ZenPundit
Saturday, February 19, 2005
 
HOW GEORGE W. BUSH CAN CHANGE THE WORLD IN FOUR YEARS

Love him or hate him, the administration of George W. Bush has already made a significant mark on history. Here's how he could solidify his legacy while reshaping the world:

1. CREATE AN EAST-ASIAN COUNTERPART TO NATO:

Asia has several strategic flashpoints and balance of power problems that require resolution if the region is to grow peacefully into the Core in the coming decades. Obviously there is North Korea and the Indian-Pakistani nuclear rivalry and the perennial China-Taiwan standoff. Aside from these immediate problems, three longer range structural dilemas require consideration:

a) Integrating the regional Gap - Vietnam, Laos, Burma, North Korea, Bangladesh, Indonesia and the Central Asian states.

b) Preventing the emergence of Sino-Indian, Sino-Japanese, Japanese- United Korean and Sino-Russian military rivalry with or without an anti-American power bloc aspect. Either is bad though the latter is even worse from a strategic standpoint.

c) Preventing al Qaida's transnational Islamist insurgency from taking root and destabilizing the Muslim states of Central Asia.

This Asian NATO would include Australia, New Zealand, India, China, Russia, South Korea, The United States and Japan as the " Leviathan " members and bring in the smaller or poorer states like Singapore or Thailand in as " System Administration" contributors under the the protection of the organization. Regional security would be the focus but the organization could easily put pressure on states like Indonesia and Pakistan to reform in order to qualify for membership.

Since mutual suspicion and a history of weak regional international entities ( SEATO anyone ?) must be overcome the Bush administration could use the same strategy that Acheson and Truman used with the Schumann Plan for a European Coal-Steel Community that grew into the EU by sponsoring a modest advisory security and cooperation organization that could become the cornerstone of an Asian NATO.

2. CONCLUDE A TREATY FOR A FREE TRADE ZONE OF THE AMERICAS

Momentum for a " Super-NAFTA" have stalled in recent years but the economic logic remains for what would become the largest free trade zone in the world. The Bush administration is correct to be advancing piecemeal, in the manner of Cordell Hull, nation by nation what could not be gotten in one grand hemispheric bargain.

Such an agreement would set up two subsequent possibilities for future administrations. A dollar-based currency union that would be attractive to Latin American nations that already peg to the dollar or seek to hold the line against inflation and an inter-bloc " North Atlantic Free Trade Zone " with the EU.

3. FOUND A MIDDLE-EASTERN REGIONAL DEVELOPMENT AUTHORITY

Perhaps as a subsidiary of the IMF that would encourage economic development with an eye to promoting private markets, transparency, reduction in tariffs and environmental management ( particularly water resources and desalination) on a regional planning basis.

Formally linking this new organization to long-established international monetary institutions would enhance its credibility and independence while insulating it somewhat from the Israeli-Palestinian conflict and the Middle-Eastern political and " bazaari " business culture that is inhibiting market function and development.

4. CREATE A PERMANENT AFRICAN HUMANITARIAN INTERVENTION FORCE

Africa has the greatest problems of any region inside the Gap ranging from nasty civil wars, failed states, dictatorships, famine, disease, genocide, poverty, kleptocracy and the world's highest HIV infection rates. While a permanent intervention force could only be effective if used to address one acute problem at a time, there usualy is at least one problem of significant magnitude in Africa at any given moment that screams for international crisis intervention.

The Humanitarian Intervention Force could consist of say, three divisions of highly mobile Aircav and Paratroops and an umbrella " Peace Corps " type, System administration organization 2-3 times that size to assist coordinate and facilitate the relief efforts of international agencies and NGO's. Intervention decisions might be left in the hands of the UNSC in consultation with the OAU or NATO, perhaps with " trigger" requirements so that cases of genocide can no longer be swept under the rug.

5. MAKE THE INFORMATION REVOLUTION A GLOBAL COMMONS

This is not a call for government control of the internet, far from it, but a subsidizaton of making wireless, unimpeded and extremely inexpensive access to online communication and secure monetary transactions ubiquitous. This means a system where a person living in a Gap regime that seeks to control access via gatekeepers, censorship and coercion only needs pocket-sized piece of hardware to link up to the free world. It also means the United States determinedly thwarting UN, EU or statist regime attempts to contract international conventions to preserve and extend gatekeeping controls and taxation to the internet
 
Comments:
You know, I actually like some of these, despite my deep distrust of the present Administration.

