Saturday, May 30, 2009

Economic Stability

A big reason why we have a Federal Reserve handle monetary policy is to smooth out the economy over time and prevent recessions and booms.

But interest rates aren't the only reason why economies fluctuate. These days, oil prices are really important--their spike last year is a big and underappreciated contributor to the current economic problems.

The reasons why oil went up that high haven't gone away. Much of the remaining oil is controlled by autocratic regimes with nationalized oil companies, who chronically underinvest in new production. The rest is barely accessible, poor quality crude, in deep sea deposits, or tar sands. Combined with price controls in important consumer areas--the Middle East, South and East Asia--this results in inelastic demand and supply.

And that means huge price fluctuations in energy. But today's economy is very dependent on energy prices--it made the crash worse, then low prices contributed to a quick rebound, and higher prices in the future might cut off a recovery.

That means, as long as the price of oil remains as volatile, America's economy will remain very unstable, and will respond to and drive the cost of oil. Especially now that monetary policy is very limited, being immune from world energy prices would really help stabilize the economy.

And that would require a very different energy source.

Wednesday, May 27, 2009

Memorial Day

Look, I respect fallen American soldiers--just as I respect those killed in action from other countries (every country?).

But, as a sometimes libertarian, it disturbs me a little how Memorial Day has expanded from an activity simply remembering fallen soldiers into one which equates their sacrifice with American freedom. This is the old "liberty comes from the blood of patriots" line. Something like this did happen in the Revolutionary and Civil Wars, and the American military did a lot to preserve the liberty of other countries in World War II.

But these actions, strictly speaking, only established the independence and unification of America. Plenty of countries are independent and whole--acts often achieved from the blood of patriots--but not free. Liberty in America came from something else: The desire of the property-holding class to limit the powers of government, and then from the continual actions of civil society to hold government accountable.

You have a similar situation in other countries. You could say that Britain "fought" to establish its parliamentary system, but really, liberty came when groups within society asserted their rights against Leviathan. Or look at the democratic transitions in East Asia, which generally happened without much bloodshed in response to political activism from the middle class. In India, democracy is boosted by an engaged and energetic professional elite, and sustained by enthusiastic participation by all sections of society. Soldiers weren't even necessary to liberate the country, while in neighboring Bangladesh and Pakistan, the Army constitutes the biggest threat to democracy.

Liberty doesn't, fundamentally, come from soldiers--who fight for a state which may or may not promote freedom. It comes from within, from the selfless actions of activists, journalists, and protestors, as well as from the selfish acts of the bourgeois class.

The Costs of Empathy

The buzz about Obama's nominee for the Supreme Court is that her diverse life background will add an important perspective to the deliberations of the nation's highest judicial body.  This may or may not be true, but it is also partially irrelevant--this is a choice driven to gain the votes of a particular demographic.  

But why do people keep assuming that high-profile minority appointments will translate into political gains?  The experience of the Bush Administration--which had posts given to the likes of Alberto Gonzalez and Colin Powell--comes to mind.  It's not as if Clarence Thomas, Antonin Scalia, or Ruth Ginsburg brought in their respective demographics into either party.  Voters simply don't make their decisions based on these types of issues--often, they are not even aware.  

But the cost of going with the best jurist who is a female Hispanic, rather than the most talented legal theorist, will be felt in the coming years.  Had Obama went with an intellectual hotshot, one who could rival Roberts and Scalia by establishing a liberal counterweight, and who could woo the centrists through competent jurisprudence, he could drastically change the temperature of the Supreme Court, even as the executive and legislature have gone through major political shifts.  This is the stuff of realignment.  

This appointment is symptomatic of the broader problem of short-term politics.  Politicians often seek to dominate the short-term news cycle, and gain the approval of the heads of interest groups.  But that's not what voters care about.  Throw away the weekly opinion polls, narrowly targeted policies, and stop talking to union bosses and teachers unions.  Focus entirely on offering good governance.  If employment is high, and inflation low--Obama will win a second term, no matter who his nominees are.