The Curse of Natural Resources

Pandora's Box in Russia's Transition to a Market Economy

Here's an example of a 10 pager that deserved to be about 3 pages. 

Comments from the Economist

Okay this one is funny. Sorry for the deluge of political content:

"Your editorial writers and others who say that the Obama administration will not be able to raise enough money to pay for its massive expansion of government are clearly wrong. When you consider a stimulus package that is designed to stimulate nothing but inflation and massive deficits in the proposed budget, it is easy to see the plan.

The current government must be counting on hyperinflation that will, in a short time, place all households in the over $250,000 income bracket. Imagine the spending possibilities for a government that collects 40% of everyone's income."

Learn a bit

Crisis explainer: Uncorking CDOs from Marketplace on Vimeo.

"Buy American"

It sounds really great, patriotic even. And accordingly, it must be good for our country; maybe it is the timely solution to save our world from financial crisis? But oh, if politicians, patricians, and plebians only knew the repercussions of such legislation! Free trade works in both directions, and the below referenced article concisely illustrates this reality.

New York Times article, "If We Buy American, No One Else Will"

Darwin was a Capitalist

Allowing Lehman to fail was perhaps the smartest thing Hank Paulson has done this year. Like other investment banks, Lehman was highly leveraged and had gorged itself on toxic assets. When any firm is leveraged at 30 to 1 and asset values drop, they quickly become insolvent. And insolvency, if you were wondering, is not good.

Blame is easy to spread around, and excuses come cheap in Washington. Maybe FAS 157 is the culprit, banking regulations were too weak; perhaps aliens interfered. The point of the matter is that poorly-run businesses need to fail.

Fast forward a few months and we have $700 billion sitting at Hank’s fingertips. They call it the Troubled Asset Relief Program, or TARP. That money may be able to free up the credit markets, revive the economy, and save the world – but only time will tell.

Eager to exploit the benevolence of American taxpayers, Detroit auto executives are now sprinting, palms-outstretched, to Washington with hopes to claim some of the TARP funding. Detroit, by the way, is home to General Motors, Ford, and Chrysler.

While the financial crisis undoubtedly has affected American automakers, their issues go far beyond credit and the economy, and taxpayers should be concerned by any political movement to place Detroit on welfare.

Congress passed a $25 billion loan package for automakers in September; apparently that wasn’t enough. Now Democrats are working to grant another $25 billion of aid for the “Big Three.” But throwing money at our auto industry is not a solution.

Regardless how the economy is doing, General Motors cannot stay competitive. Their stock, for example, has been in decline for the past eight years. The sad truth is that our auto industry is crippled.

Detroit automakers have allowed unions too much power. And perpetuated by misguided government policies, unions workers have strangled their employers to the point of extinction.

Should the government step in to save this ailing industry? No, unfortunately it's too late. The course of evolution requires that Detroit become part of history. New companies have evolved - stronger and better equipped for the 21st century.

As Darwin would say, it's natural selection. "Survival of the fittest." Let capital be efficient, let the markets adjust our economy. It's going to happen, eventually.

International Politcal Economy

These are essays from an IPE class that I took a few years ago. I was rummaging through some papers and found them in an old folder. I guess the point here is that I'm kind of surprised that I once almost knew this stuff. If I didn't know better perhaps I would get the impression that these were written by semi-intelligent persons, rather than myself.

"Regional integration seems to be replacing GATT. With the apparent collapse of the Seattle and Doho Rounds, regionalism is stepping in to move free trade where multilateralism has stalled. Regional integration in Europe (namely, the EU) has caused a new impetus for regionalization. NAFTA and the Caribbean Basin Initiative (CBI), have had an overall positive economic affect, so it seems natural that other American nations would want to integrate.

However, geopolitical factors would present strong opposition. Venezuela, for example, may voice politically stimulated opposition to an FTAA. Also, agricutlrual or even infant industry may resist an FTAA, because their lack of comparative advantage would hurt their business if trade became freer.

Consumers, though, should universally support FTAA, assuming they understand the true dynamics of regional integration. They would have more choices as new markets open, and competition should make prices more attractive.

Industries with low factor specificity could in the long run be introduced to more technological innovations, and gradually gain a larger market share in areas where China has dominated.

Americans who calim that NAFTA has cost them jobs should realize that China actually lost more jobs between '95 and '02. In a nation such as the U.S., unemployment is mainly affected by monetary policy, not globalization. Additionally, most jobs lost are caused by increased presence of technology, not by free trade.

A FTAA can be successful if properly implemented. Many developing countries with "infant industy" could be paralyzed by trade integration if they do not follow property monetary policy. In order for FTAA to succeed in the long-run, it must be implemented gradually, giving developing countries time to adjust, prepare, and shift resources to areas wehre they have a competitive advantage regionally."

And another essay, addressing debt relief policy. And yes, I made up a word and misspelled a few others. Its becoming evident that I depend on spell-check more than I though. Anyways, these little essay things are worth typing out, to me, because I like to read old things that reflect of me at another time.

Publish PostDebt relief is not the key to worldwide development. Nor does it promote a more stable financial system. Proponents of debt relief are blinded to the political implications that affect its overall usefulness. Lottery winners rarely use their winning to invest wisely and with a view to the future. Rather, the money is spent lavishly on short-term conveniences. By the same token, rulers in developing countries are not faithful stewards of the aid. Debt relief if affected in like manner.

The IMF should reevaluate its role to worldwide development. Short term fixes rarely contribute to sustainable development. IMF money should not be used for debt relief. Instead, money should be focused on areas which will promote long-term development and stability.

Debt relief carries an impression of benevolence which looks good politically. However, few people realize the ineffectiveness of debt relief to worldwide development. Foreign aid focused on sustainable development, not debt relief, is vital to the goals and virtues of the IMF.

Developing countries should be approached on a case-by-case basis, with a view toward investment that will stimulate trade and economic activity. Leaders in developing countries will need to cooperate accordingly. This will not be easy, but with support from the OECD, developing states can be persuaded to adopt strategic trade and investment policies that will even bring added stability to the sphere of international finance.

Those who continue to receive debt relief become dependent and complacent, while lenders grow more and more frustrated at the squandry [sic] they observe. Debt fatigue will soon set in, and the developing states will find it harder to acquire money. The IMF should shift from debt relief to sustainable development. This action realigns IMF policy with its purpose; worldwide development and international financial stability.

Time & Relativity

"This long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the sea is flat again."

-John Maynard Keynes