The Asia-Pacific’s most dangerous crisis may be going overlooked due to North Korean threats. Despite the Obama administration’s ‘pivot’ to the region, Asian allies worry that the United States will not continue to be a steadfast partner.
North Korean bombast has been using up all of the oxygen in the Asia-Pacific, but what may be the region’s most dangerous crisis is raging on a few hundred miles to the south. With front pages focused on Kim Jong-un’s threats and the United States’ shows of force, the ongoing Sino-Japanese impasse has gone overlooked in recent weeks. Even so, it is difficult to overstate the importance of the latter conflict’s long-term implications for peace in Asia.
As tensions in the East China Sea have heated up over the past year, analysts, journalists, and businessmen have been asking two questions: Could Japan and China really come to blows over the Senkaku (or, in Chinese, “Diaoyu”) Islands? Would the United States really allow itself to be drawn into a conflict over a handful of obscure, uninhabited rocks? These questions are based on an errant assumption that the roiling conflict is, at heart, about ownership of the Senkakus. It is not.
China’s Goal: Securing CCP Leadership at Home and Abroad
For Beijing, the conflict with Japan over the Senkakus serves two goals that extend far beyond the islands themselves. The Chinese Communist Party’s primary objective is to stay in power. Having long ago jettisoned the ideological foundations of its regime, the CCP relies on delivering economic growth and on its claim to a nationalist mantle to legitimize its continuing rule. Stoking tensions with wartime foe Japan has long been a part of Beijing’s playbook. The playbook also includes a propaganda effort aimed at sustaining anti-Japan grievances, an effort that continues nearly 70 years after the conclusion of World War II and Tokyo’s adoption of a pacifist constitution, and more than 30 years after Japan began providing economic aid to China (Tokyo has long been China’s biggest donor).
An economics paper claiming that high levels of national debt led to low or negative economic growth could turn out to be deeply flawed as a result of, among other things, an incorrect formula in an Excel spreadsheet. The paper has been cited abundantly by the world’s press politicians, including one-time vice president nominee Paul Ryan (R-WI).
The paper, Growth in a Time of Debt, was written by economists Carmen Reinhart and Kenneth Rogoff and published in 2010. The link it draws between high levels of debt and negative average economic growth has been used by right-leaning politicians to justify austerity budgets: slashing government expenditure and reducing budget deficits in a bid to curtail the growth of debt.
This link was always controversial, with many economists proposing that the correlation between high debt and low growth was just as likely to have a causal link in the other direction to that proposed by Reinhart and Rogoff: it’s not that high debt causes low growth, but rather that low growth leads to high debt.
However, the underlying numbers and the existence of the correlation was broadly accepted, due in part to Reinhart and Rogoff’s paper not including the source data they used to draw their inferences.
A new paper, however, suggests that the data itself is in error.
They didn’t average all the rows in their spreadsheet, and they did some fiddly stuff with other data.
Recalculating the data to remove these three issues turns out to provide much weaker evidence for austerity. Although growth is higher in countries with a debt ratio of less than 30 percent (averaging 4.2 percent), there’s no point at which it falls off a cliff and inevitably turns negative. For countries with a debt of between 30 and 60 percent, average growth was 3.1 percent, between 60 and 90 it was 3.2 percent, and above 90 percent it was 2.2 percent. Lower than the low debt growth, but far from the -0.1 percent growth the original paper claimed.
Many American progressives have shifted from their historic interest in economic growth and social mobility to a primary focus on environmental purity, whatever the social or economic cost.
Conservatives often fret that Barack Obama is leading the nation toward socialism. In my mind, that’s an insult to socialism, which, in theory, at least, seeks to uplift the lower classes through greater prosperity. In contrast, the current administration and its core of wealthy supporters are more reminiscent of British Tories, the longtime defenders of hereditary privilege, a hierarchical social order and slow-paced economic change.
The notion that the “progressives” are, in fact, closeted Royalists has been trotted out by a handful of Obama admirers, such as Andrew Sullivan, who calls the president “the conservative reformist of my dreams.” Essentially, Sullivan argues, Obama has been a “Tory president,” with more in common with, say, an aristocratic toff like British Prime Minister David Cameron than a traditional left-liberal reformer.
The fundamental conservativism underlying the modern “progressive” marks the central thesis of an upcoming book by historian Fred Siegel, appropriately titled “Revolt Against the Masses.” Siegel traces the roots of the new-fashioned Toryism to the cultural wars of the 1960s, when the fury of the “Left,” once centered on the corporate elites, shifted increasingly to the middle class, which was widely blamed for everything from a culture of conformity to racism and support for the Vietnam War.
