Libyan Democracy: The Islamists Aren't the Greatest Threat

The war in Libya has been, as wars go, a great success. A horrendous dictator has been overthrown by his own people, with a bit of help from an international coalition that, for once, has gotten together to do the right thing (though perhaps not entirely for the right reasons, see my earlier post on this). The big question on many people's minds now is: will democracy emerge, or will Islamists take over and refuse to allow any further elections? This may be an oversimplification of the fears, but it's not a gross one, nor is it entirely unjustified. Still, the Islamists are not the greatest threat to Libya's fledgling democracy.

The number one threat is oil. Oil and other natural resources are always a threat to unstable democracies. The reason is that they can generate loads of cash and push up the value of the currency, killing other exports and making the economy lopsided towards oil. This concentrated source of cash means that politicians control (often by government ownership of the oil company, but not necessarily) much of the money the entire country relies on. Even more importantly, it is a source of cash completely "divorced" from the people the government is meant to serve, to borrow a term from Jason Pack and Shashank Joshi's recent article in The World Today. We might all complain about taxes, but at least they create a link between taxpayers and politicians. With natural resources as the main money spinner, citizens become the recipients of whatever politicians in their infinite wisdom decide to give them. This is a recipe for complacency, dependence, and corruption on the highest level. Politicians should be dependent on voters, not the other way around.

Look around the world at any place that has discovered natural resources (especially oil) first before developing a stable, democratic government. See any democracies? I don't. Discovering such resources can be a boon to a country like Norway or Australia, whose state institutions were already solidly in place upon discovery. They are a disaster for places like Nigeria or, I fear, emerging Libya.

There is a second danger as well that functions along similar lines: foreign assistance. As Libyans try to build institutions for the first time (Gaddafi intentionally built none so that no one could compete with his final say in things), international assistance will be a necessity. It's also very dangerous for the same reason that oil is dangerous: it supplies the rulers of a country with a cash supply independent of the country's citizenry (again, I must credit Jason Pack and Shashank Joshi for bringing this so acutely into focus).

It is important to note the other implications of this, too. The citizens of a country generate tax revenue by working in the economy. It's therefore essential to have a working and growing economy to fuel tax revenues. If a government does not require taxes to have cash flow, it has no incentive to power the economy. In addition, if citizens get handouts they have little incentive to push the economy onwards, either. Not only will the political elites be independent of citizens/voters, those voters won't have much in the way of economic clout anyway, unless they become part of the machine themselves. The result is economic stagnation and rampant corruption.

This problem is incredibly hard to solve. In fact, it is hard to see when it has been overcome. Even when outside aid focuses on assisting a local government and tries hard not to be patronizing and not to take the reigns itself, its very presence can push a country away from the very democracy it is trying to promote. Looking at the Balkans, though, we can conclude that this can still be overcome slowly, with vigilance and patience. The "resource curse," as it is known, is harder to surmount.

So what is the solution? If I knew that, I'd be pretty stellar. What I can say is that it is better to tax oil companies than for a government to own them outright. Believe it or not, having foreign-owned oil companies would be a blessing in disguise (still, they can be expropriated at any time -- just look at Venezuela for a recent example).

In the end, the only thing that can protect Libyans from the resource curse is the Libyans themselves. They must be sure that there are laws and institutions in place that can stop elites from enriching themselves with oil money. No easy task. How do you ensure that the courts and institutions that are supposed to make sure everything is done by the book aren't bribed by loads of oil money? One way is to see that they are well paid. Another is to have a free and competitive press to keep the bright light of the public eye shining on shady dealings. The final thing, of course, is that the Libyan people themselves remain vigilant against this threat. They have shown what can happen if they stand up together. They must make sure future governments never think for a second that they are "divorced" from the Libyan people in any way.

Privilege or Curse?

The dollar is still the world's most accepted currency, meaning low interest rates and a high dollar price even with a large trade deficit. But is this good or bad for America?

In the 1960s, the French Finance Minister Valéry Giscard d'Estaing coined the term "exorbitant privilege" to describe the US dollar's position as the world's reserve currency. A reserve currency is one that central banks like to keep in their vaults in case of crises because it may be more widely accepted than the currency they print themselves. I'll first go over how the "exorbitant privilege" works for the US and then discuss whether it really is a privilege -- or whether the costs of this position make up for, or even outweigh, its benefits.

What privileges does the US have in the global economy? To understand this, let's look at what life is like for a smaller, poorer country whose currency is not bought, held, and traded by people around the world. Let's say our country is called Zinj. It's a small country so its economy doesn't carry much weight. It's currency, the zinjoleon, is pretty much only accepted within Zinj itself (this is the way things are for most currencies, really).

If Zinj wants to trade with the rest of the world, or invest outside Zinj, it must convert its currency to another one, very often the dollar. If you run an export business, you will need to exchange currency a lot. Luckily your local banks, as well as the central bank, hold a good deal of foreign currency to facilitate exchanges. Because the dollar is the "gold standard" so to speak, banks have bought US treasury bonds and will have cash on reserve at America's Federal Reserve.

This all works very well, really. You list your goods in dollars so that customers around the world know what they cost (they probably have no idea what a zinjoleon is worth and where to buy one). You ship your goods, receive payment in dollars, and then convert most of them into zinjoleons in order to pay your workers, rent, utilities, etc. You might keep some dollars to buy imports with.

The problem comes when there's a crisis. Maybe when the world economy was doing well, and your economy was too, cash flowed into your country. Zinj citizens and businesses had access to cheap capital from abroad. Then the crisis hit.

Regardless of how things are going in Zinj (maybe Zinj has nothing to do with the crisis), investors panic and pull their cash out of the country, converting zinjoleons to dollars en masse to do so (they do this in part because the dollar is accepted everywhere and is therefore less risky). The price of a zinjeon, euro, dollar, or any other currency is based on supply and demand, just as it is for any other good or service. So what happens when loads of people sell zinjoleons (that few people want to buy) to buy dollars? You probably guessed it: the price of a zinjoleon falls.

Suddenly, 1 zinjoleon no longer buys you $1 worth of goods. Maybe it only buys you $0.80 worth now. That means prices for imported goods (listed in dollars) and goods that rely on imports rise sharply (in zinjoleon terms, the currency that people in Zinj actually earn). At the same time, foreign investment has disappeared, cutting funding for projects. Banks have fewer depositors and creditors, meaning they have to raise interest rates. In addition, the central bank may raise interest rates to stamp out inflation and try to stop the currency's fall. All this means that the economy will most likely stumble, perhaps slipping into a severe recession -- even though there was nothing wrong within Zinj itself! Seem totally unfair?

Would something like that happen in America? If the crisis happens outside of America and the dollar is still the reserve currency, no. In fact, even in 2008, when the crisis WAS in America, this didn't happen. Flip the above scenario on its head: folks are buying dollars all over the place and investing their money in the world's largest, most liquid economy and bond market: America. So what happens? Money flows into the US and the dollar rises in value. These combine to make goods cheaper and lower interest rates, pushing the US economy forward! Does that sound like an exorbitant privilege? Yeah, it kinda does!

But wait, the story doesn't end here. I left out the flip side of both stories. Let's revisit Zinj.

A crisis will generally mean recession -- less investment, less consumption, less money being spread around. If that's happening in the countries you trade with, your exports will fall. Luckily for Zinj, though, its currency has also fallen by 20%, meaning its exports are also up to 20% cheaper. This will make Zinj more competitive in world markets during the crisis, boosting its exports even as world consumption slows. Exports bring money into the economy. They may very well bring in enough to make up for the investment cash flowing out, too. After the initial panic and devaluation, therefore, Zinj's economy may start growing quite quickly again, led by exports, as well as domestic businesses competing more easily with imports that are now more expensive.

Flip that around in America. The cash flowing into the country has made the dollar more expensive. That means America's exports have gotten pricier even as the world economy slows and people are buying less. That really kills American exports. At the same time, imports have gotten cheaper, which turns up the heat on American companies that compete against imported goods to sell to American consumers. So we have cheap credit (loans and whatnot), higher investments in stocks and higher prices for companies (meaning they can buy and pay more even if they aren't necessarily doing better), and investments flowing into all kinds of other things, like housing. At the same time, American exporters are having a heck of a time trying to sell their goods and services abroad and other American companies are having a hard time competing against cheap imports from places like Zinj. Sound familiar?

All those cheap loans, high company valuations, and a higher dollar value mean that American consumers, companies, and its government have tended to spend and borrow more than they should have. It also means that outside of finance, in the world of actually selling goods and services, America has had a hard time -- in no small part due to the "exorbitant privilege" provided by the reserve currency that it controls and prints.

Clearly, this is a knife that cuts both ways. Sure, America may have more time than other countries to sort out its budget issues because investors tend not to lose faith (America's debt was downgraded and investors responded -- by buying even more of it). At the same time, there is constant pressure to borrow more and it is ever harder to sell anything. A country like Zinj may feel itself a victim to the winds of the global economy, unable to influence the global currency or exchange rates in any way. True, and America can do a lot to influence the global currency and its value compared with others. But this privilege is also a curse, as I think I have shown. (And I haven't even mentioned the costs of printing the money and the interest payments the Federal Reserve has to make on all the money foreigners have deposited with it.)

