The US is bracing itself for another year – can it really be another year? – of electioneering. The prospect would be impossible to endure were it not for the fact that so much seems at stake. Democrats are enraged by the Bush administration’s record and by the ability of a weakened president and the Republican minority in Congress to shut the legislative system down and block their every initiative. They are straining to take over and tear up the Bush legacy, such as it is, by the roots. If the elections give Democrats the presidency and increased majorities in both houses, as seems likely, the US is going to see one of the most radical alterations in its political outlook for decades.

As things stand right now, the politics is all good for the Democrats and all bad for the Republicans. The time-series of national opinion-poll ratings for the Republican presidential candidates looks like the read-out of a patient having a stroke. The lines jerk up and down, as party supporters search desperately, and so far in vain, for a candidate they like. The surge from nowhere of Mike Huckabee – to join a three-way tie with Rudolph Giuliani and Mitt Romney – is partly a sign of this desperation. It threatens to split and even destroy the Republican coalition, by dividing social conservatives from economic conservatives.

Mainly, though, it underlines something even more significant than that: the growing appeal of economic populism among supporters of both parties.

You can read the rest of this new column for the FT here.

I am going to Tanzania to meet some chimpanzees. No Iowa, no New Hampshire. I imagine they will get along without me. See you on or around January 18th. Have a good Christmas.

"Outsourced" is a low-budget no-stars romantic comedy about globalisation, improbable as that might seem.  A young American executive is sent to India to run the company’s call-centre. The clash of cultures–and the downright strangeness of India as seen through American eyes–provides the jokes. But there is no condescension, nor any fatuous admiration of the foreign for its own sake, which would have been equally annoying. Our hero struggles until he surrenders  to his new environment, at which he falls for India and for his engaging Indian assistant. It sounds too sweet, but not at all. It is intelligent and wonderfully well-observed, as well as charming, and this frequent visitor to India, at any rate, lapped it up. 

The reviews were good but not ecstatic. A few seemed to take offence at the very idea of an easy-going movie about life in the "trenches of globalisation" (as one miserable killjoy put it). Imagine making light of such horrors. In fact the movie neither glosses over nor exaggerates the human consequences of outsourcing. For me, it got that balance just right as well. With the possible exceptions of "Michael Clayton" and "No Country for Old Men", I enjoyed it more than anything else I saw in 2007. Matt Groening apparently loved it as well: enough said.

It has seemed to be getting a very limited US distribution all this year. See it if you can–you’ll thank me. In the US, you can buy the DVD here.

Checks and balances are all very well, but sometimes you have to wonder. The first session of the 110th Congress came to a close last week in a disorderly crush of half-baked legislation. It was the end of a year that gave the new Democratic leadership little to boast about. Seizing control of House and Senate in the 2006 elections, the Democrats had big ideas about holding the Bush administration to account, forcing a prompt withdrawal from Iraq and radically realigning the government’s domestic priorities. Measured against those early promises, their record has been dismal.

The budget process was an unintelligible mess – not for the first time, admittedly. An omnibus $555bn spending bill, lumping together who knows how many appropriations bills, finally passed. The president gave it his blessing, because it gave him enough of what he wanted – including $70bn additional funding for the wars in Iraq and Afghanistan. Admittedly, that is less than half the extra war funding the administration had asked for, but enough for the army to keep going without another supplemental until June.

The rush of unfinished business also included the long-anticipated fix of the alternative minimum tax. This is a parallel income tax, allowing only limited deductions, initially devised to curb tax avoidance by the very rich. Due to years of neglect and rising incomes, it threatened to drag millions of middle-class taxpayers into its net. Patching it up so that this would not happen cost $53bn in forgone revenue.

You can read the rest of this new column for the FT here

An article by Yale’s Judith Chevalier in last Sunday’s New York Times slipped by me, until Greg Mankiw’s blog redirected me to it. The piece discusses an issue that has so far received little attention, but which is likely to loom much larger before long: the trade-policy implications of unilateral (or at any rate, imperfectly co-ordinated) US action on climate change. Suppose the US adopts a cap-and-trade regime for carbon, as promised by Hillary Clinton, or as envisaged by the Lieberman-Warner Climate Security Act (yes, make this a security issue, why not) currently before Congress. Also suppose that China does nothing to curb its carbon emissions. Then Chinese imports, it will be argued, will have an unfair cost advantage in US markets.

One goal of a tradeable permit system is to force consumer prices for goods to reflect the harm that the production of those goods causes the planet. For example, if a television were made using a high-emission process, the factory would have to buy many carbon permits, driving up the TV’s price. A television made in a low-emission factory would require fewer permits, lowering its relative price. Consumers, of course, would have an incentive to choose the TV from the low-emission factory, and all factories would have an incentive to lower emissions.

