What Is At Risk in Hong Kong Trade Negotiations?

The World Trade Organization talks began yesterday in Hong Kong. For those of us that may read occasional headlines about it all and wonder what all the hubbub is about, I've taken excerpts from articles over the past couple months leading up to the talks to develop some background on this event, or non-event whatever your point of view. My interest in this is about the subject of Globalization which to me sounds like in general a good idea. It appears to me that countries like the US and China or Japan and China have so much at stake in trade, they'll never consider going to war. I understand that there are many on the left hand of the spectrum that are fully against Globalization and free trade wanting instead to protect jobs in their own country. Such trade protectionism was rife during the Great Depression. I don't see any evidence that it did anyone any good, in fact, I've seen some say that it made it worse. History seems to have the view that WWII and it's growth in production and trade of war materials was the event that ended the Depression.
Let's overview the spectacle before digging into some of the details. The main issue running through the articles I reviewed is whether the talks are important or not. Everyone seems to like the idea of free trade, but everyone has a different idea of what that means.
Of significance is the location, Hong Kong, now a province of China, an apparently former communist country run by a bureaucratic government. Hong Kong has a level of freedom not allowed in the rest of China.
International Herald Tribune

When progress slowed at the WTO in the past, the United States shifted its attention to bilateral and regional trade agreements. Those agreements are a relatively easy way to score political points at home, and they can also be used to reward individual countries that have supported American goals in foreign policy. For example, the news release announcing the White House's intent to negotiate deals with Oman and the United Arab Emirates quoted the following passage from the 9/11 Commission's report: "Muslim countries can become full participants in the rules-based global trading system as the United States considers lowering the trade barriers with the poorest Arab nations." If the United States expanded its bilateral negotiations to include mid-size developing economies that it also wants to cultivate politically, like Pakistan or Indonesia, it would probably get the EU's attention. To ensure equal terms of trade with these countries, the EU might prefer to negotiate alongside the United States in the WTO.


On the other hand, a shift toward bilateral and regional deals might suit the EU just fine. Indeed, the EU has been the world's most successful negotiator of these pacts, with about 30 of them confirmed or in progress. And a shift away from the WTO would allow the EU to maintain its cherished system of trade preferences for member nations' former colonies in Africa, the Caribbean and the Pacific. The more the EU has to cut its tariffs, the less meaningful are the preferences granted by that system. What if the EU keeps stalling, the United States loses interest rather than taking the EU's side and then the EU also moves its business elsewhere? The losers would be the developing countries that are petitioning the EU for more concessions. In this light, their impatience with the EU may be counterproductive.


Among the smaller developing countries, especially those that rely on agriculture, a counterproductive position could become downright disastrous. Many of them went into these talks expecting freebies. The talks were called a "development round" because they were supposed to leverage trade as an instrument for economic growth in underdeveloped areas - a goal that would probably require some preferential deals for poor countries' products. Yet these same poor countries generally lack the resources to engage in nonstop, high-level negotiations with the likes of the EU and the United States. That has left Brazil, India and occasionally Pakistan taking the lead in demanding that rich countries open their markets, especially for crops.


If the talks collapse because of the demands by Brazil and India, the poor countries will be left with nothing, even though their economies are so small that they pose little threat to markets in the wealthy nations. The question is, could they persuade Brazil and India to lower their expectations? They may not have to. Mandelson has been pushing an "aid for trade" package that would require all of the WTO's industrialized members - which were not named specifically - to open their markets to the poorest countries' exports. The proposal would not, however, eliminate the kind of non-tariff barriers that keep many exports out of the EU.

These trade talks have brought with them thousands of protesters. Some are hard core anarchists, the kind that created much controversy in Seattle in 1999. Some are vocal advocates for their own livelihoods that appear at risk. Others are trade unionists concerned their interests, such as job security, are not represented.
Washington Post

Thousands of demonstrators from more than a dozen countries marched through Hong Kong on Tuesday, some scuffling with police and others diving into the city's harbor in protest, as a World Trade Organization meeting opened with wealthy and developing nations deadlocked in talks over a global trade accord. Several dozen protesters, most of them South Korean farmers angered by proposals to lower agricultural tariffs they said protect their livelihoods, threw eggs and plastic bottles at police restricting access to the meeting site, then struck them with bamboo sticks in a failed attempt to break through.


Hong Kong police (R) clash with protesters during a demonstration against the World Trade Organization (WTO) December 13, 2005 in Hong Kong. Hong Kong riot police used pepper foam to repel several dozen protesters who tried to gain access to the site of the WTO ministerial talks on the first day of the WTO conference being held in the Chinese territory. About a hundred other Korean activists jumped into the cold waters of Victoria Harbor wearing life preservers and tried to swim to the convention center but were cut off by police patrol boats. Several activists were taken to hospitals and one was reported in serious condition.


