Economics! The Glue That Holds Our World Together

The people have spoken and we prepare to usher in a new administration. On first blush, it is impossible to guess with any certainty how great the course changes will be for our ship of state.

My blog friend Dan of tdaxp.com who was just as sceptical of Obama as I, wrote this post,Change.gov.

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Dan said:

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This is a good sign. Hopefully the transition from the Bush and Obama Administration goes well. The creation of the Office of the President-Elect and creation of the .gov domain name for it, imply that both the Bush and Obama teams are working hard to transition from one set of political appointees to another, but also demonstrate regime continuity to other countries, as well.

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I note that our nation has peacefully changed regimes 43 out of 44 times during our history. This change seems to be off to a smooth transition.

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Turning to the biggest challenge facing both the United States and in turn the nations of our shared World is the economic crisis. It is the first, and most important challenge for our new President and his team. As in past major System Perturbations, working together in a bi-partisan way is the only tactic that works. In our connected world this now means everyone.

To help illustrate my point, I will highlight a series of post this week by Steve DeAngelis of Enterra Solutions.

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Steve wrote this the day after the election.

On the day after elections in America, it seems like a good time to talk about democracy elsewhere. Politicians like to talk about politics and the ideologies behind their particular brand of politics. In the West, we are fond of democracy -- especially representational democracy -- and we try to spread the gospel about it wherever we go. Often we hear it in speeches like the one President Woodrow Wilson gave before Congress in April 1917: "The world must be made safe for democracy. Its peace must be planted upon the tested foundations of political liberty." Over a decade and a half before that speech, Wilson had defined what he meant by democracy.

.....My colleague Tom Barnett and I have preached that if you want to instill democratic principles in governments then improve the lives of the people in autocratic countries. Economic progress almost always precedes political progress. Asia provides two good examples of economics racing ahead of politics: relations between North and South Korea and relations between Taiwan and China. In both cases, economic ties are much stronger than political ones and economic policies in North Korea and China are much more liberal than political policies...

Read the whole post here: Economics Drive Political Change.

Steve then writes about how the effect of our own lax credit rules caused a butterfly effect that has spread it's effect across the globe.

We've all heard about the butterfly effect -- the notion that a butterfly can gently flaps its wings somewhere in the world and set in motion a series of events that result in catastrophic wind damage thousands of miles away. The current financial crisis is something like that. It began with easy credit being given to people who couldn't afford it and with so-called "liar loans." The simple act of lying on a credit form -- repeated hundreds of thousands of times -- set in motion a series of events that has resulted in catastrophic financial damage thousands of miles away in emerging markets. These emerging markets represent the future of the global financial system and governments are trying to find ways to throw them a lifeline.

Steve ends this post with these words of wisdom for our new administration.

Fear must be replaced with hope. At the same time, credit must be extended in an economically sound way. Consumption based on risky credit creates rather than solves problems. Romania sits on the cusp of prosperity and letting it slide back into the morass of poverty that gripped it while it was part of the Soviet bloc would be unwise. The same can be said about most emerging market countries. Financial isolation is no longer an option in a connected world. In the NBC television series Heroes, characters were told, "Save the cheerleader and save the world." Today's heroes need to save emerging market countries to save the world.

Read more...Trust and Credit in Emerging Markets.

In this last post, Steve DeAngelis explains why Americans should be concerned with economic conditions outside their own country.

He writes:

Many Americans who are worried about their economic futures wonder why they should be concerned about someone else's financial crisis half a world away. There are a number of reasons. It was the building boom in China that resurrected the slumping heavy machinery business in the United States. It has been consumers in emerging market countries who have helped ease America's trade deficit over the past several months. Emerging market countries are the West's best hope for reigniting a growing global economy and keeping them afloat so that they can continue to progress is critical.

The anger that has risen among the general public in the U.S. about the government's rescue plan demonstrates that they don't understand the difference between liquidity and solvency. The Treasury is trying to ensure liquidity so that insolvency doesn't become a bigger challenger than it already is. Insolvent companies are going to fail, but they need not drag down the entire economy. President Bush has called for an international meeting to address the global crisis; but Landler notes that "there is a limit to what the United States can do to solve the problems of these countries" because it is wrestling with major financial problems of its own.

"'The most important thing the United States can do is stabilize its financial system,' Mr. Lowery, of the Treasury, said. 'The other thing we can do is to support the actions taken by emerging-market countries.'"

Writing from the eastern side of the Pacific, Shawn of Asia Logistics wrap, has this post about our economic connectivity with Asia.

He begins:

Although most people understand that U.S. trade with Northeast Asia is quite large and significant, it is only tangible for many of us when you begin to break that trade down to a more local level. By using the term tangible, I am referring to the goods and services we buy, the companies or organizations with which we are employed, and the people with whom we interact on a regular basis.

Over the next few posts Shawn will offer a case study of a tangible economic connection between Korea and our own state of Georgia.

Shawn explains his motive this way.

My goal is to provide study material for those interested in better understanding the positive impacts of FDI on local, U.S. communities and also touch on what makes communities successful in attracting FDI. I believe the effort to educate others on the positive impacts of FDI is extremely important at a time when trade with other countries, including countries friendly to the United States, is more and more perceived as a negative for the U.S. economy.

Read more:

Case Study: South Korean FDI in the State of Georgia, Part I

At the top of this post I wrote that economics would be the most important task facing the new administration. To further illustrate that I offer this post by Thomas Barnett, who in this latest Sunday column, makes this observation and prediction about the legacy of the Bush-Cheney administration.

Tom writes:

Barack Obama's victory presents to America a wonderful opportunity to redefine our engagement with the world's rising great powers.

Along those lines, it's worthwhile to remember what Bush-Cheney got right with China.

....We were told by international affairs realists at Cold War's end that America would not be allowed to continue owning the world's largest gun, that other great powers would necessarily balance us symmetrically by creating one of their own.

This has not happened and isn't close to happening anywhere, not even with "rising China," whose military build-up specifically targets our ability to target their ability to target Taiwan's ability to defend itself....

Tom wrote that the most important non-issue since 2001 was:

The lack of a serious U.S.-China confrontation in the years since 9/11 is the most important dog that did not bark across the Bush-Cheney administration.

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In the grand sweep of history, this is arguably George W. Bush's greatest legacy: the encouragement of China to become a legitimate stakeholder in global security.

In true non-partisan form, Barnett in his sweeping grand visionary view made this comment.

Indeed, history will likely judge this success as greater than the Bush administration's failures in Iraq.

Barnett, who has publicly backed the change that he felt Barak Obama would bring to American leadership, ended with this important advice to the new government.

Democrats, who now control both Congress and the White House, would do well to retain the Bush administration's long-term perspective on China, especially during this moment of profound global economic uncertainty, when we need Beijing's help almost as much as it needs Washington's calm leadership.

Barnett: What Bush- Cheney got right with China .

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No nation can rule the world and try and impose it's will on others without unintended consequences coming back to haunt them. Our nation has been the catalyst for change that has benefited not only Americans, but people in every corner of the world. Let us hope we set our course carefully and sail on to meet the challenges and overcome them as we have been doing for the past 232 years.