Mark C. Partridge

For those of you who are interested in the U.S. Presidential elections will know that the first debate was held last week. I have the distinct honor to blog about the event live for The DC’s Open Borders blog as Senators McCain and Obama crossed verbal swords. You can review the material there.

And today, I can announce a special treat: I will be repeating the feat for tonight’s Vice-Presidential Debate between Senator Joe Biden and Alaska Governor Sarah Palin. So tune in and sign on to Open Borders for every verbal thrust and witty riposte.

With the collapse of the financial system on everybodies’ mind and a palable sense of fear, there is a lot of talk about the Bush Administration pushing the Congress and voters into a major intervention on limited and sketchy information. Sound familiar? People are concerned that this is just like the Iraq war. I discuss this idea in my most recent article for The Diplomatic Courier.

But a few important differences stand out. First, U.S. voters are overwhelmingly against the bailout plan. Congress people are receiving nearly 100 phone calls and letters opposing the plan for every one that is positive. In contrast, when the invasion began in 2003, 72 percent of Americans supported the war, according to the Pew Research Center. To say that the country is being tricked into supporting this action—as many claim was the case with the Iraq invasion—is quite obviously not the case.

 

Second, unlike Iraq, which was more of an existential threat, the losses in the markets are measurable and very real. Trillions of dollars are being lost; unemployment rising to levels not seen in decades; inflation is cropping up around the globe: officials are desperate to right the ship. The threat of Saddam Hussein was never this real.

For more, just come on over.

Its been a while, but I have still been writing like a demon. It’s all over at The Diplomatic Courier.

The first piece is on the economic meltdown, with the failure of Wall St.’s major firms and how Washington is taking assertive steps to intervene:

The U.S. government has alternately saved companies deemed too large to fail, let others fall on their swords, before moving back to saving institutions. With markets continuing to fall, the Bush Administration has evidently seen the limitations of addressing the problems of individual firms.

Changing tack, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke—himself an expert in the 1920s and ‘30s—have sought to address the underlying issue by using at least $700 billion in public funds to buy up the troubled assets from private companies.

With the increasing government action in Washington, many are writing Miltonian economics obituaries. One Republican senator lamented: “The free market for all intents and purposes is dead in America.”

There is certainly a shift towards a more hands-on approach to managing markets; but there are also limits to how far U.S. officials are willing to go. For example, Bush Administration officials were quick to quell calls for limits on executive pay. Also, these more intrusive measures have limited life spans. The most recent plans to buy up securities will run for two years. Similarly, the loans that have been issued to AIG and co. have a two-year span. These plans are meant as a short-term elixir, rather than a long-term regulatory structure.

Check it out to see if the free-market system is truely dead.

Politicizing the Olympics has become a familiar refrain. But could these Games ever be removed from the political arena? In this article of the Diplomatic Courier, I argue no. What is interesting though is that the XXIX Olympiad is being used for completely unrelated political ends.

With all eyes focused on Beijing, politicians, diplomats, and certainly journalists have less time for other goings-on. Is it coincidence that John Edwards gave a most solemn confessional to ABC News on the very day the drummers and athletes were assembled in the Bird’s Nest stadium for the Beijing’s opening ceremonies? It seems unlikely.

And, what about the outbreak of violence in Georgia’s breakaway province of South Ossetia? The proxy dispute between Moscow and Tbilisi over these lands has been rumbling for years, and though it has escalated in recent months –particularly with Georgian President Mikheil Saakashvili’s push for NATO membership — there was no major catalyst. As Anne Applebaum writes in Slate, “Previous tensions — both in South Ossetia and Abkhazia, the other piece of Georgia that has declared sovereignty — had somehow been resolved without an actual war. Someone, clearly, wanted this one to go further.” The what and the who are still unclear; yet the timing is suspiciously close to the Olympics.

So are the Olympics inherently political due to their size, scope and unique place within the human psyche? And further, is it really a bad thing that the Games may have an imbued political element? As always, read the article here and let me know what you think.