But on the opening day of the WTO's biennial ministerial meeting, meant to lay the groundwork for a global treaty by the end of 2006 that would cut trade barriers, police prevented the kind of violence that disrupted the 1999 meeting in Seattle and the 2003 event in Cancun, Mexico.

The other new major player in world trade and champion of "outsourcing", India, is pressing for it's own interests and sounding like they are willing to negotiate an exchange of concessions.
International Herald Tribune

India, among the pioneers of outsourcing, is pressing wealthy countries to make a commitment not to enact legislation that would prohibit offshore services like call centers and software development. It is also urging them to make it easier for outsourcing companies to send employees to the West on temporary visits to manage customer relations and to sell, install, maintain and service their products. "Nobody is going to give you work to design software if they know you can't even get a visa to come install it," Kamal Nath, India's commerce minister and its principal trade negotiator, said in a telephone conversation.


As in agriculture, negotiations on services before the Hong Kong meeting have dashed hopes of a major agreement. In exchange for easing restraints on outsourcing, rich countries want India to open more widely to foreign investment, particularly in retailing and banking - two sectors jealously protected by the trade unions allied to India's coalition government. But Nath went further than he had previously gone in hinting at a possible deal.


"They are not off the table," he said, referring to retailing and banking. "It needs to be negotiated. I cannot spell out my negotiation. But I'm flexible on this, provided I get some movement on Mode 1 and Mode 4," the bureaucratic terms for outsourcing regulations.

Meanwhile, the other apparently former communist country is working on it's membership agreements.
RIA Novosti

Russia hopes to complete bilateral talks on accession to the World Trade Organization with two or three more countries and sign final agreements with four or five at the sixth ministerial conference in Hong Kong, an economy ministry official said Wednesday. Maxim Medvedkov, head of the trade relations department of the Economic Development and Trade Ministry, told journalists that Russia still had not completed talks with the U.S., Canada, Australia, Switzerland, Uruguay, Costa Rica or Colombia. Bilateral talks have been concluded but final agreements remain to be signed with Brazil, Argentina, Nicaragua, the Philippines, Paraguay, Dominican Republic, Moldova, Honduras and Panama.

A most unlikely country to open trade with Israel, Saudi Arabia is eagerly planning to build it's trading ties with the world, including as it is required, with Israel.
BBC

The World Trade Organization (WTO) has approved Saudi Arabia's application for membership after 12 years of talks. The world's largest oil exporter will become the 149th member of the WTO in 30 days' time. The country will need to adopt the entire body of WTO legislation, a process that involves liberalization of currently restricted sectors. Saudi Arabia must open its long protected economy to the outside world, including fellow WTO member Israel. The accession will enhance the business environment in Saudi Arabia by adding more transparency and predictability, says Hashim Yamani, Commerce and Industry minister for Saudi Arabia. Saudi Arabia's participation in the Arab League boycott of Israel will thus need to be reviewed.

Yet, with all the hoopla, there is little hope for a major break through. In fact, the focus of the conference may be only about opening trade restrictions for the poor nations of the world. That will not come without controversy.
New York Times

Pascal Lamy, director general of the World Trade Organization, and John Tsang, Hong Kong's trade minister and chairman of the W.T.O. ministerial conference here, have called with increasing emphasis in the last few days for a detailed agreement eliminating all duties and quotas on the exports of at least 32 of the world's poor countries. The move to focus on trade by the poor is drawing support from the European Union and Japan, as well as from some of the more economically viable developing nations. It comes as efforts for a deal on agricultural subsidies have stumbled.


But this emphasis on poor countries poses potential difficulties for the Bush administration, which has raised concerns while accepting that some kind of agreement is needed on trade relations with the poorest among third world economies. The administration faces pressure from Southern states like North Carolina on cotton, particularly garments. While the United States allows duty-free, quota-free imports of garments from many poor countries in Latin America and Africa, industry groups in textile-producing states and their political allies in Congress oppose the elimination of duties on garments from Bangladesh, a poor nation that is one of the world's largest exporters of clothing.


Industry groups and some Southern politicians also oppose deep cuts in cotton subsidies that help American farmers compete with producers in the poorest sub-Saharan countries, like Mali and Chad, though some limited cuts have been made. The United States did support an initial agreement this past Tuesday to allow poor nations greater access to generic drugs in health crises. But American officials have been calling for a stronger focus here on the W.T.O.'s longer-term goal of removing barriers to global farm trade, and not just discussions on trade with poor countries.


