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Just prior to closing my computer tonight I had remembered I wanted to share an article I read from the front page of today’s Wall Street Journal.

Russian oil production, for years a vital source of new supplies for world markets, is showing signs of a slump, adding to uncertainties that have helped push oil prices to record highs.

Russian output fell for the first time in a decade in the first three months of this year, according to the International Energy Agency, which represents industrialized oil-consuming countries. It said Russian production averaged about 10 million barrels a day, a 1% drop from the first-quarter of 2007.

The article also contained a troubling comment by CitiGroup analysts, “Russian oil production growth is no longer to be taken for granted.”

Bloomberg is showing that oil closed on the New York Mercantile Exchange at $113.58. Current crude prices seem to be out pacing Goldman Sach’s March predictions for future oil prices.

Tacking on $15 a barrel to all of its oil estimates, Goldman now sees average selling prices of $95 a barrel for 2008, $105 a barrel for 2009 and $110 a barrel for 2010. The high end of its range is now $135 a barrel — but Goldman hinted that prices could be headed even higher.

While Goldman believes their oil forecast to be bullish, compared to current market trends they may actually have been quite conservative. Only time will tell where future commodity prices go, but I would be highly skeptical of anyone who anticipates a large slump in demand or a sudden miraculous increase of supply.

To read the rest of the WSJ article please follow this link, you will however need a WSJ account to access it and other pieces located in the online archives.

Popularity: 20% [?]

It appears that the US press is finally beginning to catch onto the global food crisis. I have been following the situation since last year seeking alpha sent me an email regarding the rise in commodity prices. Indeed, within certain industries and areas of interest (foreign policy and human development) the rapidly rising global commodity prices have been troubling for some time.

Until this past week, however, the only two sources I found even covering the ever worsening situation were Foreign Policy Magazine, and the Financial Times (which in my estimation is one of the best papers in the world). The global food crisis has many route causes, one of which is overpopulation. In fact the emerging food shortage is occurring because of rising living standards and increased demand (mainly fueled by growth in Asia).

In addition, climactic events such as droughts and flooding (whether or not they can be associated with climate change is irrelevant) are also decreasing the amount of arable land, along with political instability are only intensifying problems. Finally, energy prices are also undercutting production capabilities by raising prices in everything from cultivation to transportation.

In fact, ForeignPolicy.com has been posting almost daily updates about food related riots happening around the world.

Now the FT is reporting that the situation has worsened:

“The global food crisis intensified on Tuesday as Kazakhstan, one of the world’s biggest wheat exporters halted foreign sales and rice prices shot to a record high after Indonesia stopped its farmers from selling the grain abroad.”

“Indonesia – which joins Vietnam, Egypt, China, Cambodia and India in banning foreign sales – was expected to export the grain this year due to a bumper crop. Corn futures prices in Chicago last week hit a record $6.16 a bushel, up 30 per cent in the past three months.

Indonesia’s export ban boosted the price of rice futures in Chicago to a all-time high of $22.17 per 100 pounds, up 63 per cent since January. Wheat prices moved higher to $9.11 a bushel and traders warned prices could rise further as the Kazakhstan ban together with restrictions in Russia, Ukraine and Argentina have closed a third of the global wheat market.”

The rising commodity prices and the trillion dollar financial industry meltdown are bad enough, add a global food crisis to the mix and we could find ourselves within the midsts of a full fledged depression.

To stay up to date on the worsening news I suggest www.FT.com, www.foreignpolicy.com, and the only two US news sources that have been covering the situation for some time-Bloomberg and the Wall Street Journal.

On a related note-it may be worth following the worsening water situation. If the world finds itself struggling for capital and credit along with shortages of food and potable water, we will be in an awfully poor situation.

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Any student of modern history can attest that the cold war era saw an international system structured in a bi-polar manner. On the right was the United States, its satellite states, and its allies; on the left was the Soviet Union with its satellite states, and its Communist allies. After the collapse of the Soviet Union, the international system that the world had become accustomed to suddenly collapsed. Like all current affairs, to fully comprehend the nature of today’s international system we must first analyze those of the past.

