Kasinomics

I decided to move my blog posts on Economic Issues to my new blog called Kasinomics.

In a couple of days I have to give a small presentation on the impact of US Economic Interest on US Foreign Policy. It is a rather broad question, isn’t it? How to answer it in 10 minutes? Maybe showing this video?

The seminar and the lectures in US Foreign Policy did not really give me an academic framework for this specific policy analysis. In general though, Dr. Halper’s perspective as a Washington-insider was interesting, especially when we discussed Sino-American-Relations. And Dr. Thompson is a great historian with enthusiasm for Wilson – the seminar on Wilsonianism was one of the best debates in Cambridge.

But somehow I struggle to put the complicated and complex American policy making into simple concepts, such as Wilsonianism, Liberalism, Realism, Isolationism, Internationalism and relate them to the Economic Interests. When I read Frank Ninkovich’s Wilsonian Century, I wondered whether it is really possible to put the different objectives of American Foreign Policy into these terms.

Take for instance the claim that the United States foreign policy before the 1900 was isolationist, afterwards realist or internationalist. The United States has intervened in other countries since its foundation in the 18th century.

In almost all these conflicts policy-makers had to think about the economic and security consequences as well as about opinion at home. They had to motivate the citizens to go to war by appealing to higher ideals, but often enough financial and trade related motives came into play as well.

Was the foreign policy mostly dominated by economic concerns? In support of this theory, one could say that despite its rhetoric appealing to higher ideals, the US has supported dictatorships and authoritarian regimes around the world if it suited its economic or security interests.

The Comic Book Addicted to War uses an entertaining way to make the claim that the United States have employed military threats to receive economic concessions from other countries or and that they have intervened in countries when revolutions threatened to endanger American business interests.

The comic book features some interesting quotes by American Policy Makers and Army Representatives:

When any territory outside the present territorial limits of the United States becomes necessary for our defense or essential for our commercial development, we ought to lose no time in acquiring it.

Senator Platt

I spent thirty-three years and four months in active service in the country’s most agile military force, the Marines. I served in all ranks from second Lieutenant to Major General. And during that period I spent most of my time being a high-class muscle man for Big Business, for Wall Street and the bankers. In short, I was a racketeer, a gangster for capitalism.

[...]

Thus I helped make Mexico, and especially Tampico, safe for American oil interests in 1914. I helped make Haiti and Cuba a decent place for the National City Bank boys to collect revenue in. I helped in the raping of half-a-dozen Central American republics for the benefit of Wall Street. The record of racketeering is long. I helped purify Nicaragua for the international banking house of Brown Brothers and Co. in 1909-1912. I brought light to the Dominican Republic for the sugar interests in 1916. I helped make Honduras “right” for American fruit companies in 1903. In China in 1927 I helped see to it that Standard Oil went its way unmolested.

Major General Smedley Darlington Butler

These quotes suggest that foreign policy is dominated by business interests. But not all foreign policy decisions are dominated by economic considerations. During the Cold War, American Foreign Policy was dominated by containment objectives towards the Soviet Union than business prospects.

One could argue of course that the military itself has been a striving business in the US whose interest it was to maintain a permanent state of confrontation to justify its expenditure. The United States spend more on the military than the rest of the world combined.

But if you compare the military spending of the United States to the American Economy, it is still rather small (only about 3.7 percent). While it is true that the military has an important standing in determining US Foreign Policy, I really wonder how much power the military industry in Washington has?

How about the importance of Economic Foreign Policy in the general Foreign Policy in the US. Jerel Rosati in his book “The Politics of United States Foreign Policy” has argued that many presidents were more concerned with diplomacy and security than with the economic foreign policy which was handled by a variety of agencies and departments in the American administration.

Do Economic Interests play a role in Elections? Election campaigns in the US are expensive and maybe politicians have a strong incentive to tailor politics to the needs of the corporate sponsors?

Yet election campaigns can also be financed through other means. The previous Obama campaigns were almost totally financed by individidual contributions.

