Government Debt and the Economy (very wonky and graphy)

Hi again, it’s been too long. I’m starting to make a habit of apologizing at the start of each new blog; I think instead of doing that I will just try to update this more often. While you may not have enjoyed my 3,000 word wall text about the New Year last time, you’re sure to enjoy this blog about government debt! And while this blog is very similar to some other posts I’ve written in the past, I think it addresses some important newer information. In a way I will be piling onto an issue and a paper (more specifically) that has already gotten much attention. The Reinhart-Rogoff research paper has been refuted for its macroeconomic theory by Nobel-winning economists and for it’s specific (excel-related) errors by grad students, even Stephen Colbert piled it on eventually. While opinions on the paper vary, no one can dispute it’s significance in framing the debate for policymakers from across the world. Others have already thoroughly refuted the paper’s conclusion, so I won’t try to do this directly. Instead, I would like to look into some of the broader questions that are raised in this paper; specifically, what is the relationship between government indebtedness and the overall health of the economy. 

To begin, I want to briefly explain the paper’s thesis and how it’s been refuted. In 2010, Carmen Reinhart and Kenneth Rogoff of Harvard authored a paper titled “Growth in a Time of Debt” that argued that after a certain threshold of indebtedness (90% of GDP) a nation’s growth will drop off dramatically. Underlying this claim was a statistic stating that average GDP growth in developed countries with 90% public debt to GDP will see GDP growth of -0.1% on average. The pair refused to release their data to others until a grad student at the University of Massachusetts, Thomas Herndon, was allowed to use it for a term project where he intended to replicate their findings. Instead, he found that their excel spreadsheet had somehow omitted the results of  five countries and incorrectly averaged New Zealand’s GDP growth. When those countries are taken into account, particularly Australia (!), Belgium, Canada, and New Zealand, Thomas found that average growth for countries with 90% debt to GDP was actually 2.2%, a very different result than -0.1%! Now, instead of chest thumping this news that broadly confirms my own interpretation of recent history, I’d like to dig deeper into the broader question raised by the Reinhart-Rogoff paper: what effect does high government debt have on the economy? 

Before touching on any further numbers I’d like to briefly explain some terms I’ve used to get at the heart of what is being debated. GDP (Gross Domestic Product) is a nation’s total economic output (consumption+investment+government spending+exports-imports); this is the most common measurement of the size of a nation’s economy. Measuring government debt to GDP then is a way of comparing the size of a nation’s debt versus it’s entire economy. Economists prefer this measure over total debt amounts because it helps express the relative size of a country’s debt. With that said, here are two modern examples of the metric Reinhart and Rogoff explored and their divergent conclusions:

Both Japan and Spain have received a lot of media coverage lately for their economic circumstances, specifically their indebtedness. But as you can see in the graphs above, their levels of indebtedness do not correlate to growth with any consistency. Japan’s level of debt has remained above 100% of GDP since 1998, it’s economy has grown at an average rate of 0.55% annually. While that number looks quite weak (it is), it occurred during: the 1997-8 Asian Financial Crisis, the 2007-8 Global Financial Crisis, and the 2011 Tohoku Earthquake and Tsunami. Even with all of these headwinds the Bank of Japan predicts annual growth to be 2.9% in 2013. While Spain’s pre-crisis growth was higher than Japan’s, its much lower levels of indebtedness have not shielded it from the stagnation being felt throughout much of the Eurozone today. To further illustrate this, lets take a look at another useful economic indicator: unemployment rates and levels of indebtedness.

As you can see, despite relatively low growth and high levels of government debt, Japan’s unemployment is considerably lower than Spain’s astonishing rate; one in four Spaniards were unemployed in 2012 (currently it stands at 27.2%). If you’re thinking, “hey, Spain is very different from Japan, there’s more to the story than this” then you’re on to something. The problem with Reinhart and Rogoff’s conclusion (aside from its Excel errors) is that its simplicity obscures larger questions about debt and the economy: there’s more to it than “big debt bad, small debt good.” I want to explore what other factors are at play between public debt and the economy in the remainder of this post. There are several areas of concern that economists look at when it comes to public debt, many of these ultimately derive from one issue: borrowing costs. The short answer to why Spain has relatively little debt yet still faces economic headwinds is because it has had to borrow money at high costs in recent years. This cost is measured by the yield that is paid by Spain to buyers of its government bonds, like an interest rate (%) paid on a private loan. While Spain has seen its borrowing costs improve this year, it faced years of high yielding bonds before:

Years of high borrowing costs have done more than just complicate the finances of Spain’s government, it has found its way into the real economy as well. Spain is an example of what can happen when a country’s debt is not denominated in a currency that is controlled by the debtor nation’s central bank. Under normal circumstances (i.e. when a country borrows in a currency it also issues) a central bank has flexibility when it comes to both controlling a nation’s borrowing costs and shielding the economy from its harmful effects. For example, the central bank for the UK (the Bank of England) has used its power to both lower the yield on long-term government bonds (by purchasing them with printed money) and lowering interest rates (0.5% since 2009) to try and boost available credit in the real economy. In addition to these tools, central banks like the Bank of England have also intervened at times to lower their currency’s exchange rates with other countries. Without these options, Spain has instead had to rely on the policies of the central bank for the Euro, the ECB, with limited success. 

The ECB dropped interest rates to 0.50% earlier this month (from a previous 0.75%) yet these rates have not translated into lower borrowing costs in Spain (among other countries). Instead, banks in Spain and other “peripheral” Eurozone countries like Italy and Portugal have had to pay more, in line with their government’s own higher borrowing costs. This, in turn, has translated into higher borrowing costs for Spanish and Italian businesses and decreased business lending overall:
(Source: The Economist)

As you can see on the above graph, borrowing costs for Spanish and Italian businesses and the overall lending environment have fallen out of sync with ECB lending rates. The message I want to convey here is not that Spain’s economy is doomed to failure; Spain’s circumstance has actually improved somewhat recently. Instead I want to point out Spain’s high borrowing costs had nothing to do it’s government’s debt levels or deficits; before the Global Financial Crisis, Spain ran a budgetary surplus and had relatively little debt. So why has Spain been punished with high borrowing costs while countries with much larger debts (Japan and the US, for example) have not? The answer, as well as a new set of problems, come with control over the currency that debt is denominated in.

Something that astonished me when I first wrote about debt in the US two years ago was how low Japan’s borrowing costs are compared to its high debt:

Despite it’s astronomical levels of debt, Japan has been able to borrow at remarkably low rates in recent years, much lower than Spain even in 2008, years before Greece would seek a bailout. Even when you compare Japan to other countries that issue debt in their own currency their rates seem quite low. Fortunately, there are very smart people who write about these things who have explained the situation for us. Essentially, through a mixture of Financial Repression by the Ministry of Finance and a willingness by Japanese households to put their savings into government bonds, rates have been kept quite low. But all is not well in Japan with this arrangement, as Noah Smith points out:

… it seems to me that the Japanese government’s success in holding down its borrowing costs has probably had big negative effects on the economy. Banks that are forced to buy JGBs can’t lend as much to firms, which seems like it would depresses economic activity, holds down growth, and probably contribute to deflation via suppressed wages. Households have been squeezed and squeezed by falling incomes until their savings rates have gone negative, yet they are still earning nothing on their savings.

In most countries we don’t think of deflation as a problem, but it can be just as damaging to an economy as inflation. Deflation, which Japan has experienced for most of the past decade, makes private borrowing more expensive, and pushes down consumption and investment over time. This has become a big enough problem that Shinzo Abe has implemented aggressive monetary and fiscal policies that are designed to increase inflation and decrease the value of the Yen, with mostly positive results so far. But Japan is unique in this regard: many countries fear the opposite when regarding inflation at a time of high debt.

(source)

Argentina is a useful example of both the benefits and the pitfalls that come with controlling your own currency. From the 1970s to the early 1990s, Argentina suffered a series of currency shocks and generally high inflation, culminating in a spectacular 5000% annual inflation rate in 1989 (pictured above). That crisis was sufficient enough that Argentina began a currency peg with the US Dollar in 1991; under the new regime, anyone could exchange one Argentine Peso for one US Dollar. To maintain this “convertibility”, the central bank of Argentina had to maintain an equal amount of US Dollars in reserve as there were Pesos in circulation. While this had the positive effect of limiting inflation and increasing foreign investment in Argentina, it had many negative effects as well. 

By tying the value of the Peso to the USD, Argentina effectively ceded its monetary policy to the US Federal Reserve. In addition to receiving the low inflation of the US Dollar, Argentina experienced the pitfalls of its high value: for the duration of the currency peg (1991-2001) Argentina’s current account (net trade and net investment) was negative. Unemployment started to increase as the currency’s high cost made difficult for businesses to pay living wages while remaining internationally competitive. By 1999, the unemployment rate reached 16% and the economy entered a three-year recession as Pesos and Dollars became scarce. At the same time, the government faced pressure from the IMF to lower its deficit with spending cuts, which it implemented to the detriment of the economy (sound familiar?). Argentina was forced to borrow at high interest rates before being shut out of bond markets entirely. With debt levels reaching 164% of GDP in 2002, the country defaulted on most of its debt and abandoned the currency peg  shortly after. By devaluing its currency and effectively ignoring calls by the IMF for further austerity, Argentina was able to recover from the crisis with average growth above 8% since then. The downside to this recovery has ironically and not entirely unsurprisingly been a return to higher inflation levels. 

Perhaps out of fear of the panic and political upheaval that precipitated the economic crises in 1989 and 2000, the Argentinian government has consistently underestimated official levels of inflation since 2007. This is best demonstrated by the average change of prices found online, which has been aggregated by groups like PriceStats; this index shows inflation for 2012 to be ~10% higher than the official figure of 13%. Inflation has become such a hot button issue there that when an interviewer pressed the economy minister on the matter he abruptly ended the interview. But does this high inflation have a relationship with the size of Argentina’s public debt? 