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The notable economist Greg Mankiw had a very sensible article in the Economic View column of the New York Times regarding Nafta, trade, and this campaign. Its main contentions include:

1. That economists are far more fond of free trade than the general public. For instance:

A 2006 poll of Ph.D. members of the American Economic Association found that 87.5 percent agreed that “the U.S. should eliminate remaining tariffs and other barriers to trade.”

On the other hand, a minority of the general public (around one in four according to many polls including one mentioned in the article) think that free trade is beneficial to the economy.

2. John McCain has been a constant champion of free trade throughout his career and is the only of the three candidates who will stand strong for the concept as president.

3. The issue of trade has become mired by populism recently and divorced from economics which could lead us towards more protectionist policies.

Its a good article which reaffirms one of the themes that I have been focusing on especially during this campaign: how populism and economic illiteracy is driving protectionist rhetoric and proposals from politicians not entirely limited to the left (will Mike Huckabee please stand up).

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From Obama’s website:

Obama will embrace the Millennium Development Goal of cutting extreme poverty around the world in half by 2015, and he will double our foreign assistance to $50 billion to achieve that goal. He will help the world’s weakest states to build healthy and educated communities, reduce poverty, develop markets, and generate wealth.

Of course we are also used to hearing the clamoring of a myriad of inconsequential celebrities for more funding for the third world. And its not only liberals like Obama who trump up foreign aid. Remember that President Bush pledged $30 billion more in AIDS funding for Africa in the coming year.

Normally the foreign aid debate is casted as those altruists who care about the prosperity of the third world against the thrifty, America-centric who rather the money be kept at home. That’s conventional wisdom, but perhaps conventional wisdom is not always correct. At least in this case it appears not to be, as the same foreign aid that Obama proposes doubling has historically done little good to jump start the economies of the world’s poor.

From Michael Beran, regarding foreign aid to Africa and also addressing the Millennium Project that Obama endorsed:

From Walt Rostow and John F. Kennedy in 1960 to Sachs and Tony Blair today, the message, [NYU economist William] Easterly says, has been the same: “Give more aid.” Assistance to Africa, he notes, “did indeed rise steadily throughout this period (tripling as a percent of African GDP from the 1970s to the 1990s),” yet African growth “remained stuck at zero percent per capita.”

All told, the West has given some $568 billion in foreign aid to Africa over the last four decades, with little to show for it. Between 1990 and 2001, the number of people in sub-Saharan Africa below what the UN calls the “extreme poverty line”—that is, living on less than $1 a day—increased from 227 million to 313 million, while their inflation-adjusted average daily income actually fell, from 62 cents to 60. At the same time, nearly half the continent’s population—46 percent—languishes in what the UN defines as ordinary poverty.

Yet notwithstanding this record of failure, the prosperous nations’ heads of state have sanctioned Sachs’s plan to throw more money at Africa’s woes. In July 2005, G-8 leaders meeting in Gleneagles, Scotland, endorsed Sachs’s Millennium thesis and promised to double their annual foreign aid from $25 billion to $50 billion, with at least half the money earmarked for Africa. This increased spending, the Gleneagles principals proclaimed, will “lift tens of millions of people out of poverty every year.” No doubt, too, Africans will soon be extracting sunbeams from cucumbers.

Once again, the notion that charity would actually hurt Africans in the long run is unconventional, but it is nonetheless all given evidence supports it. But if we dig deeper down and logically examine the incentives that the foreign aid creates we have no trouble rectifying theory and reality. This is what I wrote in a newspaper editorial (October issue, page two) on the subject back in the fall:

Charity demonstrates bad causation to Africans. In a simple economic sense it says: we will give you money because you are poor. At the same time organizations, like the Heifer Club, may say that they only will continue to supply funds for the needy if they show good behavior or meet some set of standards. To be sure, that is a more intelligent approach, but at the same time it does not eliminate the primary incentive which says, ‘we will give you money because you are poor.’ Hence the result is a confused myriad of incentives which occasionally set good standards on one hand, but always require minimal productivity on the other.