Politicians in the US have to address the median voter because of a winner-takes-it-all system that permeates most primary elections and as well the presidential elections. This voting system allows some minorities to dominate regional elections which might be crucial to win the overall-elections. Also the majority voting also makes the congress less representative in terms of minority opinions. But it also limits the powers of single interest to be influential in elections.

Business interests do play a role in Washington – through providing expertise, lobbying, networking in the day-to-day policy process. However, it is unclear whether these business interests have always stronger role than other interests from NGOs or Activists Groups.

In Germany, individual politicians need the support of a political party. The major political parties need the support from business organisations and labor unions as well, so they are much more resceptible to economic arguments than in other countries. In the USA, Presidents in office can not count on the loyalty of their party, they need to win individual votes in Congress when conducting foreign policy. This process of finding a compromise opens the possiblity to have regional interests connected to larger policy initiatives, but it is not certain that this would allow business interests to dominate the foreign policy agenda.

All of this points to the finding that economic interests do play a role but maybe not a prominent one. Can we then say that US foreign policy are much more dominated by higher ideals like the struggle for democracy? I don’t think so. Historians and Policy Analysts should not confuse that the public statements of politicians and the actual policy can be quite different from each other. I think no one seriously doubts that often enough the US Foreign Policy has been in contradiction to democratic values and liberal objectives.

The key to understand the Economic Interest in US Foreign Policy is the character of the issue at hands. When the problem is a Zero-Sum-Problem where gains of the US means losses to other states (like the access to oil reserves), then economic interests and security interests align and interventions on behalf of these interests are clouded by referring to higher values.

When the US faces a problem where coordination between countries yields a higher output (a typical coordination-game in Game Theory Lingo), then the US Foreign Policy deviates from a strict security-based or economic-based foreign policy. The two World Wars can be cited as examples for that. In these instances, personal values of leaders have an impact on shaping the foreign policy of the United States.

Today, I had to give a presentation about the Basel System. Due to recent events, I discussed the origins of the subprime crisis and how is it related to a certain deficiency in Basel II. I explained how the cooperation of Central Banks to regulate Banking Supervision was a result of banking failures in the 70ies and 80ies which speculated heavily in the currency markets.

I showed how Basel I introduced risk-weighted minimal capital requirements to have a global standard for assessing the risks banks were taking in the increasingly global financial markets. Prof. Kuczynski explained how Basel I indirectly brought about the Asian crisis because Interbank-Lending was given zero risk weight despite considerable real risks taken by some of the Asian commercial banks. I also brought forward the argument (raised here) that Basel II made banks rely too much on rated securities which made them fall into the subprime trap.

The handout from my presentation can be downloaded here.

Prof. Angus Maddison is a retired scholar of Economics at the University of Groningen in the Netherlands, but he is far from passive. He recently published a book called “Contours of World Economy 1-2030 AD“.

Economic theory can be sometimes a little bit abstract. If you want to know what really happened in Economic history, read Prof. Maddisons book!

He is one of the few scholars who write as clear as a sharp knife. He makes his points in the most precise matter. does not distract his readers by referencing to theoretical camps in Economics or Political Science.

The book is split in three parts: the first one deals with various regions of the world (Europe, Asia, Africa), their economic development since 1 AD, and their economic relations. If you want to have a precise summary of world history and major trends, then each chapter can be useful starting point.

He also presents a multitude of data on income, population growth, and GDP. For me personally the period between the end of the West-Roman-Empire in middle of the first millenium and renaissance in the middle of the 15th century was most interesting to read. Maddison covers the political events taking place in the Middle-East and in Africa during that time.

The second part of his book discusses the history of Macro-Measurement. It is quite interesting to see how the development of macro-economic measurement coincided with the emergence of nation-states and large-scale civil administration.

The third part features an outlook of the World Economy in 2030. He predicts that by 2018, China will become the world’s biggest economy, India will be third. Maddison covers in detail is the impact on Climate Change on Economic Growth.