A problem would arise, however, if a producer needed to buy permits to make televisions in a country with a carbon cap, while no permits were required in a country without a cap. The television from the country without the cap would be cheaper, consumers would prefer it, and there would be no economic incentive to cut emissions. Environmentalists call this the “leakage problem”: just as a balloon squeezed at one end will bulge at the other, emissions caps applied in only some economies will lead to emissions surges in others.

A provision in the current version of the Climate Security Act links responsibility to carbon consumption, not production. This idea derives from a joint proposal by the American Electric Power Company and the International Brotherhood of Electrical Workers. The provision requires that importers of goods from countries without carbon caps obtain permits for the emissions resulting from the goods’ production. While this requirement could be used to protect American jobs from foreign competition, if handled equitably, it could provide an elegant solution to the leakage problem.

If the United States adopted a tradable permit system that treated emissions from domestic producers identically to emissions associated with imported goods, then products that are more emissions-intensive, whether domestic or imported, would require more permits and thus be more expensive. Producers in the United States and abroad would have an incentive to reduce greenhouse gases to make their goods more competitive.

Greg points out that the carbon-tax equivalent of this proposal would be border adjustment of tax rates–that is, carbon-based import tariffs and export subsidies. Either approach, as Ms Chevalier puts it, "would face scrutiny under current trade agreements". Given prevailing anti-trade sentiment (no disrespect to  the International Brotherhood of Electrical Workers), the risk that this idea might be co-opted as part of a wider retreat from liberal trade is plain. But if the US is going to get serious about carbon abatement, as seems likely if not next year then in 2009, the issue will have to  be confronted.

A supplementary reading on the scale of the challenge. Daniel Gros points out on Vox that the price of coal has fallen sharply relative to the price of oil, which presages (other things equal) a huge expansion in global coal-fired electricity generation–the most carbon-intensive kind.

It is often thought that high oil prices could contribute to lowering CO2 emissions because they make energy more expensive, thus encouraging lower energy consumption. But this view overlooks that a high price of oil relative to coal encourages the substitution of a hydrocarbon with pure carbon, thus increasing the carbon intensity of energy use. The supply of coal is abundant, especially in the new emerging energy giants China and India, and relatively elastic. This implies that the price of coal is likely to stay low, thus encouraging an increase in the carbon intensity of energy use everywhere. Reaching the goal of reducing CO2 emissions will thus be even more difficult than generally assumed if oil (and thus also gas) prices remain at present levels.

The latest World Energy Outlook from the International Energy Agency already forecasts on a business-as-usual scenario an increase in the share of coal in global energy use. But over the last five years business has not been as usual as one half of the increase in global energy consumption has come from coal, prompting acceleration of global CO2 emissions. Sustained high hydrocarbon prices will intensify this trend, making it highly unlikely that the goal to reduce CO2 emissions can be reached.

Are the media treating Hillary Clinton more harshly than Barack Obama? Howard Kurtz in the Washington Post:

Clinton’s senior advisers have grown convinced that the media deck is stacked against them, that their candidate is drawing far harsher scrutiny than Barack Obama. And at least some journalists agree.

"She’s just held to a different standard in every respect," says Mark Halperin, Time’s editor at large. "The press rooted for Obama to go negative, and when he did he was applauded. When she does it, it’s treated as this huge violation of propriety." While Clinton’s mistakes deserve full coverage, Halperin says, "the press’s flaws — wild swings, accentuating the negative — are magnified 50 times when it comes to her. It’s not a level playing field."

The article cites plenty of instances. I think there’s no question that Obama has been given an easy ride. It struck me throughout the televised debates that Clinton was generally declared the winner, but by a narrow or less-than-commanding margin–whereas in fact she nearly always trounced him. Quite a few commentators have called her slip over driver’s licences for illegal immigrants in the Philadelphia debate a turning-point: since then she’s been in trouble, they say. But Obama made a complete fool of himself on the very same issue in the next debate, by which time Hillary had sorted out her line, and he got away with it. Yes, the press is failing to be objective. Yes, it is treating Hillary quite harshly, while fawning over Obama.

But is this sentiment peculiar to the press, I wonder, or a feeling in the country at large? I suspect the latter. The United States may have doubts about Obama’s policies (if it knows or cares) or lack of experience (compared with Hillary’s such as it is), but it likes him. He is new, and the country is giving him the benefit of the doubt. When it comes to Hillary, there is no such instinct. She is asking for eight years in the White House–another eight years, as her claim of greater experience keeps reminding people–and people seem tired of her already.