Surprisingly, inflation in post-crash Argentina hasn’t corresponded with higher debt levels; even when you factor in higher inflation after 2007 there is no relationship between debt levels and inflation rate:

(source)

Yet while Argentina’s inflation might not directly correspond with debt levels, there appears to be a connection between the fiscal and monetary policies of president Cristina Fernandez de Kirchner, including her management of the national debt. Perhaps most importantly, by using the central bank’s reserves to fund domestic spending, the government has removed an important guarantor of both currency stability and low inflation by removing the central bank’s independence.

At times, writing about these countries felt a little like writing Isaac Asimov’s A Choice of Catastrophes: is the world really this unforgiving when countries accumulate large debt? Judging by these three very different examples you might conclude that we are faced with three awful choices: crushing austerity (Spain), financial repression and deflation (Japan), or runaway inflation and dishonest institutions (Argentina). In truth, these are all extreme examples that I used to drive home a few points.

Firstly, if a country’s debt is not denominated in its own currency it runs the risk of defaulting on it’s loans, just like a private borrower runs the same risk. Conversely, it is difficult (perhaps impossible) for a country to default on its debt if it is denominated in its own currency. With this in mind, the risks of high levels of debt to a nation’s economy vary considerably depending on whether a county’s debt is denominated in its own currency or not. For countries with debt in a foreign currency, (the Euro counts in this case) the risk of actual default makes austerity much more likely and therefore the greatest risk of high debt levels comes from these possibilities. For countries with large debts denominated in their own currency the greatest threat to the economy stems from the effects of their own government’s actions directed at controlling the debt. This can come in the form of inflationary policies as in Argentina or in financial repression as Japan has employed.

So where does that leave the rest of us? What, for example, should the US do in response to it’s high levels of debt, currently exceeding Reinhart and Rogoff’s deadly 90% threshold? In reality, it’s not impossible for a nation to climb down from high levels of debt as long as a few things fall into place, if history is any guide:

Looking the above graph, one could imagine the extraordinary fiscal tightening that the US had to manage after World War II to eventually get debt levels from 120% of GDP in 1946 to just 31% in 1975. What might be surprising to some is that the United States almost never runs a budgetary surplus, even when debt levels have been very high: 

(Source)

While there have been some periods of budgetary surplus, (eight in total before 1998) the overwhelming majority of the past 70 years has been spent in the red for the United States Treasury. How does this square with debt levels that remained low, or have fallen for long periods of time? The answer comes from a few factors that one might not consider at first when looking at government debt and spending (Krugman explains this in depth here). The two most important of these are the effects of economic growth and inflation on government debt. Say the government owe $1,000 in 10 years, and the average inflation for that period is a very acceptable 2.0%, and at the same time the economy grows at an average rate of 2.5% (the long term norm for the US economy). In ten years time, that debt would shrink by 45%, to a mere $550 relative to the rest of the economy. This is why during the 1990s the US debt to GDP level shrank even before the government ran a surplus:

(sources I used)

Essentially, if an economy can maintain average levels of growth, (say 2.5%) and average inflation (~2%) then government debt will decline as long as deficits do not exceed this combined total (in this case ~4.5%). This holds true in more than just the US case:

To summarize some points: high debt levels certainly have caused some serious problems for many economies, BUT these problems appear to be much more manageable when the debt issued is under a local currency. And while the high debt levels in the United States and other large economies might appear impossible to repay, equally large debts have been repaid in the past without default or high inflation being part of the outcome. I hope you enjoyed reading this blog as much as I enjoyed writing it, until next time.

2013: a year of global change?

Well, it’s been a while! In my defense, I’ve moved across the world since I last wrote here, and I now have to contend with some very loud birds as I write this. But I have good reason to write now; so much has transpired since I last wrote. You’ll have to forgive me for the length of this blog post, if you read it in it’s entirety you’ll have digested over 3000 words, there’s just so much to write about. With a remarkable confluence of political transitions taking place across the globe, there seems now, even more-so than in 2012, a real opportunity that the world will look very different 12 months from now. From the reelection of Barack Obama to Xi Jinping’s ascent to top spot within the Communist Party of China, many regions appear poised for change and uncertainty. From Israel to Myanmar there has been no shortage of speculation and intrigue regarding what the future will bring. But while there have been notable transitions across the world, some regions seem to have experienced less upheaval than others… so far.

Europe

Twelve months ago the world was fixated on the volatility of the European debt crisis and what might happen if an anti-austerity party won in Greece. This did not come to fruition, and while the anti-austerity party Syriza became the official opposition, they remain far from power in Greece. With relatively mundane results in the other European elections (Czechs and Slovenes both elected remarkably boring presidents) you might wonder if Europe really belongs in a blog about political upheaval in 2013. The good news is that very soon that will change, thanks to a combination of factors in Italy’s general election on February 24th.

After resigning in 2011, few could have imagined that the scandal-ridden media mogul would return to politics, but underage prostitute scandals notwithstanding, Berlusconi will contest yet another election. He will lead the People of Freedom party against the social-democrat PD, which is leading in polls at the moment; but in an added twist he will be competing with two other unlikely figures for the job.

When Mario Monti was asked to form a technocratic government in the wake of Berlusconi’s resignation he was not expected to contest the election after his government implemented economic reforms, but on December 28th he announced he would run for Prime Minister under the “With Monti for Italy” party. While Monti’s entrance into politics may have been surprising, his background is very different from the leader of Five Star Movement. Beppe Grillo entered politics as a comedian and blogger, and has taken Italian politics by storm; at one point his party scored as high as 20% in national opinion polls, though its popularity has since waned. The Five Star Movement can be defined broadly as an anti-austerity party, though some of Grillo’s other policy prescriptions include more direct democracy and free internet. While few expect either Monti or Grillo to garner enough support for the top spot, their impact on the election could be vast.

Public polling has consistently placed the center-left Democratic Party (PD) in first place, but the latest polls hinted at the possibility of a hung parliament in the Senate, where seats are allocated on a regional basis. This would force Pier Barsani (leader of the PD) to form a coalition, either with Mario Monti or even Beppe Grillo, though this is unlikely. You might wonder why the election in Italy is getting so much attention when so many different political transitions have taken place. Italy sits in a unique place within the EU: while it has come under scrutiny for its large debt (only the US and Japan have more) and its sluggish economy (only Zimbabwe and Haiti grew more slowly from 2000 to 2010) it also commands the largest share of the Eurozone economy outside of Germany and France. It also holds the distinct role of being the largest Eurozone member that is currently undergoing harsh austerity, which is being administered by an unelected, technocratic government. France has already replaced the center-right government of Nicolas Sarkozy with Socialist Francois Hollande, in part because of his promise to transition Eurozone policy away from austerity. If a center-left government emerges in Italy, it might just be enough to move EU policymakers away from austerity, or at least away from its current manifestation. Lastly, Italy’s election matters because it precedes an election in Germany in September, where Angela Merkel’s center-right coalition has faced recent difficulties.

Middle East/North Africa

When revolutions swept the Arab world in 2011, it seemed like the greatest emotion expressed in the crowds was relief and optimism; since then, ambiguity has shrouded interpretations of events.

This picture was taken in Tunisia on Feb. 6th of this year (source: Reuters/Anis Mili). The killing of left-wing opposition leader Chokri Belaid has sparked the largest demonstrations in Tunisia since the government of Ben Ali was overthrown two years ago. The Islamist-dominated government has dissolved parliament in response to this, and is calling for fresh elections in the wake of the unrest. Elections that took place in Tunisia and in Egypt after their respective revolutions saw Islamist parties win the largest share of the vote. While the outcome of the election was not disputed (unlike Iran in 2009) within those countries or by observers, the conduct of the resultant governments has been very critical. Mohamed Morsi, the president of Egypt and member of the Muslim Brotherhood has seen his first term riddled with controversy ranging from his handling of the drafting of a new constitution, to recent violence between police and demonstrators. Instead of focusing on these internal debates taking place in Egypt and other MENA countries, I’d like to talk about the regional implications of recent political transitions.

Two countries that dominate media coverage of the Middle East and I think warrant special attention for their regional impact are Israel and Iran. Both countries have an awkward (to put it nicely) relationship with many of their neighbors, and both essentially exist on the opposite sides of a diplomatic arrangement with the US. Iran has counted on support from Hezbollah in Lebanon, the Assad regime in Syria, and Shi’a leaders in Iraq, surprisingly.

I mention Iraq as a surprise because this wasn’t always the case; before the US invasion in 2003 Saddam-governed Iraq was actually a fierce opponent of the Islamic Republic in Iran. From 1980-88 they fought a protracted war that cost half a million lives, both Saddam Hussein and the Ayatollah sought to overthrow the regime in the other country. After the first Gulf War, the US engaged in a policy of “dual containment” that attempted to limit the influence of both regimes simultaneously. While this strategy was broadly viewed as “stupid” and had limited success containing either regime, the effects of the US occupation in 2003 had a more dramatic impact on regional influence. Nouri al-Maliki, the current prime minister of Iraq, is Shi’a Muslim (the main religion of Iran) and has close ties to the Islamic Republic in Iran, he actually lived there in exile for most of the 1980s. With the elections in 2005, Iraq has become one of Iran’s closest regional allies and has even helped sustain the Assad regime in Syria, another close ally to Iran.

Iran’s relationship with the other Arab regimes has been far less fruitful. Egypt and Iran have had icy relations since the revolution in 1979. Most notably, the Islamic Republic named a street in honor of the man (Khalid Islambouli) who assassinated Egyptian president Anwar Sadat. A precursor to this diplomatic freeze was Egypt’s peace treaty with Israel in 1978, as Iran viewed (and continues to view) Israel as its greatest enemy. The ascent of the Muslim Brotherhood in Egypt has helped improve relations, but the two countries remain far from rapprochement thus far. Perhaps the biggest illustration of these complicated new relations came with Ahmadinejad’s visit to Cairo on Feb 5th.