For a glimpse into the future of our planet, the book is a fascinating reading.

Full article on the (potential) relationship between arrest numbers for illegal immigration into the US, the subprime-bubble and the US economy, here.

Via Airport, Spiekerblog, Codecandies.

Heard about Jon Ronson, ordered his book called “Them” where gets to meet Al-Qaeda-Klu-Klux-Klan-Bilderberg-people, read it in 24 hours and wholeheartedly recommend it to anyone!

At the G8 Press Conference, a young man stood up and started spreading leaflets. Putin replied to him in German. The first interesting thing is that this incident never made it to German media. The second interesting thing is that the whole incident became popular across the internet because of the bulging-eyes-man sitting behind the young man. Find photoshopped images as well as the movie of the press conference here.

The Subprime crisis is in the German Media after the German government together with the large German banks and a federation of smaller private banks have saved the German Bank IKB.

Why are the markets so nervous? Why does every little hint of vulnerability of a Financial Actor cause stock markets to plunge down into unkown depths? What is the real deal behind the Subprime crisis? Read on, my friend »

Es geht gleich gut los im Senatsaal der Berliner Humboldt Uni, in der die Debatte zur Wirtschaftsethik stattfindet. Der begrüßende Student behauptet, dass allein die Anwesenheit der Zuschauern beweist, dass es so etwas wie Wirtschaftssethik gibt. Hat Erich von Däniken jemals behauptet, dass allein die Anwesenheit von Zuschauern bei einer Ufo-Diskussion die Existenz von Ufos belegt? Nein?

Der Wert der Werte – Mit Ethik zum Unternehmenserfolg? Die Podiumsdiskussion organisiert vom Humboldt Forum Wirtschaft und den beiden Quandt-Stiftungen (BMW und Altana) hatte eigentlich das Ziel, die Debatte zur Wirtschaftsethik zu vertiefen. Man hätte annehmen können, dass die meisten Anwesenden sich mit der Problematik auskennen.

Aber nachdem die Moderatorin (Ursula Lucas-Bachert von der Agentur für Werte-Kommunikation) die Biographien der Podiumsteilnehmer mit dem Charme einer Kindergärtnerin vorstellt (“Ich les jetzt mal vor, was mir gerade aus dem Internet ausgedruckt wurde.”), legt der erste Referent Dr. Dr. Thomas Rusche mit ein paar Allgemeinplätzen los. Read on, my friend »

At the G8 Camp, I ate vegan food for a few days. I noticed that body smell changes rapidly. Vegan food does something to bodies. Don’t underestimate the power of body smell for forming political coalitions. I wonder if G8 protesters and G8 politicians could talk to each other given their different food consumption, digestion and body smell.

Back to G8 cuisine: The kitchens at the G8 Camps are a very interesting institution. You can go there, eat as much as you want and pay as little as you wish. How does that work? Well, the food and the dish-washing is done by volunteers, there is no working schedule, just voluntary commitment. When people are needed for a certain task, someone will shout across the camp and people will flock to the kitchen. Not everybody joins in, but most do. This gets the work done quite efficiently, as I could observe.

Afterwards I wondered much about the finances of the G8 camp. For a camp of a couple thousand people you need water, sanitary equipment, tents, kitchens, food. Surely a lot of this infrastructure is donated or paid by NGOs, but not all of it. Who pays for the G8 camp?

At each meal, there are a few volunteers going around with a small bag and asking for voluntary contributions. A fair contribution was indicated as 3.50 Euros, given that the food was organic food. But as I overheard from talking to some of the campers, this was still seen as too much. Read on, my friend »

Two examples of Anti-G8-Marketing in Berlin:

The picture on the left has the following text:

We have the media, prisons, armies. We demand the transfer of ressources and workers without any conditions. We will trash and ash you – The G8 Terror Network”.