Given this double-edged sword, Americans need not fear the dollar's eventual loss of reserve currency status. It will bring a loss of power and prestige, but it may also lighten America's shoulders a bit.

The Second Great Depression Delayed?

For all the bad economic news out there in the US and Europe (I'll call them, admittedly imprecisely, "the West" or "western countries") these days, most people are at least still relieved that unemployment in most western countries has not reached the levels it reached in the Great Depression and that things are far less dire than they were back then. But are we really out of the woods?

What saved us from Great Depression II was a huge bout of monetary and fiscal stimulus. When the Crash of 1929 happened, people feared that central banks would abandon their commitments to convert paper money to gold at the promised rate. This caused a rush into gold. To attract people away from gold, and to assure them that the dollar, for example, was "as good as gold," the Federal Reserve and other central banks ratcheted up interest rates, offering to pay a lot of interest on paper money -- but obviously not on gold. In order to do this, they also had to demand a lot of interest on loans (the difference between the money a bank receives from loan interest and the interest rate it pays to depositors is how a bank makes money, so it can't raise deposit rates much without raising loan rates).

This meant borrowing money became almost completely unaffordable -- no new business ventures then. It also meant that spending money became less enticing, since you could make money by squirreling it away. This meant money flowed into gold, perhaps other commodities, and various forms of saving. It flowed out of buying stuff and investing in future business. Business that relied on the latter two (that's most business) therefore collapsed. This brought down any other businesses with it.

This "monetary tightening" as it's called was accompanied by fiscal tightening. Governments received less in taxes because people were getting poorer -- so they raised taxes and cut spending, hitting people even harder in their wallets and depressing growth further.

This time around, luckily, the reaction was the opposite. Unhindered by the straitjacket of the gold standard, central banks slashed interest rates to try to make borrowing and spending easier and to discourage saving. That's meant to keep the economy moving. In addition, governments responded to the crisis by spending more and either taxing less or at least just letting tax revenues fall without raising taxes. This is fiscal and monetary stimulus. Disaster averted.

Or at least it was. We're now getting into a sticky situation that is getting governments constrained in ways that have similar effects to those of the 1930s. Governments throughout the "West" are either cutting deficits or talking seriously about it. Fiscal tightening is therefore underway or will begin soon. This is partly because governments can't run deficits forever. At some point, the investors that lend money to governments begin to worry that these governments will not be able to pay them back as agreed. Governments have to offer higher and higher interest rates to make investors willing to take this risk. This makes government spending more expensive and less attractive.

(By the way, "investors" include anyone with a bank account or retirement fund.)

So fiscal stimulus is disappearing, at least we still have the monetary sort, right? Well, this is partly true. The Federal Reserve has said it will keep interest rates at around 0% for as long as is necessary. The Bank of England (the UK's central bank) has just announced another round of what is called "quantitative easing," in which the bank buys government and even corporate bonds to make borrowing and spending cheaper and further discourage saving.

There are some forces working in the opposite direction, too, however. First of all, with inflation lower and therefore less of a worry in the US than in the UK, we might expect the Federal Reserve to follow the Bank of England and embark on a third round of quantitative easing as well. This is unlikely for political reasons: even though core prices in particular have remained stable and are rising only slowly, Republican politicians especially are railing against the Fed for allegedly destroying the dollar. Not only that, international investors in the dollar are also protesting loudly, concerned that a decline in the value of the dollar will destroy their investment. The European Central Bank (ECB) is also constrained from taking more bold measures by similar political pressures, mostly from monetarily conservative Germany.

So central banks are being restrained. At least interest rates are not set to go up, right? The thing is: borrowing is getting more difficult, whether interest rates are rising or not (though often they are). This is because individuals and most corporations cannot deal directly with their central bank. Central banks can print money, other banks can't. This is mostly a problem in Europe. As panic spreads concerning European governments' (in)ability to pay what they owe bond investors (many of whom are banks), investors are also starting to demand higher interest rates from banks, too. The banks, in turn, are scared about what would happen if some European governments (like Greece or Italy) didn't pay them back. Their reaction is to lend less money and to raise rates on loans (remember that a bank must demand higher rates if it also costs it more money to borrow, whether from depositors or investors buying its bonds). This is gumming up the wheels of business in a way not unlike that of the 1930s, though less dramatically.

So lending is partly blocked and governments are cutting spending and raising taxes. Still, lending hasn't stopped, trade barriers haven't gone up (a big 1930s mistake that intensified the Great Depression), and interest rates are very low overall. Plus, much the rest of the world is still growing fast, pushing things forward. All grounds for some guarded optimism. But: things may get worse. If Eurozone countries were to default on (not pay back) their debts or leave the euro (which would result in much the same thing happening), panic could ensue that would be similar to 2008. The difference, though, would be that central banks can't provide much more monetary stimulus (interest rates are already extremely low), and governments are (sometimes severely) constrained in how much additional fiscal stimulus they could provide. Their reaction to round two of "the Great Recession" might be less vigorous than to round one, and this one could end up being worse.

Alarmist? Yes, but this is not ludicrous. It's also far from inevitable, however. If governments in the US and Europe can get ahead of this thing, it can be managed without panic breaking out. Good thing we're all confident in our politicians, right?

The Education Bubble?

A couple years ago, my colleague Mike wrote an entry called something like "Does Education Still Pay?" At the time, I wrote comments stating that graduates still earn more than non-graduates over their lifetimes, plenty enough to pay for the cost of school, and that, as long as it continued to make economic sense, people would still pay. I stick to that analysis, because I find it is pretty hard to argue with it, but nuances can get lost in the general statistics, and bubbles can happen even with continued demand (people still buy houses, after all).

A bubble happens in economic terms when something pushes up demand to unsustainable levels, causing rising prises, the expectation of future rising prices, and investment in expanding supply. The bubble pops when demand suddenly fails to grow as rapidly as supply, and too much of the product or service is being sold to too few people, causing the price to fall precipitously.

The housing bubble, for example, was caused by cheap mortgage rates and banks from areas where no one was building buying mortgages from places where people were, keeping rates in booming places lower than before. (It's not important to understand why or how that all happened, just know that rates, due to myriad factors, even having to do with China's trade surplus, were lower than normal for a long time in booming places.) In addition to low rates, banks, encouraged by the government, were lending money to less credit-worthy people than ever before. This meant that as prices rose, more and more potential home buyers showed up as banks loosened their lending standards. That meant more demand and higher prices.

Well, we know what happened next: at some point, the houses were so expensive that more people decided not to buy. The market slowed, and builders had nothing to do. To get rid of the excess houses, prices were slashed. People who'd bought at the peak of the boom were now sitting in houses worth less than their mortgages. The bubble had burst.

So, is there an education bubble? Let's count:

• Steadily rising demand for places at universities? Check.
• Rapidly rising prices for higher education? Check.
• Steadily rising demand for graduates with specific skills, leading to the expectation that education will continue to become more important? Check.
• Government policies that support demand? Check. (I'll explain in a bit.)
• Education has a finite value, beyond which it would not be worth one's while to buy it? Check (like all goods).
• There is a limited number of potential buyers (students)? Check.

It seems we certainly have the basic ingredients needed to have a bubble. But that's not enough. All this could happen, and then prices and demand could level off smoothly. This does sometimes happen. It's hard to spot a bubble while it's forming, even though it seems obvious after it bursts. There are three ways I see this ending.

The non-bubble scenario: demand increases begin to slow, and the supply of university places begins to come in line with demand. At the same time, more universities put in cost-saving measures, like reducing administrative costs, using technology, etc. Universities begin to have to compete more for students in general, not just the good ones. Their budgets get a bit squeezed, and they begin to compete on price.

Bubble scenario 1: Similar to the above scenario, but supply outstrips demand more rapidly, causing tuition fees to drop fast.

Bubble scenario 2: This is the scarier one, and it could be starting now. Former students with lots of loans to pay find they are unable to get jobs that pay well enough to pay back loans. The government has set up loan forgiveness programs for public sector and non-profit workers and whatnot, so many take advantage of this (my plan for myself, actually). In fact, many more than the government intended. Amid continued economic weakness, budget deficits, and battles in Congress, the cushy student loan provisions are cut. Prospective students are suddenly unable to finance their future studies. Demand falls off precipitously. Tuition fees stabilize or fall. There are more unskilled workers as a result, causing further wage stagnation or even declines in the services and retails sectors. At the same time, the skilled workers companies want are even harder to find, increasing wages in those areas, widening income inequality and sewing unrest.

So, there are at least these three possibilities. The current spiraling prices are in part fueled by government programs to allow students to borrow money on good terms to go to school (much like the cheap mortgages for poorer people that fueled the housing bubble).

When going to college doesn't pay off, or doesn't pay off enough to make the extra work and risk worth it, students will stop going. If this were any other market, this would be no big deal. We would call it a correction and it would mean the price of education had risen to reflect its value to its consumers. There's a problem, though: education has a wider value to society, too, which is not captured entirely by the student. This means that society is better off with more students, and that education is worth more, on the whole, than the additional money or job satisfaction received by those who take it on.

