Sunday, May 21, 2006

After the empire

by Emmanuel Todd seems to be an interesting but erratic book with some valid points. Here are some reviews both favourable and critical:,6903,1143265,00.html

Todd seems to be one of the several people who currently see the beginning of the demise of the American empire ( he is also among several who predicted the collapse of the soviet union). As far as I can see, Todd is not anti-American and actually sees several years of American hegemony from the 50’s as beneficial to the world. According to him, the problems are over consumption and dependence on oil, shift from production to financial services, growing trade deficits. Though there were intentions during Carter’s time to lessen oil dependence, the Russian march to Afghanistan again brought USA to the mode of controlling oil supplies. The increase in military spending, imports etc saw the deficit increasing. Todd thinks that the option of militarism (instead of the harder option of less dependence on oil, increase in production rather than over reliance on services) is just a soft option which appealed to some of the conservatives after the collapse of USSR. The result is an empire which cannot afford democracy everywhere since it cannot otherwise maintain its current consumption levels.
There are some studies ( which has a link to a paper by Harvard economists Hausman-Sturzenegger) which argue that the deficit is not really deficit since US is still making money overall. From 23/01/06 report in the Economist:
“Thanks to its chronic trade deficits, it stood $2.5 trillion in the red at the end of 2004. And yet it still somehow manages to earn more on its foreign assets than it pays out to service its much bigger stock of debts: $36.2 billion more in 2004.Most economists conclude that America earns a higher return on its overseas assets (eg, EuroDisney) than foreigners earn on investments in America (eg, Rockefeller Centre). They don their anoraks, immerse themselves in the data and try to work out why this might be so. Messrs Hausmann and Sturzenegger turn the question on its head. It is not the $36.2 billion of income that is the mystery, they say. The anomaly lies in the $2.5 trillion of debt. If America is still coming out ahead of foreigners, then, contrary to popular belief, it must still be a net creditor. America must have more foreign wealth than we can see.The two authors have borrowed a name for this invisible wealth: dark matter. In theoretical physics, dark matter is the stuff in the universe that we can identify only by its gravitational pull. For the Harvard economists, dark matter is foreign wealth, the existence of which we can infer from the income it provides.How much of it is out there? You can calculate a price for an asset from the earnings it provides. Messrs Hausmann and Sturzenegger elect to value America's net foreign assets at 20 times their annual earnings, which corresponds to a 5% rate of return. Valued at this ratio, America's national "portfolio" of foreign assets and liabilities is really worth $724 billion, not minus $2.5 trillion. What is more, if its foreign assets are as stable as the authors say, it follows that "the country has not been running a deficit."Messrs Hausmann and Sturzenegger were the first to name dark matter, but not the first to discover it. In his book, "The United States as a Debtor Nation", published last year, William Cline, of the Institute for International Economics, performed the same calculation, backing out the value of America's net foreign assets from the income they generate. (Instead of calling it dark matter, Mr Cline, evidently not a born marketing man, called it "capitalised net capital income".)Mr Cline agrees with the dark materialists when they say there is "something misleading about calling a country that makes money on its financial position the world's largest debtor". But sadly he does not think Americans can stop worrying. After making $36.2 billion in 2004, America made just $4 billion on its net foreign assets in the first three quarters of 2005. If it continues on its present trajectory, it will shell out about $190 billion in 2010, Mr Cline calculates. Using Messrs Hausmann and Sturzenegger's methodology, America's net foreign assets would then amount to minus $3.8 trillion. A dark matter indeed.Ptaking on PtolemyApart from its name, the dark matter thesis appeals because of its simplicity. Philip Lane, of Trinity College, Dublin, thinks it too simple. It matters, he says, what a nation's foreign wealth is composed of. Foreigners hold a lot of American debt (bonds and bank loans), whereas America holds a lot of foreign equity, especially foreign direct investment (FDI). This has two implications. First, what America pays to foreign creditors depends a lot on interest rates, which have been unusually low in recent years. Second, the value of America's assets depends on the risks they carry. Yet Messrs Hausmann and Sturzenegger apply the same valuation ratio indiscriminately to bonds, equities, trade credits and bank loans on both sides of the balance sheet.That said, there remains a big gap in reported profitability between American FDI and FDI in America that risk alone cannot explain. Perhaps taxes can. To dodge the revenuemen, a multinational company might report artificially high profits in a low-tax jurisdiction abroad. This tax arbitrage, Mr Lane points out, can shift money from one line of the current account to another. But it does not change the size of the deficit one jot.To Messrs Hausmann and Sturzenegger, mainstream attempts to explain away dark matter look a bit desperate. Fond of their cosmological analogies, they liken them to the labours of medieval astronomers, trying to fit anomalous movements of the planets into their Ptolemaic model of the universe.But the authors' thesis raises anomalies of its own. By their own account, dark matter should be stable. It stems from abiding features of the American economy, such as managerial know-how, a prized but uncounted commodity that Americans export to their subsidiaries abroad. But as Ed McKelvey, of Goldman Sachs, points out, America's exports of dark matter seem to jump up and down wildly from year to year: $351 billion in 2004, $1.2 trillion in 2003, just $172 billion in 2002. Dark matter seems to fluctuate at frequencies that are not structural, nor even cyclical. Perhaps they are best described as epicyclical. “
So, in spite of some creative accounting, there is still a problem. Probably, many of the ideas touted by Todd will be disputed just like the above, but there seem to some interesting insights in the book.