While Ahmadinejad was given a warm reception by President Morsi, he was grilled by other political and religious figures, most notably for Iran’s continued support of the Assad regime in Syria. In many ways the paths of these two countries were destined to be complicated, by both history and their sectarian importance. One of the tenser moments during the visit occurred when the leader of al-Ahzar (one of the most respected Sunni institutions in the world) grilled Ahmadinejad over everything from Syria to the belittlement of Islam’s first caliphate. Egypt is the most populous Arab country, and in a way it represents the broader Sunni-Arab aspirations in the region. Iran has a similar population, and it’s religious institutions in Qom are viewed with comparable regard to al-Ahzar for Shi’a Muslims across the world. This theological rift turns political when it comes to Syria, where the two countries continue to be at odds over the future of the Assad regime. I don’t want to oversimplify matters excessively: the Muslim Brotherhood’s relations with some Sunni regimes in the Gulf have been frosty at times.

Under this backdrop, the Israelis voted on Jan. 22nd, with most expecting Benjamin Netanyahu’s new Likud-Beiteinu bloc would sweep to victory, however things were not that simple.

(source: Ilia Yefimovich/Getty Images)

The man pictured above is Yair Lapid, a TV presenter-turned politician who now leads the second largest party in Israel, Yesh-Atid (translated: There is a Future). While Yesh Atid was expected to win about 10 seats, he nearly doubled this total with 19. Most of Mr Lapid’s platform was very centrist, with broadly popular ideas like reducing corruption and reforming education getting mention. More controversially he also proposed ending the exemption on Haredi (ultra-Orthodox Jews) from military service and negotiating with the Palestinians with the goal of creating a two-state solution. This latter declaration is significant because even after tacitly accepting a two-state solution, Netanyahu has done very little to indicate that he takes the idea seriously. Even after reaffirming his commitment to two-state solution, he said that the Palestinian Authority needed to drop any preconditions on talks, even as his government moves ahead with the controversial E1 settlement plan.

Lapid has also differentiated himself from Netanyahu on Iran, saying the Likud leader has been too confrontational towards the Obama administration regarding Iran, saying ”[Netanyahu] thinks he can drag America to do what it doesn’t want to do. He is leading Israel to war too soon, before it’s necessary.” While it is less clear what meaningful differences they have w-r-t Syria, the biggest question right now is what government, if any, can emerge from this fragmented election:

(Source: BBC) Coalition talks are expected to be very acrimonious as they have to first be led by Netanyahu (who won the most seats) who has been weakened by this electoral result. His list lost 11 seats and he is coming under scrutiny for his role in a variety of troubling and quite funny scandals. Whatever the outcome, the region faces a range of crises, from Syria’s civil war to the economic malaise that affects so many countries in the Middle East; now, more than ever, is a time for effective leadership in the region.

Asia

Perhaps more than any political transitions that have taken place this year (including the US election) changing of guard in China, Japan, and South Korea. Xi Jinping, Shinzo Abe, Park Geun-hye have all been elected to lead their countries in a time when East Asia represents an increasingly important economic area:

 (source)

Unfortunately this increased economic importance is being supplemented with increasing hostility between the respective governments, with the Senkaku/Diaoyu dispute receiving a great deal of media coverage. While the dispute has been simmering for over a century, things came to a head when in September Japan decided to nationalize part of the island chain, setting off a diplomatic row with China that has caused alarm across the globe. While Japan’s purchase of the disputed islands from a private owner may seem like an obviously provocative act (it certainly was by China), the action was actually intended, however clumsily, to deescalate tensions. This is because the bellicose mayor of Tokyo, Shintaro Ishihara had stated his intention to buy the islands; Japan’s government feared he would use his ownership to provoke China publicly. Things have escalated quickly since then, with anti-Japans protests and boycotts enveloping China. Perhaps most disconcerting has been an allegation by Japan that China had targeted one of its vessels near the islands with it’s fire-control radar.

 (Source: The Guardian)

History has played an increasingly important and often detrimental role in island disputes in East Asia; the Senkaku/Diaoyu dispute is only the most recent example. Last summer a series of symbolic gestures were taken by the South Korean government to underscore its control of the Dokdo/Takeshima Islands, whose control is disputed with Japan. What came next surprised many when South Korean President Lee Myung-bak said that were emperor of Japan to visit Korea he would demand an apology for Japan’s crimes in WWII. Lee is no longer in office, his party instead nominated Park Geun-hye to run in the 2012 Presidential election, which she won narrowly. She campaigned on a platform of economic liberalization but at deftly supported reforming the state’s relationship with the Chaeobol (powerful family-owned businesses). Perhaps more than her policies, she has been scrutinized for her own history: she is the daughter of the late dictator Park Chung-hee, a controversial figure in South Korea. She, like her predecessor has demanded that Japan apologize for its crimes in WWII, though her own nationalism is now being matched by a flamboyant counterpart in Japan.

Shinzo Abe was elected Prime Minister of Japan on a platform of expansionary economic policies (which have many left-wing champions) and a nationalist foreign policy. In October Abe visited the controversial Yasukuni Shrine, where some Class-A war criminals are enshrined; in the past he has suggested Japan should review its apology for using comfort women in WWII. Though he shelved this latter plan, his other, less symbolic proposal could signal bigger, more worrying development for neighboring countries. Shinzo Abe has suggested his government will review its interpretation of the Article 9 of the Japanese Constitution which under it’s current interpretation prohibits an act of war by the state. This has been justified as enabling Japan to engage in “global security operations” as well as allowing its military to engage in joint military operations with its allies, such as a strike on North Korea. It seems clear that while this might be accepted in Seoul and Washington, it will raise eyebrows in Japan’s biggest neighbor.

As alluded to earlier, the recent hostility between Japan and China has received most of the coverage in this region recently. In many ways the anxiety over the confrontation between Japan and China comes from the the transformation in roles the two countries have had economically:

Only fifteen years ago Japan laid claim to the largest economy in East Asia and despite it’s economic headwinds (the 90s were considered Japan’s “lost decade”) few anticipated the quickness with which China would overtake it. For perspective, in 1990 when Japan was considered the chief economic rival of the US, its GDP was $3.018 trillion compared to China’s $355 billion it’s growth rate was for that year was 5.57% compared with China’s 3.8%. Japan’s economic performance was so strong that it captured the fear and imagination of the American public, with popular books and films depicting a Japanese takeover of American businesses. But after 1990 events took a dramatic turn in East Asia; China (and to a lesser extent S. Korea) has overtaken Japan in GDP every year since:

Presiding over this record-breaking growth has been a series of modernizing figures in the Communist Party of China starting with President Jiang Zemin and Premier Zhu Rongji. Their role in directing China’s State Capitalist model cannot be understated, with their successors Hu Jintao and Wen Jiabao largely following the same path. With the exception of a brief period of slower growth in 2012 the Chinese economy has looked unstoppable, but this has not stymied the internal debate about the future of China’s economy. Lost in the controversy over Bo Xilai’s role in the murder of Neil Heywood was a vigorous debate about the direction of China’s economy. Bo’s governance of the Chongqing Province was seen as a good model by observers in China and abroad. The model was characterized by its high levels of foreign investment as well as large state-sponsored projects, and succeeded in producing levels of growth that beat the national average while he was premier there. Due to his dramatic downfall, his ideas will have to be debated by Xi Jinping and Li Keqiang, who will formally be declared President and Premier of China March this year. They will preside over not only the largest economy in East Asia, but also the largest military as well:

(you should really get this if you want to know more about global military spending) The Senkaku/Diaoyu Island dispute comes at a time of unprecedented disparity in military spending between the two countries, unfortunately it is being coupled with unprecedented nationalism on both sides. What is particularly worrying is how lightly both sides seem to be taking the risks of escalation, especially considering the US declaring itself treaty-bound to defend Japan’s control over the Senkakus. One can only hope that the negative externalities that are at stake will compel both sides to deescalate the dispute. This is important not only because of the risks of conflict, but because of the urgent need for cooperation among the three East Asian powers. North Korea’s nuclear test just last week and it’s threat to conduct more is perhaps the best current example of this need. The world’s most important economic region needs pragmatic leadership now more than ever, it is truly disappointing to see nationalism cloud what was otherwise considered such a promising future for the region.

In all of the examples of political transition I have mentioned here there seem to be forces that both promote the status quo as well as forces agitating for change. In this blog I focused on the forces agitating for change, in part because I find this more compelling. You might have noticed that there were many notable omissions from this blog, I certainly do not wish to underestimate the importance of these political transitions. From Myanmar’s democratic reforms to Enrique Peña Nieto returning Mexico’s presidency to the PRI are just as important to the future as Japan’s recent elections. I will not, however, apologize for omitting the recent election in the United States. Due to my own interest/connection to US politics, I followed the election very closely. If you did not and would enjoy some analysis, I suggest you look somewhere else for relevant coverage: here are a few of my personal favorites.

Minorities and the Arab Spring: Syria examined.

Ethnic and religious minorities in the Arab world have long fascinated me. The Middle East is home to a variety of ethnic and religious communities with ancient origins; in the village Maaloula in Syria the last remaining speakers of Western Aramaic (the language spoken by Jesus) reside. While the community that lives in Maaloula is tiny (2,000 people live there) the region contains many larger groups. This can complicate nation-building and has led to some hilariously complicated political alliances. When I visited the region in 2010, I was particularly amazed at the concentration of groups into enclaves.

