Saturday, March 19, 2011

Guest Opinon: Democracy in the Middle East - Is the Obama Administration “Fair and Equal”?

Paula Dierkens is a writer who asked to contribute a piece on the Middle East. The views are her own and do not reflect mine.

There were 18 days in the month of February this year when the world watched Egypt closely to see what would happen – some countries openly supported the people’s demands for the ouster of President Hosni Mubarak and a democratic government in his place, others like the US sat by and gaped silently because they were not sure which way the wind would blow. The Obama administration did issue statements from time to time that seemed to indicate that all they cared about was the Egyptian government’s degree of friendliness with the US. It’s no secret that Mubarak was an ideal choice for the US because he was not a hardcore Islamist even though Egypt is a predominantly Muslim country. And that is the very same reason why the US did not openly support the demand that Mubarak step down until it was apparent that the growing discontent and the hint of violence in the revolution meant that Mubarak leaving was the only way out.
And so Obama’s administration said they wanted a “peaceful and orderly transition” to the new democratic government. But with the army taking over for the interim and with strong signs pointing to the Muslim Brotherhood being significantly involved in any new government that would be formed after a supposedly “free and fair” election process, it’s doubtful if the US would enjoy the same amount of cordiality it did with Egypt during Mubarak’s reign. To the people of Egypt, Mubarak was a tyrant and a despot, but to countries like the US who depended on Egypt for their oil and for the safe passage of their military and trade vessels through the Suez Canal, he was a benign ally amidst the turmoil in the Middle East. 

In the case of Iran however, the US administration has never really enjoyed any kind of friendship with this nation. And even though Obama hoped to improve relations with Iran when he took office by helping them break the impasse over their suspected nuclear program. But with the Iranian government rebuffing his administration, not much of a breakthrough has been achieved. 

And now in the backdrop of the pro-democracy revolutions that are sweeping through the Middle East like a set of dominos, the US has issued a strong statement against the mass arrests and the intimidation of anti-government protestors and their families in Iran, calling on the government to fulfill its human rights obligations and allow the people to demonstrate peacefully for their demands of democracy.
There’s a direct contrast in the way the Obama administration responded to the crises in Egypt and Iran – in the former, there was a strained silence as they straddled the fence waiting to see which way the chips would fall before sliding down that side so they could save face; and in the latter, they know they have nothing to lose and everything to gain by taking a strong stand, and this is what they did. Both Egypt and Iran are fighting for their democratic rights, and the Obama administration showed that more than being in favor of democracy in the Middle East, it preferred to play favorites with the Egyptian government, at least for some time until it became very clear that Mubarak was going down, no matter what.  

This guest post is contributed by Paula Dierkins, who writes on the topic of Online PhD Degree . Paula can be reached at her email id:

Friday, March 18, 2011

The CAPRA Party

Frank Capra is remembered as director of all-American movies where the little guy wins and corrupt politicians and plutocrats lose.  Mr. Smith Goes to Washington, Meet John Doe and It's a Wonderful Life voice libertarian sentiments to which many Americans resonate.  Frank Capra voiced sentiments that explain the Tea Party's groundswell.

Mike Marnell, publisher and editor of Kingston, New York's innovative Lincoln Eagle newspaper has a great new idea: The CAPRA Party.  CAPRA stands for Constitutionalists Against Progressives Reforming America,or, alternatively, Constitutionalists Against Progressives Wrecking America.

Stay tuned.

Thursday, March 17, 2011

Anti-Semitic Indoctrination at UC Santa Cruz

Dr. Ken Marcus of the Institute for Jewish and Community Research sent me this link to a Scribd file copy of Tammi Rossman-Benjamin's 29 page letter of complaint date to the  San Francisco Office of Civil Rights concerning systemic anti-Semitism at the University of California, Santa Cruz.  The atmosphere at UCSC sounds terrifying and disturbing, but the facts are not surprising given the reception that I witnessed David Horowitz receive at Brooklyn College.  Given the left-liberal orienation at most universities, anti-Semitism increasingly characterizes them. What is puzzling is that the majority of Jews continue to identify themselves as left liberals.