Tory progressivism’s most-unifying theme, Siegel notes, includes the preservation and conservation of the landed order enjoyed by the British ultrawealthy and upper-middle classes. In the 19th century, Siegel notes, Tory Radicals, like William Wordsworth, William Morris and John Ruskin, objected to the ecological devastation of modern capitalism and sought to preserve the glories of the British countryside.
They also opposed the “leveling” effects of a market economy that sometimes allowed the less-educated, less well-bred to supplant the old aristocracies, with their supposedly more enlightened tastes. “Strong supporters of centralized monarchical power, this aristocratic sensibility also saw itself as the defender of the poor - in their place,” writes Siegel. “Its enemies were the middle classes and the aesthetic ugliness they associated with the industrial economy borne of bourgeois energies.”
The euro zone slipped deeper into recession in the last three months of 2012 after its largest economies, Germany and France, shrank markedly at the end of the year.
It marked the currency bloc’s first full year in which no quarter produced growth, extending back to 1995.
Economic output in the 17-country region fell by 0.6 percent in the fourth quarter, theEU’s statistics office Euros tat said on Thursday, following a 0.1 percent drop in output in the third quarter.
The drop was the steepest since the first quarter of 2009 and more severe than the average forecast of a 0.4 percent drop in a Reuters poll of 61 economists.
For the year as a whole, gross domestic product (GDP) fell by 0.5 percent.
Within the zone, only Estonia and Slovakia grew in the last quarter of the year, although there are no figures available yet for Ireland, Greece, Luxembourg, Malta and Slovenia.
Who is Gonna Pay for This? Just 9 Miles Apart, Providence and Barrington Provide a Case for Rethinking Local Budgeting
Barrington may be the only community in Rhode Island that not only did not cut back on library hours and services in 2011—it expanded them. What’s more, in 2012, it has continued to increase library funding.
The nearby city of Providence closed seven of its nine public libraries for a week this September because it needed to close a budget shortfall. Even before that closure, budget constraints had limited the hours at Providence libraries, making it difficult for people with full time jobs and their families to use this public service on most days.
This is just one example of how Providence and Barrington, located just nine miles apart, highlight the inequity of our locality-based budget system: The places most critically in need of the local services that facilitate economic growth and job attainment are the least likely to have the means to pay for them.
Rhode Island has 39 cities, each of which manages critical services (such as schools, public health, the promotion of tourism and business development, and law enforcement) needed for economic growth. As with most local governments in the U.S., the only taxation authority these cities have is a broadly defined property tax that covers houses, cars, boats, etc. (Such taxes make up 72 percent of Providence’s total revenue. Only 15 percent of the city’s revenue is funding from the state and the rest is made up of fees for services and the like). These sorts of “flat” taxes based on ownership are the norm for local governments across the country, with only a few exceptions.
As the prospect for a last-minute deal seems ever bleaker, the politicians and pundits are warning Americans to brace themselves for a plunge off the so-called fiscal cliff to disaster. Yet even if the much dreaded spending cuts and tax hikes go through as scheduled, they will be a drop in the bucket compared to the amazing fiscal reform that Canada achieved in the 1990s. Americans might like to know that Canada proves you can balance the budget without wrecking your economy.
First the background: By the mid-1990s the Canadian federal government had been running deficits for two decades, with a third of federal revenue being absorbed by interest payments. The international economic situation was dire. Fresh on the heels of the Mexican peso crisis, a Wall Street Journal editorial from January 12, 1995 viewed Canada as similarly vulnerable and declared that the U.S.’s neighbor to the north “…has now become an honorary member of the Third World in the unmanageability of its debt problem…it has lost its triple-A credit rating and can’t assume that lenders will be willing to refinance its growing debt.”
The Canadians retreated from the abyss when the center-left Liberal government tabled their historic budget in February, 1995. Total federal government spending fell by more than 7 percent over two years, while the budget deficit of $32 billion (4 percent of GDP) was transformed into a $2.5 billion surplus. By January 1998, federal employment was down by 14 percent or 51,000 people. Ottawa ran 11 consecutive budget surpluses beginning in the 1997/98 budget year, causing the total public debt to plummet as a share of GDP. They tightened welfare and fixed their version of social security.
Far from wrecking the economy, in the decade after reform Canada out-performed all the other G7 nations on economic growth, investment, and job creation. In the recent worldwide recession Canada’s economic robustness allowed it to weather the downturn better than any other G7 nation. Even in the short-term, the dramatic fiscal austerity in the 1990s was mild in its side effects, merely causing a temporary uptick in the unemployment rate that was quickly reversed.