The agriculture negotiations have stalled, largely because of a reluctance by the European Union to accept steep cuts in domestic subsidies.

What does the EU want for steep cuts in domestic subsidies?
New York Times

A Doha deal will work only if everyone benefits. If we are to open our agricultural markets further, our companies need to find new opportunities to invest and trade in other markets and in other economic areas - including real market opening in industrial goods and services in rapidly growing countries. Those countries need cheaper, more competitive goods and services, too, for their own development. Brazil, for example, should offer to reduce import tariffs on industrial goods. Brazil should also offer greater access to foreign providers of services and help establish a more fruitful process for international negotiations on services in the future. India should improve the tariff reductions it is offering on industrial goods. Both Brazil and India should recognize that there are differences between the needs of developing countries: they should consider what they can do to improve trading conditions for the poorest, for example, by themselves moving toward duty- and quota-free access.


The United States also needs to improve its agricultural proposal by reducing domestic subsidies and food aid programs that distort trade. It needs to improve its offer of market access for providers of services. We would be delighted if Rob Portman, the United States trade representative, followed Europe's example by granting duty- and quota-free access for imports from least developed countries, and lowering America's cotton subsidies. Europe could also use American support as we seek to stem the progressive abuse of anti-dumping suits by tightening W.T.O. rules.


If our W.T.O. partners take serious steps in these areas, they might have the credibility to ask Europe to revisit its agricultural policies. Until then, Europe will stand fast in the belief that at this moment it is not another move by the European Union that is needed to ensure the success of the Doha Round.


Peter Mandelson is the European Union's trade commissioner.

So major agreements may not happen, and smaller regional agreements may become the movement of the future. The US is working on some, but Bush has a way of throwing his weight around, trying to bully his way towards a favorable agreement. Meanwhile, EU and our neighbors to the south have been more effective in making these agreements.
BBC

Venezuelan President Hugo Chavez will now be able to join in trade negotiations with leaders from Brazil, Argentina, Paraguay and Uruguay. Chavez has long talked of following the dream of South America's liberator Simon Bolivar to create a united continent. But some fear the left-winger could cause as much discord as unity. "I give a hearty welcome to a friend," said Brazilian President Luiz Inacio Lula da Silva. "Mercosur continues to be an engine for economic integration, even more important for our countries."


Some business leaders in Brazil and Argentina are worried that Mr Chavez's anti-American and anti-free trade rhetoric could jeopardize trade talks with the US and Europe. However, there is a plus side, says the BBC's Tom Gibb in Sao Paulo. Mercosur has clauses about democracy, and those who mistrust the authoritarian leanings of Mr Chavez would like him to sign up to these, our reporter adds. In the meantime, the South American countries are keen to take up offers of cheap Venezuelan oil.

But is it really true that regional agreements hurt the future of the poor countries? There is a different view.
UNDERNEWS

Rodrik doesn't buy the argument that the key to rapid development for poor countries is their willingness to liberalize trade. Nor, for that matter, does he think boosting aid makes much difference either. Looking around the world, he looks in vain for the success stories of three decades of neo-liberal orthodoxy: nations that have really made it after taking the advice - willingly or not - of the IMF and the World Bank.


Rather, the countries that have achieved rapid economic take-off in the past 50 years have done so as a result of policies tailored to their own domestic needs. Vietnam shows that what you do at home is far more important than access to foreign markets. There is little evidence that trade barriers are an impediment to growth for those countries following the right domestic policies.

The Rise and Fall of the US As Superpower

Many people, including myself, believe we are witnessing historic times. Gregory Djerejian at THE BELGRAVIA DISPATCH this morning asked what I think might be a good summarizing question about this past century. He is always a good read, though I frequently disagree with him.

50 yrs or so from now--when major historians look back at the last 100-120 yrs of American history--what date will be deemed to have had a larger impact on the course of this nation's history, Dec 7, 1941 or Sept 11, 2001? There are a lot of angles to approach this essay at prognostication, but as 9/11 is so much fresher in all our minds, let me just remind readers of the critical import of America's decision to join the allies in WWII, ie. how the future of Europe was changed so materially, how an entire post-war security architecture was created by the likes of Dean Acheson that still exists to this day, how the post-war settlement helped lead to a fifty year Cold War with the Soviets, and so much more. Big stuff, all this, very obviously. There is also, of course, the post-Cold War era that lasted from the fall of the Berlin Wall to, I guess, 9/11 (though some would say the magnitude of 9/11, while huge, doesn't supersede the post-Cold War era so that, often, you hear that we are inhabiting both the post-Cold War and post-9/11 era, not merely the latter). Still, the post-Cold War era (remember Herbert Walker's New World Order?) now seems to have been relegated to something of footnote status, with the demons of unleashed nationalism that wracked the Balkans (and still do parts of the FSU), now so overshadowed by the reining hegemon's robust pursuit of the global war on terrorism (nationalist fervor was often portrayed as one of the major potential perils stemming from the end of the Cold War).

