We study patterns of FDI in a multi-country world economy. First, we present evidence for a broad sample of countries that firms direct FDI disproportionately to markets with income levels similar to their home market. Then we develop a model featuring non-homothetic preferences for quality and monopolistic competition in which specialization is purely demand-driven and the decision to serve foreign countries via exports or FDI depends on a proximity-concentration trade-off. We characterize the joint patterns of trade and FDI when countries differ in income distribution and size and show that FDI is more likely to occur between countries with similar per capita income levels. The model predicts a Linder Hypothesis for FDI, consistent with the patterns found in the data.
Co-author Gene Grossman is a professor of economics at Princeton University. Co-author Pablo Fajgelbaum is an assistant professor of economics at the University of California, LA.Working Paper 17550, National Bureau of Economic Research, October 2011. Download PDF
We document the behavior of trade prices during the Great Trade Collapse of 2008–2009 using transaction-level data from the US Bureau of Labor Statistics. First, we find that differentiated manufactures exhibited marked stability in their trade prices during the large decline in their trade volumes. Prices of non-differentiated manufactures, by contrast, declined sharply. Second, while the trade collapse was much steeper among differentiated durable manufacturers than among non-durables, prices in both categories barely changed. Third, despite this lack of movement in average price levels, the frequency and magnitude of price adjustments at the product level noticeably changed with the onset of the crisis.
Co-author Oleg Itskhoki is a professor of economics at Princeton University. Co-author Brent Neiman is at the
Booth School of Business at the University of Chicago.Download PDF
Some of you knew Ted Forstmann much better than I did. Most of you knew him much longer. When Ted’s family and closest colleagues asked me to join Mayor Bloomberg and Charlie Rose in offering a eulogy to Ted, I must admit I was hesitant, not to mention humbled. What could be more presumptuous than for a British-born professor to try to do justice to one of the great American capitalists?
And then I remembered the side of Ted that I suspect relatively few of you saw. Teddy the philosopher. Teddy, my coauthor.
When I heard the news of Ted’s death—which we’d been dreading for weeks—my first thought was: he was the most American American I’ve ever known. Financier. Fun lover. Philanthropist. And a man who couldn’t abide cant—in both senses. Cant in the sense of insincere humbug. And can’t in the sense of “this can’t be done.”
And yet there was another side to Ted that was a little less classically all-American. He was, after all, a single parent. He was a man for whom the color line—for so long this country’s curse - was simply not visible.
He was also a matchmaker: a Cupid with a Gulfstream 5 instead of wings. He took a fatherly interest in my romance with Ayaan, whom he did so much to help after she was forced to leave the Netherlands, and who can’t be here for the very excellent reason that she’s about to give birth to our son. Ted was one of those people who didn’t advise her against me, and I’ll be grateful for that until the day I die.
What I really want to remember today, however, is Ted’s secret life as an intellectual. Ted was no ordinary master of the financial universe. He saw things differently. He was what the Germans call a Querdenker, which the English “lateral thinker” doesn’t quite translate.
From the moment we met, he and I talked about his fears for this country’s financial and political system. He had shared my foreboding about the excesses of the early 2000s. And he also shared my fear that when the crisis struck, people would leap to the wrong conclusions.
In a piece we wrote together for The Wall Street Journal back in April of last year, we made an argument that I believe still holds good: that in a mood of legitimate public anger at the consequences of the crisis, this country is drawing the wrong conclusions about its causes.
Unlike many people in the financial world, Ted Forstmann was not afraid to criticize Wall Street. (It was I who had to tone down his invective.) But what Ted dreaded was that the backlash that was bound to follow the crisis would lead to precisely the hypertrophic regulation we now see emerging over literally thousands of pages - as well as to demagogic calls for redistribution via higher tax rates and expanded federal programs.
Ted was convinced that any new regulation should focus strictly on excess leverage and the derivatives markets. Those, for him, were the root causes of the crisis.
With Ronald Reagan, he also passionately believed that enlarging the government was not the answer to the problem; often, it was the problem. That was why he wanted to see more disadvantaged kids going to private schools. His ideal was social mobility, not state-mandated equality. In this, as in so many ways, Ted was very wise.
A couple of years ago, two of my kids had the privilege of having lunch with Ted at one of his favorite restaurants, Harry Cipriani, just nine blocks from here. Last weekend I asked my younger son, who’s now 12, if he remembered the conversation. He did. Ted’s advice was this: “Don’t do the obvious thing. Don’t follow in anybody’s footsteps. Look around you and figure out what’s needed, what’s missing. Then do that.”
I hope my son heeds that advice. I hope his whole generation heeds it. I know, Everest and Siya, that you will.
I admit I was surprised by my own reaction to the news of his death. My first thought was: oh, no, now I won’t be able to ask Ted what he thinks anymore. What he thinks about the economy. What he thinks about politics. I won’t be able to get his take on the presidential candidates. And suddenly I felt really bereft.
That morning I had to write a column for Newsweek. I couldn’t help myself: I just sat down and addressed it directly to him. What’s your take, Ted? As I was writing it—and boy, did the words flow—I realized just how much I am going to miss his wisdom. Because I could never predict what Ted’s take would be. To a pedestrian, risk-averse academic like me, the way he thought about the world was full of surprises—and always illuminating ones.
Ted, you were in many ways the most American of Americans. You were the quintessential doer. But you were also a thinker. And we really do miss the unique way you thought.
Wisdom is in short supply these days. You took so much with you when you left us.