I took this picture in Gemmayze district in Beirut. The circular sticker with a tree in the center is actually the symbol of the Lebanese Forces, a militia-come-political party that represents Maronite Christians in Lebanon. A short taxi ride to the south of Beirut, near the Shatila refugee camp you find very different political signs along with different demographics:

In the 2006 war with Israel this area was bombed; most of the people here belong to Shi’a Islam and support either Hezbollah or Amal, whose late founder Musa al-Sadr is pictured here. Lebanon is not the only country with a unique mixture of communities, as the recent hotspots of the Arab Spring demonstrate: minorities play a big role in the outcome of the Arab Spring.

I was thrilled to add Syria to my trip after I arrived in Beirut. Many things distinguish Syria from the other countries in the region; the country’s diversity is just one of them. Syria has been in three declared wars with Israel (1948, 1967, 1973) and numerous other conflicts indirectly. Since 1971 the country has been ruled by the Assad family, first under Hafez al-Assad and currently under Bashar al-Assad. Both Bashar and his father belong to the Alawite sect: a branch of the twelver-school of Shi’a Islam.

Before going deeper into the details of this faith I would like to explain the connection the Alawites have with the Assad regime. At the time of independence from France (1946) the Alawites were marginally represented in Syrian society; most of them lived in the mountainous area east of  Syria’s coast, near Latakia. Young Alawi men began to join the military in large numbers, particularly the Air Force after Syria’s unsuccessful war with Israel in 1948. One of those men was Hafez al-Assad, who would become commander of the Syrian Air Force after a coup by the Ba’athist party in 1963. In 1966 the Ba’athist Party had an internal coup and by 1971 Hafez Assad would become the leader of an authoritarian Syrian state. The role of Syrian Alawites has been transformed since then.

In many ways the Alawi people of Syria face a similar dynamic that the Sunni Arabs of Iraq under Saddam Hussein; both groups received benefits from the state via association. Syria’s economy, like many Arab countries, is dominated by the state; about 30% of the total workforce in Syria works in the public sector. Alawites frequently direct important businesses, from private cellular companies to the real estate firms. Sadly, the darker side of this sectarian connection has been illuminated by the recent uprising in Syria: the state’s feared Idarat al-Mukhabarat al-Jawiyya (Mukhabarat for short) is controlled by the Air Force, and is currently directed by Jamil Hassan, an Alawite. The Syrian military has also increasingly relied on its 4th armored division to carry out attacks on rebels. This division is commanded by Bashar’s younger brother Maher al-Assad and is almost entirely comprised of Alawi soldiers. While the state controls this division directly, many of the gruesome atrocities recently carried out were done by militias mostly drawn from Alawites called the Shabiha (ghost), ostensibly with support from the state.

It isn’t my intention to portray the Alawites as an evil sect, or to conflate the actions of the regime with the larger community. With that said, Alawites face a future that is complicated by demographics and a unique relationship with the regime in Syria; they are hardly alone:

(note: I used statistics from the US Dept. of State in part because exact percentages for each community are often disputed by different sources while the DoS estimates are at least internally consistent)

The truth is, more than a third of Syria’s population faces an uncertain future that could be reshaped by democracy; a fact not lost on the regime. I hold the not-uncommon opinion that Assad uses the threat of sectarian conflict to raise the stakes for minority communities in Syria. I think the regime hired Alawites to carry out the massacre in Houla with the expectation that it would provoke a sectarian response by Sunni Arabs. Assad might have gotten his wish at the start of the month when footage was released of Syrian rebels executing four prisoners, allegedly members of the Shabiha based in Aleppo. But the people killed in the video were not from the Alawi sect, they reported to be Sunni Arabs from the Al-Berri clan. Whether or not the opposition is currently engaged in sectarian conflict, there are deep issues about the fate of the Alawi population in Syria once the regime collapses. Some distrust of the sect seems inevitable: the Alawi connection to the Assad regime is complicated by the secretive nature of the group, which keeps certain sect of the faith secret.

While the Alawi have a connection to the regime poses the primary challenge to the group’s future in Syria, the Druze there face a mainly religious one. While the Alawi have a secretive past, the sect underwent a so-called “Sunnification” under Hafez Assad; this helped bring the Alawi into the mainstream and settle tensions between the Sunni majority and the small sect. The same did not happen for the Druze, whose faith is still considered by most Muslims to be a separate religion from Islam, many Muslim scholars go so far as to call it a cult. Even more so than the Alawi, the Druze keep large portions of the faith a secret and it is alleged that male believers are forbidden from learning certain principles of the faith until they are 40 years old.

In addition to the doctrinal differences that separate Syria’s Druze (about 3% of the population) there is a history of regionalism, and even brief autonomy for them during the French Mandate of Syria:

As pictured, the historic center of the Syrian Druze community has been near the mountain Jabal al-Druze. Most of this resides in the modern governate of as-Suwayda, which retains a Druze majority. While many Druze reside in this area, they can also be found in Syria’s major urban centers, Aleppo and Damascus. Despite the history of autonomy in Jabal al-Druze, Druze in Syria and in neighboring countries are known for their loyalty to the nations they live in.  While the Druze of Syria have tried to avoid taking sides in the recent conflict, recent violence has drawn them in at times.

While they remain silent, the Druze living in Lebanon to the west and in Israel to the southwest have become vocal and divided over the revolution. The influential leader of Lebanon’s Druze community, Walid Jamblatt, has endorsed the opposition and asked foreign powers to help overthrow Assad. Meanwhile the Druze living in the Israeli-occupied Golan Heights have become divided, with many youth siding with the opposition. It should be noted that there are about 100,000 Druze living in de-jure Israel who are integrated into Israeli society, holding political posts and serving in the military. Eventually I think the Druze community in Syria will support the opposition, but not until a more clear shift in the balance of power emerges.

If the Syrian Druze face a future partially dictated by the actions of their community abroad, the Kurds of Syria face a future dominated by it. The Kurdish people are dispersed across the region, millions live in Turkey, Iran, Iraq, and Syria. Broader Kurdish relations with the government of the area have played into local politics in Syria. In 1998 Turkey nearly went to war with Syria (then under Hafez Assad) over Assad’s alleged support for the Kurdish Workers Party (PKK) which was accused of terrorist acts in Turkey. Hafez Assad reversed his support for the PKK and forced its leader Abdullah Ocalan to leave  Syria; relations with Turkey improved soon after.

The biggest and best armed Kurdish group in Syria, the Democratic Union Party (PYD) has recently taken control of government institutions and set up road blocks in parts of Syria’s northeast. The PYD has connections to the PKK and some have speculated that Assad is allowing the PYD to take control of the northeast in exchange for not joining the opposition. This action been condemned by some Turkish lobbyists, who see it as an opportunity for renewed violence in Turkey’s southwest. In addition to Turkey holding a position on the Kurds of Syria, Iraq’s Kurdish leaders have also become involved. The leader of Iraq’s Kurdish region, Masoud Barzani, recently got Syria’s two biggest Kurdish organizations the PYD and the Kurdish National Council to share power. This has in turn inflamed tensions between Iraq’s central government and the Kurdish Regional Government (KRG), as there was a brief standoff between soldiers in the Iraqi Army and the KRG’s Peshmerga near the border separating Iraq and northeastern Syria. While the Syria the Kurds might not be united behind either the regime or the opposition they remain united in their demand for autonomy: by now the opposition realizes that autonomy, in some form, will be the price for Kurdish support.

The article that inspired me to write this blog (from the WSJ titled: Can Syria’s Christians Survive?) focuses on the final group I want to discuss. Christians have lived in Syria since the advent of the faith, the apostle Paul famously made his conversion there and the community of Christians has stayed there ever since.

(me at the site of Paul’s baptism in Damascus)

The largest Christian denominations in Syria are Greek (Eastern) Orthodox, Eastern Catholic, Melkite Greek Catholic, and the Oriental Syriac Orthodox Church. While different sources dispute the size of the Christian community in Syria, few sources put them under 10% of the total population. Syria has experienced a region-wide phenomenon of large-scale Christian emigration over the past 30 years.  The secular orientation of Hafez and Bashar Assad’s regimes has been popular with many of the Christians in Syria, this has led to tensions with the Sunni majority in places of fighting. In al-Qusayr (a town south of Homs) Christians took up arms and manned regime checkpoints. This provoked a violent response and the town was Christians suspected of supporting the regime were allegedly executed, with thousands later fleeing the city. With this painting a bleak picture for the future of Syria’s Christians, there are Christian leaders within the opposition. George Sabra is a Christian in the leadership of the Free Syrian Army, he argues that the regime is an ally to no faith and that the Free Syrian Army has had Christians in its ranks since the beginning. But even he admits that most Christians are afraid of the future and choose to stay out of the conflict as a result.

The fear of long-term communal violence has led some academics suggest partitioning Syria along sectarian and ethnic lines, but this solution is riddled with flaws in my opinion. Syria is a nation dominated by the two cities Damascus and Aleppo; over a quarter of all Syrians live in the metropolitan areas of these cities and most minorities have large communities there. The two cities might contain more Kurds than the north and northeastern sections of the country, where PYD and KNC fighters have been most active. The countries Druze might be concentrated near Jabal al-Druze but many reside in the two main cities. And while the Alawi have a heavy presence in the northwestern part of the country, their large communities in Aleppo and Damascus would be separated by hundreds of miles from any Alawite State. Finally, the country’s Christians are mostly concentrated in the two cities, but also have communities west of Homs mountains (in Wadi al-Nasara). Despite being 10% of Syria’s overall population, there appears to be no partition of the state that could protect them.

(from the WSJ article)

Some have responded that the sectarian tensions within Syria are so insurmountable that we should just give up and support the regime; again I see many problems with this outlook. It’s true that Christians have complained about the rebels and some refugees have gone on record saying:

The nightmare for Christians is when the revolution took an Islamist face, it is not the moderate Islam we know in Syria. We are talking about a kind of aggressive and impulsive Islam.”