Ms. Rossman-Benjamin's complaint hit the headlines on Wednesday.  CBS San Francisco reports:

"The U.S. Department of Education is investigating a faculty member’s complaint that a series of pro-Palestinian events at the University of California, Santa Cruz crossed the line into anti-Semitism and created a hostile environment for Jewish students.

"The department’s Office for Civil Rights notified the campus last week that it planned to look into allegations made by Hebrew lecturer Tammi Rossman-Benjamin dating back to 2001."

Wednesday, March 16, 2011

Defining Globalization: John D. Mueller on the US Dollar's Serving as a Reserve Currency

In analyzing any problem it is important to be specific about cause and effect. Many blame the exodus of US manufacturing jobs on globalization. But the term globalization lacks specificity.  For instance, globalization can mean foreign trade or it can mean US intervention in foreign economies through the International Monetary Fund.  I have previously emphasized that the cause of the exodus of manufacturing is foreign central banks' holding US treasury bonds.  John D. Mueller, in his excellent book about neo-Scholastic economics (in which he argues for the reviving of the economics of St. Thomas Aquinas), Redeeming Economics: Rediscovering the Missing Element, makes the point clearly on page 338.  Mueller is director of the Economics and Ethics Program at the Ethics and Public Policy Center and former speechwriter for Congressman Jack Kemp.   I am reading his book because Dr. Oskar Gruenwald suggested it to me in conjunction with a paper I am writing for his Journal of Interdisciplinary Studies.

Democrats and anti-globalists believe that trade barriers are the solution to the exodus of manufacturing jobs. But that solution does not cure the underlying disease. The disease is misallocation of resources caused by the US Federal Reserve Bank's and the US government's ability to create and fund treasury debt through paper money and foreign central banks.  The cure is monetary stability, which is only possible through a metallic standard.  Until the 1980s there still could be a case that a paper monetary system could be made to work. But the situation now is so far gone that it makes the volatility of earlier paper money periods look mild.  By buying the treasury bonds and using them as reserves foreign banks subsidize the dollar.  This makes foreign goods cheap and causes firms to exit.  To solve the problem the US dollar should not be allowed to be used as a reserve currency. It should be replaced by gold or silver.  Allow me to quote Mr. Mueller (Redeeming Economics, p. 335):

"This is roughly what being an official reserve currency means for the United States. The fact that other nations' monetary authorities hold securities payable in dollars to back their currencies means that our own doesn't need to hold much, if any, foreign money in reserve; it also ensures that the United States makes more investments and purchases of goods and services abroad than are made in the United States--the difference equaling the amount of dollar reserves acquired by foreign central banks.

"...when foreign monetary authorities invest their reserves in US securities, the inflow of official funds substitutes for an equal amount of private investment and trade.  A rise in foreign official dollar reserves therefore not only permits but requires residents of the United States to have a balance-of-payments deficit with foreigners. This excess of "hot money" flows back to the rest of the world as net purchases of foreign goods and/or securities. In effect, the reserve currency privilege allows the United States to have negative net reserves and so run a chronic balance of payments deficit of the same amount. Hot money represents a demand for non-monetary wealth (goods and/or securities) without a matching supply, and so necessarily bids up the price of such wealth wealth..."

The holding of US Treasury bonds permits foreign governments to subsidize the dollar, stimulating their economies in the short term but depleting resources.  US consumption is increased at the expense of foreign workers, who work hard to produce goods that America gets for borrowed money.  It is true that the Chinese have gained considerable manufacturing expertise, but have done so at the expense of low wages. Under an international gold standard system where gold serves as reserves this situation could not occur. Trade imbalances would correct over time.

In contrast, the costs of imposing trade barriers are high.  David Ricardo showed that trade makes all parties wealthier by enabling global specialization, which he called comparative advantage.  To impose trade barriers would reduce the gains from the specialization, making the world much poorer.  Because the US consumer has benefited from the US dollar's serving as a reserve currency, imposing tariffs, which entail the risk of retaliation, would be extremely risky and self destructive.

Put another way, the difference between trade barriers and a gold standard is that under a gold standard markets will reallocate demand for foreign goods as the dollar's purchasing power with respect to foreign currencies is reduced while under trade barriers the people who have created the current monetary system, politicians and their employees, will reallocate demand.  Hence, trade barriers is a means of ensuring that state power is retained in the face of a failing monetary regime.