Take one of the most obvious areas: engineering. An engineer may love her job and be paid well. But engineers are also vital to society. If an engineering degree became so expensive that not that many people got one, society as a whole would suffer. We also, of course, benefit from scientists, music majors, linguists, and, of course, international relations specialists, even if its harder to see. This all means that subsidies for education make sense. This is why it's not wrong that government does this, because education is worth more than what the educated get out of it themselves.

But demand-side approaches, like giving students access to cheap loans on nice terms, fuels price increases. These increases may actually negate the effect of the loans. It might be better to act on the supply side of things. State universities already do this, using taxpayer money to reduce tuition fees. I don't know if these are in place, but there should be cheap loans for university expansion, grants for measures that save money, and inducements for offering well-priced, high-quality education.

I will probably end up only paying 1/3 of my student loans back, depending on what Congress decides over the next 100 years while I'm finishing up. That's a big hit the government will take. Multiply that by the loads of others doing it, and it's massive. I wouldn't be able to afford to study without it, though. Nonetheless, the debt pile I'm building causes sleepless nights, something shared by a lot of students out there. So maybe switching things to the supply side to drive down upfront university costs would be more sensible. Then, students would get unforgivable private-sector loans, but have much less debt to pay off. At the same time, the increased supply of places would insure that the country gets the graduates it needs, and that these, with lower debts, can start getting mortgages and things like that earlier on, helping to boost the economy.

Would all this mean higher taxes? Well, probably, a bit. But I'm actually proposing shifting the costs from one place to another, subsidizing the universities (per student, dependent on quality and tuition fees, etc., to create good incentives) rather than subsidizing the students with scary and uncertain loans.

There will only be a bubble when there are too many graduates. From the looks of things, we have quite a ways to go before that happens. The global economy is changing, and rich countries need to change, too. We have the benefit of capital and education, so we need to invest in the latter. That and infrastructure in the US, as I've said before. Overfilled highways, slow trains, patchy internet and cellular connections, and bridges that collapse and kill people from time to time can really crimp business. These are the areas where we should be spending money, not on random tax loopholes and overly expensive health care (my post on what we might start to do about that).

We need to invest in the future (infrastructure and education), not the past. We started doing that in the early 20th century, and rode the boom throughout the rest. Towards the end, gains came from deregulation (much, but not all, of which was a good idea) and more and more debt. That can only go so far. It's time to start at the beginning again.

How to fix America's healthcare system - without nationalizing it.

I'm writing this from my phone to see if the additional annoyance helps me to keep this short. :o)

One of the biggest problems with healthcare in the US is that doctors get paid according to how many procedures and tests they do. This is not the case in countries with national healthcare systems. There, doctors are salaried, like regular workers instead of like lawyers or contractors

I'd argue that this can be done with private insurers, too. Why not pay doctors a set amount for seeing a patient, plus covering 99% of costs arising from additional procedures, plus a bonus for a good outcome?
Good doctors might be willing to switch to such a plan. Indeed, some already have: Kaiser Permanente uses a similar system. Let's try some pilot projects on a more national level. If it works, maybe we can scale it up, requiring insurers and doctors to do it. This would go some way towards cutting down on unnecessary procedures.

I envision doctors getting bonuses according to outcomes AND patient ratings! Insurance companies would set pay amounts in collective bargaining with doctors on their plans. Cheaper plans would attract fewer doctors, but patients would pay less and be ensured good care, in no small part because they get to rate their doctors' performance and this determines a portion of doctors' pay!

A couple more steps would be needed, too. Legislation to protect doctors and hospitals from unreasonable lawsuits would be good. Another step would be to move people off plans provided by employers. This would keep people covered between jobs, encourage them to shop around for the best rates, and make sure they know what it all costs, getting consumers more control over cost-cutting decisions.

These three things combined would help a lot. Other countries pay a fraction of what the US does for healthcare, but for equal and sometimes even better outcomes. Something's gotta change, because that's just not right.

I'm pondering education, too, but this seems tougher. Any good ideas?

UK Riots: An Outsider's Perspective

Lots of people have been writing me asking if I was all right "in London." It's my fault, because I told everyone I was to be studying in London and didn't mention so often the name of the actual town where I was moving -- since no one has ever heard of it anyway. I really like this little town, and am glad I am quite a ways from urban unrest.

I have a trial subscription to The Guardian and Observer, can now watch BBC news shows, and have read private blog pages on the subject as well. There are lots of different perspectives, so I'll give them a run-down here.

1. Police and politicians: A few violent individuals got things going, changing a peaceful protest over a police shooting in Tottenham (in London) into a violent riot. Opportunistic and greedy youngsters drunk on power then used the mayhem to allow them to loot stores and take whatever they wanted. The bottom line: illegitimate, opportunistic criminality -- no excuses.
2. The Guardian, a leftish newspaper: Reports this line, but also asks whether recent government cuts to social programs could be a deeper cause -- without actually answering that question.
3. Leftist bloggers, some people on the streets (though some young people from the affected areas seemed to concur with the first view above): Years of social exclusion, police bigotry, and, now, cuts to social services have pissed people off, and the only way they can get attention is by doing this. It's not nice, but there's no other choice if they don't want to be ignored.

That pretty much covers the viewpoints. I won't comment too much because I'm an outsider, but I will say that, as usual, I think the truth lies somewhere in between. I remember being young and getting swept up in moods and just not giving a damn about what other people thought, like when we had loud parties on weekday nights and our neighbors' small children couldn't sleep. I have no patience for such people today, but I was one of those anti-social assholes just a few years back -- but only when swept up in the moment. I am sure many, probably most, of the looters are just along for the ride and enjoying feeling powerful and being able to steal what they want with impunity.

At the same time: These things don't happen all the time everywhere. One has to ask why all these people can get so swept up and why they care so little about their own communities, which they've set about destroying. There is a disconnect from civil society here that is worrying and real.

So that's my two cents on that.

One last thing: the police. I've heard and read criticism of the police on both sides, but most are angry that they've done too little to stop the mayhem. Coming from America, where police use rubber bullets and tasers with what seems to me like reckless abandon, I find it interesting that the police here are still debating whether to use rubber bullets. This is even after nights of violence have left parts of London and other cities looking literally like war zones! Water canons have been discussed in the media, but they are apparently not under discussion by the police, who reiterate that they do not use them outside Northern Ireland. Even at a small, peaceful protest in (peacenik) Germany I went to, there were armored vehicles with water canons at the ready. Perhaps their mere presence helped deter any would-be rioters. In any case, the Metropolitan (London) Police say rubber bullets are to be used only in extreme situations and the go-ahead can only be given by someone high up in the chain of command. Apparently burned-out shells of buildings are no extreme enough yet.

The British police are actually well-known for their restraint, and this shows it to be true. Rubber bullets can also sometimes kill if you hit the person just right (or wrong). I've been reading reports of hatred towards the police in these poorer districts of London. There's been talk of selective stopping and searching (racial profiling, anyone?). So this violence has partly been just to stick it to the police. The police are in a bind, criticized for being at once too harsh and too soft. I don't envy them.

My personal view: buildings, cars, and shops are being set ablaze and the police did nothing for a long while. It's time for water canons and rubber bullets. This is ridiculous. Afterwards, it's time to think, once again, about the social issues in these places. The problem is: people think about that all the time, and no good solutions seem to come out. What do you think?

A Libyan Ceasefire: What It Would Take

The Libyan conflict continues. The UN has proposed a ceasefire. NATO and the Libyan rebels are dubious: Gaddafi is still there, after all, and is not yet defeated. He could easily take advantage of a ceasefire to stage a comeback. The Economist interprets an announcement by Britain's Foreign Secretary William Hague as meaning that Britain may be open to reconsidering the idea of a ceasefire. Far from looking for a quick exit, Hague asserts that Britain is in it for the long haul.

All of this is actually good news. It seems that everyone's heads are in the right place (except perhaps for the UN's, but this is no news -- at least its heart seems to be in the right place). A ceasefire agreement is possible, and, unless we're ready for a long siege of Tripoli with possible ground troop involvement and loads of casualties, it may be the only realistic way this can all end.  But still: this cannot be cut-and-run, which is why Hague's assurances to the contrary are comforting.

Libya is not Iraq or Afghanistan. NATO is providing air support for a native rebellion. Time is on the coalition's side, not Gaddafi's (I have pointed out previously that time is on the Taliban's side, which is why I have little faith in a positive outcome for Afghanistan). NATO must make use of both of these aspects. Any ceasefire must be on terms decided by the coalition. In particular, these terms must be decided by Libya's National Transitional Council, as representatives, however tentative, of the Libyan people. They must set the guidelines by which this can happen. Compromise may happen in other areas, but these principles are not up for negotiation.

For example, one stipulation would surely be that Gaddafi is removed a long way from any power. A second one, that the West must strongly support for reasons of morality and political credibility, is that Libya holds elections and builds institutions like independent courts all that. The areas where compromise is possible: pardoning Gaddafi and going easy on current members of his regime. Those closest to him must not be allowed near power. Ones lower down may need to be left on for practical reasons -- only they may have experience in civil service.

It sounds awful to let Gaddafi get away scot-free, but let's not lose sight of the goal: getting him out of power and freeing up Libya for a brighter future. If Gaddafi can be enticed to give up the fight, this will save hundreds, possibly thousands of lives through reduced fighting, as well as lots of money, time, and Western leaders' political capital.

