I Fixed the Deficit

What do econo-wonks do for fun on the weekends? We play interactive deficit-fixing games online. Really. Felix Salmon has a good post explaining why some of the options the game provides–especially the Medicare cap–are unrealistic and why many of them are regressive. But the solution Salmon proposes (gutting the Pentagon budget completely) seems just as unlikely. My version is harsher, in that I take a scalpel to entitlements. But it gives a 60-40 tax increases-spending cuts balance that I’m more comfortable with the 70-30 Salmon has going. You can see my version, and make your own, here.

Updated 11/15 5:20PM: Also worth playing is the CEPR budget deficit calculator. A very different–ie more left-wing–set of choices are in place there. It’s pretty hard to get far on that calculator, for example, without a complete re-do of health care reform and two energy taxes–both at the producer and the consumer levels. That seems ridiculously implausible to me, but still fun to play with.

India and Its Neighbors

I’ve got a piece in today’s Christian Science Monitor on India, China and the battle for South Asia.

China is certainly flexing its muscle. Last month, it sought to restrict exports of rare earth minerals to Japan, made overtures to a secession movement in southern Sudan, and wrestled with the G20 over its currency and trade imbalance.

Nowhere has China been more assertive than in South Asia. In a strategy it calls the “string of pearls,” China is building ports and infrastructure in Bangladesh and Pakistan; digging up minerals in Pakistan and Afghanistan; and refining hydropower in Nepal and Afghanistan.

According to the International Monetary Fund, China’s trade with India’s neighbors totaled $16 billion in 2008, growing at 14 percent annually. India’s regional trade was barely holding steady at $11 billion.

Yet China’s success in the Subcontinent reflects India’s own foreign policy blunders.

The takeaway: if India doesn’t improve its own regional relationships, it will not only lose South Asia to China, but it will be prevented from exercising power elsewhere. Don’t believe me? Read the whole piece.

The Stiff Upper Lip and Its Discontents

I’ve just written the longest blog post ever at Foreign Exchange. It filled about 6 pages in Microsoft Word as I was working on it. I don’t think bloggers are actually allowed to be so verbose, but I couldn’t help myself, as the subjects touched on in the post triggered too many of my wonkish fetishes:

On Wednesday, the Tory-Lib Dem coalition in the U.K. unveiled its mammoth austerity program, aiming to take £81 billion off the deficit over four years. There are a few major sources of cuts: a reorientation of British foreign policy that should take 24% out of the Foreign Office and 8% out of the Ministry of Defense; a welfare reform program  that should yield close to £20 billion in savings; a push towards privatization and localism on everything from low-income housing to law enforcement; and across the board cuts–mostly efficiency savings and staff reductions–in all departments with a few notable exceptions: education, health and foreign aid spending will all keep growing.

The plan has taken a heavy beating in the first 48 hours. First, there are criticisms of the way the Spending Review plays fast and loose with data: leaving off half the cuts in order to claim that the overall effect is more progressive than it really is, conflating real and nominal figures or cash figures and percentages or departments’ capital ceilings and their actual expenditures. I can’t tell if that kind of fuzzy math is intentional obfuscation or just economic incompetence, but it’s a problem with the Review and one reason it took me a long time to develop a solid analysis of my own. Second, there are criticisms of the policies on the merits, in particular of the changes in taxes, disability and child benefits and housing. The most aggressive critique has come from the Institute for Fiscal Studies in a series of Power Point presentations that are getting a lot of positive play in the British press, but of which I’m a bit skeptical.

The rest of the post is a detailed analysis of the review, followed by an assessment of just how regressive it is. The figures I ended up with show that the Review is regressive in the broad sense (worse for the bottom half than the top half) but when it comes down to specifics, is actually going to squeeze the middle more than the absolute poor.

For more scintillating details, read the whole thing.

China’s Growing Contradictions

My post at Foreign Exchange today is about the Chinese Communist Party’s latest five-year plan, which aims to reorient the economy to be more equitable and more consumption and service driven. I’m skeptical that this is going to work without the political reforms that the Party remains hesitant to make.

The economic part is easy. Of course an authoritarian regime has the ability to mandate changes in wages, to make dramatic shifts in managing currency and to reorient capital investment towards services. And it’s heartening that China is now interested in doing so after several years of other countries’ whining falling on deaf ears. But the political part seems impossible. How do you raise wages at the bottom to the point where you have a consumer economy without producing enormous pressure for democratization (something this five year plan has chosen to kick down to the road and which the Party elders still seem in denial about)? The mantra of consumer-centric, service-heavy capitalism is “What about me?” It won’t last long in a political culture of “Shut up and sit down.”