This column is for Ted Forstmann: financier, fun lover, and philanthropist, who died on Nov. 20. But it’s not just for him. It’s to him.
Ted, I’m worried. I wish you were still around to help me get this right. The US is going nuts with populism. That’s always to be expected after a big financial crisis, I know. But this is dysfunctional.
On one side, there are conservative fundamentalists—the Tea Party—who think we can turn the clock back to before the New Deal, if not further. Some of them want to get rid not just of the Federal Reserve but of most of the federal government itself. I have more sympathy with these Teapopulists than with the other lot, the motley crew who want to Occupy Wall Street (call them the Occupopulists). But when it comes to practical politics, this Tea Party has more in common with the Mad Hatter’s than Boston’s.
To begin with, they’ve created a mood in the Republican Party that makes any kind of compromise on our fiscal crisis impossible. We just saw the ignominious failure of the supercommittee, which was supposed to come up with a plan to reduce the deficit. Predictably, each party blames the other side for this flop. Either way, the consequences are dire. First, the markets are spooked, just the way they were by the partisan dogfight over the debt ceiling earlier this year. Second, the country is now on course for more drastic spending cuts in 2013, which could not only slash our defense budget in an irresponsible way but also plunge the economy back into recession.
There’s another problem. Just like the populists of a century ago, the Teapopulists are drawn compulsively to disastrous presidential wannabes. I never asked you what you thought of Mitt Romney, Ted. But I am sure you’d prefer him over the other contenders. Bachmann, Perry, Cain, Gingrich—the one thing these people have in common is that they would lose to Barack Obama next year even if the unemployment rate were twice what it is now. Their appeal to the crucial center—to the independents and the undecided—is just too low.
What’s the case against Romney? That he’s a Mormon? Ted, you were a devout Catholic, just as I am a doubting atheist. But this is America. Religion and government are separate. And we tolerate all faiths, no matter how idiosyncratic, provided they tolerate ours too. That he’s changed his mind on hot-button issues? Well, so does any intelligent person. You often did. What is this, a dogmatism contest?
We show that even when the exchange rate cannot be devalued, a small set of conventional fiscal instruments can robustly replicate the real allocations attained under a nominal exchange rate devaluation in a standard New Keynesian open economy environment. We perform the analysis under alternative pricing assumptions—producer or local currency pricing, along with nominal wage stickiness; under alternative asset market structures, and for anticipated and unanticipated devaluations. There are two types of fiscal policies equivalent to an exchange rate devaluation—one, a uniform increase in import tariff and export subsidy, and two, an increase in value-added tax and a uniform reduction in payroll tax. When the devaluations are anticipated, these policies need to be supplemented with a reduction in consumption tax and an increase in income taxes. These policies have zero impact on fiscal revenues. In certain cases equivalence requires in addition a partial default on foreign bond holders. We discuss the issues of implementation of these policies, in particular, under the circumstances of a currency union.
Co-author Emmanuel Farhi is a professor of economics at Harvard University. Co-author Oleg Itskhoki is a professor of economics at Princeton University.Download PDF
Global trade is of vital interest to citizens as well as policymakers, yet it is widely misunderstood. This compact exposition of the market forces underlying international commerce addresses both of these concerned groups, as well as the needs of students and scholars. Although it contains no equations, it is almost mathematical in its elegance, precision, and power of expression.Understanding Global Trade provides a thorough explanation of what shapes the international organization of production and distribution and the resulting trade flows. It reviews the evolution of knowledge in this field from Adam Smith to today as a process of theoretical modeling, accumulation of new empirical data, and then revision of analytical frameworks in response to evidence and changing circumstances. It explains the sources of comparative advantage and how they lead countries to specialize in making products which they then sell to other countries. While foreign trade contributes to the overall welfare of a nation, it also creates winners and losers, and Helpman describes mechanisms through which trade affects a country's income distribution.The book provides a clear and original account of the revolutions in trade theory of the 1980s and the most recent decade. It shows how scholars shifted the analysis of trade flows from the sectoral level to the business-firm level, to elucidate the growing roles of multinational corporations, offshoring, and outsourcing in the international division of labor. Helpman’s explanation of the latest research findings is essential for an understanding of world affairs.
Does an expansion of health insurance increase or decrease use of the emergency department (ED)? Both predictions can be justified logically. On the one hand, research on patient cost sharing predicts that by reducing the out-of-pocket costs of an ED visit, expanded insurance coverage, especially in the face of physician shortages, could result in increased ED utilization. This view has been echoed by elected leaders: Senator Jon Kyl (R-AZ), citing the Massachusetts experience with health care reform, claimed that if anything, universal coverage brought even higher rates of emergency room visits due to increased difficulty in getting appointments for outpatient physician visits. Others have predicted that expanded coverage would actually reduce ED use, since previously uninsured patients would now have access to preventive care. The relative importance of these countervailing forces is a question that clearly weighs on physicians: in a survey of emergency physicians conducted in April 2010, about 71 percent said they expected emergency visits to increase after the passage of the Affordable Care Act (ACA). To explore the importance of these effects, we examined the Massachusetts experience. The state's 2006 health care reform was a model for the ACA and reduced the proportion of Massachusetts adults under the age of 65 who were uninsured by 7.7 percentage points between the fall of 2006 and the fall of 2009. To determine whether any changes in ED utilization in Massachusetts reflected the effect of Massachusetts' reform or were merely representative of broader regional trends in ED utilization, we used New Hampshire and Vermont as control states.
