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World News Once a Week |
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| Published Thursday, August 14, 2008 |
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| Reuters/Dylan Martinez: Performers dance at the 2008 Olympic Games in Beijing. |
Issue 112
If you detected a faint rumbling beneath your feet this week, perhaps it was the sound of a tectonic shift in global power.
While China looked to a dynamic future with the Olympics' wondrous opening ceremonies, Russia's violent incursion into Georgia turned back the clock to the days of stone-faced Soviet bureaucrats and iron-curtain containment strategies. One driving
force behind both nation's shifting fortunes: global economics. In a comprehensive interview with Harvard economist John Campbell, we explore China's rising influence, as well as the wisdom of carbon taxation, how
to avoid getting scammed on a mortgage, and the challenges awaiting the next US president.
With the Olympics (and Georgia) on everyone's mind, it was easy to overlook other stories — as John Edwards knew when he disclosed
a two-year-old affair. His wasn't the only politically embarrassing story of the week: ex-Hillary Clinton staffers aired her campaign's dirty laundry, while Detroit mayor Kwame Kilpatrick's spiral into infamy continued apace. And in Thailand, a former prime minister accused of corruption fled the country. At this point, honest public servants are practically an endangered species.
- Benjamin Hart |
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| The Activate Q&A |
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Economics: a refresher course
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The US is in the midst of some serious economic turbulence — just try to sell a house or fill up a car, and you'll glimpse
it firsthand. But for those of us without a background in finance, it's not always easy to discern how such disparate factors
as the subprime mortgage fiasco, peak-oil pricing, and the surge of developing economies figure into local troubles — and
what our government can do to better the situation.
For a professional opinion, we turned to economist John Campbell. The Morton L. and Carole S. Olshan Professor of Economics
at Harvard, Campbell has consulted to the Federal Reserve Board and has published over 60 articles in finance and economics
journals. He's a former president of the American Finance Association, a co-author of the leading advanced textbook in empirical
finance, and an expert in international markets — an ideal person to speak with about the current imbroglio.
AT: How serious is the current US economic crisis? Do you view this as a standard economic downturn or the beginning of a more
serious situation? And given the uncertainty, what should the government be doing right now?
JC: Since World War II, the typical US recession has been caused by the Fed tightening monetary policy in response to rising inflation.
The current situation is very different. The economy is weak for several nonstandard reasons. First, the housing downturn
and the heavy burden of debt have tightened US consumers' budgets, leading to weakness in consumer spending. Second, the housing
downturn has depleted the capital of the US banking system, so credit has become less available, and more expensive, both
for businesses and consumers. Third, the relative prices of energy and food have changed dramatically. This requires a reallocation
of resources towards agriculture, energy
production and conservation, and related technologies; such a reallocation across sectors often reduces output in the
short term.
Federal Reserve Chairman Ben Bernanke is well aware of the importance of stabilizing the US financial system. As an academic,
he studied the Great Depression intensively and argued that the weakness of US banks contributed to the severity of the depression
in the early 1930s. He also argued that Japanese policy toward financial institutions was too passive in the 1990s. I believe
the measures he has taken will prevent disruptive failures at the core of our financial system, although there are likely
to be multiple failures of smaller institutions, including regional banks with mortgage exposures.
The danger is that while curing the patient's acute symptoms, the doctor may exacerbate chronic health problems. Specifically,
easy monetary policy in combination with high energy and food prices has already allowed inflation to creep up, and inflation
is likely to increase further before the Fed can act against it. I do not question the Fed's continued commitment to long-run
inflation stability, but if US investors and workers come to doubt it, there could be a painful period while the Fed reestablishes
its credibility as an inflation fighter.
Also, the Fed's actions have shown that large investment banks and the housing agencies (Fannie Mae and Freddie Mac) will
not be permitted to fail. If these firms are to be protected at taxpayer expense, they must be regulated to control the risks
they take. This is a lesson that we learned painfully in the 1980s, when federally insured savings and loans invested recklessly,
knowing that any profits would accrue to the S&L owners, while losses would be borne by the taxpayer. However, the investment-banking
business is extraordinarily complex and will be difficult to regulate in a rational manner without choking off beneficial
financial innovation.
Keep reading the Q&A »
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Russia continues Georgia military blitz
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After five days of combat, Russia agreed to a French-mediated ceasefire on Tuesday — but it already appears to be broken. The ongoing conflict, which has reignited Cold War-era anxieties, centers around South Ossetia and Abkhazia — two pro-Russian regions of Georgia that have long sought independence. Last Thursday, Western ally Georgia launched a surprise attack to secure South Ossetia. Russia responded by deploying forces
deep into Georgia.