Go read it all.

The Great Game Grows

Post today at Foreign Exchange about the Great Game:

It’s been widely known for some time that China is engaged in a global race to acquire commodities: oil, gas, minerals, water, you name it. It’s well known that China is after these goods for a combination of reasons: too much cash on hand, a hungry growing economy that needs raw materials, and a keen awareness that controlling commodities—and their futures—is a powerful form of economic influence.  Policy wonks call this The (New) Great Game.

But experts have usually understood the Great Game in regional terms: the loot was concentrated in the Caucusus, Central Asia and the Middle East, and the major players were supposed to be China and Russia. That picture has always struck me as off base…

I go on to argue that the Great Game is increasingly global and  more diverse in the commodities it involves and to suggest how that changes U.S. policy imperatives. Go read.

Germany’s Radical Center

I’ve been off the blogs of late because of a Very Exciting Project that I’ll discuss when it’s ready. But I’m back, with a post on Foreign Exchange about the so-called German miracle:

The econo-world has been abuzz about Germany because the country has done a remarkable job outperforming its first world peers as it emerges from the Great Recession. Last quarter, it went on a 9% growth rampage. This year, it’s expected to grow over 3%, compared with less than 2% for the most of the developed world. When econo-wonks process those stats, they try to claim the success story as a victory for their preferred models, while constructing any downsides as failures of the other side. They are wrong to do so.

Instead, the argument I make in the post is that the German model is a happy historical accident. And as you may know, I enjoy arguing that history matters. But I also resist the notion that history is everything. So while I think it’s important to understand the present-day German economy as a product of its history, I don’t the like the argument–which smart people still make–that present-day Germany should make its decisions about the future on the basis of some guilt about its past.

Europe and the Summit

On Foreign Exchange yesterday, I posted a recap of some of my impressions of the summit, as well as from the mass of literature I took away with me. Towards the end of the post, I made the following point:

Chat with Andris Piebalgs

My post at Foreign Exchange today is an interview with Andris Piebalgs, the European Commissioner for Development. An excerpt:

“Some of your member states have expressed support for a financial transactions tax as a source of funding. What is the Commission’s view of that?

It’s very clear that official aid will need money beyond .7, and then on top of that aid we will need to raise funds for a climate change pledge. We need to start thinking as though at the end of the day somebody will count the money and if you haven’t delivered, you will be responsible for the misery in the world.

Yes, the tax is logical. Why? We tax everything else. All activities are suffering from taxation. Technically, though, it should be difficult to administer. It needs global governance, and in that, it is a test case for the G20. If they can’t do this, it is on them to propose an alternative. We could tax air tickets, say. Much simpler, but much less popular.”

I really enjoyed the whole chat, and encourage you to go read it.

Fresh Thoughts on Aid

I’ve got two posts up today on ‘out of the box’ thoughts about aid. Namely, the push for a more political/human rights approach, the push for a financial transactions tax, and the push for more reliance on public pressure and social media awareness campaigns. Me, I’m in favor of the first two. I’m also pretty seriously impressed by the two pols who made those arguments, Angela Merkel and Bernard Kouchner. Merkel for her ability to take what is actually a left-wing idea and fit it into a center-right argument. Kouchner for his astounding rhetorical gifts–I’ve never seen anyone own a press pool that way. I particular enjoyed when he told one reporter that she was asking a ‘non question.’ You can enjoy his witticisms here.

As for the third, everyone here will already know that I’m a skeptic about digital democracy. So I won’t repeat myself, just refer you to the interview.

Questions for Andrew Mitchell

Another hit from Foreign Exchange:

“Britain took the financial crisis harder than most, and the Liberal Democrat-Conservative coalition that took office in May ran on a promise to right the ship. Their solution: a dramatic austerity program that is making heavy cuts to a host of the country’s cherished public services. Opinion in Britain is pretty split about that, but recent polls show opinion is dead set against the decision to exempt overseas aid from any cuts, and, per an announcement from Deputy Prime Minister Nick Clegg this morning, to triple aid spending on maternal and child health.

I sat down with Andrew Mitchell, Britain’s Secretary of State for Development…”

Learn what he said here, or listen to an excerpt of my chat here.