After reading about the Greek debt crisis for over a year now, you might think you understand what it’s all about. You’re probably wrong. International media focus on how the Greek government and people spend their money. But an equally important problem is the inability of the Greek state to collect revenues.The story constantly aired by various news outlets is simple enough. Greece, we are told, free-rode on the security offered by the rest of Europe to attract money from foreign investors, and then spent it lavishly on its bloated public sector. In case you don’t get it, BBC’s website has a recurring instructional slide show titled “What went wrong in Greece?” Apparently, Greece’s adoption of the euro “made it easier for the country to borrow money.... Greece went on a big, debt-funded spending spree, including paying for high-profile projects such as the 2004 Athens Olympics.”This brief media lesson on Greek economics has proven very appealing to audiences abroad for two reasons. First, it rhymes with the stereotype of lazy Mediterranean people conning their hard-working North European partners and then shamelessly asking for a bailout. (Now that Italy may be heading the same way, there will be more of this coming.) It also resonates in the ears of the euro’s sworn opponents, above all in the UK.Unfortunately, it is only half the story. Greek public debt as a percentage of GDP did not dramatically rise right after Greece joined the euro. Greek debt actually accumulated back in the 1980s and early 90s, years before Europe got its common currency. The size of the Greek public sector (as a percentage of GDP or share of the labor market) is around or even below average compared to the rest of Europe. Greece did try to spend its way out of the global recession in 2008-2009 and ran large deficits; but so did most other developed countries, including the UK and the US.There are two sides of the public finance coin: expenditure and revenue. What is left out is that while Greek public spending and debt crept up, government revenue fell or remained constant in the years after Greece adopted the euro. Between 2001 and 2007 Greece’s average government revenues totaled 39.4% of GDP, whereas the EU average was 44.4%. Taxes are by far the largest component of government revenue. The issue is not unique to Greece. Declining tax revenues were observed in Ireland, Spain, and in the US after the Bush tax cuts kicked in.In Greece the culprit has been rampant tax evasion by corporations owing millions in taxes and self-employed professionals who can hide their earnings, unlike salaried employees and pensioners. Under international pressure to balance its budget, the outgoing Greek government axed salaries and pensions and slapped new taxes on the bulk of citizens who were not tax-delinquent. This only drove the country deeper into recession and insolvency, making it necessary for EU leaders to write off part of Greece’s debt in July and then again in October.Whether the government is reluctant to tax the very wealthy (as in the US) or lax in its duty to punish tax evasion (as in Greece), the results are similar. Revenues can’t keep up with expenditures and lenders become uneasy. Meanwhile, those who are taxed too leniently have an interest in shifting public attention towards cutting government spending. The bitter partisan quarrels in Washington and Athens lately have this much in common. Yet, this obvious point is conspicuously absent from reports on Greece in the English-speaking world.There is no denying that Greece overspent on security for its Olympics - they were the first games after 9/11. There is also no denying that the Greek public sector is very inefficient. But this has to do with how the money is used. Deep cuts will not make an inefficient public sector better. Other reforms, however, just might. Finally, there is no denying that the euro deprived Greece of the flexibility to devaluate its currency. However, Greece’s revenue collection problem has been perennial and is unrelated to the euro. The first reforms Greece’s new government should focus on are the tax and judicial systems.Casting the crisis ravaging Greece and closing in on Italy as a fundamental story of governments drunk on loans, doling out stacks of euros to their shortsighted citizens is a half-truth. It makes it easy to caricature on a national basis and to categorize Greeks, Italians, Germans or Americans as people who collectively live either within or beyond their means. It also masks the fact that there are differences within each country: Those who benefit the most from high-profile government contracts are the hardest ones to tax when the creditors come banging on your door.
It is obvious that the Turkish foreign minister Ahmet Davutoglu’s “zero problems with the neighbors” policy no longer works, in the face of Turkey’s support for the Syrian defectors who oppose the Assad regime. The foreign minister must now deal with potentially hostile reactions by Syria and its closest ally, Iran, that could have destabilizing regional implications. Iran, for one, cannot afford to allow the Assad regime to fail. It provides Iran with a foothold in the Levant from which to support Hezbollah and threaten Israel on its Lebanese border.
Syrian and Iranian retaliation against Turkey can readily take the form of support for the Kurdistan Worker’s Party, or P.K.K. This group once again has become increasingly violent in its promotion of Kurdish separatism in the Turkish southeast. Syria, Iran and Turkey share a common cause in resisting demands by Kurdish opposition movements in their countries. Only months ago, all three were cooperating in suppressing the P.K.K. For Turkey, this was a welcome change from the 1990s, when Syria and Iran supported the P.K.K. in order to pressure Ankara for foreign policy concessions. Now Damascus and Tehran could again play the P.K.K. card.
To counteract potential Syrian and Iranian subversion and the separatist appeals of the P.K.K., Turkey needs to adapt its zero problems policy to its own southeast. In 2009, the prime minister, Recep Tayyip Erdogan announced a “Kurdish opening”—a bid at reconciliation with Turkey’s Kurds. However, he quickly closed it, leaving many Kurdish demands for economic development, political rights and cultural recognition unanswered. The Turkish foreign minister’s recent veiled threat to send troops across the Syrian border may be insufficient to deter Syria and Iran from subversively supporting the P.K.K. For a comprehensive resolution of the “Kurdish question,” Ankara also needs to implement effective policies that will over the long term improve the economic, political, and cultural life of Turkey’s Kurds.