This sentiment underscores legitimate grievances from the Christian minority, but it makes little sense to deduce from this statement that the murderous regime of Assad needs to be supported. The regime is responsible for the majority of the over 20,000 dead in Syria so far. The fighting has created a humanitarian crisis and given the UN and aid agencies a herculean task as more than 200,000 refugees pour into neighboring countries, according to the UN. It seems unlikely at this point that the regime could ever survive in its current state, regardless of outside influence. While Bashar’s father was able to quell an Islamist uprising in Hama in 1982 with similar brutality (killing 20,000 in the process) the world has changed since then. The Cold War has ended and despite Russia’s opposition to any direct action by the UN Security Council there is already evidence of material  support for the rebels pouring into the country.

The region’s march toward democracy does not need to come at the expense of its religious and ethnic minorities, democracy and pluralistic societies can coexist. We should not feel like we’re faced with a choice between the autocratic oppression of the past and a new populist oppression of minorities. For democracy to thrive in the Arab world, there needs to be a change in attitudes towards minorities and towards the state itself. The violent cycle of authoritarian regimes being replaced with new ones that use violence to avenge the past has to stop.  The process of finding truth and reconciliation as its taken place in Latin America offers some guidance to this end. Until then, the alienation of minorities in the Arab world will only serve to create more enemies and continue the tragic trend of emigration by minorities.

An update on things 2.0

so it’s been a month since I’ve updated my blog and some of you might be asking why. Unlike last time, there is only good news for what has prevented me from updating now. In the past month I’ve moved, started an internship at an unspecified Senators office, and in four days I will be flying to Sydney where I will stay for a month (with my wonderful girlfriend). I couldn’t be more excited/distracted by all of this and sadly it has prevented me from drafting any new ideas for a blog post, despite all of the big news around the world.

for an update on the state of the world I present you with the following:

• The US economy’s growth has tapered off dramatically in recent months and it now looks likely that the Fed will institute additional measures in the future to increase demand (while agreeing to extend Operation Twist immediately). For more on the Fed’s FOMC meeting read here.
• Spain has taken a bailout package designed to capitalize its banking sector worth 100bn euros. The money will come in the form of sovereign loans with favorable conditions, but because the money isn’t being directly injected into the banks it will cause Spain’s sovereign debt to increase. This has had a negative impact on Spain’s borrowing costs. For more on the good and the bad of this bailout you really ought to read this excellent blog post.
• Greece elected a pro-bailout/pro-EU set of parties and it now looks like they will be able to form a coalition government that supports staying in the single currency.
• Egypt’s military leadership (Scaf) has dissolved parliament and delayed results for the presidential election that just took place. Some have speculated that the elections will be canceled and the military won’t give up power.

That’s all for now, I probably won’t update this while I’m in Australia but feel free to give suggestions for what my next blog should be about.

Austerity and European Democracy.

It only takes a cursory glance at the global press to see how the recent European elections have been viewed:

I don’t really have to translate der Spiegel to get the message across but it says: Why Greece must now leave the Euro.

Wow. So France elected a “dangerous” Socialist and Greece is going to leave the Euro. Not only that, the markets apparently believe that the sky is falling as well: (links here)

To summarize broadly the narrative that has come out of the press in the past week: European voters have rejected austerity, now the end (of the Euro) is near.

I want to go beyond that narrative though, there’s much more behind this “democracy interferes with a solution to the European crisis” than is being reported.

So lets start with the election of Socialist François Hollande. The Economist is a publication I hold dear most of the time; usually their articles promote a mostly centrist, albeit pro-globalization view. But there are so many problems with the Op-Ed piece on Hollande that I struggle to find merit in any of it. They malign him for not seeking to trim the size of the French state, while admitting that he seeks a balanced budget. And while they say that he “gets one big thing right” with his criticism of German-let austerity they posit that he isn’t doing it for the right reasons, as if intentions make a difference in modern electoral politics. (I’ll go into more detail on the German austerity program but to avoid being redundant here’s a relink a blog I wrote about it earlier). So The Economist was alarmed by the prospect of Hollande winning, what about the markets?

As you can see yields on French 10-year government bonds initially dropped before rising later in the trading week. But even at its current peak French bonds are still more highly valued than they were for most of the end of Nicolas Sarkozy’s term, a less “dangerous” candidate.

But while Hollande’s ascension might have drawn criticism of The Economist, Greece’s electoral result was far less conclusive. While people viewed the Socialists rise with ambivalence, almost everyone has taken the Greek result as a sign of the volatility. From the BBC:

New Democracy was awarded 50 additional seats for coming in first place, but no party won even 20% of the popular vote in this election. It should also be noted that only PASOK and New Democracy supported continuing the bailout-induced austerity program. After four separate attempts to form a coalition, the parties gave up and planned a new election on June 17th. Current polls have the left wing anti-austerity party Syriza coming in first place with 22% of the vote.

While the potential for a Greek government that opposes austerity has rattled the markets, people should be equally concerned over what the response could be from Germany. Angela Merkel telephoned the interim leader of Greece and was reported to have suggested Greece should hold a referendum on its Euro membership, though Germany denies this was proposed. Greece would not be alone in seeing voters reject austerity: Italian local elections also saw supporters of austerity get voted out. And while not facing an election, Spain’s prime minister Mariano Rajoy said that the country would breach the deficit targets imposed by the so-called Fiscal Pact led by Germany.

I’d like to expand the often cited “fiscal pact” for a moment here. The EU treaty now called the fiscal pact was signed at the beginning of March 2011, it stipulates that signing nations must not run a budget deficit of more than 3% of GDP or they will be fined. The fiscal pact has been maligned by many (Joseph Stiglitz even called it a suicide pact) but the treaty was enacted in order to fix a real problem inside the Eurozone.

Unlike the United States, where both our currency (monetary policy) and the national budget (fiscal policy) is set by the federal government, the EU only has direct control over the currency (the Euro). This causes many complications, of these the most well understood has been a competitiveness problem in certain European countries. Countries like Italy and Spain gave up a competitive advantage when they joined the Euro by giving up their cheaper local currencies. A way of offsetting this was to lower the borrowing costs for new members to help eliminate the competitiveness problem without devaluing the Euro currency itself. The problem now is that 10 years after the creation of the Euro, the competitiveness gap still exists.

This is not unique to Europe; in the US we also have a competitiveness gap between US states. Poorer US states like Kentucky, Mississippi, and West Virginia take in much more than they pay into the IRS, while states like California get considerably less back. This translates into long term transfers of wealth from competitive parts of the country to less competitive ones; Europe lacks this redistributive mechanism. At the same time, because the federal government issues bonds on behalf of all 50 states, the fiscal insolvency of one state (say California) is not exposed to the exposed to the wrath of the markets. In other words, the risk between US states is mutualized by the federal government. Europe currently lacks both of these tools to stymie the crisis.

This brings us back to issue of democracy and the European economic crisis. While some countries have voted in opposition to the austerity drive, German voters have their own reservations on many proposed solutions to the crisis. According to a poll in November 2011, 79% of Germans oppose a European Bond that would combined sovereign debt from Germany with other Euro members. Germans are similarly opposed to any inflation outside of what they view as acceptable. A poll from an insurance company (R+V) asked Germans what their most pressing fear was: last year inflation topped the list with 63% of respondents listing it. These views have been reflected by German policymakers  as Finance Minister Wolfgang Schaeuble denied that Greek bailouts would result in any transfer union in Europe. German opposition to inflationary policy at the ECB has also been pronounced. While some of this stubbornness has changed over time, policymakers still have an obligation to follow the wishes of their citizens or face potential defeat in elections.

Right now the “strategy” to resolve the Eurozone competitiveness problem involves cutting deficits across the EU and relying on “internal devaluation” caused by austerity and falling prices in the most troubled economies (Greece, Ireland, Portugal, Spain, Italy). Unfortunately this process takes a very long time and has put many of the troubled economies into recession. This process is also complicated by German opposition to inflation, as higher inflation in Germany would help make the troubled periphery more competitive.

In the end, the problems affecting the Eurozone will probably require a combination of both austerity measures over time in some countries as well as some form of debt mutualization and fiscal transfers to less competitive countries. This is, of course, just to stymie the medium to long term imbalances facing the Eurozone. In the short term the EU has very dire questions to answer: is the current strategy sustainable, can the Eurozone survive a Greek exit, would it be worth it to tolerate countries rejecting austerity if the alternative was a disorderly departure from the single currency? Above all, can the Euro survive the challenge democracy presents to resolving its many problems?

Measuring potential influence in various international organizations (extra spergy)

When I took my first class on International Relations in college I was especially excited to participate in a exercise at the end of the term: everyone in class would get into groups and simulate a regional conflict with individuals acting as certain countries. I got Turkey, and it was my job to negotiate Georgian membership in NATO. The group included someone playing Georgia, the US, Iran, and Russia was supposed to have a representative but she was sick that day. It ended with me (Turkey) yelling at Iran’s sassy representative until the United States mopped things up and signed a treaty. In reality Turkey and Iran have had several shouting matches throughout history, dating back to the Ottoman and Safavid empires.

We were allowed to bicker in part because the professor was distracted by 30 other students at the time but also because certain facts about the group presented themselves. Iran and Turkey are similarly sized countries with populations of about 75 million each, with economies sized by the IMF at $930.236bn and $1,054.560 respectively. Before the US got involved, neither me (playing Turkey) nor Iran’s representative had enough of a relative advantage to sway Georgia; it took a superpower to alter the dynamics of the group. International politics aren’t usually that simple, but the exercise has always intrigued me. I’ve wondered since then what patterns you could find by taking a simple measurement of a country’s relative power (like wealth) and looked a differences within real international working groups.