Russia's actions renew focus on several hot-button issues: Vladimir Putin's continuing political dominance, Georgia's expectation of support in exchange for troop deployment to Iraq, and the new terrain of cyber warfare. The fighting also prompted the US presidential candidates to take very different foreign-policy stands.
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Olympics open in dazzling fashion
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The 2008 Olympic Games began with several bangs, as over a billion people tuned in to Friday's spectacular fireworks-filled opening ceremony in Beijing. The four-hour show received mostly rave reviews for its extravagant fusion of traditional Chinese culture and
modern technological innovation, although some attendees expressed dismay at the stringent security measures — and criticized the decision to allow a nine-year-old girl to lip-synch.
The atmosphere of international goodwill was somewhat muted by a pair of unrelated stabbings that hit opposite sides of China.
Three police officers were killed in troubled Xinjiang province, which has experienced a wave of strikes by Uighur separatists. And in Beijing, the father-in-law of the US men's
volleyball coach was stabbed to death in a seemingly random attack.
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| Newswire |
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| Politics |
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Pakistani president under fire
In a push for a stronger democracy, Pakistan's ruling coalition government aims to impeach President Pervez Musharraf, who came to power in a 1999 military coup. Musharraf's American allies
have refused to support him; the State Department calls the conflict an "internal" issue.
| Telegraph | Daily Times |
Morales wins Bolivia recall vote
Following a referendum victory, Bolivian president Evo Morales pushed to strengthen the central government in hopes of unifying
his country's fragmented political landscape. Officials in Bolivia's prosperous lowlands remain deeply at odds with their left-wing leader.
| Al Jazeera | Los Angeles Times |
Ousted Thai leader escapes trial — for now
Former Thai prime minister Thaksin Shinawatra fled to London to evade outstanding corruption charges, which he had initially
returned from exile to face. Despite some protest among members of Thailand's ruling elite, many hope the influential billionaire's
departure will help ease national political tensions.
| Christian Science Monitor | TIME |
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| Science & Technology |
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Endangering the Endangered Species Act?
The Bush administration proposed a revision to the Endangered Species Act that would reduce scientific oversight of federal projects. The new rules would dispense with the independent ecological-impact
studies previously required to construct highways, dams, and other public works.
| MSNBC | Washington Post |
Scientists take light for a U-turn
The cloaking device — a sci-fi staple — inched closer to reality this week, after scientists unveiled new synthetic materials that can refract
light backward. Researchers say that these "metamaterials" could also potentially allow for the magnification of previously unobservable objects.
| Scientific American | National Geographic |
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| Blogosphere |
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Unraveling the Edwards affair
Bloggers had a field day as John Edwards' adultery admission ricocheted across the Internet. Robert Scoble revealed photographs of Edwards and paramour Rielle Hunter from the 2006 campaign
trail, while other pundits debated how the scandal might have affected the primaries.
| The Trail (Washington Post) | Scobleizer |
Primary sources reveal Clinton rifts
An article in the Atlantic, which documented Hillary Clinton's presidential campaign coming apart at the seams, sparked a flurry of online chatter.
Two questions prompted by the revelations: Is the timing all wrong? And what does Clinton's strategy say about John McCain's?
| Buck Naked Politics | Talking Points Memo |
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| The Week in Pictures |
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Click to see the full-size image and caption.
 Reuters/Adrees Latif
 Reuters/Thomas Peter
 Reuters/Jorge Silva
 Reuters/Wolfgang Rattay
 Reuters/Morteza Nikoubazl
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*Unless otherwise noted, all photos are courtesy of Reuters.
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| Local Stories |
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Military junta maintains grip in Mauritania
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| Reuters/Stringer |
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The general who instigated last week's coup in Mauritania is planning to hold democratic elections, but may run as a candidate himself. In the meantime, he has freed the prime minister
— but not the president — of the country's deposed democratic government.
| BBC | US News & World Report |
Not again: Motown mayor faces new raps
Facing ten felony counts in a perjury scandal and a separate assault case, Kwame Kilpatrick, Detroit's extraordinarily embattled mayor, recently spent one night in jail and narrowly avoided another after violating his bonds. A steadily growing chorus is calling for Kilpatrick's resignation.
| Detroit Free Press | CNN |
Owners sought for art collector's stolen stash
The FBI is searching for the rightful owners of more than 100 stolen artworks recovered from the collection of a New York man who died in 2006. Among
his many other eccentricities, the deceased apparently used a Giacometti bust as a doorstop.
| New York Times | New York Sun |
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| Masthead |
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