In the past 48 hours, Greek Prime Minister George Papandreou has succeeded in one thing: Stirring up the anger of nearly everyone around him. The European Union, his own party PASOK, the opposition party New Democracy and the Greek electorate are all pitted against Papandreou. The Greeks have a word for this special brand of rage—they call it “thymos.” This refers to the simmering resentment that arises when one's views are not recognized.
It’s little wonder Papandreou has had to back down from his initial call for a national referendum on the 50% haircut deal decided by the European Union heads of state on October 27.
First off, he failed to get the opposition to agree to the referendum. They called it blackmail, denounced Papandreou as an opportunist and asked for a grand coalition government or immediate elections. Main opposition leader Antonis Samaras’ consensus on Thursday was short-lived and with many conditions.
Meanwhile, the European leaders—French President Nicolas Sarkozy and German Chancellor Angela Merkel—called Papandreou’s bluff. 'Go ahead and make our day,' they told him. “Imagine what would happen if we called a referendum on the bailout in our countries?' The International Monetary Fund, for its part, threatened to freeze all of its loans to Greece.
Finally, for Papandreou’s party PASOK the situation is even more dire. Instead of shoring up support from his own party members, the referendum only emboldened cries for his resignation—including from his own Ministers and PASOK Parliamentarians.
Papandreou has recalled his decision for a referendum because he failed in all fronts and it’s become clear that he can no longer be part of the solution.
There are three possible ways the crisis will play out. First, Papandreou could refuse to resign and possibly win the no-confidence vote Friday. This is unlikely since his overall support has reached its all-time low. The second, more likely scenario is that Papandreou loses the vote tomorrow and the President of the Hellenic Republic, Karolos Papoulias, turns to the other political party leaders to determine if the existing Parliament could form a government. The final scenario, if these efforts fail to build a government, would be new elections, as called for by the Greek Constitution. But it is most likely that a one-party government will not emerge from these elections.
The only way out of these three scenarios is to form a Grand Coalition government. What is a Grand Coalition government? In multi-party parliamentary systems, sometimes one-party governments cannot form. In such instances, coalition governments are often formed including more than one party in order to secure a Parliamentary majority, manage to form a government and pass legislation.
Greece’s history with such governments in the late 1980s does not exactly inspire faith, and the global stakes were smaller then. A grand coalition would entail the cooperation of all the political parties that are in favor of a European future for Greece. They would be ready to support the austerity measures needed to balance the Greek budget and overcome the solvency problem, but most importantly they would be the the parties that can agree on the composition of such a government. This last feature of a Grand Coalition is particularly valuable at a time when consensus-building in the Greek parliament has become nearly impossible.
What remains left out of this discussion is the Greek people. They voted two years ago for a party running on an anti-austerity platform and this is not what they received. Perhaps the current political system is afraid to hear their message. "Thymos" may not be the best state of mind to make choices.
Regardless, the Greek political leadership's ownership of the austerity program and responsible governance are necessary steps toward resolving Greece's legitimacy crisis, which would then allow them to confront the Greek people with the responsibility they must take in order to end the financial crisis.
Co-author Thomas Meaney is a doctoral candidate in history at Columbia University and an editor of The Utopian.
Call it reckless, call it bold, but the Greek Prime Minister, George Papandreou, has attempted to transform a referendum on the European Union bailout plan for Greece into a referendum about whether the Greeks want to stay in the Eurozone or not. The last time Greece had a popular referendum was in 1974 to decide if the people wanted to keep King Constantine, a descendent of the Royal family that European Powers foisted on the Greek people in the 1860s.
This time around, the Greek Prime Minister has shocked the rest of Europe—and even his own Vice President—with his plans to call for a popular vote on whether to accept the 50% haircut deal that EU heads of state agreed on last week to manage the country’s spiraling debt crisis. It’s the latest in a series of Hail Mary passes by Papandreou to keep his hold on power, but the proposed referendum is really only a distraction from the no-confidence vote he faces, which is scheduled in Greek Parliament this Friday. As hard as the Europeans leaders may have fought to prevent a Greek default, they failed to take into account the dire state of domestic Greek politics. But even at this moment the solution to the crisis must be a European one.
The gravest threat facing Papandreou right now is from the Greek people. His government party, PASOK, was elected two years ago on an anti-austerity platform, but has since been forced into the position of calling for more austerity than any Greek government in the postwar era. The demonstrations across the country last weekend that disrupted the parades commemorating the Greek resistance in World War II culminated with the forced departure of the President of the Republic, Karolos Papoulias, from the parade in Thessaloniki. The current political system has been facing a legitimacy crisis for a while now. The social contract, based on patronage, established between Greek politicians and the electorate following the fall of the Greek Junta in 1974 is under severe strain.
The second problem facing Papandreou is the dissent and distrust he is experiencing from his own party, which—for the moment—holds a bare majority of 152 seats out of 300 in the Greek Parliament. This past summer in a cabinet reshuffling, Papandreou tried to smooth out the problems in his party by appointing his main internal rival, Evangelos Venizelos, Vice President. But this accommodation reached its breaking point yesterday when Venizelos declared he had not been informed about the referendum by Papandreou, who nevertheless called on him to deliver the bad news to EU leaders. Meanwhile, the opposition parties claim that the government is blackmailing the Greek people and suggest that the only solution is to have early elections.
The crisis of legitimacy reached its peak yesterday when rumors about tensions between the government and the military leadership of the country became credible when the minister of Defense called for the replacement of all the heads of divisions of the armed forces. It would be a controversial decision in the best of times, but one that’s nearly impossible to carry out for a government facing unprecedented unpopularity.