Let me also add, as I did later in the column, that aid only temporarily bolster the status quo, making the current regimes more acceptable, and does nothing to fix society’s foundational ethic and establish rule of law and defend property rights.

Popularity: 29% [?]

This past summer I wrote about the great hope I had in Nicolas Sarkozy to restore capitalism to France and by doing so, save its lagging economy. I had read transcripts of his translated speeches, saw him on television multiple times and read enough articles about him to feel that he was somebody who could truly enact change in that once great nation which is slowly being marginalized in the global arena. I stand here today disappointed that this man who had such great rhetoric on the campaign trail failed to live up to his promises.

Sarkozy has proven to be a protectionist in his trade policies and just as socialist, in most other policies, as the machinery he claimed he would tear down. His popularity in France has dropped 13% and, instead of sticking to his convictions, he has simply given in. This past Monday he spoke to steelworkers and declared he would save their plant from being shutdown, on Wednesday he promised bonuses to low-income pensioners and, in response to a slow down by taxi drivers, the same day ended plans to deregulate that service. All of these are far cries from his campaign days where he gained widespread support for wanting to significantly reduce government regulation and handouts, and create a more privatized economy. Obviously this is not the man the French people thought they would be getting when they overwhelmingly voted for him and gave his party a considerable majority in the National Assembly.

The biggest disappointment, however, has been his handling of the Societe General (SocGen) situation. SocGen is a major French bank that has recently experienced tremendous losses. Sarkozy has been adamant that only another French company may bid for the bank. This ignorant protectionist view will do more harm than good for SocGen and the French economy as a whole. SocGen will not get the best price if foreign companies are not allowed to bid on it, so the shareholders will be injured. The French economy will take a blow as investors who may have believed in Sarkozy’s rhetoric about opening France to globalism will realize that he is no different than previous French protectionist politicians, and invest their money elsewhere.

Popularity: 28% [?]

Here’s his reason:

 I have made repeated efforts to encourage the Chinese government to use its unique influence to bring safety and stability to the Darfur region of Sudan. Although some progress has been made along the way, most notably, the passage of United Nations Security Council Resolution 1769, the situation in Darfur continues to worsen and the violence continues to accelerate.

…And I’m sure China really cares…

When it comes to politics, entertainers consistently demonstrate that they aren’t very bright. Then again I guess we shouln’t expect much from Spielberg who didn’t graduate film school until 2002, and most certainly did not study international relations. Normally, it takes a little more than the cries of celebrities to register any leverage on world superpowers. The point adds to what I have already said about the naivete of the “save Darfur” movement. Here is my first post on why “I don’t care about Darfur.”

I have more recently written another newspaper article elaborating on the impracticality of interventionalist Darfur policy. If you press the “continue reading” link at the bottom of the post you will be able to see it.

Lire le reste de cet article »

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Tonight, the Senate passed a slightly moderated version of the compromise stimulus bill settled on by the White House and the House of Representatives 81-16. The bill was immediately rushed back to the House, where Speaker Pelosi got it passed rapidly. Senate Democrats’ version of a stimulus bill fell flat earlier after being fillibustered by Republicans and coming one vote short of qualifying for an up-or-down vote on the floor.

The Senate passed the House’s $150 billion bill, and tacked on an additional $18 billion in spending for those not paying income taxes but earning at least $3,000, as well as Social Security recipients and wounded veterans. Harry Reid alas’ decided to accept the original bill–which primarily features rebates for those earning less than $150,000/year and business tax credits–after vowing to stand for his bill whose price tag stood around $204 billion. The failed Democrat’s bill included bolstered unemployment insurance, heating subsidies for the poor, and incentives for investment in renewable energies, coal, and home building (because higher prices and more demand for energy, not to mention more home construction, are exactly what our economy needs right now).