Monday, May 15, 2006

Remembering Ben Franklin

In these days blogs and websites where everyone seems to be letting himself go, I keep remembering BenjaminFranklin’s words at the Constitutional Convention onSeptember 17, 1787 at the age of 81:“ … for having lived long, I have experienced many instances of being obliged, by better information or fuller consideration, to change opinions even on important subjects, which I once thought were right, but found to be otherwise. It is therefore that the older I grow the more apt I am to doubt my own judgement, and to pay more respect to the judgement ofothers. Most men indeed as well as most sects in religion, think themselves in possession of all truth,and that wherever others differ from them it is so fare rror….”
He goes on to say:“… I agree to this Constitution, with all its faults, if they are such; because I think a general government necessary for us, there is no form of government but what may be a blessing to the people if well administered; and I believe further that this is likely to be well administered for several years, and can only end in despotism as other forms before it,when people shall become so corrupted as to need despotic government, being incapable of any other.”
I wonder whether some form continuous revolution building social capital through citizen forums is the only hope.

Monday, May 08, 2006

Tunnel vision

In a wonderful essay “Who is in charge?” (the first chapter of Paul Seabright’s “The Company of strangers: a natural history of economic life”) Seabright defines ‘tunnel vision’ as the capacity to play one’s part in the great complex enterprise of creating prosperity of a modern society without knowing or necessarily caring very much about the overall outcome. He gives the delightful example of how the economy works when one buys a shirt; essentially nobody is in charge. This seems to be a fact of modern life, we get some training with the view of making a living and somehow do not have to worry about all the factors of modern economic life. Often, it is difficult to know all the changing factors of supply, demand politics of various nation states. If we are reasonably successful, we may even develop an arrogance of the right way to do things. However, when your kith and kin start committing suicides because farming is failing in some places despite the great developments in technology, or when there are wars or when you are in a decision making position you start wondering and feel inadequate. This sort of ignorance and tunnel vision seems to be a common phenomenon partly because we lack good all round education and the new developments are, even those which can affect our daily lives are not quickly assimilated. The ignorance of many developments in science seems widespread. Even among university professors, you see many who do not know the difference between bacteria and virus, or DNA and RNA or the suitable age for language learning or the problems of pregnancy for mother and child, just to name a few. We generally have vague ideas about communism and democracy but not much more. We often talk about culture but it just seems to mean a few traditions and rituals. Here is a passage from Edge
“In the twentieth century, a period of great scientific advancement, instead of having science and technology at the center of the intellectual world — of having a unity in which scholarship included science and technology along with literature and art — the official culture kicked them out. Traditional humanities scholars looked at science and technology as some sort of technical special product. Elite universities nudged science out of the liberal arts undergraduate curriculum — and out of the minds of many young people, who, as the new academic establishment, so marginalized themselves that they are no longer within shouting distance of the action.

Yet it's the products of this educational system that go straight from their desks at university literary magazines to their offices in the heart of the cultural establishment at our leading newspapers, magazines, and publishers. It's a problem that's systemic and not individual. Unless one is pursuing a career path in science, it is extremely difficult for a non-science major at a top research university to graduate with anything approaching what can be considered an education in science. I recently talked with a noted Italian intellectual, who is as familiar with string theory and as he is with Dante, and writes about both in his philosophical novels. In appraising this situation, he argued for restraint and compassion. "They just don't know," he sighed, "they just don't know." He might well have added, they don't even know that they don't know.