The European Union leaders are dead against three outcomes: the collapse of the Greek parliament, the ouster of Papandreou on Friday, and the negative result of any kind of referendum on the bailout—all of which would ultimately spell the ejection of Greece from the Eurozone and spur financial chaos on the continent. The solution must come from Europe. The meeting at Cannes Thursday—where Papandreou has been invited by Merkel and Sarkozy—is his last chance to appease his European patrons.
The real question is not whether Greece will proceed or not with the referendum, but rather who controls Europe? Is it the Germans who seem to be the only ones who can undo the European Central Bank policy about printing money? The French and the Germans together who want to keep the Euro strong? Is it the speculators, banks and their interests? Or is the EU open to more democratic control whereby the voters can have a voice?
Whatever the outcome, Greece is now up against the wall thanks to Papandreou. The predicament has suddenly changed from a financial catastrophe and austerity measures to a question about political identity: Do Greeks belong in the European Union or not?
Co-author Thomas Meaney is a doctoral candidate in history at Columbia University and an editor of The Utopian.
Lost in Transition tells the story of the “lost generation” that came of age in Japan's deep economic recession in the 1990s. The book argues that Japan is in the midst of profound changes that have had an especially strong impact on the young generation. The country's renowned “permanent employment system” has unraveled for young workers, only to be replaced by temporary and insecure forms of employment. The much-admired system of moving young people smoothly from school to work has frayed. The book argues that these changes in the very fabric of Japanese postwar institutions have loosened young people's attachment to school as the launching pad into the world of work and loosened their attachment to the workplace as a source of identity and security. The implications for the future of Japanese society—and the fault lines within it—loom large.
I survey the influence of Grossman and Hart's (1986) seminal paper in the field of International Trade. I discuss the implementation of the theory in open-economy environments and its implications for the international organization of production and the structure of international trade flows. I also review empirical work suggestive of the empirical relevance of the property-rights theory. Along the way, I develop novel theoretical results and also outline some of the key limitations of existing contributions.
The man whom Indian nationalists perceived as the “George Washington of India” and who was President of the Indian National Congress in 1938–1939 is a legendary figure. Called Netaji (“leader”) by his countrymen, Subhas Chandra Bose struggled all his life to liberate his people from British rule and, in pursuit of that goal, raised and led the Indian National Army against Allied Forces during World War II. His patriotism, as Gandhi asserted, was second to none, but his actions aroused controversy in India and condemnation in the West.
Now, in a definitive biography of the revered Indian nationalist, Sugata Bose deftly explores a charismatic personality whose public and private life encapsulated the contradictions of world history in the first half of the twentieth century. He brilliantly evokes Netaji’s formation in the intellectual milieu of Calcutta and Cambridge, probes his thoughts and relations during years of exile, and analyzes his ascent to the peak of nationalist politics. Amidst riveting accounts of imprisonment and travels, we glimpse the profundity of his struggle: to unite Hindu and Muslim, men and women, and diverse linguistic groups within a single independent Indian nation. Finally, an authoritative account of his untimely death in a plane crash will put to rest rumors about the fate of this “deathless hero.”
This epic of a life larger than its legend is both intimate, based on family archives, and global in significance. His Majesty’s Opponent establishes Bose among the giants of Indian and world history.
This study assesses the relationship between political partisanship and attitudes and behavior with respect to the Swine Flu crisis of 2009 in general, and the US mass vaccination program in particular. I argue that even seemingly non-partisan political issues like public health are increasingly characterized by partisan polarization in public attitudes, and that such polarization is in part attributable, at least in part, to the breakdown of the information commons that characterized the American mass media from roughly the 1950s until the early 1990s. In its place has arisen an increasingly fragmented and niche-oriented media marketplace in which individuals are better able to limit their information exposure to attitudes and opinions that reinforce, rather than challenge, their preexisting beliefs. I test my argument against a variety of data sources, including opinion surveys and state level Swine Flu vaccination rate data.
Harvard Kennedy School Faculty Research Working Paper Series RWP11-010, January 2011.Download PDF
What do the recent events in Egypt mean for the US? The answer is a lot more complicated than it might seem. Egypt is important to the US for a number of reasons. Topping the list is oil, and the flow of oil, for which the Suez Canal is an important transit conduit. There is no reason to believe that a successor to the Mubarak government would interrupt the flow of oil, but you could imagine events in the area that could interrupt the flow, and we’re seeing this concern reflected in the markets.
There is also the concern that what is happening in Egypt is contagious, and that it could lead to instability in other, seemingly analogous states—the most important of which is Saudi Arabia. There are regions in which the governments seem very sclerotic, the people running them seem old, the youth vote seems large, and the number of educated citizens who don’t seem adequately challenged seems to be growing. Such elements characterize quite a number of states in the region, including those that are important to the US for various reasons.
Egypt has been a major ally of the US when it comes to relations with Israel, where the resulting peace, though cold, has created a stable border, and is thus considered one of the great achievements of the last many decades. In the role of counterterrorism, Egypt has been a significant and cooperative ally on questions about Hamas, al-Qaida, or Hezbollah.
Finally, with respect to governance, Egypt is dealing with an autocratic regime that significantly restricts the political rights of the population. This has been a problem for the US, as it directly conflicts with American objectives and rhetoric. Nevertheless, such issues are of a lesser concern in the hierarchy of interests, as things like oil attract greater attention.