Trade negotiations in Geneva have revealed an interesting change that has taken place in the minds of policy makers in the West:

[T]here has been a recognition on the part of the developed nations that developing economies have the right to some form of protection. The most recent plan, which has been given the green light by India, China, Japan, Australia, Brazil, the U.S. and the EU, allows for developing nations to protect some industrial sectors from broad cuts in import tariffs.

The ministers have begun moving towards the idea of lowering subsidy thresholds, but not to the point where they would dramatically affect current regimes. For example, a proposal implies that Chile would shave industrial duties to around 12%, though its rate currently stands at only 6%.

In some ways, these developments represent the good winning over the perfect. Since no one country can accept the total demands of the opposite side, the modus operandi is to slide, rather than leap, towards removing trade barriers. Some free-trade supporters are ruefully and cautiously backing these developments. The Economist for one noted, “These are not vast gains… But they are gains nonetheless.”

More interesting has been the change in mindset for Western policy markers domestic plans though. In the UK, there was Northern Rock; in the US, there is Fannie Mae, Freddie Mac, and Bear Sterns. Are those in power trading in their Milton Friedman for their Keynes? Check out the full article here and you decide.

Are oil companies resigned to fewer and fewer opportunities and higher costs? I certainly looks that way if one looks at Exxon’s proposed production levels.

That is not to say that these oil companies are hard up. Their revenues are astronomical. Exxon has enjoyed record profits as energy prices have risen (though, sometimes even these returns are not enough for investors it seems.) But why? All evidence points that since they cannot get access to as much oil, their profits should take a hit. But oil companies are now working within the paradigm that has been present to (and created by) them, a framework where they cannot get into other countries to extract petroleum, but have a commitment to their shareholders.

The idiosyncrasies of the oil market means that oil producers—both companies and countries—can actually enjoy greater revenue by decreasing production. As has been reported, Exxon is not planning on increasing its oil production in the near future, yet its share price continues to rise. As the article quite rightly points out, “What if Steve Jobs said Apple wasn’t going to sell any more iPhones than it did in 2007? What if Howard Schultz said Starbucks’ latte production would stagnate, at least until the next U.S. president embarked on his reelection campaign? Shares of both companies would plummet.”

However, it is important to remember that cellular phones and lattes are not like oil: People can (if forced to) forego their morning coffee; they can use a Blackberry instead of an iPhone. The inelasticity of oil—due to the lack of viable substitutes—means that as supply tightens, prices jump.

Are exporting countries using the same arithmatic in their own production decisions? Read the full article to see the evidence.

Though the pernicious effects of high oil prices are well documented – including inflation, conflict and corruption, to name just three – are there any benefits that might come from the high energy prices? This is the crux of the second piece in my oil series for the Diplomatic Courier.

But as is all too evident, people only change their behaviors when they are forced to—and usually by costs. While oil could be bought for $18 a barrel, what was wrong with driving a Hummer or an Escalade? Understanding this axiom of the human psyche, some like New York Times columnist Tom Friedman advocated a “patriot tax” on oil that would increase prices and force Americans to change their ways; the proposal was obviously a political non-starter.

Now, that equation has changed. The price of a barrel of crude oil stands at $138.54; it climbed by $10 on Friday alone! Gasoline prices now average over $4 a gallon in the U.S., according to AAA—an increase of 28% from a year ago.

Suddenly that new gas guzzler doesn’t look so appealing. Across the U.S., sport-utility vehicles sales are down to the tune of 42% while pick-up trucks sales fell by 36%. If trends continue, automakers could end the year selling one million fewer SUV and trucks than they did in 2007. General Motors recently closed four factories dedicated to these larger vehicles and the company is even contemplating discontinuing its Hummer series.

Along with the shift to more enviromentally friendly and sustainable living, could it be that high energy prices have actually increased the security of the Middle East and the U.S.? Read the full article here, and decide for yourself. And as always, please let me know what you think.

I offer you two new blog postings from the Diplomatic Courier’s Open Border. The first is an update on Tom Friedman’s First Rule of Petropolitics. I adjust the original “law” to the exigencies of today’s world and add two more rules of my own. Read it here.