All of the 16 who voted against the bill in the Senate were Republicans. They included such spending hawks as Tom Coburn (OK), Jim DeMint (SC), and Bob Corker (TN), the last of whom opined that Congress had just done the equivolent of throw $150 billion “into a mud puddle.” Wise words from the junior Senator from Tennessee. Unfortunately, John McCain apparently was never graced with Corker’s bout of wisdom, as the presumptive GOP nominee returned to the Hill on Thursday to vote for the muddled spending. Of course this is disappointing to see from the AZ Senator who has lauded himself as a great deficit hawk and budget cutter. On top of that, I have never–in any speech or debate–heard him explain what he believed on stimulus, nor even enumerate what his opinion was up until this point.

Hillary Clinton (in addition to Barack Obama) flew back just for the first vote. On the trail, Clinton has offered her own stimulus plan which has baffled me for its economic irrationality for some time now. It includes a provision to freeze rates on adjustable rate mortgages (of which there are currently 11 million in America) for the next five years. Here is a solid article from two prominent economists demonstrating the would-be consequences of such price fixing.

Despite the Federal Reserve cutting its federal funds rate substantially in recent months (from 5.25% all the way to 3% already), European central banks have been resolved in keeping their rates generally steady to combat inflation and avoid reinflating any credit bubble. Just today the Bank of England cut its rate by .25% but indicated that is unlikely to trim it any more, while the European Central Bank has yet to ease rates at all (announcing tonight that it would continue to keep them steady). Jean-Claue Trichet, the President of the ECB, made the case that the fundamentals of the European economy are strong and that inflation, which is currently above 3% and will probably remain above 2% for some time, is a more daunting worry.

More importantly, he noted that M3 growth remained fervent, as did borrowing by non-financial businesses, reaching highs in December 2007. The scary thing is that Europe is not having the same credit problems as we do, as Trichet noted, yet we are the ones debasing interest rates to the potential end of reinflating existing financial imbalances. The current mess we are witnessing is little more than the consequence of the Fed doing the exact same thing that it is doing now, when it lowered the federal funds rate all the way to 1% in 2003 in order to respond to the same type of economic slowdown. Even worse, the downturn in ‘01/’02 was less related to credit woes, so this time by loosening credit we are putting fire to even more flamable substances. Nevertheless, Trichet was wise to note that there is only so much we know–only so much data available to paint a realistic picture of the economy–and that “further data and analysis will be required in order to obtain a more complete picture of the impact of the financial market developments on banks’ balance sheets, financing conditions and money and credit growth.”

The ECB President’s speech also brings me back to the topic of fiscal stimulus, as he used some of his time to rebuke the idea of government spending to boost the economy saying:

With respect to fiscal policies, a discretionary fiscal loosening in EU countries should be avoided. There is ample evidence that activist fiscal policies were not effective in stabilising European economies but rather led to sustained increases in the ratios of government expenditure and debt to GDP. Allowing the free operation of automatic stabilisers in countries with strong fiscal positions and safeguarding the long-term sustainability of public finances are the best contributions that fiscal policy can make to macroeconomic stability.

It looks like American officials from Bush to Bernake could take use some advice from the Frenchman, who is right on the money when it comes to warning about intervention to encourage more economic spending. Add him to the coalition against fiscal stimulus.

Also of interest is NYU Prof of Econ, Will Easterly’s critique of Bill Gates’ concept of “creative capitalism,” which the Microsoft founder spoke in favor of in his speech at the World Economic forum in Davos. In response to Gates, who argued that self-interest and the profit motive do nothing for the poor and that foreign aid and a sense of social responsibility are necessary to improve the plight of the world’s poor, Easterly makes the case that charity does little to lift poor peoples out of perpetual poverty. His rebuttal is in line with his book, The White Man’s Burden, as he argues that indeed self-interest and unfettered capitalism makes the whole world better off in the long run because it is most productive and creates the best incentives for third-world nations to build an economic system through a sense of individualism and self-reliance.