Somebody needs to tell them. Otherwise, we wind up with the center of culture based on a closed system, a process of text in/text out, and no empirical contact with the real world. One can only marvel at, for example, art critics who know nothing about visual perception; "social constructionist" literary critics uninterested in the human universals documented by anthropologists; opponents of genetically modified foods, additives, and pesticide residues who are ignorant of genetics and evolutionary biology.”
In a recent artcle in The Guardian, Ian McEwan says:
“I say all this somewhat dutifully, because there actually is a special pleasure to be shared, when a scientist or science writer leads us towards the light of a powerful idea which in turn opens avenues of exploration and discovery leading far into the future, binding many different phenomena in many different fields of study. Some might call this truth. It has an aesthetic value that is not to be found in Galen's confident and muddled assertions about the nature of disease. For example, there is something of the luminous quality of great literature when the 29-year-old Charles Darwin, just two years back from his Beagle voyage and 21 years before he will publish The Origin of Species, confides to a pocket note-book the first hints of a simple, beautiful idea: "Origin of man now proved ... He who understands baboon would do more towards metaphysics than Locke””.

This brings me to ruminate about the role of ‘elite’ in a society
and the uses of literature and writing in general; whether it can bring social change etc etc. I am not very literary; I just remember a few lines here and there both in Telugu and English. They come unannounced giving a brief moment of pleasure or pain or wonder and then go away for a while. From what little I know, literature, if at all was used at least until the 20th century, to preserve the hegemony of the privileged classes and thus preventing social change rather than encouraging social change for the betterment of all. If one wants to know the power of the medium, one has only to look at the polls in various countries about the WMDs in Iraq; still 85 percent of the American soldiers in Iraq believe that Saddam Hussain had WMDs. Some say that if one reads various Telugu classics, one can find about the life of people in those times or history as people lived; may be not in terms of dates etc. but their aspirations. Some of the books I read did not give me much more than glimpses in to court life and sringaram. The book “Castes of mind” by Nicholas Dirks gave a bit more. Widows in the Nayaka period could remarry in temples and when the management of temples passed to different groups during the British period and women were barred from entering the same temples. Things seemed better in Tamilnadu for Khushboo’s ancestors some centuries ago. Coming back to sringaram, nuanced lines like ‘gopee peena payaodhara mardita chanchala karayugasalee’ gives me the image of an aged debaucher in the early stages of Parkinson’s disease. Whereas lines like “Akasamuna harivillu viriste adi makenani anandinche papallara, puvullara’ brings me the scene of happy and innocent children; a scene that I feel should be preserved.( But the very next day I hear reports of Iraqi children playing among war debris and depleted uranium.) Even meaningless lines “Go and catch a falling star” or “Find which wind serves to advance an honest mind” bring moments of happiness. Or a line like “No man is an island” brings visions of an eternal truth which is confirmed more and more by science. For a Telangana farmer ‘it may be a line like “Bamdenuka bamdi katti..” and for a village woman it may be a dampudu pata or tummeda pata. For educated people, it may be a line of Srisri “Kharidu gatte sharabu ledoyi’ which brings a temporary empathy for a factory worker. It seems difficult to calculate these ephemeral feelings over populations and see whether they have brought or likely to bring any social change. What all I can say from my experience is that they sustain me like they sustained many poor and rich people from time immemorial. To ask for their use seems to be like asking whether the time we spend with family and friends has any use.
Does this all mean that there is no point looking for any changes through literature or writing in general. I am not so sure and I think one should try. After all one of the advantages of sound and word is to convey things which cannot always be conveyed rationally. There are perhaps atavistic memories. Scientists have been able to instil fear of snakes in monkeys raised in zoos but only temporarily the fear of flowers. Some have the gift to find some of these essences and convey them through perhaps an unconscious grasp of word and sound. But there is a lot of change in what has to be conveyed. Though some things seem eternal, science continually comes up with surprising confirmations as well as hints of new revelations. This has been prominent in the recent years through the work of people like Trivers and Hamilton, Boyd and Richerson, Cosimides and Tooby, Richard Putnam, Fehr, Hrdy and others which have brought new insights to cognition, empathy, parochialism, cooperation etc. I do not see how writers go on with primitive notions of Marxism, feminism etc without taking these new studies in to account. I think in these times of too much information, this is the challenge to writers: to assimilate the new discoveries, incorporate them with the earlier insights and present them using the magic of language in a form that common people can understand or at least get a feel to sustain them and to ‘improve’ their lives. I had only glimpses of the work of the above people through the writings Jarred Diamond, Herbert Gintis, Matt Ridley and through google search.