In this blog I want to look at relative power and measure it within various international organizations. But before I go any further I want to make one point clear: I am not attempting to predict actual influence in international organizations, I am merely measuring theoretical influence in these organizations and leaving it up to the viewer to draw whatever conclusions from this. Having said that, I’ve found several articles about recent events that relate to the power-dynamics in these organizations. For most of these graphs I will be using Gross Domestic Product based on Purchasing Power Parity as a basis for potential influence in groups. I collected the statistics from the IMF (here) and all but a few exceptions are from 2011.

For my first group I would like to present the Arab League, with the Gulf Cooperation Council as a subgroup:

(note: the Palestinian Authority and Somalia were omitted as they lacked recent statistics, Yemen and Libya’s numbers are from 2010)

I think this graph is especially important as recent uprisings in the Middle East have captured the attention of the world. Like so many things in the region, the uprisings must be viewed in a context includes more than just relative GDP, but this graph offers some perspective on recent events. Just as Tunisia had seen its president abdicate power and Cairo’s Tahrir Square was swelling with protestors, the Gulf Cooperation Council (led by Saudi Arabia) invited the Morocco and Jordan to join the oil producing group.  The move was widely interpreted as an effort to stymie the revolution retain Saudi Arabia’s influence in the Arab League. Even without adding Jordan and Morocco the combined wealth of the Gulf Cooperation Council makes up 46% of the Arab League, it would have a majority of the League’s wealth were it to include the two monarchies.

Palestine is a perennial feature of Arab League summits, so it should come as no surprise Arab states frequently vie for influence over the politics of the territory. Egypt has repeatedly tried to broker unity within the Palestinian government; Saudi Arabia has tried to take the initiative on Arab leadership in the Israel-Palestine conflict. Personally, I think it’s no coincidence that the two largest economies in the Arab League have both taken such a critical role in the Israel-Palestine conflict. While Arab League efforts to resolve the Israel-Palestine have stagnated recently, the situation in Syria has been very much on the agenda.

While conflict and upheaval has often characterized the Middle East, Latin America has seen a recent flourishing of democracy and regional integration. For this region I would like to present two graphs representing different regional organizations:

UNASUR (The Union of South American Nations) is the main body for regional integration in South America, but its significance to greater Latin America was enough to move Mexico and Panama to observe the treaty signing that created the institution. It’s not hard to see how relative power in this institution could easily mirror the simulation I participated in in class. In 2010 a dispute between Colombia and Venezuela gave the new organization a role in resolving a long-brewing confrontation. Like Turkey and Iran, Colombia and Venezuela are neighbors with somewhat similar means ($467bn GDP for Colombia versus $370bn Venezuela) but very different ideology/foreign relations. Colombian president Álvaro Uribe, having just signed an agreement with the US to build a new base there, accused Venezuelan president Hugo Chávez of giving FARC material support. Pressure from UNASUR helped to prevent war and in August the two countries resumed diplomatic relations.

While UNASUR represents a successful  South American effort towards integration, the wider Latin America has seen varied progress towards the goal of integration.

As the Arab League seeks to integrate the Arab World, CELAC (The Community of Latin American and Caribbean States) seeks to integrate Latin America. Both groups therefore exclude obvious regional powers: the Arab League is often maligned for excluding Israel and Iran, while CELAC was created (intentionally) to promote Latin American integration without US, Canadian, or European involvement. A potential obstacle to CELAC’s success is that unlike UNASUR, Brazil faces a rival in Mexico. While Brazil is a decorated member of the BRIC (a bloc of emerging economies) and has a much larger population (190 million vs. 112 million) Mexico grew at a quicker pace in the last two quarters. Perhaps in relation to this recent shift, Brazil and Mexico are now in trade dispute with one another. Guido Mantega, Brazil’s finance minister, has recently suggested that the trade group Mercosur (part of UNASUR) increase its tariffs with outside countries, including Mexico. This doesn’t have to spell doom for the dream of Latin American integration, but it does reveal a potential rivalry that could threaten wider regional integration.

CELAC has been championed by leftist leaders in the region like Bolivia’s Evo Morales and  Hugo Chávez as an alternative to the Organization of American States, since it lacks the US and Canada. At a summit last year two declarations were adopted by the organization that reflected this reality; Argentina’s claim to the British-controlled Falkland Islands (called the Malvinas in Argentina) was supported and the US embargo on Cuba was criticized. While these declarations were adopted by all CELAC members, the body went short of calling for any direct action on the issues. Journalist Andrew Cawthorne posits that pro-US members like Mexico, Chile and Colombia have prevented CELAC from adopting more radical action against Western interests in the region. This scenario is an example of how organizations can easily lose the capacity to act unilaterally when political and economic divisions are present. The combined GDP share of Mexico, Chile and Colombia represents 35% of CELAC.

Sometimes regional groups can be so effective that they’re summits become used to coordinate bigger goals than their membership suggests. This was the case with ASEAN (Association of Southeast Asian Nations), a group founded in 1967 to represent Asian countries sandwiched between giants like China and India to the north and Australia to the south.

Security and economic integration are both included in ASEAN’s charter, but the group’s effectiveness has been varied between the two mandates. Cambodia and Thailand have had an ongoing border dispute that has persisted despite an ASEAN brokered agreement that includes Indonesian monitors in the area. But while ASEAN’s effectiveness at settling regional conflicts has been varied, it’s economic importance cannot be understated. The group plans to implement a Free Trade Agreement in 2015, which has smaller countries like Timor-Leste eager to join quickly.

ASEAN attracting small regional nations may not seem like a big deal, but certainly role in the response to the 1997 Asian financial crisis was. The financial crisis devastated much of Asia and the IMF’s response was highly criticized by many inside Asia and beyond. In 2000, finance minsters from ASEAN member-states plus China, Japan, and South Korea met at and produced what is now called the Chiang Mai Initiative. What started out as a currency-swap agreement has evolved (at least conceptually) into a regional bailout fund, with a role akin to the IMF itself. The initiative is managed at a summit connected to the annual ASEAN meetup, with the expanded group called ASEAN+3. Now, with a bailout fund of $240 billion, ASEAN+3 is a critical piece of Asian integration. What does a graph of this expanded group look like?

As evidenced by this graph, ASEAN has an outsized influence on the region it now helps to integrate.

When it comes to challenges facing a regional organization, the AU (African Union) has to be far in the lead. of the 20 countries with the lowest Human Development Index ranking 19 are members of the AU (source). With recent coups in Madagascar and Mali and Zimbabwe in perpetual crisis, the AU exists in a region that needs security and economic cooperation desperately.

(note: South Sudan, Western Sahara, and Somalia lacked current info, also not included due to GDP being under 15bn: Benin, Malawi, Rwanda, Niger, Guinea, Mauritania, Togo, Swaziland, Zimbabwe, Sierra Leone, Eritrea, Gambia, Lesotho, Central African Republic, Burundi, Djibouti, Seychelles, Cape Verde, Guinea-Bissau, Liberia, Comoros, São Tomé and Príncipe)

The AU faces several internal conflicts: the Arab north is sometimes ambivalent about the role in the AU, something brought under the spotlight when Jacob Zuma and other leaders tried to broker an AU peace plan in Libya. The AU opposed any foreign military intervention, even as Qaddafi’s troops threatened to massacre Benghazi. With a somewhat disengaged Arab north, the largest countries that back the AU enthusiastically are Nigeria and South Africa, whose support is often critical for AU resolutions.

Despite being a diverse organization with large regional/ethnic divides the AU has acted decisively on occasion. Led by Nigeria’s ambassador B. Paul Lolo the AU suspended Mali swiftly after an illegal coup took place. But sometimes the perverse influence of geopolitics has been maligned in the AU. Notably, Mugabe’s Zanu-PF government in Zimbabwe was accused of being “sheltered” by a sympathetic administration in South Africa during the worst political violence in 2008. Whether or not the AU suffers from the problems associated with power dynamics, its success is critical for the region, and perhaps the world.

With the recent election drama in France and Greece it would feel remiss to leave out the European Union in this blog.

(note: underlined countries do not use the Euro currency)

I’ll leave coverage of the eurozone sovereign debt crisis out of this as I have covered it in several other posts (and I plan on writing more shortly), but I’ll highlight a few broad observations about the EU’s politics. The UK is the largest non-Euro member-state and is often seen as the most eurosceptic member. This has distanced its role in enhancing the powers of the EU and has sometimes seen it act as a check on Franco-German aims to do so. One of the biggest recent events to upset this equilibrium has been the election of French Socialist François Hollande. German chancellor Angela Merkel actively supported his rival, incumbent Nicolas Sarkozy during the election, and many now ponder what impact the election will have on Franco-German relations. I’ll write more on this later in a dedicated EU/EuroApocalypse post.

I want to reiterate a point: as compelling as I find all of this, I have to be intellectually modest here and admit that most of it is conjecture. I’ve found most of the articles supporting this theoretical perspective on group power because I probably have a bias when I read articles about international news. Despite this, I’ve found myself drawn to this interpretation of events; I simply can’t look at news relating to China’s vetos in the UN Security Council, or India’s nuclear trade agreement with the US without seeing this interpretation of events shaping my opinion. In the very least, I hope you’ve found this to be interesting to read about.

If you’re reading this because you found one of my graphs while desperately trawling the web for statistics for an essay, feel free to use them! unless otherwise noted all of my graphs use data from the IMF found here and I’ve taken it on myself to post all of the excel docs below:

arab league GDP pie 2011

ASEAN GDP PPP 2011 pie

ASEAN+3 GDP PPP 2011 pie

AU 2011 BIG LIST

AU 2011 gdp pie

CELAC GDP PPP 2011 pie

EU27 GDP PIE 2011

NATO 2010 military spending

NATO 2011 GDP PIE

UNASUR GDP PPP 2011 pie

Mapping the 2012 Election: Why Ohio Means Everything

If you know anything about me, you probably know that I watch the polls for national elections like a watch college football: obsessively. While polling is an imperfect science, it offers the best glimpse into an electoral result before people vote. Politicians dedicate massive resources to poll constituents, either by conducting polls in house or by contracting polling organizations. Polls often determine how and what a candidate will speak about in public addresses, or what promises might be made on the campaign trail. It should come as no surprise that Governor Mitt Romney has distanced the healthcare reform he implemented in Massachusetts from Obama’s healthcare reforms; after all, polls show a majority of Americans oppose Obama’s healthcare legislation.