And what if Gaddafi doesn't accept? As I said: time is not on his side. Don't negotiate further. Return to the current war of attrition, and wait for him to come around or for the regime to utterly collapse around him. This is not as nice as a quicker ceasefire, but it is the only option. All in all, there is plenty of reason to be optimistic about Libya, at least over the medium term. Kind of refreshing after ages of Middle Eastern quagmire.

America's Debt Deal: Political (and economic) collapse retreats

Just over two months ago, I asserted here that the negativity surrounding America's political system and its ability to function and keep the country going was overblown (see post). The current debt deal, which passed the (more tricky) house yesterday evening, provides more evidence of this. I admit to only having partial details on it, but it thus far looks sensible. The pain is spread evenly and is mostly being delayed until later, allowing time for the economy to recover. These two aspects are very sensible: with divided government, cuts needed to affect parts of the budget both parties hold dear, and with the economy in its current fragile state, cutting too much too soon could have been calamitous. Economists and rating agencies had been calling for a credible deficit reduction plan, not an immediate reduction itself.

OK, fine, so disaster hasn't struck, is that the best we can expect from the US Government these days? This seems like a good point, and sometimes I feel it myself, but it again focuses too much on the negative. Congress over the past few years has passed a revolutionary (for America) health care plan, nationalized student financial assistance programs, changed environmental regulation, and accomplished many other things to boot. This seems to get lost among the noise of insanely partisan politicians screaming at each other (usually figuratively only) and egging groups on who call one side or the other things like "fascist," "Nazi," or "socialist." The absurdity of it all is enough to make the strongest stomach queasy.

But it still works.

American politics is noisy and partisan. That's the way it is. The REASON it is that way is because Americans vote for it to be that way. In particular, republican voters tend to want representatives in government who stick to their guns and don't compromise (see chart). So republicans are loud, obstructive, and stubborn. It's irritating. But that's the way their constituents want them to be. That's a sign that American democracy is working well, not poorly.

The problem, then, is not with America's democracy or even its political system, but rather with Americans themselves. No one likes to hear that they themselves have gotten themselves into a pickle, but they have. Once again, though, let's not be overly negative. I'm a realist, not an optimist by any means, but people on the liberal side of the isle with me tend to be overly negative. It's hard sometimes, I know. But take a closer look at that chart. Not only do most democratic voters prefer compromise to get things done, the majority of ALL voters does, too. As long as that is the case, we ought to be all right, even if compromise comes at the last minute and is a noisy, shameful spectacle every time.

I'm not trying to make all this seem completely harmless: it wastes time and money, and smaller things that need to be done may get lost in the process. What I'm saying, though, is that the system still works. If people start to pay attention to politics more and educate themselves, then people will vote for politicians with sensible policies who are ready to get things done. As long as people are aloof from politics and continue to rely on ideology to provide their compass points, things will be irritating and suboptimal, as they are now. Any suggestions for that systemic problem? Education system?

Can Francis Fukuyama teach us something about corporate governance?

I recently finished reading a fantastic book: Francis Fukuyama's Origins of Political Order. He discusses the ways that political organization has taken place throughout the world, and this got me thinking about organizational structures in business, and their varying levels of quality.

There are several levels of organization from band, to tribal, to chiefdom, to state-level organizations. Building on the work of others before him, he describes such organizations according to three elements: the strength of the (central) state, rule of law, and accountability. A state with the right combination of all three elements is one that will generally function well. There are examples of states that lack one or more elements, and the effects can be seen.

India, for example, has always had a very strong rule of law (this is discrete from elements like corruption as he defines the terms; read the book!), so much so, in fact, that a strong state has never been able to form in India. Even today, a weak central state is one of India's problems. Political accountability, too, leaves something to be desired, though it is more apparent than in China.

China was the world's first modern state in that it had a strongly centralized and meritocratic bureaucracy long before these arose elsewhere. The rule of law and accountability, however, have never been present. Even today, the communist party sees the law only as a tool to be wielded or changed at the party's will, not as something that could ever restrict the party's power (as constitutions and courts in other countries do). Accountability is limited only to long-standing moral ideas about the responsibility of rulers to their people. There is no structure that supports this officially; no path for citizens to address grievances.

Business people often praise how well China (and places like Singapore) are run and may think China's system is preferable to India's. This is only true, however, if the current people in power are doing a good job. You will also only feel this way if you agree with the government. If the government is forcing you out of your home to build a shopping mall with little or no financial compensation, telling you you may not move out of your village to search for work, or restricting your procreation to one child, for example -- and you have no recourse against such actions -- you may feel a bit differently about China's system. Still, India's system is clearly sub-optimal as well. I will avoid holding any system as "just right," because this is hard to say. Heaven knows, America's system seems to have its difficulties as well, even if worries about it are probably overblown (see post), and this is true of everywhere.

So what does all this tell us about corporate governance? Honestly, I see a lot of similarities. Some companies are organized in a very top-down, hierarchical manner akin to China, others, like large conglomerates, may have loads of local fiefdoms and clashing rules and interests, more akin to India. (China's central government has difficulty controlling local governments, too, so this is all a bit oversimplified. Again, read the book!). Structures may also cause a high level of accountability, with clearly defined responsibilities, or a system where no one knows who's responsible, leading to impunity (rogue traders, anyone?). One problem with the "strong state" model, where the CEO and board can basically do what they want is the "Bad Emperor Problem" that China (think of Mao Zedong, whose Cultural Revolution resulted in the death of millions of Chinese peasants as just the most recent example) has had a few times. The safeguard against this is to prevent the concentration of power in one person's hands.

So accountability (and transparency) are good, but must be balanced, together with the rule of law, against central control. Too much "rule of law" could mean CEOs can't change a company. Even too much accountability could be bad news, not allowing leaders any wriggle room to make changes before they are instantly removed from power the moment the mob dislikes an action.

There's one more interesting aspect, though. Fukuyama asserts, quite convincingly, that religions formed the basis of political organization. I think there's something to this in the form of corporate ideologies/identities. What is the role of the CEO? Where are we going? What does the company stand for? What are the roles and duties of managers, workers, and departments? These ideas can form a structure of their own and can also be hard to change, regardless of any structure imposed from the top (a central problem in mergers and acquisitions, in business as well as in politics). If they're good ones, like the central ideas at IBM that have kept the tech company alive and competitive for a century, they are a source of the company's strength. If they're not good, or are too rigid, they may be the company's downfall.

In sum, then, accountability to shareholders and stakeholders balanced off against strong centralized control can be a formula for corporate success, but only if it is underpinned by a strong corporate identity. It's important to note, too, that accountability does not have to take the form of democracy and elections. In the case of public shareholders, this is more or less the case. In the case of most stakeholders, like workers, this is usually not the case. The structures embedded within the company, however, giving power to local "lords" (i.e. managers and vice presidents) and lower-level managers serve some of this function.

Fukuyama also has something to say about this, too. It may make a lot of sense to include regular old workers in the process of corporate governance. Kings were constantly at odds with the vested interests of dukes and local lords, who, through their positions, managed to extract privileges from the central power while reaping the gains of those beneath them. This may sound familiar to anyone who works in a larger company. It therefore makes sense to have ways for "lower" workers to bypass their direct bosses and be able to communicate with higher-ups about problems they see in the lower echelons of management. This decentralization of power can actually lead to a greater centralization, as the CEO and higher managers have a better idea of what's going on. The increased accountability of all levels of management, too, is something to strive for.

Flip-sides of compromise

This is a short one.

Compromise is a funny thing. It may be the thing that allows groups to get along, governments to function, and peace to reign. It may also mean selling out to adversaries, greasing the wheels of corruption, and putting cooperation before principles. The question, usually, is when to view it in which way. When to fight and dig in your heels, and when to agree.

Here's another way to put it: What is compromise? People usually frame it as a way to make everyone happy. But really, this is untrue. If everyone's happy, nobody's happy. Compromise is a way to make sure everyone is UNhappy, preferably equally so! When people can accept that this is better than some people being happy and most being really unhappy, things can move forward. No space for purists.

Theories, Models, Laws, Hypotheses, and Proof

This sounds like a really boring topic, but I encourage you to read on, because it's actually quite interesting, I think, and very important. I've been reading one of Richard Dawkins's books, and he brought up the topic of two types of "theory" in the English language. This is something I've talked about a lot with others, and it was brought fully to my attention by Kenneth Waltz in his seminal work Theory of International Politics. Understanding the meanings of all those words in the title is absolutely indispensable for understanding all kinds of things in the world around us, from biology to political science, and more. Their definitions, though, seem sometimes a bit fuzzy and they also often overlap. So I'm going to lay down what I believe is the usual sense in which the words are used in science and academia, and the way that I will try to always use the terms in this blog (and in all my academic writing).

Laws: I'm going to start with this one because it's actually the easiest. In spite of that, my school teachers told me the wrong definition! If you thought a law was a theory that had been established for so long that is now accepted as a fact, your teachers were misinformed as well, just like mine. (If not, congratulations!) A law describes a relationship between two or more things. The law of gravity, for example, tells you how fast objects should fall with a given strength of gravity. The format is, roughly: if A, then B. Kenneth Waltz calls many things laws or "law-like statements," things that many others often call theories. He does this because the "theories" (actually law-like statements) do not explain anything, but rather simply describe something (a theory must explain, see below). Laws can be tested. A law can thus be "true," while using "true" to describe a theory is misleading, because a theory cannot be "proved" directly in the way that most people use the word.