Bill makes this worse. Predictably, with problems in Iowa and her national numbers starting to slide, he is playing a more forward role. David Warsh, author of the indispensable Economic Principals, drew my attention to this column by Alex Beam in the Boston Globe:

In 1999, after almost seven years of Bill Clinton’s rule, the commentariat christened a new buzzterm: Clinton fatigue. The peccadilloes, the double-dealing, the outright lying had overwhelmed the American public. "The Clintons have finally worn out their welcome," wrote columnist Linda Bowles. "There is a prevailing sentiment that it’s time for them to go, and to take their baggage with them."

Clinton fatigue. With the presidential election less than 11 months away, I am feeling it already.

I’m not talking about Mrs. Clinton…

My Clinton fatigue is about Bill. I am getting sick of him.

Bill’s problem is that he has no idea of how to be a political wife. Right now, Michelle Obama is the best in the business. Smart, accomplished, articulate, and capable of projecting empathy, she moves the Obama campaign forward with every appearance. She fills the stage without stealing the spotlight from her husband, from Oprah, or from whoever she appears with. With Bill Clinton, it’s just the opposite…

[An angle suggested by Herald columnist Margery Eagan:] Is Bill "The Underminer," as defined by the hilarious book of the same name by Mike Albo and Virginia Heffernan? The underminer is your "friend" who waxes enthusiastic about your fabulous trip to New Zealand, and then lets slip that he was hang-gliding there in the early 1980s, you know, before all the American tourists arrived.

Mainly, I think Bill makes his wife look weak. Otherwise, why would she need his help? And he reminds people just how long this double-act has been in business. When it comes to policies, Hillary may in fact be more of a "change candidate" than Obama (see Paul Krugman on this), hard though it is to say, ahead of time, how either presidency would work in practice. The point is, with Bill at her elbow, she does not look or sound like the change candidate. The more she relies on him, the more stale and diminished she will seem.

Barack Obama’s campaign for the presidency has revived. Until recently Hillary Clinton had a commanding lead in the polls and was starting to seem unstoppable. But Mr Obama has pulled ahead in Iowa and level in New Hampshire, the states that vote first in the primaries. He is gaining ground again nationally. The television debates, in which he performed poorly, are behind him. What matters now is the ability to move a crowd and the energy of campaign staff on the ground. On the first, Mr Obama has no equal in this contest. On the second, he has no grounds for complaint. He is back in the race.

But here is an odd thing: the Democratic party’s progressive base has mixed feelings about this revival. What is their problem, one wonders? What could be more exciting or more transformative, from their point of view, than this candidate? Mr Obama is a clever, reflective and engaging man; he has dedicated his impressive intellect to a liberal political vision; he has a voting record in the Senate that puts him well to the left of Mrs Clinton; he makes, nonetheless, a strong appeal to the centre; he carries none of the baggage of the Clinton dynasty; and, in a country still riven by race, he just happens to be black. What’s not to like?

The main answer is not differences over policy – though it is true that Mr Obama’s positions in the campaign have tended to be in the centre, at least compared with his Senate voting record.

You can read the rest of this new column for the FT here.

Cass Sunstein examines the phenomenon of enclave extremism–the tendency of people to harden their political positions when they interact mainly with others of like mind. (Thanks to A&L.)

[O]n many issues, most of us are really not sure what we think. Our lack of certainty inclines us toward the middle. Outside of enclaves, moderation is the usual path. Now imagine that people find themselves in enclaves in which they exclusively hear from others who think as they do. As a result, their confidence typically grows, and they become more extreme in their beliefs. Corroboration, in short, reduces tentativeness, and an increase in confidence produces extremism. Enclave extremism is particularly likely to occur on the Internet because people can so easily find niches of like-minded types — and discover that their own tentative view is shared by others.

It would be foolish to say, from the mere fact of extreme movements, that people have moved in the wrong direction. After all, the more extreme tendency might be better rather than worse. Increased extremism, fed by discussions among like-minded people, has helped fuel many movements of great value — including, for example, the civil-rights movement, the antislavery movement, the antigenocide movement, the attack on communism in Eastern Europe, and the movement for gender equality. A special advantage of Internet enclaves is that they promote the development of positions that would otherwise be invisible, silenced, or squelched in general debate. Even if enclave extremism is at work — perhaps because enclave extremism is at work — discussions among like-minded people can provide a wide range of social benefits, not least because they greatly enrich the social "argument pool." The Internet can be extremely valuable here.