While politicians usually keep their in house polling private, there is a wealth of polling data that is public and well organized. RealClearPolitics collects polling data from a wide variety of sources and nicely organizes them into polling averages for a particular race. Using multiple polls adds legitimacy and a degree of predictability to polls.

In this post I’d like to focus on the polling on the US Presidential election and the implications on the electoral geography in 2012. When I say electoral geography I am referring to the relative significance of certain US regions in presidential elections. The US uses the Electoral College system, which isn’t really as complicated or unfair as its maligned for being. Every state is given a number of Electoral College (EC) votes based on their total congressional delegation: the total number of Senators and Representatives. Every US State gets two Senators regardless of size, while Representatives are allotted based on population. Because most states (Nebraska and Maine allot some EC votes by congressional district) are winner-take-all, certain larger states are immensely important. In 2008, Obama turned many states that were considered “safe” Republican holds blue:

Most notably Obama turned Indiana, Virginia, North Carolina, and one congressional district in Nebraska blue. Obama’s victory was so sweeping that he could have lost California and New York and still won the Electoral College; but much has changed since 2008. It is looking increasingly unlikely that Obama can win many of these states that he turned blue four years ago, and persistent high unemployment has made Obama vulnerable in a number of states. All of this makes for an election with many more “swing states” than previous elections have had:

Polling comparing Obama to the Republican field for 2012 has been both extensive and varied in results. Most polls show that right now Obama would easily defeat any of the GOP contenders by both popular vote and Electoral College, with the exception of Mitt Romney. Because Romney is leading the Republican Primary right now and polls the closest to Obama, I will use polls comparing Romney to Obama as a basis for my electoral maps. With the exception of Missouri, every state I listed as a swing state on the map above was won by Obama in 2008. Instead of laboring over the polling in every state I will justify my decisions briefly here: Michigan, Minnesota, and Wisconsin aren’t “swing states”  because recent polls have Obama winning each state by at least 8% (the same margin that polls show Romney winning in Georgia).

So with 146 EC votes apparently up for grabs, one might ask why I titled this post “Why Ohio Means Everything,” surely 18 measly EC votes isn’t going to dictate who wins, right? Ohio’s significance as a key swing states derives from a historic fact: no Republican has ever won a presidential election without winning Ohio. One can counter that history does not determine the future; after all, no Democrat had won Virginia since 1964 before Obama broke that trend in 2008. But Ohio’s historic significance is less important here than its contemporary trends. Ohio and Pennsylvania share the distinction of being large swing states, but Pennsylvania’s demographics give it a slightly Democratic lean in national elections. For reference, the Cook Partisan Voting Index (PVI) shows Pennsylvania as D+2 and Ohio at R+1 (for perspective they rank Alabama at R+13 and Massachusetts at D+12). Part of this derives from the voting tendencies of the large metropolitan areas on both states. In 2004, Ohio’s Cleveland and Columbus metro areas supported John Kerry, while Cincinnati sided with George Bush. Pennsylvania’s large Philadelphia and Pittsburgh metro areas strongly supporting Kerry back then.  Bush ended up winning Ohio by 2% and losing Pennsylvania by 3% that year. Four years later both states would turn blue, with Obama winning Ohio by 4% and Pennsylvania by 10%. This trend is older than recent history: Ohio has not voted Democratic without Pennsylvania also doing so since 1948!

Interestingly, new polls actually show Obama doing better in Ohio than in Pennsylvania (it should be noted that polls in Penn. are a month older). Both RCP averages have Obama winning by 4.5% and 3.2% respectively (see previous links). Some have suggested that a recent referendum on collective-bargaining rights for public sector employees may have pushed Romney’s support down in Ohio. Were these polls to translate into wins for Obama, Romney’s chances to win the election in 2012 look much different:

For Romney to win, he would need to net 100 EC votes out of 108; Obama, on the other hand, could win by taking just ten. This makes the polls in the remaining swing states critical to Romney’s changes; here is a list of RCP averages in the remaining states:

Colorado (8/4 – 12/4): Obama +4.5%*

Florida (1/19 – 1/27): Romney +0.3%

Iowa (7/5 – 11/29): Obama +2.6%

Missouri (11/9 – 1/29): Romney +1.5%

Nevada (10/20 – 12/20): Obama +3%

New Hampshire (11/28 – 2/2): Obama +3.5%

New Mexico (6/23 – 12/12): Obama +11%*

North Carolina (12/1 – 1/11): Romney +2.6%

Virginia (12/11 – 1/18): Obama +1.7%

(note: *only one polling organization used, I was unable to find polls for Indiana.)

Even if Indiana went to Romney, his chances of winning 100 EC votes from these states is low. The problem doesn’t just come from larger swing states like Florida and Missouri, but from smaller ones as well. If Ohio goes blue, states as small as New Hampshire and Nevada could tip the EC advantage in Obama’s favor. Expect campaigning in the buckeye state to be brutal. Some speculate that the recent jobs report will alter the dynamics of the presidential race, in what ways remains to be seen. I, for one, plan on watching these polls obsessively over the next year; so much can happen between now and November!

The US and EU at a Crossroads: Austerity vs. Expansionism (extra spergy)

After months of mental stagnation I’ve decided to return to the world of blogging with an extra spergy post on the economic policies being considered on both sides of the Atlantic. Before I expand on this subject I want to send a special thanks to economist bloggers Paul Krugman, Brad DeLong, and Matthew Yglesias for inspiring me. I absolutely don’t belong in the same category as them but I feel so much better informed by their blogs. For anyone looking to learn a little bit more about economics or economic theory I highly recommend following these blogs. For additional perspectives from economists you should also consider the blogs referenced in this compelling economist article.

The topic for this post will be the economic policies that are currently being considered in both the European Union and the United States. Before I go further I want to define two terms that I will be using a lot in this post:

Austerity: “In economics, austerity is a policy of deficit-cutting, lower spending, and a reduction in the amount of benefits and public services provided.^[1] Austerity policies are often used by governments to reduce their deficit spending^[2] while sometimes coupled with increases in taxes to pay back creditors to reduce debt.^[3]” (from wikipedia)

Expansionism: “some have linked the term to promoting economic growth (in contrast to no growth / sustainable policies).” (also from wikipedia)

While some time has passed since the debt ceiling standoff and subsequent downgrade by Standard and Poor rocked US markets, the debate remains central to US economic policy. In recent Republican debates austerity has been almost universally endorsed. Governor Rick Perry went  so far as to propose eliminating three government agencies, though which three is still up for debate. This stance on austerity has also been endorsed by Republicans in Congress, with multiple proposals to reduce government spending in the short and medium term.

Across the Atlantic, similar proposals have not only been proposed but have been implemented in several countries that were affected by the Eurozone debt crisis. Germany’s Angela Merkel has been one of the most ardent proponents in the Eurozone for an austerity-centered response to debt crisis. The economist states:

Italy and Greece, under new technocratic governments, may now be more serious about living within their means and reforming their faults. France, which has run budget deficits since 1974, is adopting austerity. Spain has introduced a constitutional debt brake.”

In both Europe and the United States austerity has been proposed as a solution to the risk of bond market action on sovereign bonds. I think it is critical to understand a few key elements of what this “bond market action” implies here. When governments seek to borrow money, they auction sovereign bonds denominated in the currency used by those respective governments. Governments then have to pay back those bonds with interest. This interest is called the “yield” and has an inverse relationship to demand for those bonds. So if a bond is in high demand, the yield will be low, while a bond with low demand will have a higher yield.

Ratings agencies, which represent the interests of bond-buyers will give ratings on sovereign bonds based on how likely they think they will be repaid. Even though a nation’s sovereign debt rating can be related to its yield, the two don’t always correlate to one another.  When the United States lost its AAA rating from Standard and Poor (the other two major ratings agencies kept the AAA for the US) stock markets lost record volume but demand for US sovereign debt actually went up. As I write this the yield on US 10-year bonds stands at 1.89%, while it stood at 3.01% on July 20th, 2011.

While 2% is considered serviceable, higher yields can cripple a country by forcing it stop borrowing altogether. Greek 10-year bonds have yields more than ten times higher than their US or German equivalent:

At present, Greece would have to pay 34% interest on a ten year loan. This has effectively locked Greece out of selling its debt. It would seem natural then, that the countries that are now bailing out Greece would insist that Greece cut government spending sharply and try to raise more taxes to cut its deficit. After all, if Greece were able to finance its spending without having to borrow money, yields wouldn’t matter, at least in the immediate term. Germany, the biggest Eurozone economy, has led the push for austerity in Greece and other Euro countries with dangerously high yields (Italy, Spain, Portugal, Ireland have all faced high yields).

There is a danger to this logic though, that comes with the effects of austerity. In return for the first bailout, Greece agreed to sharply reduce public spending, including cuts in pensions and wages for public sector workers, yet it still fails to meet deficit targets set by the EU. Germany is now proposing that the EU take direct control over Greece’s government spending, something deeply unpopular in Greece (source). The problem that comes from this arrangement is that austerity has not let to growth in Greece’s economy. In fact, since the first bailout in April 2010, Greece has seen its economy contract sharply:

This is as troubling as this looks, it easily could have been predicted. When you lower spending like Greece has done, you are in effect giving public sector workers/pensioners less money to spend, lowering demand. This weakens economic output across all sectors of the economy, as private businesses adjust to lowered demand by laying off workers and producing less. This does more than just damage the livelihoods of Greek citizens, it actually exacerbates the government’s finances. As Greece’s tax base becomes less wealthy, the government must either raise taxes further (which certainly does not stimulate growth) or continue to run a budgetary deficit just to maintain the status quo.