I think the primary driving force of history is economics. 12/7 and 9/11 represent two catalytic dates in US history. By it's shear size, the US economy has a overwhelming effect on the world economy, therefore world history. No one likes bad news, and I'm afraid my this post and the blog's economic catogory is full of it, especially bad economic news. However, more blogs are raising similar alarms. I can only hope I am wrong.
Imperial Admiral Yamamoto was indeed prophetic in his statement, "We have awakened a sleeping giant and have instilled in him a terrible resolve". After successfully propagating a war against the Japanese in the Pacific and assisting the European allies in defeating Hitler's Germany. The industrial might created prior to, during and after WWII, created the conditions where the US became the sole superpower after "winning" the Cold War.
The Marshall Plan and the US occupation of Japan led to rebuilding Western Europe and Japan into more modern industrial nations remaking the world economy for likely the next 60 years.
Globalization combined with the events on and following 9/11, will likely remake the world again. This time, however, the decline of influence of the United States will be the telling factor. There are several reasons for this coming decline, but the writing is already on the wall and it seems unlikely the momentum of history will redirect the outcome.
One of the primary features of this coming change is the deindustrialization of the United States. Jobs have move away from heavy industry into service industries. Rather than rebuilding infrastructure in the US as it depreciated however, economic leaders have rebuilt outside of the US where labor is cheap. Now, most consumable goods in the World are produced overseas, creating an oppresive trade deficit in consumer America driving the world economy.
By shear numbers of people, the dominant labor force now lies in Asia. China and India are the future economic superpowers. Perhaps even more significantly, universities in Asia are turning out more engineers and scientists than the United States. Already, US based corporations have to look to new graduates from Asia to fill positions here and US giants like Microsoft are building satelites in India to ensure availability of highly skills specialists. Already, the US is being displaced in it's dominant position in the modern industries that have produced the highest wages in the world.
Meanwhile, in the US, wages have stagnated, largely because of the competition overseas. Unemployment has remained high despite signs of recovery in the economy again because of competition overseas and vigorous outsourcing to cheaper resources overseas.
Two other factors have combined to apparently lock in this inertia in the US economy. The National Debt has ballooned beyond comprehensible proportions. Future tax resources will be largely consumed by interest and principle payments, largely to China and Japan. Much has been said about the coming correction in the world imbalence where interest rates will rise precipitously. Many have been counting on the falling value of the dollar will bring about a rebuilding of the industrial base in the US and more competition of US goods in the world economy. Or will it?
The second event that seems to have locked in future events is the recapitalizing of the upper class in America. There are now more billionaires in the US than ever. So there should be plenty of eager investors to rebuild the US infrastructure. Or are there?
American consumers drive the world economy. But the current imbalence created by overwhelming debt and trade deficit ensures current conditions have to change. The devaluing of the dollar may well made American goods more competitive, but will it be enough to offset the cheap labor in Asia? I don't think so. So when the correction comes, interest rates will rise, demand for goods from the US will decline, world recession is the result and even deflation is a risk. A new depression is not beyond belief. The chaos that raged through Argentina in the 1990's may threaten the US. Even the perenial optimist Greenspan is warning of a difficult correction for the world.
Recession is not often a time of investment. Labor will remain relatively expensive in the US and there will continue to be a shortage highly trained engineers and scientists in the US. US and other investors are much more likely to invest their fortunes in Asia than in the US. The US infrastructure will probably continue to decline, the middle class buying power will likely have to decline just to keep up employment, and fewer middle class youths will have the means to go to college.
Government will be in no position to intervene. The National Debt has effectly "starved the beast" because no one will support raising taxes sufficiently to offset rising interest payments. The current Congress continues to try to cut taxes without any justification of than to line the pockets of their constituents.
9/11 signals the beginning of the decline of Superpower America. It seems unlikely the US will dig itself out of stagnation in the first part of the 21st Century. Asia by then will dominate the world economy and very likely world politics. We will be the largest debtor nation in the world for along time. After Bush's incompetent foreign policy and treasonous economic manipulation, our prestige is all but lost, our world power rusting away. The shining city on a hill, is dimming, decline, and in danger of falling away from it's central role in history. Worse yet, will the US engage in other futile aggressive moves like the invasion of Iraq to forstall it's fall?
Is there a way to avoid this scenario? I don't know of one. It's possible I over estimate the impact of our current fix and the solution show it self. It seems likely to me that anything even hoping to be effective will also be very painful and cost our national character greatly. Our values as a nation will be tested. Will we retain our optimism as a country? I can only hope.

