time last year (which is nothing compared to gas in the US).

Basics of the piece notes that China's Central Bank must kowtow to the Party's wishes, and the Party tends to be captive to the interests of the exporters and "free-spending local governments," both of whom feel they've got their marching orders too regarding growth.

So you basically have China's Bernanke going around begging for help and not really participating in the top decision-making meetings, most of which occur in the ten-person State Council headed by Premier Wen or the nine-person Politburo Standing Committee headed by GenSec Hu.  While the PBOC (People's Bank of China) would prefer to push harder on inflation, the party and government fear triggering a downturn.  Two different views, of course, point being that the political overwhelms the economic logic - the main point of Ian Bremmer's book, "End of the Free Market."

Watching a political system refuse to deal with economic reality doesn't exactly mark China's state capitalism as superior - just differently incentivized.  We don't have the same fears of social unrest over economics here that they do.

This is fundamentally why China is a lot farther away from creating an international reserve currency than imagined.  To have one is to send more capital abroad than you take in (giving others to hold in reserve) and China will simply have a devil of a time reorienting from their Japan-plus growth model of publicly-enabled investment and export-driven growth, in large part for the same dynamics cited here:  the Party and Government are too influenced by industrial concerns.

The beautiful irony here persists:  China is more the Marxist ideal of capitalism run amok than America is today - by a ways.  It's also far more indicative of industrialists/financiers having taken over the government, in that Marxian fear, than America is today as well.  Again, you have to go back to the late 19th-century US history to find similarities that hold true.

Larger point:  state capitalism remains - at best - an evolutionary precursor to our mix of big firms/small firms (see Baumol Et. al, "Good Capitalism, Bad Capitalism"). 

WSJ: "The Chinese want our nuts." Roast 'em if you got 'em!

Sometimes China feels like a nut (2009), sometimes it doesn't (2005).  But when it does and that nut is the pecan, then an entire US industry changes - overnight.

Pecans are very American, the WSJ piece begins, as the pecan is the state nut of Arkansas, Alabama and Texas. Since forever, the price of pecans has followed the usual ag pattern of boom-and-bust. That all changed a few years back when the Chinese and their burgeoning middle class entered the picture.

Why do the Chinese get so turned on to pecans?  Advertising. Retired Chinese woman:  "We used to eat only walnuts, and then we saw on TV that pecans are more nutritious than walnuts." 

And an industry is reshaped.

The underlying dynamic that will increasingly knit the two nations together:

Nearly $1 of every $5 China spent on U.S. items last year went to buy food of some sort, $16.6 billion worth, according to the U.S. Department of Commerce. U.S. exports of goods of all sorts to China more than doubled between 2005 and 2010. Exports of crops and processed foods—soybeans, dairy, rice, fruit juice—more than tripled. Exports of pecans rose more than 20-fold.

Naturally, fears arose in the industry - or at least among its middlemen.  Check this out:

American shellers complained that selling so many premium pecans to China—the Chinese want the biggest, best nuts—would undermine both the domestic market and export markets in Europe. So they held back orders. China responded by going directly to growers. As Texas A&M pecan expert Jose Pena puts it: "It's kind of hard to tell a grower not to sell to the highest bidder."

There is a larger lesson in there:  US could use a new partner but prefers the seemingly safe "known known" of Europe.  Then China comes along and upsets the dynamics, but still the industry's insiders say, we must stick with what we know.  China goes directly to suppliers, and this is a bit threatening, but who can argue with sales?

Same is true for a lot of what America seeks to do in the Gap/developing world.  We assume our only allies are our old allies.  China shows up and creates all this positive change, but we find it upsetting and have a hard time interacting with them on the subject, preferring our known knowns from Europe. But the path ahead is clear enough:  the market has shifted and we've got some new friends - if we choose to get past the fear and recognize them as such.

This has been my underlying logic going back to "Blueprint for Action" (2005, but started briefing in late 2003). "Implausible!" and even "impossible" in the pol-mil realm, because we prefer the enemy image (AirSea Battle Concept), but the solution for our having too few resources to throw against too many fake states undergoing remapping in the Gap is clear enough: you ally yourself with the great demand producer in the system right now.

WPR's The New Rules: Strategic Balancing vs. Global Development

The World Bank's 2011 World Development Report is out, and this year's version highlights the interplay between "conflict, security, and development." That's a welcome theme to someone who's spent the last decade describing how globalization's spreading connectivity and rules have rendered certain regions stable, while their absence has condemned others to perpetual strife. But although the growing international awareness of these crosscutting issues is long overdue, the report ultimately disappoints by focusing only on the available tools with which great powers might collaborate on these stubborn problems, while ignoring the motivations that prevent them from doing so. 

Read the entire column at World Politics Review.

As the acrimonious debate gets even nastier, a stern warning from the IMF

Interesting to track this debate, as there seems to be three camps: one that thinks Obama is a terrible leader and that the GOP proposals are worth considering (WSJ), one that thinks he's the man and the GOP proposals amount to "sadism" (see Esquire's The Politics Blog in a virtuoso display of ad hominem attacks- and no, I am most definitely not part of that "Collective" and wish the writers there would simply identify themselves) and then there's the tiny apparent middle that wants serious action and hopes some actual negotiations come about, but since our adjectives and adverbs lacks the same hyperbole as the extremes, if we open our mouths we are ridiculed for not condemning the "obvious" threat to humanity/decency on this one.

So much for post-partisanship.  The politicians and punditry seem as out of control as ever.

Meanwhile, the IMF, in which we own the most votes, says we lack a "credible strategy" to stabilize our public debt, noting that we're the only major economy that is increasing its budget deficit when its growth is sufficient to start decreasing its debt accumulation.  And as it looks, we'll be the only advanced country, along with messed-up Japan, still increasing our public debt come 2016.

The IMF says we're less than halfway there on both the cuts and the tax increases needed.  Conveniently, we have two parties deeply committed to preventing both solutions but no leadership among the collective able to forge the combined solution.

We can get away with this for a while, but it is a selfish track that will increasingly engender blowback from the world - as it should.  We're behaving and speaking like children, and it's embarrassing to be an American these days.

WPR's The New Rules: U.S. Global Role Depends on Hard Fiscal Choices

Much of the global perception of America's long-term decline as the world's sole surviving superpower is in fact driven by our fiscal decline. That's why I was disturbed to hear Democrats so quickly dismiss GOP Sen. Paul Ryan's bold, if flawed, federal budget proposal on the grounds that it would "end Medicare as we know it."  Frankly, arresting our decline means ending a lot of things "as we know them." That's simply what being on an unsustainable path forces you to do.

Read the entire column at World Politics Review.