Greece is not alone in its struggle to grow as the effects of austerity bite, other Euro countries that have recently implemented austerity have seen growth slow:

This graph measures annual GDP growth in the Q3 2011, and with the exception of Slovenia, all of the worst performers had to implement some form of austerity in response to high yields/EU intervention.

It is not just the opinion of amateur bloggers (like me) or angry protesters in Greece that austerity alone cannot ensure debt repayment. Standard and Poor recently downgraded 9 Eurozone countries, and in its FAQ explaining the downgrades stated:

… As such, we believe that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers’ rising concerns about job security and disposable incomes, eroding national tax revenues.”

The German response to the downgrade borders on intransigence:

German chancellor Angela Merkel has called on eurozone governments speedily to implement tough new fiscal rules after Standard & Poor’s downgraded the credit ratings of France and Austria and seven other second-tier sovereigns.”

This is especially swaying because ratings agencies like S&P have no vested interest in placating debtor states, but instead act on behalf of creditors. Fears over German stubbornness over austerity has led to a recent outpouring of criticism from the world’s economic leaders. IMF head Christine Lagarde, US Treasury Secretary Tim Geithner, and Financier George Soros all warned of dangers of austerity at the recent World Economic Forum at Davos. At a separate summit, Nobel prize-winning economist Joseph Stiglitz warned that Germany was pushing Europe towards a suicide pact, saying:

It is like blood-letting, where you took blood out of a patient because the theory was that there were bad humours. and very often, when you took the blood out, the patient got sicker. The response then was more blood-letting until the patient very nearly died. What is happening in Europe is a mutual suicide pact“

It’s worth noting that Stiglitz had similarly critical things to say about US austerity, pointing out that the US has shed 700,000 public sector jobs over four years. While European austerity has been rightly criticized for its futility, it must be pointed out that Eurozone countries have faced something that the US has not, high yields. One of the most baffling aspects of the aspects of the recent push for austerity across the Atlantic is that, while the US has lost its AAA rating by S&P, its yields have stayed historically low. While it makes little sense for Greece to endure agonizing economic contraction from austerity, it makes considerably less sense for the United States to follow that path. While borrowing costs for the US government are historically low, unemployment remains stubbornly high.

It should be both shocking and perplexing that in spite of this Republicans in Congress have held up virtually every piece of expansionary legislation recently proposed. Republicans have been so opposed to promoting growth through legislation that they nearly blocked a tax cut designed to boost growth from being renewed until they came under intense political pressure and relented.

On both sides of the Atlantic there has been a drive for austerity that has hitherto done little to calm the markets OR promote growth. And while countries with high yields have faced inevitable pressure to reduce deficits, the real tragedy stems from the lack of leadership from countries with the room for maneuver to lead and coordinate expansionary policies. The political systems in Germany and the United States have both been alarmingly inflexible and wrong-footed in their respective approaches to promoting economic growth and stemming the threat of double dip recession.

An update on things.

As you might have noticed I haven’t updated this blog for some time, I’d like to address why this is and what I plan on doing about it.

Many things have come up in my life recently that have made it hard to focus. In addition to being unfocused for personal reasons, I have been struggling to find anything, ANYTHING positive to write about. The world economy is faltering as Italy’s 10-year sovereign bond yields approach unsustainable levels while my favorite sport is becoming a global story for all the wrong reasons. In truth, I was planning on writing a blog about recruiting class rankings vs. BCS rankings in college football but I can’t bring myself to even care about the sport right now, what happened at Penn State makes the entire exercise seem pointless.

So here’s where you can help, if you have any suggestions for a good blog post, please comment and I will give it all the thought and dignity it deserves, and possibly incorporate (read: steal) it into my blog.

If you have disposable income (not denominated in Euros please) consider sending it to RAINN, the group advocates for survivors of sexual violence.

I can assure you this blog is not dead, yet. (when the US sells ICANN to China I can’t make any promises though )

Academy Awards and the Internet: and the winner is…

Yes you read that correctly, this blog is not about East Asian geopolitics or the debt-to-GDP ratio of OECD members, this blog is about Pop Culture. I’ve been overwhelmed by the deluge of bad/terrible news relating to the economy and the state of world affairs lately. I don’t really want to know whats going in US/world politics right now. So instead I’ve decided to write a blog about something that mildly irritated me during the last Academy Awards winner. I have no qualms with The King’s Speech getting the award but I felt like it winning betrayed the  betrayed mainstream and critical acclaim The Social Network had received.

I felt like there was a generational gap in the two film’s importance. For me, and younger people I think Facebook’s cultural importance is ubiquitous. When the film came out its tagline was “You can’t make 500 million friends without making a few enemies” it seemed cool, and underscored the enormous importance of Facebook. The film reminded me of Pirates of Silicon Valley, or other films that helped to characterize the rise of companies that represented a sea change in society not just a new product that consumers bought. But this blog isn’t about my weird opinions about movies, it’s actually about the award itself.

The Academy Awards are one of the few non-sports TV events that I watch consistently. I’ve always liked that in order to win an Oscar, a film is not judged on its sales or its popularity, but by its merit. Recently I finally bothered to look into the rules for selection and voting in the Academy Awards. According to Wikipedia there were 6000 Academy Awards voters in 2007. For most award categories voters vote for awards that relate to their categories (actors vote for actors etc.), But a critical exception is voting for Best Picture, where all voters are eligible. While have no problems with the film industry being involved, but I think the vote would be fairer if film critics were given a share of the vote as well. I feel this way in part because my other TV-watching addiction comes from College Football, where human polls play a more important role than in any other sport. For years people have criticized the human elements of College Football in polls for being biased, and sometimes error-prone. Often there are ballots from the Coaches Poll where one or two teams in the  top 5 aren’t on their ballot at all, and coaches almost always rank their teams higher than average.

I can imagine voters for the Oscars are similarly prone to personal bias, though the large number of voters probably mitigates this risk. If it weren’t for two websites, I probably wouldn’t question the Oscars outcomes at all, most of the time I don’t see all of the nominated films anyway. But thanks to Metacritic and Rotten Tomatoes there are now more refined ways of determining how well received a film is with critics.

Rotten Tomatoes has been in existence for some time (I can recall reading it in high school) and its method has stayed simple and consistent for some time: select from a list of critics (a much wider list than metacritic) and determine whether each review is positive or negative, then give a percentage of all reviews that are positive. So, for example, if you wanted to know how many people thought The Sweetest Thing was utterly without merit (it is) you just on RT and, lo and behold, only 26% of critics wrote a positive review for the film. This was based on 107 reviews from sources ranging  from Richard Roeper of Ebert & Roeper to Christine Blosdale of BeatBoxBetty.com, a website that looks trapped in the 90s. Having a broad pool of reviews isn’t necessarily a bad thing, it helps to limit the impact of one bitter film critic rating a film “0″ and devaluing an otherwise popular film.

On the other hand, metacritic uses a very selective list of critics who mostly write for large publications (The Rolling Stone, The New York Times) and they average their scores for films using a 0-100 metric. Perhaps in response to this, Rotten Tomatoes now offers a “top critics” tab that narrows ratings to ~45 of the best reviewers. But this doesn’t change a fundamental difference between the two websites: one answers “how good do most critics think this film was” the other answers “how many critics thought that this film was good?”. I think both have their merits but metacritic’s strategy is more useful for determining which movies ought to win awards.

I’ve created bar graphs that compare films selected for the past four Oscars in the “best picture” category and I’ve ranked them by their metacritic score (underlining the film that actually won). I also listed Rotten Tomatoes’ percentages using the “top critics” option from the site:

Starting with 2007:

I think this year best summarizes the differences between the two methods: I liked Juno, I bet most filmgoers liked Juno, but that doesn’t mean that most people thought it was exceptionally good. I liked There Will Be Blood too but I think it represented a deeper meaning, a heavier and more complicated reality than Juno did, and simply asking critics if they liked a movie will never show this distinction. I wouldn’t draw too much from No Country for Old Men losing out as the difference was likely down to how much coffee Ebert drank when he wrote the review.

2008 shows more variation:

An interesting advantage of using metacritic scores over Oscar winner outcomes is that you can actually compare how good a year in film did compared to years on average. 2008 looks like a weaker year using metacritc. I agree that Slumdog Millionaire was the best film of 2008, but I don’t think it would have won in a different year. It’s also interesting to see how poorly The Curious Case of Benjamin Button and The Reader fare, perhaps I should note that The Dark Knight scored higher than the bottom 3 nominees with 82 on metacritic  : – )

2009 introduced a 10 nominee process:

The suspense of the Oscars race between The Hurt Locker and Avatar does not bare out when using metacritic, as the gap is wide. Avatar’s high chances at the Oscars could have been related to its reputation as a rev0lutionary step in film production and special effects in particular. Needless to say, critics were less impressed by this.

And now my favorite year, 2010:

I think 2010 was the best year in film in the past decade by far. Individual films from other years might compete on merit but 2010 had so many good films. I personally loved 127 Hours, Inception, and The Social Network for their own particular directions and thought/read mostly positive things about The King’s Speech, Toy Story 3, The Fighter and The Kids Are All Right. I didn’t watch/read about True Grit or Winter’s Bone. The only film I actually disliked was Black Swan, which I found to be too formulaic and predictable.

Finally, which of these films was the best overall? My final graph:

This is how metacritic views the nominees for “best picture” over the past four years. What do you think?