I suspect that peaceful relations between Egypt and Israel would be sustained. A new Egyptian government of any stripe will have so much to do that it will not want to take on any additional problems. On the other hand, Egypt’s current mix finds organized groups like the Muslim Brotherhood. The Brotherhood’s recent statements have been more internationally acceptable, but traditionally they have had quite strong and different views with respect to Israel. As you can imagine, if a Muslim Brotherhood group emerges after whatever process of transition Egypt undergoes, such a group might maintain a contrary view.
The best way to think about the issue is to consider alternative futures. One possibility is that Mubarak and the current regime will survive. I’d say this is very unlikely, though, with only about a five to ten percent chance of happening.
A second possibility is that a transitional process will take place, resulting in an emerging democratic government. I’d say that this second alternative is the most hopeful, but not the most likely scenario.
Another scenario features a tumultuous process in which a more or less participatory and democratic system emerges. If this scenario were to play out, I would bet on the most organized groups emerging as leaders. In this case, the most organized group is the military, which means that we would see the emergence of a military-dominated regime with a civilian face. That would be a good outcome as far as the US is concerned. A variation of that scenario is the possibility that the Muslim Brotherhood could step up to take control of the government, an outcome that would present its own opportunities and risks.
The key idea that we should take away from this is that future developments are uncertain, and that it is entirely possible to describe an outcome that looks more like Iran —though I don’t think such an outcome is likely. Think about Ayatollah Khomeini in Paris until the Iranian revolution, Lenin going home to Russia in a single-carriage train. True, those situations weren’t exactly like the one happening now, but history reminds us that outcomes are often quite different from the ones people anticipate—and that looking at the aspirations that have spurred a revolution is hardly a good way to predict what the outcomes will actually be.
How different would the world be today if there had been no 9/11? What if the attacks had been foiled or bungled? One obvious answer is that Americans would probably care a lot less than they do about the rest of the world.
Back on the eve of destruction, in early September 2001, only 13 percent of Americans believed that the U.S. should be “the single world leader.” And fewer than a third favored higher defense spending. Now those figures are naturally much higher. Right?
Wrong. According to the most recent surveys, just 12 percent of Americans today think the U.S. should be the sole superpower—almost exactly the same proportion as on the eve of the 9/11 attacks. The share of Americans who want to see higher spending on national security is actually down to 26 percent. Paradoxically, Americans today seem less interested in the wider world than they were before the Twin Towers were felled.
In the past 10 years, the U.S. has directly or indirectly overthrown at least three governments in the Muslim world. Yet Americans today feel less powerful than they did then. In 2001 just over a quarter felt that the U.S. had “a less important role as a world leader compared to 10 years ago.” The latest figure is 41 percent.
Three explanations suggest themselves. First, wielding power abroad proved harder in practice than in neoconservative theory. Second, the financial crisis has dampened American spirits. A third possibility is that 9/11 simply didn’t have that big an impact on American opinion.
Yet to conclude that 9/11 didn’t change much is to misunderstand the historical process. The world is a seriously complex place, and a small change to the web of events can have huge consequences. Our difficulty is imagining what those consequences might have been.
So let’s play a game like the one my friends at the Muzzy Lane software company are currently designing, which has the working title “New World Disorder.” The game simulates the complex interaction of economics, politics, and international relations, allowing us to replay the past.
Let’s start in January 2001 and thwart the 9/11 attacks by having Condi Rice and Paul Wolfowitz heed Richard Clarke’s warnings about Al-Qaeda. The game starts off well. Al-Qaeda is preemptively decapitated, its leaders rounded up in a series of covert operations and left to the tender mercies of their home governments. President Bush gets to focus on tax cuts, his first love.
But then, three years later, the murky details of this operation surface on the front page of The New York Times. John Kerry, the Democratic candidate for the presidency, denounces the “criminal conduct” of the Bush administration. Liberal pundits foam at the mouth. Ordinary Americans, unseared by 9/11, are shocked. Osama bin Laden issues a fierce denunciation of the U.S. from his Saudi prison cell. It triggers a wave of popular anger in the Middle East that topples any regime seen as too close to Washington.
The government of Qatar - gone. The government of Kuwait - gone. Above all, the government of Saudi Arabia - gone. True to form, the experts are soon all over network TV explaining how this fundamentalist backlash against the U.S.-backed oil monarchies had been years in the making (even if they hadn’t quite gotten around to predicting it beforehand). “Who lost the Middle East?” demands Kerry, pointing an accusing finger at George W. Bush. (Remember, prior to 9/11 Bush favored a reduction of U.S. overseas commitments.) The Democrats win the 2004 election, where-upon bin Laden’s new Islamic Republic of Arabia takes hostages at the U.S. Embassy in Riyadh…
In other words, if things had happened differently 10 years ago - if there had been no 9/11 and no retaliatory invasions of Afghanistan and Iraq - we might be living through an Islamist Winter rather than an Arab Spring.
Replaying the history game without 9/11 suggests that, ironically, the real impact of the attacks was not on Americans but on the homelands of the attackers themselves.
The Palestinian leader Mahmoud Abbas’s bid for full U.N. membership was dead on arrival in New York. So why bother even raising the subject? The answer: to drum up international sympathy for the plight of the Palestinians. Yet other defeated peoples have suffered far more than they. Think only of how—and at whose expense—the U.N. itself began.
