Monthly Archives: July 2008

I went to my first gun show recently–part of my ongoing remedial education in American cultural literacy, which my (American) wife has lately taken in hand–and I have been turning the experience over in my mind these past few days. As a Brit, of course, I was conditioned to expect that the first time I saw an unholstered pistol would be when a mugger stuck one in my face. That is how it works in a civilised country. So for me it was passing strange to see many hundreds of pistols–not to mention shotguns, assault rifles, armour-piercing bullets, laser-sighting attachments and all manner of other lethal weaponry–arrayed for the delectation of ordinary citizens. They let me pick up a gun, for heaven’s sake!

A few moments inside the exhibition hall, I was still puzzling over the perfunctory security check at the door–“Are you carrying firearms?” “No, but why would that be a problem?”–when I gaped as a rotund and cheerful old gentleman with a white beard walked past me to the exit, with what looked like an Armalite and attached bayonet slung casually over his shoulder. (I was pleased to see that the trigger was secured by a plastic tie. Dangerous otherwise.) Trade was brisk. The Supreme Court had just overturned DC’s de facto prohibition on hand guns, upholding the Second Amendment as an individual rather than collective right.

Though a Brit, as I say, I did not bring the default attitude of many  Europeans (or East Coast liberals, same thing) to the event. I am by no means an instinctive gun controller. It is not obvious to me what is wrong with the argument that says, “The criminals already have guns; gun control disarms the rest of us.” I don’t know how many times I have heard that view sneered at, or laughed at, or pointed to as an infallible marker of stupidity. But I haven’t ever heard it seriously confronted, let alone refuted. Thought experiment: would I feel safer walking around DC at night if the district allowed concealed carry, so that some fraction of law-abiding citizens on the street would be armed, or would I feel more at risk? Answer: safer. I don’t say this settles the matter: I’m not sure what I think about gun control, and the seeming resistance in some quarters to any and all forms of regulation is ridiculous. But why is this not a legitimate consideration?

I don’t think the Democratic nominee would have felt at home with this crowd. I heard several references to Comrade Obama, and saw one button (which I coveted) that said, “I am a BITTER gun-owner.” They seemed to me an affable, friendly and very courteous bunch (well, you would be, wouldn’t you?). I don’t think you could mix with the show’s visitors for more than five minutes without thinking it was nonsense to attribute their interest in guns to bitterness or disappointment or some form of social pathology. But of course there is a political dimension. Aside from other motivations–sport, self-defence–the gun-show universe is about pride, self-reliance, and resentment at being bossed around. Distinctively American traits, wouldn’t you say? Best in moderation, no doubt–but still, where would the country be without those attitudes? I may get thrown out of Georgetown for this, but I say, good for them.

Not with a bang but with a whimper. The failure of the latest efforts to revive the Doha Round hardly came as a surprise; the fact that farming (what else?) was the sticking point was not exactly shocking either. And you could argue that little was immediately at stake. The talks were partly about tariff and subsidy limits, as opposed to tariffs and subsidies actually in place (these are typically well inside their WTO bindings). The breakdown does leave the system more vulnerable to future setbacks, but no great imminent surge of trade will be blocked because of it.

The dispiriting thing is that the talks could founder over the refusal to compromise, when the costs of compromise were indeed so low. (The political costs, I mean. When a country binds itself not to resort to protection, the economic costs are not just low but negative.) Governments no longer judge a successful Doha Round to be capable of delivering them a net political gain. Since that was the reason for the WTO in the first place, the game appears to be up.

Multilateral trade liberalisation brought the world an awfully long way after 1945, but that era has come to an end. The trade-reform agenda is unfinished–especially in the developing world–but future progress, if any, will come from unilateral unreciprocated liberalisation, or from discriminatory bilateral (or plurilateral) agreements, or some blend of the two. There has been a lot of the first lately, which is good. The danger lies with the second. It is a trend that the United States pioneered with its proliferating (until recently) regional FTAs. A rationale often offered for that approach was that regional FTAs were building blocks for broader multilateral liberalisation, with the WTO presiding over the subsequent assembly. Sceptics said no: regional FTAs would complicate the system and create frictions that would make broader trade reform more, not less, difficult. I’d say the sceptics have been proven right.