Hypotheses: This brings us to the next category. The word "hypothesis" has two separate meanings. One meaning of hypothesis is "a theory I haven't tested yet at all, something I think might be true." The other meaning, sometimes called an "auxiliary hypothesis," is actually a law-like statement that can be used to test a theory. Confused? Let me give an example. If I theorize that plants use the sun to make food, I can test this by inferring a hypothesis from it. An easy one would be "if I put a plant in the dark, it will die." This is a law-like statement: "If no light, then death." It is inferred from the theory, it itself in NOT a theory. If the plant then dies when this happens, I will have shown my hypothesis to be correct. I will NOT, however, have proved my theory to be right. It could be that plants need light for something other than making food, and that the plant died because of that. That would mean that my explanation (the theory behind the hypothesis), though supported by my little experiment, is in fact wrong!

Theories: This brings us to the big one: theory. Like hypothesis, theory also has two meanings. The first is much like a hypothesis "I think this probably works in this way, but I don't know." The second meaning is the one more often used in science: "a plausible or scientifically acceptable general principle or body of principles offered to explain phenomena (e.g. the wave theory of light)" (from Merriam Webster's Online Dictionary). The important part of this rather confusing definition is that a theory explains something. Using our above example, if I say "if no light, then death" for a plant, I haven't explained anything. I've just said that the plant dies, not why. My theory was that plants require light to make food. That is a theory because it explains why a plant needs light. Get it?

As I mentioned, it is extremely difficult or even impossible to prove a theory "right," even one as seemingly straightforward as photosynthesis. Instead of "right" or "wrong," "true" or "false," many people (myself included) instead refer to theories as "good" or "bad." What I mean by this is: the theory works or it doesn't. We figure this out by inferring hypotheses from the theory and then testing them, as with the above example with the plants. If we keep inferring different hypotheses and keep testing them, trying to prove the theory wrong (it's important that we don't just keep testing things we think will support the theory, that's called bias), and we just can't seem to prove it wrong, then we say the theory is good, or that it has a lot of explanatory power, or that it is supported by evidence. 

For example, we might go on to test the amount of glucose in a plant's leaves with and without light. Our theory would lead us to hypothesize that there should be less glucose in the leaves when it's dark. If that is confirmed, then it supports (not proves!) the theory. If not, it actually does not necessarily disprove the theory: maybe darkness causes the plant to break down its own tissue to make glucose. It is sometimes even difficult to prove a theory wrong, too! This is why many different hypotheses must be drawn and tested, preferably by several different, independent scientists. Multiple hypotheses may be correct and support the theory... until one suddenly doesn't.

Another thing scientists like in theories is simplicity. If two theories explain and predict phenomena equally well, then why not use the simpler explanation? Many people misunderstand this principle, however. The important part is the caveat "all other things being equal." If both theories are equally good on all other fronts, then the simpler one is preferable (again, not necessarily "right," but why use use a complicated one if the simple one works just as well?). If one theory explains something more accurately than the other, that one is clearly better, whether it's more complicated or not. Finally, if two theories are completely untested, it is not possible to say which one is better; in that case it does not matter which one is simpler.


Models: An easy one for the last part. A model is basically the same thing as a theory, especially when the theory can be shown as a chart, map, sculpture, etc, which most can. "Model" and "paradigm" are also the same thing.


Proof: I think this has now actually been covered, but let me recap. Hypotheses and laws, as the terms are used here, can be shown to be wrong or right, true or false (if they are selected well). Theories and models cannot be proved correct, and may be difficult to prove wrong, as well. A theory that cannot be proved wrong, by the way, is called unfalsifiable and is considered a bad theory. These usually involve some form of magic. Saying it was magic (or god) does not really explain anything and is not falsifiable, which is why either one will not cut the mustard as a theory.


Anyway, if someone talks about a "proven" theory, they either misunderstand what theories are or (as sometimes in my case) they mean it in the don't-be-pedantic way and are saying that numerous hypotheses have been inferred from it and tested in attempts to falsify it -- and none have succeeded. That would suggest that the theory is a very good one indeed and may even be considered fact, like photosynthesis or that the sun is in the middle of the solar system (yes, that's "just a theory," too, though most reasonable people would consider that a fact!).

A little tangent here: The reason we accept the solar system model (or theory) is because we can hypothesize about the positions of planets, stars etc. so well that we can fly spaceships and robots into space and everything works. The model explains and predicts things in our solar system so well there is essentially no room for doubt. Some have tried, however, using all kinds of complicated theories to put the earth at the center. If you go to crazy lengths, you can make any model fit reality (until a new heavenly body is looked at, requiring the model to be adjusted yet again), but why? The simpler explanation that has been supported by evidence is better, and requires less maintenance work to boot in the case of the solar system.


Keeping these terms in mind and understanding the limitations of each type of "knowledge" is really important. I hope this has helped. I welcome any (polite) comments, as always.

Reports of America's Political Collapse Are Probably Premature

There's a lot of gloom about America's political system lately. The concern, increasingly, is not so much that individual politicians or even political parties are leading the country down the wrong path (though those concerns certainly abound as well), but rather: there are increasing doubts as to whether the structure of America's political system can even continue to serve it well.

In a recent article in the International Herald Tribune, David Brooks commented: "Usually when I travel from Washington to Britain I move from less gloom to more gloom. But this time the mood is reversed. The British political system is basically functional while the American system is not." He talks about how, though the two main parties "are happy to rubbish each other," they actually agree on more than they disagree.

This is a type of consensus about how to move forward that we in America can only dream of, it seems. Indeed, I can barely hide my admiration and envy of the British and the "adult" decision its electorate has made to put two parties into office that have touted a message of radical reform, coupled with searing spending cuts and some tax increases to boot. The Conservatives came to power while actively expressing the viewpoint that this had to be done. The voters, seemingly, agreed.

All true. But there are two problems with this narrative. For one, voters were not entirely certain what they wanted and were obviously torn, as they failed to give any single party a majority in an electoral system, like America's, that is designed to do just that. The Conservatives don't have a full mandate, they must share power with the liberal democrats. Fine, you say, but the LibDems and the Tories (the nickname for the Conservatives) still came together to agree on the current reform package. This is true, but it may have just been time. Bond markets were already getting edgy about Britain's debt. A looming crisis can compel. The other side of this, too, is that the election may have been more a renunciation of the Labor party, which had ruled Britain for more than a decade, rather than a vote FOR the Tories or the LibDems. The electorate, therefore, seems much less coherently for the changes that are occurring in Westminster than the election results might have us believe.

The second problem is that none of this represents systematic problems, in the sense of a problem with the system's structure itself (as opposed to problems spread throughout a system, another definition of the word "systematic"). As Brooks mentions in his Op-Ed piece, "a generation of misrule between 1945 and 1979 left the U.K. with three large problems: a stifled industrial economy; an overcentralized welfare state; and an enervated people, some of whom are locked in cycles of poverty." Indeed, the 1970s were an extraordinarily tumultuous time in British politics, with Scottish and Irish voters plumping for local parties in 1974, causing a hung parliament (a parliament with no party in the majority). The first coalition that was formed broke down within months. Another election in the same year produced a majority, but defections later destroyed this. In-fighting caused further problems. At the same time, inflation was high, peaking at over 20%. The government tried to stop this by forcing wages to stop rising. This worked fairly well, it seems, but you can imagine the uproar from labor unions. Strikes led to important services being shut down repeatedly and to a huge loss in productivity. Perhaps the most embarrassing event occurred in 1976, when Britain required an IMF bailout! The gloom and sense of political decay must have been palpable!

This all ended with the thumping election victory of Margaret Thatcher's Conservative Party in 1979. Her party introduced numerous reforms, broke the defiance of the unions (with electoral support), and got the country moving again. My point here is not to discuss the controversial aspects of her reign. Rather, the point is: I am sure Britons must have begun to doubt the ability of their political system to provide for a stable, well-managed country during the difficult 1970s. And yet, that very same system produced a political consensus that went on to last for 18 years and to fundamentally change the United Kingdom. The subsequent Labor Government, though it presided over financial deregulation and a boom that turned to bust, also made sweeping and positive changes based on solid electoral victories. The system produced good and bad governments, but the system itself was not fundamentally changed. This is important to remember as we look longingly across the Atlantic at those grown-up British, prudently taking self-administered medicine.

My point is: America has had rough and divided times before, too, and has survived (though the biggest division in history led to the Civil War, which is a rather dramatic version of "surviving"). The problem is not really the system, but that the electorate is honestly uncertain of the best path forward. In this environment, two competing ideologies are espoused by leaders, and Americans seem intent on trying them both simultaneously. In the end, there may be some sort of real crisis (like bond market jitters) that forces real change, but the electorate needs to get its act together first.