Born in the gently foggy city of San Francisco, the U.N. was conceived in the Ukrainian resort of Yalta. Though nestled amid the green Crimean hills and lapped by the Black Sea’s languid waves, the city was severely battle-scarred in February 1945; Winston Churchill dubbed it “the Riviera of Hades.” Its diabolical master was the Soviet despot Joseph Stalin, who acted as host to Churchill and the ailing American President Franklin Roosevelt.
Of the Big Three, as Sergei Plokhy shows in his riveting study Yalta: The Price of Peace, Roosevelt alone truly believed in the dream of a world parliament, and even he knew the U.N. would need to give greater weight to the great powers than its ill-starred predecessor, the League of Nations. Thus it was Roosevelt who proposed a Security Council on which the war’s victors—plus France and China—would be permanently represented and armed with veto powers.
Churchill and Stalin were realists. They saw the postwar world in terms of “spheres of influence.” Though perfectly capable of such realism in practice, Roosevelt still yearned for the idealist’s world of peace based on collective security. Yet Churchill was deeply reluctant to accept that Stalin’s postwar sphere of influence would include Poland. His predecessor had acquiesced in the destruction of Czechoslovakia at Munich but had gone to war when Hitler (and Stalin) carved up Poland between them. Was Yalta to be the Poles’ Munich?
“We can’t agree,” grumbled Churchill, “that Poland shall be a mere puppet state of Russia, where the people who don’t agree with Stalin are bumped off.” But that was exactly what postwar Poland became.
A staggering 19 percent of the prewar population of Poland had been killed as a result of World War II, including a huge proportion of the country’s large Jewish population. Yalta inflicted further punishment. The country not only shrank; it was also shifted westward so that Stalin could keep his gains from the 1939 Nazi-Soviet Pact. And it became a Soviet vassal state for the next half century. After Yalta, chess players devised a variant of their game for three players, using a six-sided board. As at the conference, in the game “Yalta” two players can join forces against the third, but all such alliances are temporary. Briefly, Churchill got Roosevelt on his side over Poland, but the American cared more about getting Stalin to agree to join the U.N.; Poland was a pawn to be sacrificed.
Having got what he wanted, Roosevelt left Yalta early. His destination? The Middle East, which he was intent on adding to ... the American sphere of influence. The conflicting commitments he made on that trip—to the Arabs and the Jews—have bedeviled U.S. foreign policy ever since. Asked by Roosevelt if he was a Zionist, Stalin replied elliptically that he “was one in principle, but he recognized the difficulty.”
That “difficulty” remains that a Jewish state could be created only at the expense of non-Jews living in Palestine. The Arabs resisted Israel’s creation, but they lost. So it goes. A trip to Yalta provides a salutary reminder that throughout history those who lose at war generally lose land, too, and sometimes sovereignty with it. By comparison with what the Poles endured last century, the Palestinians have got off lightly.
They will get their own state eventually. But not until all the permanent members of the Security Council are convinced the Palestinians will not abuse the privileges of statehood.
Like it or not, that was how the U.N. was meant to work when the Big Three conceived it on Hell’s Riviera.
The good news is that today’s teenagers are avid readers and prolific writers. The bad news is that what they are reading and writing are text messages.
According to a survey carried out last year by Nielsen, Americans between the ages of 13 and 17 send and receive an average of 3,339 texts per month. Teenage girls send and receive more than 4,000.
It’s an unmissable trend. Even if you don’t have teenage kids, you’ll see other people’s offspring slouching around, eyes averted, tapping away, oblivious to their surroundings. Take a group of teenagers to see the seven wonders of the world. They’ll be texting all the way. Show a teenager Botticelli’s Adoration of the Magi. You might get a cursory glance before a buzz signals the arrival of the latest SMS. Seconds before the earth is hit by a gigantic asteroid or engulfed by a super tsunami, millions of lithe young fingers will be typing the human race’s last inane words to itself:
C u later NOT :(
Now, before I am accused of throwing stones in a glass house, let me confess. I probably send about 50 emails a day, and I receive what seem like 200. But there’s a difference. I also read books. It’s a quaint old habit I picked up as a kid, in the days before cellphones began nesting, cuckoolike, in the palms of the young.
Half of today’s teenagers don’t read books—except when they’re made to. According to the most recent survey by the National Endowment for the Arts, the proportion of Americans between the ages of 18 and 24 who read a book not required at school or at work is now 50.7 percent, the lowest for any adult age group younger than 75, and down from 59 percent 20 years ago.
Back in 2004, when the NEA last looked at younger readers’ habits, it was already the case that fewer than one in three 13-year-olds read for pleasure every day. Especially terrifying to me as a professor is the fact that two thirds of college freshmen read for pleasure for less than an hour per week. A third of seniors don’t read for pleasure at all.
Why does this matter? For two reasons. First, we are falling behind more-literate societies. According to the results of the Organization for Economic Cooperation and Development’s most recent Program for International Student Assessment, the gap in reading ability between the 15-year-olds in the Shanghai district of China and those in the United States is now as big as the gap between the U.S. and Serbia or Chile.
But the more important reason is that children who don’t read are cut off from the civilization of their ancestors.
So take a look at your bookshelves. Do you have all - better make that any - of the books on the Columbia University undergraduate core curriculum? It’s not perfect, but it’s as good a list of the canon of Western civilization as I know of. Let’s take the 11 books on the syllabus for the spring 2012 semester: (1) Virgil’s Aeneid; (2) Ovid’s Metamorphoses; (3) Saint Augustine’s Confessions; (4) Dante’s The Divine Comedy; (5) Montaigne’s Essays; (6) Shakespeare’s King Lear; (7) Cervantes’s Don Quixote; (8) Goethe’s Faust; (9) Austen’s Pride and Prejudice; (10) Dostoevsky’s Crime and Punishment; (11) Woolf’s To the Lighthouse.