The FTA tendency is capable, given an enfeebled WTO, of eventually unwinding some of what has been achieved over the past half-century. (On this, see Jagdish Bhagwati’s new book.) If a growing China, India and Brazil follow the US example and use their muscle to develop their own hub-and-spoke networks of trade preference, the eventual costs in forgone trade and income could be great. The logic of trade protection never sleeps.

Barack Obama’s trip to Europe and the Middle East did what it was supposed to. It untapped a stream of presidential images: the candidate addressing 200,000 delighted Berliners; the candidate mingling comfortably with American soldiers, riding in military helicopters like a commander-in-chief; the candidate dealing with foreign leaders as an equal. For most voters, it is the images that will stick – what else was there? – and they are priceless. John McCain’s chief line of attack against Mr Obama, that he lacks experience especially in foreign affairs, has been blunted if not neutralised.

Poor Mr McCain had the worst week of his campaign. Unable to lie low and let Mr Obama have his European moment, the only wise course, he made matters worse. He ran a television spot that said “blame Obama for the high price of gas”, a patently ludicrous assertion. (Republicans were laughing at their own candidate.) Campaign officials said he might announce his vice-presidential choice – a sad and unsuccessful attempt to steal some of Mr Obama’s limelight. And having spent months goading Mr Obama for his lack of foreign affairs experience, Mr McCain portrayed his own schedule of dreary and sparsely attended small-town events as proof of his superior authenticity.

In this election, the image war is turning into a rout. As Mr Obama grows in self-assurance (not that he was lacking any to begin with), Mr McCain looks older and less sure-footed. The greater surprise, though, and the real let-down in this campaign, is that the image war is all there is. In a way, last week’s contrasts sum things up. And what a pity this is. This was supposed to be an election about substance, with candidates – each of them an outsider in his own way – capable of mutual respect, capable of challenging party loyalists and keen to engage with each other in a new kind of politics. Instead we have the old kind of politics, only more so.

The remainder of this column can be read here. Please post comments below.

I thought his speech was disappointing. He played it very safe. What he said was insubstantial even by his standards, and sometimes painfully banal. And it seemed to me to lack the flair in delivery that usually makes up the deficit. There were no memorable lines. All that stuff about tearing down (metaphorical) walls was predictable and lame. It was a mistake to evoke memories of “Tear down this wall,” an unrepeatably dramatic stroke. And who thought it was a good idea to recycle “This is the moment”? Old hat by now in the US and entirely without resonance in Germany. He seemed subdued and a little nervous, too, which would be understandable, since it is difficult to please two such different audiences–the one in Berlin, and the one back home–at the same time.

Speaking at home, a favourite device is to challenge his listeners a little (as recently, when he reminded a teachers’ union that he supports merit pay and charter schools). There was a smidgen of that in Berlin–he called on Europe to increase its support for US efforts in Afghanistan–but no more, most likely because he did not know the audience well enough to be confident about getting the balance right.

For what it’s worth, Der Spiegel was none too impressed.

The images of the cheering crowd–200,000 was a decent turn-out, I’d say–are a great plus of course. And he avoided the main mistake he might have made, so far as American voters are concerned: there was no pandering to anti-American sentiment, and almost none to anti-Bush sentiment. At one point, the reference to Iraq, the crowd was about to get behind that feeling and he stifled it. This denied him the roars of adulation which were there for the taking, but which would have dealt him a serious and possibly lethal blow back home. So it was steady, but dull.

How long, one wonders, will Germany stay in love with Obama if he is elected? My guess is not long. The real question, once America’s and Europe’s diverging interests start to be asserted, is whether his Euro-fans will feel mildly let down or outrageously betrayed. See this piece by David Aaronovitch, “Eventually, we will all hate Obama too“.

So Barack Obama, en fête around the world, will one day learn that there is no magical cure for the envy of others. What makes America the indispensable power (and even more indispensable in the era of the new China), is precisely what makes anti-Americanism inevitable.

Unfortunately, I think Aaronovitch is right.