That said, there are a few systemic issues that serve to intensify problems, primarily by intensifying polarity. The main culprit here, to my mind, is Gerrymandering. This is drawing voting districts in such a way that seats become safe for one party or another. This is not a partisan issue; since both parties "benefit" from it, at least locally and in the short term, both do it frequently. California has been one of the worst examples, though I believe it has now enacted legislation to put this to an end.

Making seats safe for one party or other leads to polarization because the general election no longer matters. Instead, the primary matters. For example, if a district is so gerrymandered that only a democrat has a chance of winning, then the democratic primary becomes the de facto election. To win the primary, a candidate must pander to the party base. That means they can ignore republicans and independents. (This is, of course, all true for same republican seats, too.) What's more, the democratic voters themselves can ignore the others, too. Normally, voters might think "well, I don't agree with all this candidate says, but I think she has a better chance of beating the republican." If voters know the primary candidate will win the election, they can easily vote for the one closest to their beliefs (which are "extreme" by their very nature, as democrats and republicans are left and right of center, respectively, and their fired up bases on the extremes are the ones surest to vote in primaries). Less political polarization would go a long way to helping America find the consensus needed to move ahead and solve problems. The Senate cannot be gerrymandered, since senators are elected state-wide. This is why the senate has a reputation for being the "saner" of the two houses (another reason is the longer senate term, meaning senators don't have to constantly campaign and can actually get on with governing as they reason is best).

But even gerrymandering is not a problem to make or break America. It, too, can be fixed via the electoral process if voters want to fix it. What America needs most is informed and diligent voters to move the country onto the right path, or, at the very least, a coherent one. No system in the world can counter an electorate that is not doing its job except, of course, for a dictatorship. When voters have not paid attention in the past (or even the present: think Venezuela), this is also precisely what they have gotten. THAT would be a broken political system. America's, as yet, is not.

Israel and Palestine: What's the Strategy?

I have argued before (and I'm not the only one) that it is impossible for a conflict to be settled if one side thinks it would do better to continue the conflict. My previous example was Afghanistan, in which all Afghans, including the Taliban, know that the US will not remain forever (see post). The Taliban know that time is on their side. Whenever a disagreement seems intractable, something like this probably lies behind the scenes.

Take the long fight between the Israeli government and authorities representing the Palestinians. There seems to be no ending this fight. But why? It is easy to see why Palestinians believe time is on their side, if for none other than demographic reasons: the Palestinian population of the region, including inside of Israel proper, is increasing more quickly than the Israeli population. Beyond that, there seems to be a general, but gradual, shift in world politics away from unquestioning support of Israel. This has a couple reasons, among them a relative decline of the "West" along with the slow slippage of the Holocaust into something only read about in history books.

In this environment, it would seem wise for Israel to talk tough but to try to find a solution as quickly as possible, allowing it time to mend relations with antagonistic neighbors. Instead, Israel's Prime Minister Benjamin Netanyahu has announced that Israel will not accept a path to peace that his predecessor had already essentially agreed upon. In effect holding up hopes, then changing the terms at the last minute. There seems to be no rush for peace. What is going on here? There are a few possible explanations:

1. Israelis, too, feel that time is on their side and that the Palestinians will eventually give up hoping for a better solution. This may also fit in with creating "facts on the ground" by continuing settlements on the West Bank, making their eventual removal politically all but impossible in the future. This is like a game of chicken.
2. Another possibility, and this is one that I seem to hear coming from Israel, is the one I call the panic strategy. Israelis are well aware that time is not on their side. Furthermore, they do not believe that even a two-state solution will convince their hostile neighbors to leave them alone. Better, then, to try to push for all concessions they can, now, while they still have clout This, too, is a somewhat different game of chicken.

One of the most important concessions for Israel, and one that is entirely understandable, is that Hamas renounce the use of violence and recognize Israel's right to exist before it even begins to negotiate with it. Ironically, diminished US and European support for Israel might actually end up helping Israel in this regard: as long as the US was seen to be 100% behind Israel, the Palestinians did not feel there was any way to be sure that their concessions would be met with real concessions from Israel. With President Obama putting public pressure on Israel, while still leaving no doubt as to his support for Israel's security, Palestinians may become less uncomfortable with making concessions, while still seeing that Israel is not about to be weakened to the point of making more concessions than it has hinted at in the past.

In such an unstable place, a little more trust could go a long way.

The Road to a PhD Program: Final Act

For personal reasons, I'd stopped commenting my road to a PhD program. The last post I wrote on the subject is now almost a year ago!

Some plans changed and I ended up applying to schools in England in the greater London area. The hardest part was writing the dissertation proposal, which I had to do really quickly while simultaneously rushing to finish my master's thesis. My topic is Terrorism and Deterrence, and I hope to find whether terrorism can/has ever been deterred. That'll be my course of study for the next three years.

So: I obviously got in somewhere! I've accepted an offer to study at King's College London in their War Studies Program, which I am very excited about! Now just to jump through numerous immigration hurdles (essentially technicalities, but still a toootal pain in the ass).

The next items I write on this subject will be the Road to a PhD (minus the program part), in which I'll talk about the trials and tribulations of actually doing the research and writing the damn thing. It will surely be a combination of enjoyment at involving myself in my own research, and horrible suffering ;-).

Stay tuned...

A Flight of Fantasy

OK folks. I like to talk about "real" issues, but today I'm going to go a bit off the usual track with a little trip into theoretically-possible-land, just for fun.

I've been reading Francis Fukuyama's latest book. It discusses how political orders formed. It took thousands of years of human development to move from small bands to tribal organizations, and another few thousand to move from that to anything resembling a state, with many setbacks along the way. This progress was essentially evolutionary in nature: it wasn't within anyone's power to make it happen, though individual leaders certainly played an important role in pushing changes at the right moments.

This made me think: will this process continue? Will this one day create a world state, a federation with a single global defense force and global, hopefully representative, government?

There are several reasons why such a thing could be a dream or a nightmare, but let's ignore those for now, that's not what I want to discuss. Rather, I'd like to discuss ways we could feasibly move closer to that in an organic, evolutionary way.

One of the first steps might be something I've proposed for a long time. Tired of visa restrictions and immigration crap, I thought to myself "why do we even need to restrict movement like this between rich countries?" I know, the "rich country" part doesn't sound too nice, but let's face it: allowing everyone to move all over is not going to happen anytime soon. But, if the US were to open its doors to Canadians and vice versa, do we really think there'd be a stream of immigrants rushing over the border and overwhelming one side or the other? That seems patently absurd. So how about it?

Step 1: The North American Union
This has been a dream for a long time. Initially, it was hoped that NAFTA might lead to this. Lately, though, it seems unlikely that Mexico could be part of such an immigration and customs union (and border controls between the US and Canada have gotten more stringent, not less). Somewhat more likely in our lifetimes: a union between the US and Canada. What would such a union entail? It wouldn't have to be anything as close and organized as the EU. No monetary union, either, both countries would keep their currencies. Both countries would remain solely sovereign; there would be no "government" for the union or anything, no North American Parliament or the like. No, just a single market: goods, services, people, and capital could flow freely back and forth. Americans could work in Canada and vice versa. Each country would still be able to make, enforce, and interpret its own laws as it saw fit. It would open up most of the continent for most of its people to live, work, and play wherever they wanted.

Such a union would only require a treaty between the two countries. The only things they'd have to agree on would be eliminating all barriers to cross border trade and investment, as well as agreeing to allow nationals of the other side to live in work in their countries. This would require some harmonization of foreign policy, specifically for a customs union. Both sides would have to agree on what was allowed in and out of the area and what tariffs, etc., if any, they ought to apply. Also, immigration policy would need to harmonized to some degree for security reasons (the US is a lot stricter). That said, they wouldn't have to agree completely on immigration policy. EU countries do not (though this is admittedly sometimes problematic). The freedom of movement would only apply to citizens of both countries, not to immigrants/non-citizen residents, etc. For example, someone from outside the North American Union (NAU) who has a work permit for Canada would not automatically be able to work and live in the US. Since there would be no border controls, however, it would be impractical to stop such a person from visiting the US freely, which is why immigration security policies would have to be harmonized. This, in principle, is the way the EU works.

Alternatively (and this would be a better solution, but one that would require more difficult political consensus) the two countries could agree to adopt the same immigration rules and have a visa system with visas valid for both countries. I mean, we're dreaming here, right?

So let's continue along this logical route, suspending our disbelief a little bit longer.

Step 2: Joining other unions
The same logic that says Americans need not fear a rush of Canadian immigrants providing cheap labor and vice versa also goes for a similar union agreement with the EU. No, I don't mean joining the EU. That would mean surrendering sovereignty at a level the US would not agree to any time in the foreseeable future, assuming Europeans would even want this. After all, much of the impetus behind the EU was to be able to act as a counterweight to American power, not have the system dominated by it yet again. The same type of bilateral treaty could apply again. Canada, the US, and the EU could agree to create a customs and immigration union (again, not necessarily allowing free movement for third-country immigrants) between the EU and the more loosely organized NAU. Again, no transatlantic parliament or superbureaucracy needed, just a bilateral treaty. Now Germans could live in work in the US, Americans in France, what have you. And again, why not?

This time, we could even take a step back from immigration cooperation, since eliminating border controls would be impractical across the Atlantic. If every member region or state still had border controls, there would be no need to harmonize immigration security. No need, therefore, for the EU to adopt the US's rather draconian measures, etc. No difficult political agreement necessary.