Rather than economically self-destructive trade barriers, a return to a global gold standard, or a global silver standard, would create the possibility of a stable world trading system and return its share of manufacturing to America.

Tuesday, March 15, 2011

Management Implications of the Japanese Catastrophe

My undergraduate students were not yet born when the American media played up the supposedly inexorable Japanese economic power.  When, in the 1970s, Toyota began to out-shine GM, and American television manufacturers failed to keep pace with Sony and Sanyo, many in the United States attributed Japan's success to culture.  A foundational work on Japanese culture is Ruth Benedict's The Chrysanthemum and the Sword, which she wrote during World War II at the behest of the United States government.  The Japanese are more collectivist and team-oriented than Americans are.  They tend to put greater weight on loyalty and, like other Asian cultures, on saving face.  Benedict identified indebtedness to others, on and giri, as fundamental to the Japanese ethical make up.  While Americans base their ethics on guilt, Benedict claimed, the Japanese base theirs on shame.  Shame leads to collectivism.

Because of the numerous cultural differences between the Japanese and Americans, many argued that the Japanese firms were successful because of Japanese culture. According to this argument, management skills are rooted in culture. Toyota is successful because the Confucian philosophy underlying much of Japanese culture supports participation in family-like units such as corporations. The strong cultures of Japanese firms result from on and the Japanese's collectivist orientation.  Their firms are better managed because of cultural characteristics that cannot be duplicated elsewhere.

But many Japanese firms are badly managed.
Firms are well managed if rationality prevails over politics.  Cultural differences do not guarantee success or failure. Rather, the brokerage of interests within firms and within societies frequently inhibits optimal courses of action.  Experimentation and imagination are the sources of progress, and these threaten the status quo.  The Japanese excel with respect to management systems, but the Americans have been the most innovative nation.  Both approaches, as well as many others, can be successful if and only if trial and error can prevail over custom and political power.

Today we see a tragic catastrophe in Japan.  The Wall Street Journal reports that Tokyo Electric Power Company has mismanaged not only the nuclear reactors that have caused the potential radiation disaster but also the staged blackouts that it is implementing to manage the loss of power.  Radiation fallout has reached Tokyo, although reports are that the levels, though earlier more than twice as high as normal, are not dangerous and are falling.  Nevertheless, the management of the nuclear plants improperly ignored safety standards, resulting in the release of radiation.  Is culture to blame for the power outages and radiation threat as well as lean management and total quality management?  I think not.

The world has adopted the Progressive approach to economic progress. Progressivism advocates large firms that enjoy  economies of scale. Such firms are inherently inefficient and unstable. We have seen this recently in the financial system and the BP oil catastrophe.  Large scale enterprise has significant long term costs that increasingly offset economies of scale over time. Therefore, Progressivism works only with government support, and the support needs to increase over time, leading to socialist stagnation. But there are additional costs to the large scale approach besides the end of economic progress.  Large organizations create a sense of dependency and detract from one's sense of responsibility for one's actions.  A single error, such as Coca Cola's rejection of its traditional formula in the 1980s, can result in catastrophic losses to the economy.  Enron is another example. Progressivism leads to the slowdown in innovation, alienation, and risks of large scale economic crisis and environmental catastrophe.

The involvement of government in the economy becomes increasingly necessary to sustain scale because management inefficiencies get worse in large firms.  They get worse because the lack of competition (due to government protection) permits the accumulation of power centers that do things for their own benefit.  This results in economic decline for several reasons. State support depends on political power. Political power aims to suppress innovation.  Hence, Progressivism forces a decline in the economic progress that generated its possibility in the early twentieth century.

Japan's nuclear meltdown is a function not only of its mismanagement of its nuclear industry but of the entire mercantilist approach that state activist liberals since Theodore Roosevelt and the Progressive era have advocated. Japanese government-supported business caused today's crash in the Nikkei stock market.  The quality glitches and indifference to safety were due to Japanese social planning and its state-supported government.

This is not to say that all Progressive institutions lead to quality reduction. For instance, until the 1980s AT&T provided good quality service.  But over time Progressive institutions decline in quality because the government-created monopolies that they enjoy (through a variety of mechanisms, including access to credit) lead to reductions in competition and ever lazier management.