What to Read on June 27, 2009

  • Iraq Set to Invite Bids From Foreign Oil Companies — Washington Post – This is riskier than most people recognize. Privatization has a mixed record in developing nations. Most industrialized nations, of course, do not have many nationalized industries, but history shows that developing economies should approach this structure slowly. Add to that the obvious tensions of oil in the Middle East, as well as a country that is war-ravaged and deeply distrustful of foreigners. One can only hope that the companies will be regulated so as not to destroy the environment with oil pollution, nor to take advantage of the Iraqi citizens, nor to funnel all the profits out of the country at a time when it needs to invest in its infrastructure and civil society. One also hopes that this transfer of economic privileges takes place in a way that does not fuel the already violent division between parties and religious sects. This last point is the biggest reason to be skeptical of the wisdom of the timing of this move.
  • Invent, Invent, Invent — Thomas L. Friedman – Friedman is often hard to follow and size up because he mixes metaphors and issues. That said, I agree with all of Barrett’s recommendations at the end of the article (and indeed, in my previous writings as an op-ed columnist, I made the same recommendations in various columns). The more interesting point here is the comparison between Russia and the United States. Russia’s reluctance to invest oil revenues in diversifying their economy is nothing new; it’s the fabled Dutch Disease that has plagued many developing nations, of which Russia is one of the most well-known. The irony is that America unwittingly fell victim to a similar trap: We got so caught up in our bubble prosperity over the last twenty years that we never invested in our long-term problems (climate change, foreign oil dependence, health care, aging infrastructure, etc). That, much more than Friedman’s alarm over “printing money,” has been our Achilles’ heel.
  • White House Considers Executive Order on Indefinite Detention of Terror Suspects — Washington Post – This is bad news. One might be able to chalk up some of the civil liberty breaches of the last eight years to temporary insanity — a country seized by fear and an administration hijacked by radicals — but the fact that it continues to be used and defended after both of these factors seem to have passed is sad, shocking, and a continued blight on our good name. That a nation founded in rebellion against tyranny can fall victim to and condone such authoritarian measures would make the Founding Fathers weep.
  • Despite the Doubters, It’s Still Top Dollar — Desmond Lachman – Lachman’s analysis of the dollar and China is quite accurate. It is easy to see the worst when we see the growing economic power of China, but we must remember that, as far as developing nations go, it is still in an early stage of growth. Many millions of Chinese citizens will have to rise out of poverty before we can consider the Chinese economy a long-term success, and no matter what their growth rate, that will take awhile. Even more important to the question of the dollar versus the renminbi, the Chinese government is still communist, anti-free-speech, and, in the eyes of investors, politically unstable. Those are huge risks that will keep investors wary of buying renminbi for the near future. No matter how strong other economies look, the US dollar will remain the safest currency, economically and politically, at least for the time being — and in foreign exchange markets, that’s what counts the most.
  • U.S. Announces New Afghan Drug Policy — New York Times – This is excellent news for all the reasons given in this article. Long overdue.
  • Is Barack Obama’s Realism Better than George W. Bush’s Idealism? — Ivan Eland – This is a pretty generic defense of realism over idealism, but I want to point out how Eland correctly sizes up the Iranian protests. One of the main reasons why it would be counterproductive for Barack Obama to “criticize the Iranian government” is because it would, correctly or not, “portray the protesters as lackeys of an imperialist superpower.” Anyone who fails to acknowledge this point doesn’t understand the Middle East.
  • Freeh Became ‘Defense Lawyer’ for Saudis on Khobar Attack — Gareth Porter – The final article in Porter’s five-part series is as compelling as the first four. If you haven’t done so already, read the whole series. It’s a fascinating story. But the really important point comes in the concluding three paragraphs of this article, which every American citizen should read. Truly damning.
  • In Both Parties, Nominating Process Under Scrutiny — Washington Post – These attempts are usually a waste of time, but if we can get just one change that they specifically mention in the article, it will go a long way toward reducing Americans’ distrust of and distaste for the electoral process: “If the two parties are successful, the 2012 presidential campaign likely will begin a month later than it did in 2008 — February rather than January — with the bulk of the contests not starting until March. That alone would be a significant improvement.”
  • The Rationing Scare — Frank Pasquale – And it is a “scare”. But it shouldn’t be, if the public understood the points in Pasquale’s post. A must-read for anyone interested in the health care debate, especially those who worry about “rationing”.
  • Why We Have Both Fannie and Freddie — Richard K. Green – Quick and interesting history. It helps to understand why they exist before we go bashing them (as I explain further in my forthcoming book).
  • Why We Shouldn’t Subsidise Clean-Energy Technologies — Gilbert E. Metcalf – Metcalf’s economic analysis is correct, but one caveat is that the federal government is often better at investing in basic research. The big expenses required for important R&D are often too high for individual companies to take on. A “Green Bank” that invested in such research efforts would be excellent for the economy and the environment. If, on the other hand, it is just making specific products cheaper by subsidizing the firms, then it’s probably a net negative for society.
  • The Dangers of Regulating Executive Pay — Donald J. Boudreaux – Interesting theory on how limiting takeovers in the ’80s caused executive pay to rise. Two problems: (1) That only explains a fraction of the rise; a lot of it is due to the political economy of a powerful financial industry and a broader cultural shift (all covered in my forthcoming book). (2) Boudreaux assumes that CEOs are responsible for much of a company’s value; that is, he buys into the Great Man Theory that one person can be worth many, many millions of dollars a year, for without them the company would probably be far less successful. Don’t get me wrong, CEOs are important; I’m one of the first people to tout the importance of leadership. But the empirical evidence seems to indicate that CEOs are responsible for far less of the company’s value than conventional wisdom assumes. Boudreaux is right, though, to add his caveats; regulating executive pay is bloody difficult to do without adding more misaligned incentives.
  • Most Subprime Lenders Weren’t Covered by CRA — Barry Ritholtz – Surprise, surprise. Of course, economists who aren’t ideologues already know CRA played only a very minor role in the housing bubble-and-crash, but it’s good to see further empirical evidence.