Below it says:

No War but Classwar for social revolution

Quite some bellistic phrasing. Parts of the Anti-G8-movement are now more and more using a war rhetoric, it seems.

The picture on the right shows an invitation to the Anti-Fascists of Berlin. It says:

Organize yourself in the autonomous Anti-Fa

.

How to solve the contradiction in terms between “autonomous” and “organization”?

Im Handelsbatt Nr. 115 vom 19.06.07 Seite 21, 19.06.2007, war neulich ein interessanter Artikel zu lesen: Kleinanleger halten den Yen billig – Japans chronisch niedrige Leitzinsen laden die Investoren zu einträglichen Geschäften ein.

Es ging um folgenden Mechanismus: die Japanischen Kleinanleger investieren vor allem im Ausland. Weil sie dazu Yen verkaufen und Dollar bzw. Euro ankaufen müssen, ist der Yen im Augenblick auf einen niedrigen Stand. Der wiederum hilft den Japanischen Exporteuren.

So funktioniert das also: man muß versuchen, die breite Masse dazu gewinnen, ihr Geld nicht zu sparen oder zu konsumieren, sondern in Kapitalanlagen zu investieren und zwar am besten im Ausland. Wenn sie das Geld im Inland anlegen, ist das auch nicht schlimm, denn das treibt die inländischen Aktienkurse in die Höhe. Wenn sie im Ausland anlegen, der Währungskurs in der Folge in den Keller geht und dadurch die Exporte steigen, dann ist allen gedient.

Und wo legt man am besten an? Am besten dort, wo hin exportiert wird – in der EU oder in den USA. Gerade in den USA lohnt es sich – hohe Renditechancen lassen leicht vergessen, dass die Amerikaner seit Jahren immer mehr importieren und dies nur durch die Ausländischen Investitionen finanzieren können.

Schnell dreht sich so der Kreisel – solange alle vergessen, dass dies lediglich eine andere Form des Pyramidenspiels ist und solange immer neuere Anleger in den Kapitalmarkt gebracht werden (zum Beispiel wenn Renten- und Pflegeversicherungen nicht nur über direkte Umverteilungen, sondern auch über den Kapitalmarkt finanziert werden sollen), macht das Spiel jeder mit – bis zur nächsten großen Weltwirtschaftskrise.

Johan Galtung hat mal gesagt, dass er glaubt, dass es die USA bis zum Jahr 2020 nicht mehr geben wird. Als George W. Bush an die Macht kam, hat er seine Prognose um zwei Jahre reduziert. Vielleicht ist Johan Galtung zu optimistisch? Wie lange kann sich der Kreisel noch drehen?

Many journalists don’t seem to have a clue when reporting about the EU-Summit and the dispute about voting weights in the new EU-Constitution/EU-Treaty. They are a little bit like the statue of the nightwalker in front of the Commission – stepping blindly of their post.

Firstly, Poland has no veto power. According to Article 48 of the European Treaty, the Summit of the EU-Head of States, can with a two-third majority of their current weight invite a new government conference to negotiate a new treaty. Sure, in reality, they will aim for consensus, but if Poland or any other country does not agree, the door for a new treaty is open.

Secondly, voting weight does not equal voting power. If there are three countries with two having a voting weight of 49 votes and one having two votes, and the quorum (or the minimum amount of votes needed to have a decision) is 51 votes, then all three have an equal voting power. You can verify this easily by looking at all possible combinations of votes (8=2^3) and then see in which cases one of the players can change an outcome by changing his votes.

Thirdly, it is the quorum, not the voting power that is more important to determine whether small or large countries are strengthened. The higher the quorum, the more power goes to small players because they can be the little feather that tilts the scales. But this is not always the case for all players – in fact both the quorum and the voting weights are necessary to determine the voting power.

Fourthly, the Quadratwurzelverfahren (square root method) is really the most transparent and best ways to assign voting weights. It is based on the assumption that each voter should have an equal chance in determining European decisions. So not just each member-state, but each person in Germany, Latvia, Spain or Malta. It is a transparent and easy way of determining voting weights. So Poland is at least justified to demand this method.