The second post is a commentary on U.S. President George W. Bush’s recent visit to the Middle East. Again, it focuses on the role that oil, in particular how it is affecting U.S. diplomacy in the region. It can be found here.

So read and enjoy! Send some feedback my way; I would love to hear what people think of my missives.

In a follow-up to my last blog entry over at the Diplomatic Courier, I thought that this story in the Economist contained some revealing insights. Firstly, it reiterates how the EU position is hardening against China on this issue, but gives additional reasons beyond the dollar’s slide:

Once hopeful that the EU might act as a counterbalance to American power, China’s expectations have receded as more pro-American leaders have taken over in Germany and France. The EU may be China’s biggest trading partner, but it ranks far lower in China’s political calculations. A report from Chatham House, a British think-tank, says China believes Europe lacks strategic vision and suffers from internal discord, impeding its credibility.”

Even with a more assertive, pro-American leaders in Europe, it will be interesting to see whether the Chinese accelerate steps to mitigate their respective trade surpluses. As the article notes, the EU is often a house divided, which rivals can use to their advantage in negotiations. Most recently, Russia has been able divide the bloc through individual energy contracts with the likes of Germany and the Netherlands, gaining it a stronger foothold in the European market. It looks as though China is following a similar course; Beijing rewarded French President Nicolas Sarkozy with billions in contracts, while reprimanding Germany’s Angela Merkel for the uncouthness of meeting the Dalai Lama whom China sees as a rebel separatist.

China’s burgeoning domestic market is a prize for corporations in the international economy. European firms currently feel shut out, which is one of the major reasons for these negotiations. Beijing has shown a penchant for extracting concessions from corporations in the past to ensure “tranquility” at home; is it now looking to do the same with foreign governments? So far, the West has continued to push for greater respect of human rights the Middle Kingdom (e.g.: the pressure being heaped on Beijing over the 2008 Olympics), but will this change as the global economy stumbles? So, will the tactic work? How dangerous is the tack with European leaders talking (though it must be said, in somewhat reluctant tones) about the possibility tariffs against Chinese goods? Let me know what you think.

Well, well. It seems that I am prescient. With my new blogging responsibilities for the Diplomatic Courier’s blog, The Open Border, I have been … absentminded about my own internet space. So to right this grievous wrong I have posted links and excerpts to all of my postings.

North Korea: Diplomacy Holding Steady - Originally posted Nov. 7 

“Even with some turbulence (read: Syrian nuclear sites) along the way, the U.S. does not look to be changing tack towards a more hard-line negotiating position. The back story here is the changing face of the Bush Administration. Out are the likes of Donald Rumsfeld, Bolton, Paul Wolfowitz, et al. These changes have allowed Secretary of State Condoleezza Rice and those at the State Department to assert themselves more in policy decisions, after being famously sidelined by bureaucratic tag team of Vice President Dick Cheney and Rumsfeld. Do not get fooled into thinking officials over at Foggy Bottom are weaklings though.”      

Iran: Lack of Negotiations - Originally posted Nov. 14

“This is a common criticism of the United States, and particularly the Bush Administration, in European circles. In their opinion, the U.S. looks at full diplomatic relations (e.g. embassies) as a reward—or “carrot” if you prefer—for good behaviour on the part of states, rather than the fundamental instruments through which countries communicate with one another. The thinking goes, therefore, that the U.S. does not have the tools to interact with nations that are integral players on the world stage, thereby exacerbating conflicts and tensions.”      

China and the EU: Ties that Bind - Originally posted Nov. 27

“With all eyes focused on the Bush Administration’s efforts to bring peace to the Middle East, it would be easy to miss the other major negotiations happening elsewhere—in the Middle Kingdom.”      

To read the full postings check out the links. Also, I have commented on China-US relations on this site, which is worth a re-read for all those who are willing. Additionally, keep you eyes open for my new cover article on the debate in the US and European Union about China’s undervalued currency, the renminbi, in this winter’s edition of the Diplomatic Courier . Enjoy.