But there is also a serious danger, which is that people will move to positions that lack merit but are predictable consequences of the particular circumstances of their self-sorting. And it is impossible to say whether those who sort themselves into enclaves of like-minded people will move in a direction that is desirable for society at large, or even for the members of each enclave. It is easy to think of examples to the contrary — the rise of Nazism, terrorism, and cults of various sorts. There is a general risk that those who flock together, on the Internet or elsewhere, will end up both confident and wrong, simply because they have not been sufficiently exposed to counterarguments. They may even think of their fellow citizens as opponents or adversaries in some kind of "war."

Gosh. Could that really happen?

After more than a week with my Amazon Kindle, I am ready to say I have seen the future of reading. This actual device, mind you, much as I like it, is not yet there–not quite–but it’s close enough to be already indispensable, and to prove that the underlying idea is unstoppable.

The Kindle is as clunky as it looks in the photographs–and the ergonomics are as awkward. The buttons are too big and squeaky; you can’t pick it up without pressing one and losing your place; the keyboard, though pitifully slow, runs several characters ahead of the cursor; and I would be hard-pressed even after a week to say precisely what the "back" button does. The use of "locations" rather than page numbers needs rethinking. (The interface has to convey a better feel of how much you’ve read and how much further you have to go: it’s not enough to be shown you’re about 30 percent through…30 percent of what?) And I need to reconsider Michael Lewis’s reliability as a reporter. His gushing on the Amazon website over the quality of the screen calls this very much into question. Clearer than print? Better than paper? What on earth is he talking about?

The screen is all right, I suppose, better than a computer screen–but it does not display black on white or anything even close. For the photographically minded, I would guess that it’s maybe 80 percent gray on 15 percent gray. Perfectly legible in good light–the brighter the better–and no harder on my ageing eyes after several hours than a book. But in less than good light, it is a strain. Coming back on the train from New York last week, on a gloomy afternoon, with an under-powered reading light above, it was harder to read than a book or printed newspaper, and after my eyes had wandered a few times from my Kindle to my neighbour’s magazine, which I could read more easily, I switched back to old technology. Its picture display is hopeless. Its web-browser…well, forget about the web-browser.

I will never bond with this device the way I have with my iPhone. I spend no time gazing fondly in its direction. If my Kindle and my iPhone were trapped in a burning building, it would be all over (aptly enough) for the Kindle. 

And yet! The thing is in constant use. Instead of lugging one or (often) two bags around, containing three or four multi-part newspapers and two or three  books, I carry the virtually weightless Kindle and one paper. (If the FT was on the Kindle store, it would be no papers.) I currently have half a dozen books loaded, plus free sample chapters of several others. So whatever my mood, there is always something to read. The wireless connectivity–as much as the low-power, no-backlight, e-ink screen–is the real breakthrough. Download a book in 30 seconds (Lewis was not exaggerating about that), or today’s paper, or the latest issue of The Atlantic–issue by issue on demand, or by subscription with automatic delivery. It’s irresistible. Intrigued by a book review? Get the sample chapter, or buy the whole thing, and start reading right now.

Really, there’s no going back. Not until they fix that button, anyway.

Another vote of thanks to James Hamilton (principal author of Econbrowser and an economics professor at the University of California, San Diego): I cite him again in this column for The Atlantic on the impressive irrelevance (for now) of the price of oil.

The oil market is not a bubble–fundamentals of supply and demand, not self-reinforcing speculative frenzy, are driving  prices–but nonetheless I am intrigued by the fact that the dearer the stuff gets, the calmer we appear to be about the economic implications. That thinking has bubble-like characteristics. You recall how fears about irrational exuberance in the stockmarket were more to the fore in 1996 with the Dow at 6,000 than they were a few years later, after it had risen another 4,000 points. Accustomed to an oil price that would have seemed terrifying very recently, we now seem to worry less, the higher it goes.

Financial bubbles often do not burst until the last skeptics—the ones who called them bubbles early on, and rolled their eyes as speculation raged—have capitulated to the mania and bought in. Once nearly everyone is convinced that the rise in prices has some real economic foundation after all, and not before, the whole thing goes pop. The pattern repeats over and over. A parallel suggests itself. When even the people who were worried about $40 oil have stopped worrying about $100 oil, it may be time to panic. As the price of oil goes ever higher, we seem to get ever less anxious about it. In the June 2006 Atlantic, I explained why oil at more than $50 a barrel was having so little effect. But now it’s almost double that. What ought to be obvious might therefore be worth restating: The higher it goes, the more likely it is do real harm.

You can read the rest of the article here.