Fifthly, voting mechanisms are not equal to decision-making mechanism. In any kind of negotiation, informal mechanism and cooperation have a much bigger influence than voting weights. Even if Poland receives more votes due to their heavy insistence, they might receive less informal power to influence EU-politics – something that the Austrians and their FPÖ-coalition had experienced a long time ago. In the Council of Ministers, quite a lot of decisions are made consensually, but in the preparation to the Final Drafts, the complex work with the Commission and the Council, voting weights count not as much as good arguments and good networks.

In Berlin-Kreuzberg, people are protesting against a McDonald’s. Freedom from Fast Food.

Some politicians are in favor and are distributing free burgers. Freedom for entrepreneurship.

In Cologne an Islamic mosque is being built. The proponents argue: Freedom for religious expression.

The oppents argue: Freedom from religious fanatism.

In the name of freedom, anything can be justified.

The fact that the Greenpeace boat could enter the “No-Go”-area at will, that demonstrants could get as close to the fence as they wish, that even parts of the fence were demolished, that among the stone throwers were apparently policemen trying to get the demonstrators to commit violent acts – all this supports the idea that the expensive security systems around the G8 summit are inefficient and apparently needless.

Russia’s response to the American defense shield is a heavily debated topic in both media and the scientific community. What I didn’t know until recently is that the American defense shield is in practical terms very useless.

It is virtually impossible to create a shield that could keep off hostile missiles loaded with nuclear heads. If the attacking rocket splits up to form several missile heads, or by cooling down the rocket, or by creating distractions through devices resembling parachutes, it is already very easy to avoid being hit by counter-missiles. Is the missile defense system simply a huge job program for the American defense industry?

The Russian response in my opinion can be seen under the same terms. I don’t know why the Russians think that the defense shield is in any way a threat to them, with nuclear heads in abundance on both sides of the ocean, a hot war between Russia and the USA surely won’t be using the small rockets being placed in Poland and other Eastern European countries. But it gives the stimulus to channel gas money into the national defense industry.

Further articles on the topic: American Patriot, Former Spook, Sweetness & Light, Salvation Revelation, Putinwatcher.

Another interesting article (unfortunately not available for free) is the following one: Anthony Seaboyer, Oliver Thränert: What Missile Proliferation Means for Europe in: Survival, 48 (Sommer 2006) 2, S. 85-96

Bruno S. Frey is amazing – he probably published something on every single aspect of economics. Even a book on arts and economics.

On Monday I visited the Alte Nationalgalerie in Berlin. In the Impressionist section an explanation said that the artists turned to a less detailed style when photography became available as a means of making detailed portraits. In other words: when cameras could reproduce reality more accurately than painters, painters resolved to the “inaccurate” style of impressionism. Would that have happened also if photography had not been invented? Is the development of arts really only a matter of beauty and taste?

The recent high-prized auctions of Modern Art show that Economics play a much larger role than often anticipitated by the public. Currently a lot of people want to buy art as investment. It seems that not many classic paintings are available for this kind of investment – so suddenly modern art becomes attractive as a holder of immense value. Have all these investors suddenly developed a taste for Modern Art? Probably not.

Eigentlich müsste man die Fakultäten der Uni Bayreuth neu gliedern, vielleicht anstelle der sechs (oder sind es sieben?) Fakultäten auf drei Fakultäten reduzieren? Eine School for Social Sciences, eine School for Natural Sciences und eine School for Engineering and Computer Science. Das würde auch der zunehmenden Interdisziplinaritäten gerechter. Aber da werden die Professoren nicht mitmachen, oft wird ja das Dekanat noch vor dem Ruhestand als kleines Bonbon verschenkt. Besser wäre es, festangestellte Dekane einzusetzen, die sich nur um den Verwaltungskram kümmern müssen. Die Professoren sollen sich lieber um die Lehre kümmern.