It is instructive to compare Canada’s experience with what is known as America’s fiscal cliff, as projected by the Congressional Budget Office (CBO) in its August update. It is far more modest than what Canada achieved.
The Republican controlled house of representatives created this cliff, and has spent months burning every possible bridge they could use to cross it. If the house can’t create a budget that will pass without a veto, then they are failing in their prime duty, and probably need to be recalled through the whatever the various mechanisms are in individual states.
If the Representatives can’t muster enough votes to do that, then the house needs to reasonably extend the time frame — since this is just an arbitrary timeline that they created they can also change that timeline before the ten days are up. So there are two easy ways to avert the cliff, that mentioned by the president, and that of extending the deadline. If the house fails, I say recall them.
President Obama sharply curtailed his ambitions for legislation to avert the year-end “fiscal cliff” on Friday, urging Congress to adopt a stopgap measure to keep benefits flowing to unemployed workers and prevent taxes from rising on income under $250,000 a year.
The plan should also “lay the groundwork” for action next year to spur economic growth and rein in the national debt, Obama said at a White House news conference. But with taxes set to rise for virtually every American in just 10 days, Obama conceded that time was too short to enact far-reaching legislation now.
“I am still ready and willing to get a comprehensive package done. . . . I remain committed to working towards that goal, whether it happens all at once or whether it happens in several different steps,” Obama said.
“But in 10 days, we face a deadline,” he said. Protecting unemployed workers and 98 percent of taxpayers is “an achievable goal that can get done in 10 days.”
With that, Obama and his family boarded a flight to Hawaii for Christmas, leaving congressional leaders to untangle a long-standing political knot: how to push a tax hike of any kind through the fractious Republican House.
In 1972, environmental guru Dennis Meadows predicted in his seminal study “The Limits to Growth” that the world was heading toward an economic collapse. Forty years on, he tells SPIEGEL ONLINE that nothing he has seen since has made him change his mind.
SPIEGEL ONLINE: Professor Meadows, 40 years ago you published “The Limits to Growth” together with your wife and colleagues, a book that made you the intellectual father of the environmental movement. The core message of the book remains valid today: Humanity is ruthlessly exploiting global resources and is on the way to destroying itself. Do you believe that the ultimate collapse of our economic system can still be avoided?
Meadows: The problem that faces our societies is that we have developed industries and policies that were appropriate at a certain moment, but now start to reduce human welfare, like for example the oil and car industry. Their political and financial power is so great and they can prevent change. It is my expectation that they will succeed. This means that we are going to evolve through crisis, not through proactive change.
SPIEGEL ONLINE: Several central forecasts you made in the book have come true, the exponential growth of the world’s population, for example, and widespread environmental destruction. Your prediction regarding economic growth, namely that it would ultimately cease and the global economy would collapse, has not yet come to pass.
Meadows: The fact that the collapse hasn’t occurred so far doesn’t mean it won’t take place in the future. There is no doubt that the world is changing, and we will have to go along with it. There are two ways to do that: One is, you see the necessity of change ahead of time and you make the change, and the second is that you don’t and are finally forced to do it anyway. Let’s say that you’re driving a car inside a factory building. There are two ways to stop: Either you put on the brakes or you keep going and hit the wall. But stop you will, because the building is finite. And the same holds true for Earth’s resources.
“Great power” is a vague term, but China deserves it by any measure: the extent and strategic location of its territory, the size and dynamism of its population, the value and growth rate of its economy, the massive size of its share of global trade, and the strength of its military. China has become one of a small number of countries that have significant national interests in every part of the world and that command the attention, whether willingly or grudgingly, of every other country and every international organization. And perhaps most important, China is the only country widely seen as a possible threat to U.S. predominance. Indeed, China’s rise has led to fears that the country will soon overwhelm its neighbors and one day supplant the United States as a global hegemon.
But widespread perceptions of China as an aggressive, expansionist power are off base. Although China’s relative power has grown significantly in recent decades, the main tasks of Chinese foreign policy are defensive and have not changed much since the Cold War era: to blunt destabilizing influences from abroad, to avoid territorial losses, to reduce its neighbors’ suspicions, and to sustain economic growth. What has changed in the past two decades is that China is now so deeply integrated into the world economic system that its internal and regional priorities have become part of a larger quest: to define a global role that serves Chinese interests but also wins acceptance from other powers.
Chief among those powers, of course, is the United States, and managing the fraught U.S.-Chinese relationship is Beijing’s foremost foreign policy challenge. And just as Americans wonder whether China’s rise is good for U.S. interests or represents a looming threat, Chinese policymakers puzzle over whether the United States intends to use its power to help or hurt China.