Step one: Order the ones you haven’t got today. (And get War and Peace, Great Expectations, and Moby-Dick while you’re at it.)
Step two: When vacation time comes around, tell the teenagers in your life you are taking them to a party. Or to camp. They won’t resist.
Step three: Drive to a remote rural location where there is no cell-phone reception whatsoever.
Step four: Reveal that this is in fact a reading party and that for the next two weeks reading is all you are proposing to do—apart from eating, sleeping, and talking about the books.
Welcome to Book Camp, kids.
America's last 10 years might be called “The Decade the Locusts Ate.’’ A nation that started with a credible claim to lead a second American century lost its way after the terrorist attacks of September 11, 2001. Whether the nation will continue on a path of decline, or, alternatively, find our way to recovery and renewal, is uncertain.
The nation began the decade with a growing fiscal surplus and ended with a deficit so uncontrolled that its AAA credit rating was downgraded for the first time in its history. Ten years on, Americans’ confidence in our country and the promise of the American Dream is lower than at any point in memory. The indispensable superpower that entered the decade as the most respected nation in the world has seen its standing plummet. Seven out of every 10 Americans say that the United States is worse off today than it was a decade ago. While many of the factors that contributed to these developments were evident before 9/11, this unprecedented reversal pivots on that tragic day - and the choices made in response to it. Those choices had costs: the inescapable costs of the attack, the chosen costs, and the opportunity costs.
Inescapable costs of 9/11 must be counted first in the 3,000 innocent lives extinguished that morning. In addition, the collapse of the World Trade Center and part of the Pentagon destroyed $30 billion of property. The Dow plunged, erasing $1.2 trillion in value. Psychologically, the assault punctured the “security bubble’’ in which most Americans imagined they lived securely. Today, 80 percent of Americans expect another major terrorist attack on the homeland in the next decade.
Were this the sum of the matter, 9/11 would stand as a day of infamy, but not as an historic turning point. Huge as these directs costs are, they pale in comparison to costs of choices the United States made in response to 9/11: about how to defend America; where to fight Al Qaeda; whether to attack Iraq (or Iran or North Korea) on grounds that they had chemical or biological weapons that could be transferred to Al Qaeda; and whether to pay for these choices by taxing the current generation, or borrowing from China and other lenders, leaving the bills to the next generation.
Unquestionably, much of what was done to protect citizens at home and to fight Al Qaeda abroad has made America safer. It is no accident that the United States has not suffered further megaterrorist attacks. The remarkable intelligence and Special Forces capabilities demonstrated in the operation that killed Osama bin Laden suggest how far we have come.
But the central storyline of the decade focuses on two choices made by President George W. Bush - his decision to go to war with Iraq and his commitment to cut taxes, especially for wealthy Americans, and thus not to pay for the wars in Iraq and Afghanistan.
The cost of his decision to go to war with Iraq is measured in 4,478 American deaths, 40,000 Americans gravely wounded, and a monetary cost of $2 trillion.
Bush justified his decision to attack Iraq on the grounds that Saddam Hussein might arm terrorists with weapons of mass destruction, arguing that “19 hijackers armed by Saddam Hussein…could bring a day of horror like none we have ever known.’’ In retrospect, even Bush supporters agree that we went to war on false premises—since we now know that Saddam had no chemical or biological weapons.
Suppose, however, that chemical weapons had been found in Iraq. Would that have made Bush’s choice a wise decision? What about the many other states that had chemical or biological weapons that could have been transferred to Al Qaeda, for example Libya, or Syria, or Iran? What about the state that unquestionably had an advanced nuclear weapons program, North Korea, which took advantage of the US preoccupation with Iraq to develop an arsenal of nuclear weapons and conduct its first nuclear weapons test?
As for cutting taxes for the wealthy, Bush’s decision left the nation with a widening gap between government revenues and its expenditures. Brute facts are hard to ignore: having entered office with a budgetary surplus that the CBO projected would total $3.5 trillion through 2008, Bush left office with an annual deficit of over $1 trillion that the CBO projected would grow to $3 trillion over the next decade.
Finally, and most difficult to assess, are opportunity costs, what could be Robert Frost’s “road not taken.’’ In the immediate aftermath of 9/11, the United States was the object of overwhelming international sympathy and solidarity. The leading French newspaper declared: “We are all Americans.’’ Citizens united behind their commander in chief, giving him license to do virtually anything he could plausibly argue would defend us against future attacks.
This rare combination of readiness to sacrifice at home plus solidarity abroad sparked imagination. Would Americans have willingly paid a “terrorist tax’’ on gas that could kick what Bush rightly called America’s “oil addiction’’? Could an international campaign against nuclear terrorism or megaterrorism have bent trend lines that leave Americans and the world increasingly vulnerable to future biological or nuclear terrorist attacks? What impact could $2 trillion invested in new technologies have had on American competitiveness?
That such a decade leaves Americans increasingly pessimistic about ourselves and our future is not surprising. American history, however, is a story of recurring, impending catastrophes from which there is no apparent escape—followed by miraculous recoveries. At one of our darkest hours in 1776 when defeat at the hands of the British occupying Boston seemed almost certain, the general commanding American forces, George Washington, observed: “Perseverance and spirit have done wonders in all ages.’’