Step 3: Continued expansion
Now that we've come this far, why not make similar agreements with countries like Australia, New Zealand, and Japan? Maybe South Korea and Singapore? The Japanese really don't like opening up to immigrants of any kind, so this could prove even harder than the other steps. But even without Japan, it seems hard to find a good reason to oppose a customs and residency union with Australia and New Zealand.

How does this relate to world government? Well, these unions were limited to developed countries due to the "economic refugee" problematic, if you will. But many other countries are developing and may catch up with us over the coming century. What's to stop Brazil or even China from joining? The answer, of course, is realpolitik, I fear. This would cause a two-steps-forward, one-step-back sort of dynamic. Nonetheless, it's still juuuust conceivable that something like this could lead, maybe in hundreds of years, to such freedom of movement, where people can vote for governments and things with their feet. Governments could be forced by people leaving either to close the doors again and lose all the benefits of openness, or change their policies to please their people. In such a world, people might eventually break loose from nationalistic ideas -- and it might for the first time actually be sensible to do so completely -- and really begin to be citizens of the world. Could a world government, built organically from the ground up following societal evolution, be that far behind?

Well, not in our lifetime, and maybe still never, but I see this as one possible path for how it could conceivably evolve. Human history is a long process of political organizational development. We tend to view the world now as "developed." But maybe it still has a ways (like, 1,000 years) to go...

Four Lions: Sensitive Tragi-Comic Perfection only the Brits Could Pull Off

I don't often do film reviews, but I thought this one deserved an exception. The film is Four Lions, by British director Christopher Morris. SPOILER ALERT! The film caused quite a stir when it came out because it seemed to be tempting fate: it makes fun of terrorists. The film would indeed be provocative and perhaps distasteful if that were the only point. The film intertwines tragedy and comedy to make fun of much more than terrorists. The end result is funny-in-a-sad-way.

The terrorists portrayed in the film are complete idiots. Alas, so is just about everyone else in the film, especially the police, who proclaim quite inexplicably at one point that they had "shot the right guy," but that the "wrong guy then exploded." The part I enjoyed best though was, I would say, the central message of the film: each side's actions essentially amounted to an own-goal. The terrorists end up killing very few non-Muslims, killing many more Muslims in the process, including, by accident, Osama bin Laden himself! They also, comically, kill a sheep and a crow. At the same time, the police end up killing only innocent civilians. When they finally catch some guys for questioning, they take in the very man who tried to convince the men who were planning a terror attack not to do it. This may be because the man the police arrest and take to a location "in Britain but technically in Egypt," is a very devout Muslim and wears traditional dress, making himself a target. He had always preached peace and frowned upon the violence planned by his compatriot, trying to get him to come to prayer meetings and forget his violent mission.

The film goes a long way towards underscoring the senselessness of violence (not least by having a cast of terrorist characters who mostly had no idea what it meant to blow themselves up), but also highlights the difficulties inherent in stopping it along the way, either by reason (the peace-loving Muslim who tries to stop the terror group with words) or by force (the bumbling police). At base it is a sad story with extremely comedic juxtapositions (listening to silly pop songs while driving to a suicide mission or wearing ridiculous-looking costumes to smuggle bombs into a marathon). Watch it, but don't expect to laugh all too hard, the seriousness of the subject has not been forgotten by anyone, especially not by Christopher Morris.

Bashing the Idea of Central Banks

I saw Ron Paul on the Colbert Report the other night. As usual, he was bashing the concept of a central bank, arguing for a return to the gold standard, which he asserted would bring down the price of oil. This sort of delusion keeps coming up, though it is actually much more rare than it seems on account of all the media attention Ron Paul gets. Still, it deserves countering, because the audience cheered his comments, presumably not knowing the implications of what he was suggesting.

Would a return to the gold standard bring down oil prices? Measured in plain old dollars, yes. There is a problem with this, however. First off, it is not within the power of the Federal Reserve or any other central bank to change the relative price of oil, for example as a percentage of your paycheck -- at least not without catastrophic consequences. To see why, let's go through the steps the Federal Reserve would have to take to re-peg the dollar to gold and what would happen as a result of each step.

As I'm writing this, the gold price is $1,530.60 per ounce. If the Fed wanted to peg the dollar to gold at the current rate, what it would have to do would depend on further market pressures on the gold price (whether it wanted to go up or down). Pegging to gold would mean the price would remain $1,530.60 forever. If people started buying more gold, thus putting upward pressure on the price, the Fed would have to encourage people to sell their gold and buy dollars instead, so that its gold reserves didn't get depleted. The way to do this is to raise interest rates. Gold pays no interest, so it is not attractive if you can make money by keeping your money in currency (like dollars) rather than gold -- as long as you believe the currency is stable. Raising interest rates could re-stabilize the gold reserves and ensure the price stays the same.

The problem is: the economy is fragile, and the prices for many consumer goods are rising only very slowly at best. Higher interest rates would mean loans would also become more expensive, and putting your money in a bank account earning interest more attractive. Spending money now is also less attractive if you believe things will be cheaper tomorrow. Better to wait and earn interest on your cash today and then buy later. Consumer spending and company investment would fall. This would mean fewer orders for goods, less work for factories and construction companies, etc etc. This would lead to another recession, negative growth, rising unemployment, and falling wages. As demand for goods falls, so will demand for oil. As the ripples of a second American recession spread over the world, demand for oil could fall globally. It is therefore very plausible that the oil price could fall faster than wages, making oil cheaper. The downside is that wages as a whole would fall and unemployment would rise. This is a high price to pay for a cheaper tank of gas.

But let's not stop here. I believe the current price of oil reflects global uncertainty and the unusual conditions we see today -- in other words: I think there's a gold bubble. It's therefore also very possible the gold price would want to fall. If people around the world believed the Fed's commitment, they would start buying dollars and selling gold, since dollars would provide a better return. The dollar price would go up (compared with other currencies). This would make American exports more expensive in other currencies, and imports really cheap. Companies in America (like Caterpillar, the one that makes excavation equipment) that rely on exports, would be severely damaged. America's current account deficit would widen even further. What's more, the Fed would have to move to extreme measures to keep the gold price UP. It would have to loosen monetary policy even more. Since it cannot really do this, the gold price would likely fall, making the Fed look foolish and unable to be trusted. This would all cause the very thing Ron Paul despises: loose monetary conditions and possibly bubbles.

It all boils down to the fact that the gold standard is arbitrary. Why should we maintain a constant price for gold? Who cares? Gold has no, or little, intrinsic value other than that it is shiny and pretty. The current system is to "peg" the currency to consumer prices, targeting a slow rise of about 2% per year in most countries. It makes much more sense to preserve a currency's overall purchasing power as measured in everyday goods, rather than its nominal value in a good that most people will never own very much of and still fewer can have any real use for. Gold, like any single commodity, is also unstable. A gold mine in South Africa shutting down (this happens) would cause interest rates around the world to rise and tip the global economy into recession. Why do that?

Having an "oil standard," by the way, would be foolish for all the very same reasons, even though oil is a critical good we frequently need. If we pegged the dollar to oil, interest rates would rise dramatically every time there was a shortage of oil, plunging at least the American economy into recession, but probably much of the rest of the world along with it. Oil would still get more expensive in real terms, because wages and prices for other goods would fall as oil stayed put. Eventually the fall in demand caused by the recession would bring oil down, causing loose policy again and a recovery. This is the nasty boom-and-bust cycle associated with old-school capitalism, the same type we thought we'd beaten until the last crisis. Still, though, accepting an oil or gold standard would mean accepting a boom-and-bust cycle that we could have zero control over. Most of us think steering against such cycles and evening them out is a good thing -- this is one goal of central banks'.

Note, too, that this boom-and-bust could all be caused by supply shocks rather than too-high demand. One could actually argue for lower interest rates in response to supply shocks, even though this would accelerate oil-price increases. This is because oil is so important. As its price rises, people and companies are forced to cut back on other spending so that they can continue to buy (more necessary) oil. This could cause overall prices except oil to fall, especially if unemployment is already high (like today in America), meaning bargaining for higher wages is difficult. Rather than let everything else fall, there's a reasonable argument for stimulating the economy in response to the growth-killing effect of an oil supply shock.

Besides, as oil becomes dearer over the decades, there will be a slow shift away from it. Eventually, it won't be such an important commodity, so an oil standard would become increasingly anachronistic, in addition to never having been a good idea in the first place.

Inflation-targeting of consumer prices remains one of the best ideas central banking has ever had. It's not enough, and not all other ideas have been good, but let's not throw the baby out with the bathwater and return to a system that doesn't make sense anymore (it only ever made sense because gold had just happened to become the default world currency) out of pure nostalgia. I'll give you a hint on what to focus on for stability: property bubbles and flows of "hot money." Central banks are re-thinking their approaches to these, too. Let them get on with it. And STOP interviewing Ron Paul! It reminds me of Paris Hilton's energy policy suggestions, except that hers were actually logical!