Peter Orszag’s short letter to Congress on the cost of the proposed help for Fannie and Freddie is well worth reading in full. It is a bit misleading to say, as most reports did, that the Congressional Budget Office believes the bail-out “could cost $25 billion”–a less scary figure than many on Capitol Hill had apparently been expecting. This is a probability-weighted average of two more likely, but very different, scenarios. One (rated a better-than-50 percent bet) is that the Treasury will not need to hand over anything at all. If all goes well, merely announcing that it is ready to do whatever it takes will be enough to reassure the markets. The other possibility is that the markets are not reassured, in which case the necessary bail-out would likely be much more than $25 billion, and possibly more than $100 billion.

CBO’s estimate recognizes that there is a significant chance—probably better than 50 percent—that the proposed new authority for the Secretary would not be used before it expired at the end of December 2009. If the proposal is enacted, private markets might be sufficiently reassured to provide the GSEs with adequate capital to continue operations without any infusion of funds from the Treasury; during that time, it is possible that expectations about the duration and depth of the downturn in the housing market may brighten. Under that scenario, the temporary authority would not be used and thus would involve no budgetary cost. In CBO’s view, however, that scenario is far from the only possible result. Indeed, many analysts and traders believe that there is a significant likelihood that conditions in the housing and financial markets could deteriorate more than already reflected on the GSEs’ balance sheets, and such continuing problems would increase the probability that this new authority would have to be used. CBO’s cost estimate therefore accounts for both the possibility that federal funds would not have to be expended under the new authority and the possibility that the government would have to use that authority to provide assistance to the GSEs… CBO’s estimate of $25 billion in costs over the 2009–2010 period reflects a probability-weighted average of how large those injections might need to be, including zero as a potential outcome.

And the letter’s last paragraph makes a point worth pondering:

A strong argument can be made that if the Treasury used the proposed authority, the GSEs’ operations should be incorporated directly into the federal budget. That is, the proposal, especially to the extent it would result in any government acquisition of an equity stake in the GSEs, raises a significant budgetary question. Currently, data on the GSEs are reported along with federal budget information each year, but the activity of those entities is not encompassed within the budget. That treatment could change if the federal government’s financial stake or control changes in a significant way.

A word of congratulations to Vox, a most successful cross between a blog and an economics journal, which has recently been celebrating its first anniversary. The site is published under the auspices of the Centre for Economic Policy Research (a Eurocentric research network not unlike the NBER) and headed by Richard Baldwin, a professor at the Graduate Institute of Geneva. Vox has a starry cast of contributors from around the world, but as you would expect has a particular strength in European scholars. It accepts column-length submissions from academics: sometimes they engage with current controversies, sometimes report new research, and often do both at once. They are told to be policy-relevant and research-based, and to write “at an analytical level that is higher than a typical newspaper column but very much more accessible than a journal article”.

Sample from just the past week or two Charles Wyplosz on the argument between Larry Summers and Willem Buiter over financial crises and bail-outs. Stefan Tangermann on biofuels and food prices. Gabriel Felbermayr and Farid Toubal on using scores in the Eurovision song contest to explore the links between cultural proximity and trade. Thorvaldur Gylfason with as much as we probably need to know about the Icelandic economy. (“Iceland has never been boring,” he begins. Did somebody say otherwise?) Nick Crafts explains why Europe needs to develop some respect for creative destruction. From the shop-window of CEPR “Policy Insight” papers on the right of the home page, read Axel Leijonhufvud on “Keynes and the Crisis”.

It’s an excellent formula. There should be an American equivalent.

One cannot help but be struck by the current disconnection in US presidential politics between, on one hand, the excitement and enthusiasm that attend Barack Obama’s candidacy and, on the other, the tightness of the race according to recent polls. The first suggests a sweeping victory for the Democrat in November, the second a close election and the distinct possibility of a win for John McCain.

Most would agree that Senator Obama has so far waged a polished and efficient campaign. He stumbles occasionally. His endless iterations on troop withdrawals from Iraq, for instance, have given Senator McCain a valuable opening. But he recovers quickly from his missteps and despite them projects an air of competence and assurance that belies his lack of experience.

Mr McCain, in contrast, has all the experience one could wish but little, these days, of the composure and gravitas that it is supposed to confer. When he trips up, the error seems to stick and he looks ridiculous. Mr Obama looks presidential. Mr McCain, sad to say, does not.

The remainder of this column can be read here. Please post comments below.