A few quick notes though.
1. CREATE AN EAST-ASIAN COUNTERPART TO NATO:I think you stretch this to far in including Central Asia. The Sub-Continent and Central Asia are a better analytical unit than "All Asia East of Persia" that seems to be your "Asia."

Just for cultural and connexion reasons, it's not workable. However, the core idea isn't bad, if working off a modest start, as suggested.

2. CONCLUDE A TREATY FOR A FREE TRADE ZONE OF THE AMERICASI am not a fan of "mini multilaterals" nor of trading blocs, I would rather see another global trading round pushed forward, for economic efficiency reasons. That being said, it is always useful to extend free trade, the wider the better. However, a dollar based currency union is not a good idea. Very bad idea for a number of reasons I won't go into for lack of time. The dollar pegs are in themselves bad ideas.

3. FOUND A MIDDLE-EASTERN REGIONAL DEVELOPMENT AUTHORITYIntriguing. The Broader MENA initiative (which I think has gotten somewhat stupid in glomming on Central Asia and Sub Continent) seems to trend in this direction, but lacks focus. Politics more the real strategizing. However, this could have some interesting uses, if done right. However, it would be World Bank, not IMF. Not an IMF type function. Take a look at mcc.gov

5. MAKE THE INFORMATION REVOLUTION A GLOBAL COMMONSStrikes me as interesting but sadly you forget US IP regime and beating the drum on IT IP extension is more of a barrier, IMHO, than taxation issues, etc.
 
Col-

I'd actually like to hear more from you on the technical aspects dollar-based currency union being a bad idea, since some countries in L.A. like Eucuador have actually adopted the U.S. dollar
(http://news.bbc.co.uk/1/hi/world/americas/921205.stm) or peg to it. I suppose it maximizes the effects our own mistakes in monetary policy but the U.S. dollar is already the major reserve currency anyway.

For east-Asian NATO I put in India and Russia primarily because neither state can be allowed to feel that such an alliance bloc is directed primarily at them. I'm not an Indian specialist but the Russians would go bonkers if they were excluded from any grouping of the U.S. and China. At a minimum they must be invited.

Overall, this was a " big picture " type post on these items that I'm kicking out there for intelligent commentary. Specialists are required in each area for the detailed prescriptions or estimations of the potential permutations.
 
Mark,

Perhaps Collounsbury can correct me, but the problem with a dollar-based union is monetary. To prevent inflation the supply of money should grow with economic growth. If the ABC/"New Core" states grow at a faster rate than the US, the supply of money in those states should grow faster than in the US. Trying to create a monetary regime for both simultaneously (let alone throwing in Mexico, Colomia, etc) is asking for trouble -- a policy that would be very inflationary for the US would be very deflationary for New Core states.

The same problem may apply to Euroland. Euroland's economies have divirged since the unification of the currencies, implying that in some cases trying to "force" economies together monetarily can make them even more different.

(All that said, there is something to be said for weak governments giving up monetary control. Italy has done well out of the Euro because Italians recognize their government it too corrupt to handle a modern economy's monetary policy. For most of the past, most countries were on gold and/or silver for the same reason.)

-Dan tdaxp
 
Hi Dan,

Using a specie standard does not prevent political manipulation of monetary policy, it just makes such tinkering far more recognizable to the public than with floating fiat currency.

The setting of the Gold standard ( the old one was 1 oz. of gold = $ 35) is itself a purely arbitrary designation but one that was a high-visibility benchmark. If you want a somewhat dry explanation of the politics of gold standard economics in US history, I recommend _Money,Class and Power_ by Sharkey. If you can stay awake through it the story is worth knowing.

On the dollar union I'm doubtful the U.S. actually allows Ecuador to print our greenbacks so Ecuador's use doesn't really change the level of dollars in global circulation. But it probably has some effect that I'm not cognizant of so I'll await Col's explanation.
 
On Dollar UnionFirst, in re Ecuador, yes, they simply import dollars.

Second, reserve currency is not the same as dollarization. Reserve currency is purely aimed at having sufficient ForEx stocks to cover international exchange needs. Even the US has reserves in Euros, etc. This is irrel to the question.

Third, on the issue of dollarization, the core issue is one of economic cycle alignment. A currency union is a good thing if the factors of production can move (relatively) freely within the Union to rebalance demand and if the economic structure of the currency union area is fairly similar (e.g. in the US although you see strong variation regionally, one can say, relative to Rest of World that the US states have an integrated economic structure which allows efficient exchanges, etc.). Why is this important? Because at any given time one area may be having "the slows" while another heating up. Implicitely each area (region/state) requires a different monetary policy, which is only rebalanced by allowing productive factors (labor, capital, etc.) to flow between them with relative ease.