Realism and Terrorism

Political realism is a school of thought that believes that nation-states are the essential actors in the international system (not individuals, groups, or corporations) and that there are structural reasons that the world functions the way it does that are beyond the immediate influence even of world leaders and powerful nation-states themselves. Due to its focus on the "big picture" --the structure of the whole international system and the distribution of power among the nation-states within it-- many have argued that realism is becoming increasingly irrelevant in a world of asymmetric warfare with non-state actors like terrorists. Indeed, how can a model that, at its base, excludes all parties below the level of the nation-state have anything to say about terrorism?

It is true that realists have often ignored terrorism almost completely, preferring to view the problem as one of crime-fighting that can be addressed by nation-states, like ocean piracy in the 19th century (also something outside realist models). The structural realist model can be applied to terror groups, however. It simply has to be "translated" to the new environment. Doing so can yield some interesting insights and immediately suggests some policy responses (which are, luckily, already being put in place to some extent).

Reading Leah Farrall's article in Foreign Affairs, How al Qaeda Works, I was reminded of a somewhat similar article in International Security (Vol. 33, No. 2, Fall 2008) by Mette Eilstrup-Sangiovanni entitled “Strengths and Weaknesses of Networks: Why al-Qaeda may be Less Dangerous than Most Think.” These two make opposing arguments, with the former asserting that al Qaeda is stronger than ever and the latter calling this idea into question, as the title suggests. What they both agree on, however, is the way in which al Qaeda's network is structured. Farrall's article distinguishes between "franchises" and "branches" within the network, similar to the way McDonald's stores are usually owned and operated by franchisees, but are sometimes run by McDonald's directly (branches). The point is that the structure is highly decentralized. Minor established terror groups apparently apply for al Qaeda franchise status.

So what does all this have to do with realism? Translate the structural nation-state model onto the individual terror units (franchises, branches, the al Qaeda core, and other unrelated terror groups) and you have what one might call a "terror system." Crucially, the al Qaeda franchises have local goals that are generally more important to them than the sweeping, global goals espoused by al Qaeda itself. To be a franchisee, however, these groups must help out with al Qaeda's global mission. In return, they gain expertise, funding, and other support for local terror operations largely of their own choosing. As long as their interests coincide in this arrangement, we can expect cooperation between local groups and the al Qaeda core.

The realist model, however, provides many insights into the formation of alliances and the reasons why groups' divergent interests may drag them away from cooperation, quite possibly in spite of their professed wishes for such cooperation. The point is: we must find ways to bring franchisees' interests out of alignment with those of al Qaeda, thus weakening the entire network.

This has apparently already been done in at least one case: against the Moro Islamic Liberation Front (MILF) of the Philippines. American and Filipino authorities worked to change incentives for the MILF, punishing it more heavily for working with al Qaeda, while using carrots to encourage it not to do so and to come to talks with the government about its local goals. Al Qaeda operatives have apparently stopped using the MILF's training camps in the Philippines. This was the successful application of a realist, divide-and-conquer deterrent strategy, one known since at least Roman times. This is also the topic of my coming PhD dissertation. More to come in about three years...

Libyan Oil, Cynicism, and Anti-Americanism

"We can't be holier than the pope!"
Here we go, I thought to myself.
"America doesn't march into a country to rescue people being abused by their own government. If this were in Saudi Arabia it would never happen. The Americans are good friends with the Saudi rulers and wouldn't do a thing to help the people there."
Next came the inevitable: Libya has oil, so clearly that's what America wants because Americans all drive big cars, which leads them to march into every corner of the world and take every drop of oil they can get.

This diatribe was, unfortunately, from an Austrian acquaintance of mine, but it's easy enough to imagine an American arguing along similar lines. In fact, the nationality of the speaker is pretty irrelevant, because the theme is the same: America is not a force for peace, it is just interested in itself and, above all, getting more oil.

Now, I'm a realist and that makes me lean towards cynicism myself much of the time, but this goes above and beyond cynicism. The arguments are muddled and don't really make sense (I'll get to this below), which leads me to think the argument itself is secondary; it is the point that America is doing the wrong thing (again) that matters. When arguments are left out and the conclusion is the same regardless of the facts, we call this prejudice. It comes in many forms: racism, anti-Semitism, homophobia, Islamophobia, and, in this case, anti-Americanism.

The anti-American argument in this case, as is usual, uses some good points. Does America put its own interests first? Sure, most of the time it does. Just as any other country, when it comes down to it, does. Is America addicted to oil? You betcha. Is that addiction a bad thing? Sure is. Would America attack Saudi Arabia? It would surely be extremely reluctant to do so, but the full answer to this is more subtle. As I answered at the time "it would depend on who had the upper hand." This is precisely what happened in Libya. (Read on!) Let's address the argument piece by piece.

First is the oil issue. There are a number of reasons why this argument makes no sense. First off: the world was receiving oil from Libya with Gaddafi in charge. If that's all the West had been interested in, surely it would have supported Gaddafi from the outset, rather than rebel protests that looked to destabilize a regime that had become quite friendly to the West. Second, Libya has a lot of reserves, but the shortfall of around 1.4 million b/d of oil from there can be made up for elsewhere. Saudi Arabia, Kuwait, Nigeria, and the UAE were set to pump an additional 1 million b/d to make up for most of the Libyan short fall on their own.

As an oil producer, Libya ranks behind the traditional oil producers Saudia Arabia, Kuwait, and Russia, but also behind the United States, the EU, and Norway. Has the unrest and supply cut-off in Libya driven oil prices up? Sure, but so has the unrest in the Arab world in general and, more recently, fears that Japan's nuclear disaster will cause a move towards petroleum as a substitute energy source. It is simply not worth getting involved in yet another foreign military mission over 400,000 b/d of oil. Anyone who tells you that this is what America is doing is missing something.

The next point is about America's leadership role in all this. America has actually been keen to give up the leadership of the mission and have NATO take it on. The biggest advocate of action has been France's President Nicolas Sarkozy, not Barack Obama. It was France that first afforded diplomatic recognition to Libya's Interim Government, long before it had become clear that it had effective control over most of the territory and its citizens. (This is a custom in international relations/international law, albeit one that's been broken several times: Croatia and Kosovo spring to mind.) So why was this guy blaming America (again)? Is there a good reason for the no-fly zone and all the fuss?

As I've pointed out, my acquaintance was right that America does not always get involved when a government is mistreating its people. Two things, though. For one, this is not absolute. America's involvement against the genocide occurring in the Balkans was because Bill Clinton believed it was the right thing to do (and was pressured/guilt tripped into doing something). American involvement in Somalia was also meant to keep peace and rebuild the state. The "CNN syndrome" struck in Somalia, however: images went around the world of dead American soldiers being dragged through the streets behind a pickup truck in Somalia. The American public was clear: if those people want to kill each other, then let them -- get our boys out of there. We did.

America will not usually react to human rights violations with force unless there are additional reasons (like national security) to do so or it is under heavy pressure. This may sound selfish, but the other half of the calculation involves whether or not a change is even reasonably achievable. We cannot topple every dictator, and even when we do, we may have a mess afterwards (as Iraq and Afghanistan have clearly shown). Last but certainly not least: American leaders must consider the costs to their own country, both in blood and treasure. America does well to choose its battles wisely.

So why Libya? It's not national security and, as I hope I've shown, it's not oil. So what is it? The Libyan situation is a simple case of having painted oneself into a corner. The US is acting because it feels heavy pressure to do so, from its allies in Europe, but also due to its, and its allies', actions. When it appeared the rebels were going to topple Gaddafi, supporting them was easy. Kind words were almost all that was required. An embargo was put in place. Gaddafi's accounts in America and (embarrassingly not until later) Europe were frozen. Then the tide turned in favor of Gaddafi.

The US, France, and Britain realized there was wet paint on the floor all around them and that the door behind them had just been closed. They had burned their bridges by making an enemy out of Gaddafi and declaring their support for the rebels. Now the rebels might lose. They basically had no choice but to step up their aid to the rebels. This would have occurred even in Saudi Arabia: If it long appeared the House of Saud was doomed to failure, the West would probably support rebels there. This is because that would be the most likely way to bring about longer-term stability and a quick, and therefore cheap, end to hostilities. They could, of course, fall into the same trap in that case if the tide turned there, too. Such are the problems that accompany marriages of convenience!

It helps in this case that the West is acting under the approval not only of the UN Security Council (in which Russia and China surprisingly decided to abstain rather than veto the no-fly-zone resolution), but also of the Arab League (though the latter is now more ambivalent since actual bombings have begun)! The operation has a level of international approval, and therefore legitimacy, not seen since perhaps Operation Desert Storm under Bush Senior.

So to recap: the US has reluctantly stepped in and taken up a (temporary, it hopes) leadership role in implementing a no-fly-zone with air strikes over Libya. It is doing so in support of rebels against a dictator, but probably would not be if it had not painted itself in a corner. It is acting with a great deal of international support and a UN mandate. It is not about oil.

All in all, while room for cynicism remains about the US and the West's final decision to act, the reasons for this mission are pretty darn good. Whether its a good mission in the sense of the likelihood to succeed, whether it will drag on forever, and how bloody it will get, is another discussion entirely. To imply that this is just another optional war waged by America to slake its oil thirst (or perhaps its alleged thirst for violence) is simply wrong and speaks of ignorance -- or just plain old anti-Americanism.