And speaking of satire…

When I read Al Gore’s latest speech on global warming, my reaction was much like my initial response to that New Yorker cover (see previous post): What am I supposed to make of this?

The call to produce “100 percent of our electricity from renewable energy and truly clean carbon-free sources within 10 years” is off the charts. To blandly claim that this is both “achievable” and “affordable” is a typical Gore touch–as is the hyperbole about the end of life as we know it if we fail to do as he advises. Gore says, “The leading experts predict that we have less than 10 years to make dramatic changes in our global warming pollution lest we lose our ability to ever recover from this environmental crisis.” Well, among other things, that depends what you mean by “dramatic”; so far as am I aware, nobody else is saying, “eliminate carbon from the US electricity supply by 2018 or we are doomed.”

Gore is right, however, that meeting his target would be “transformative”. That is why the inevitable invocation of Kennedy’s moon-shot commitment is ill-conceived. Putting a man on the moon within nine years of getting the first American into space was self-evidently a staggering accomplishment. But unlike what Gore is calling for, it did not represent “a challenge to all Americans – in every walk of life: to our political leaders, entrepreneurs, innovators, engineers, and to every citizen.”

I agree with Gore about some things. I agree with his preference for a carbon tax over other carbon control regimes. And history has been on the side of technology optimists. At today’s energy prices, progress on new technologies for conservation and renewables will probably happen much faster than we think. (See this for instance.) But eliminating carbon from electricity within 10 years? Does he even mean it? “I see my role as enlarging the political space in which Senator Obama or Senator McCain can confront this issue as president next year,” he says. Translation: I advocate the impossible so that the possible becomes more probable. Fair enough, one might say. But propaganda in a good cause is still propaganda, isn’t it?

I would be happier with the idea that the New Yorker’s cover was satirical, as editor David Remnick claimed, if it was funny. Isn’t satire supposed to be funny? (Jeffrey Goldberg alerts me to the fact that an editorial writer at the New York Sun chuckled over it for several minutes. I didn’t chuckle even for a moment. It wasn’t that I was offended. I was just puzzled. What am I supposed to make of this, I wondered?)

Imagine the cartoon were not on the cover of the New Yorker. Most people, I think, would then read it not as reducing a certain idiotic view of Barack Obama and his wife to a comical absurdity, but as expressing that idiotic view with caricatural emphasis. Would it have been satirical (in the sense David Remnick means) on the cover of National Review? At best, without a caption or headline to send the image up, its meaning is unclear: it is a joke without a punchline, and just doesn’t work (except, of course, as a way to get people talking about the magazine).

Obama rightly made light of it. He called it (I’m paraphrasing) an attempt at satire that failed. That is exactly what it was.

Cummings illustration

US taxpayers are about to find out what their long-standing and (strictly speaking) non-existent guarantee of Fannie Mae and Freddie Mac will cost them. One way to think of it is this: take the US national debt of roughly $9,000bn and add $5,000bn. Not bad for an obligation still officially denied.

In the end, that astounding prospect might be the outcome. Partial or outright nationalisation of the housing lenders – colossal pseudo-private entities that own and underwrite US housing loans – would add some or all of their $5,000bn (€3,144bn, £2,513bn) in liabilities to the government’s balance sheet. While it is true that the agencies (unlike the government) own housing-related assets that roughly match those liabilities, the still-collapsing housing market makes this a lot less reassuring than one could wish.

Covering the agencies’ losses on their loans and guarantees is going to require an actual outlay, which will fall on taxpayers. You could plausibly call the rest – namely, bringing these “government-sponsored enterprises” explicitly inside the public sector – just a bookkeeping entry. But what an entry! It would surely shake financial markets, raise the government’s cost of funding and put heavy downward pressure on the dollar. Meanwhile, the turmoil impedes or paralyses the GSEs in their crucial life-support role for the housing market.

The remainder of this column can be read here. Please post comments below.

Clive Crook’s blog

This blog is no longer updated but it remains open as an archive.

I have been the FT's Washington columnist since April 2007. I moved from Britain to the US in 2005 to write for the Atlantic Monthly and the National Journal after 20 years working at the Economist, most recently as deputy editor. I write mainly about the intersection of politics and economics.

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