Looking to Europe one of the issues that the Euro faces in the long run is the degree to which productive factors can flow and the degree to which there will be an ability for intra-Euro economic activity to rebalance. E.g. Germany has the slows (for a variety of reasons), it needs a looser monetary policy (ceteris paribus), meanwhile Spain is showing signs of overheating (inflation, etc.). It's hard to claim that Euro Zone monetary policy is well adapted to either, or that other than liquid capital, productive factors can "easily" flow between them. In reality the two are disparate enough to require two different monetary policies, which is quite simply impossible in a currency union. Now, Europe is a mature enough system such that they probably can work out these issues, although for European labor I think they are looking at future Euro driven pain, while capital will benefit.

Now, turning to the idea of an Americas Dollar Zone, I think you can discern why this is a really bad idea. Essentially, given the US would be the driver, American economy monetary policy would be exported to the rest of the Zone regardless of the appropriateness. Given the structure and capital requirements of South and Central America are so different and that their economic cycles are hardly well coordinated, this would be the recipe for utter disaster. Growing emerging economies need a somewhat looser overall monetary policy than developed economies, due to, among many reasons, very different liquidity profiles. The velocity of money in the US, with electronic payment systems, etc. is not at all the same as say Nicaragua, depending on almost entirely physical currency.

In short, the region lacks a monetary and economic coherence to make a monetary union work. It would be an utter and complete disaster.

This completely abstracts away from the very dangerous position the dollar is in at present, with a real chance of losing reserve status through a vertiginous drop vis-a-vis Rest of World.

Now, there may be some real value in creating a regional IMF type institute to help coordinate policy and work out ForEx problems. I am somewhat sceptical on this however, as I suspect that it would end up promoting Volcker like inflation fundamentalism, which is inappropriate for an emerging economy. (That is aiming for minimal inflation rather than managed inflation, example my current country is proud of keeping inflation at around 1-2 percent. This is madness in a growing emerging economy, they're strangling growth. 5-6 percent would be more reasonable. It's a good thing the CB has learned that the old 1970s inflation was bad, but targeting inflation at levels approp for a mature economy is not good for an emerging economy.

Well, such is the views of me on Mon. Policy. I note my views are similar to what Dan just expressed, and I agree the Italians have benefited from Euroland more than anyone, but Italy is really a third world country attached to Europe. (or half a 3rd world country).
 
Hi Col-

Thanks for the explanation, I do understand your objection now.

I'm also inclined to agree with you on the aspect of controlled inflation for the developing economies. The historic LA problem is of course, uncontrolled inflation ( Mexico, Argentina etc.). Very tight and uncontrolled monetary policies in LA tend to have the same long-term socioeconomic effect - keeping the landed elite on top and would-be small entrepreneurs down. Either by denying the latter access to credit, making that credit available on unfavorable terms or wiping out their subsequent gains.

Perhaps the best route to go in LA would be subregional monetary policy reform coupled with a vigorous international development bank lending program ( microloans) strategically targeting promising areas.
 
Subregional monetary policy coordination and reform is not a bad idea, certainly mechanisms to help enforce reasonable FX-Monetary Policy might help avoid Argentina II, for example, and those economies are like enough that coordination should be reasonably possible.

On emerging markets finance, I have a lot of thoughts, and have long intended some posts on this, but it's a subject which I tend to get bogged down on (i.e. incapable of firing off a quick thought). Nevertheless, an issue with microcredits is that it remains unclear if the systems that have worked to date are scaleable. It's an artisanal industry with a relatively high cost structure.

But I need to keep sucking down market pseudo data.
 
"Nevertheless, an issue with microcredits is that it remains unclear if the systems that have worked to date are scaleable. It's an artisanal industry with a relatively high cost structure."

True, I think however the goal here would not be a quasi-western standard of living so much as getting a statistically significant number of people out of subsistence level and accumulating a marginal surplus. If that surplus provides for say, the next generation being educated or evolution to a real wage-paying business, then we've kick-started an economy toward modernization.

Petr Stolypin had fair success creating a modest property-owning, surplus accumulating, upper-class of peasantry with his reforms in Russia circa 1900. So did Deng in China in the 1970's and 1980's.

You should write up the posts I'm interested in how more recent microloan and reform ventures have fared.
 
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