Finally, on a happier note, the writer’s strike appears to be over. A deal has been reached between corporate media and the writer’s guild, according to ex-Disney CEO Michael Eisner.

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With Mitt Romney out of the picture (giving McCain a virtual lock on the Republican nomination), Obama and Clinton are left to duke it out in a prolonged struggle for the Democratic nomination that might very well end in a skirmish on the floor of the convention. Although both candidates are very intelligent and appealing, exit polls suggest that most young voters are leaning towards Senator Obama. But before we, the proud Democratic youth of America, get behind the charismatic, well-groomed superstar senator, it is imperative that we stop and consider the consequences of putting this guy behind the big desk.

As someone who voted for Barack Obama in the Connecticut Super Tuesday primary, it’s my duty, and the duty of my fellow Obama supporters, to remind ourselves what we’re getting into. “Change We Can Believe In,” and “Spread Hope” are taglines, not policies. And although these messages may sound positive, the ideas of Change and Hope are really negative campaigning and attack advertising at its finest. Obama isn’t here to talk about what change he is bringing to the White House, he’s talking about what we as a nation are looking to get away from: the Bush administration’s failed policies. Running against the backdrop of Bush’s presidency is a lot easier than running against the experience and hardened policies of either Hilary Clinton or, down the road, John McCain. But let’s face it, for a junior senator, this method is the smartest method, and perhaps the only way to win this political competition.

Obama’s got some good policies: his ideas about healthcare are more fiscally sound and realistic than Clinton’s, his populist tendencies and promises of a transparent government give the impression of a man with nothing to hide; his position on the war, while perhaps a little naive, still stands to be very appealing to Americans who have never felt that turning the Middle East into a love-fest of Western Thinking is possible, or even a good idea, and his background as a community leader gives him a strong moral high ground.

But regardless of his policies, any newly minted American president as inexperienced as Obama has a good chance of being put under the microscope, especially in the area of foreign policy. Nations who have not been so fond of American neo-imperialism, such as Russia and France, will undoubtedly issue litmus tests in one form or another. Outright hostile nations such as Iran and North Korea might test the new administration’s diplomatic skills through aggressive acts of escalation. Senator Obama’s calls for diplomacy, and offers to sit down with Iran and others, may well come back to haunt him, paralyzing the beginning of his presidency while he fends off one challenge after another. George Bush was tested a year into his presidency, and that test defined his two terms in office, which are now widely viewed as a failure. As Obama supporters, we must ask ourselves if his offers of diplomacy are so very different from Prime Minister Neville Chamberlain’s ideas that appeasement might achieve “peace for our time,” an irony that has echoed throughout history. Is the young Senator from Illinois too young and too naive to hear those echoes?

I believe he is not. Barack Obama is an “A” student, and despite a having a few sadsacks from the Carter administration hanging around his advisory room, I have confidence in his ability to stock the new ExComm with smart people to help him out with foreign policy. And though the proponents of radical Islam may issue a lot of ultimatums, in the end, I have to believe that there are people in Middle Eastern nations who are looking for a U.S. leader who will reach out to them, rather than cast them into the same lot with Al Qaeda, and chase them to the “gates of hell,” as John McCain has promised to do.

That’s putting a lot of “hope” into “change,” and if you don’t have that kind of faith to spare in Senator Obama’s abilities, then you should be voting for Senator Clinton, whose chances at winning a general election are slimmer, but whose foreign policy is well worn, and whose husband showed a good deal of competence concerning foreign affairs while in office.

This is Ben’s first post at New School Politics. To find out more about him, please visit the about page.

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Our live coverage of President Bush’s 2008 State of the Union address is after the jump for those who would like to replay our live blogging. Thanks for joining us!

We’d like to recommend Slate’s interesting analysis of Bush’s language choice in the State of the Union.  It’s an interesting analysis of trends and the effect of current events on his wording. Lire le reste de cet article »

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