Starving The Beast

Since Reagan, Republicans have been committing deliberate sabatoge of the American economy, so far at the expense of our children. The tactic is called "starving the beast". I've been talking about this topic since the second month of this blog and a half dozen times since then. I suppose I continue to be as disbelieving that first, a loyal American would do this and that the voting public seems blissfully unaware while they too pile up their credit card accounts. While the latter appears to be true, the guys doing this are loyal to capitalism, even if it's the death of the American way of life.
Here is a post that is very visual and understandable. Even the creator of the chart is astounded by it's implications. Hat tip to Brad DeLong for the link.
Angry Bear

Even with the Bush administration's probably unrealistic goals for cutting NDNHS discretionary spending, their budget plans will result in on-budget deficits of $400-$500 bn (roughly 3% of GDP) for the next several years. And of course, this forecast assumes steady real GDP growth of roughly 3% per year. Much more likely, of course, is that there will be a recession sometime in the next five years, which will cause the deficit to be much, much larger.


But the truly remarkable thing about the graph is just how far federal revenues have fallen over the past fifty years. It appears that successive tax cuts, especially those by Reagan and Bush, have driven down federal revenues in a permanent way. Equally important, it is clear that those tax cuts have NOT driven down federal spending; the only substantial decline in federal spending happened during the 1990s, following a major tax increase in 1993. Yet more evidence that the "starve the beast" theory has the empirical validity of the Ptolomaic solar system.

Gambling With the US Dollar; The Interest Rate Gambit

Today in Brad DeLong's Semi-Daily Journal there is a link to his upcoming article in The Economist's Voice. He presents a cohesive analysis of the debate about the stability of the world economy in view of America’s huge current-account deficit. The question is, who is going to be pinched? I think the Bush Administration strategy is to pinch the US worker and the world economies that export to the US and the US worker will suffer the consequences if the Bush Administration gets it's way. Here is the essense of the debate.
J. Bradford DeLong (2005) "Divergent Views on the Coming Dollar Crisis", The Economists' Voice: Vol. 2: No. 5, Article 1.

International finance economists see a far bleaker future. They see the end of large-scale dollar-purchase programs by central banks leading not only to a decline in the dollar, but also to a spike in U.S. long-term interest rates, both nominal and real, which will curb consumption spending immediately and throttle investment spending after only a short lag.


But, according to the domestically oriented macroeconomists, this devaluation is not a large problem for the United States. (However, it is a very big problem for economies that export to the United States.) As the dollar’s value declines, U.S. exports will become more attractive to foreigners and American employment will rise, with labor re-allocated to the newly-vibrant export sector. It will be like what happened in Britain after it abandoned its exchange-rate peg and allowed the pound to depreciate relative to the Deutschmark, or what happened in the U.S. in the late 1980’s, when the dollar depreciated against the pound, the Deutschmark, and—most importantly—the Japanese yen.


Is the U.S. vulnerable to a full-blown dollar crisis? Why are international finance economists scared and jittery, but domestically-oriented macroeconomists much less concerned?


To be sure, international finance economists also see U.S. exports
benefiting as the value of the dollar declines, but the lags in demand are such that the export boost will come a year or two after the decline in consumption and investment spending. Eight to ten million workers in America will have to shift employment from services and construction into exports and import-competing
goods. This cannot happen overnight. And during the time needed for this labormarket adjustment, structural unemployment will rise.
Moreover, there may be a financial panic: large financial institutions with short-term liabilities and long-term assets will have a difficult time weathering a large rise in long-term dollar-denominated interest rates. This mismatch can cause
financial stress and bankruptcy just as easily as banks’ local-currency assets and dollar liabilities caused stress and bankruptcy in the Mexican and East Asian crises of the 1990’s and in the Argentinean crisis of this decade.


When international finance economists sketch this scenario, domestically oriented macroeconomists respond that it sounds like a case of incompetent monetary policy. Why should the Federal Reserve allow long-term interest rates to spike just because other central banks have ceased their dollar-purchase programs? Should not the Fed step in and replace them with its own purchases of long-term U.S. Treasury bonds, thereby keeping long-term interest rates at a level
conducive to full employment?


To this, international finance economists respond that the Fed will not wish to do so. When forced to choose between full employment and price stability, the international finance economists say that the Fed will choose price stability, because its institutional memory of the 1970s, when inflation ran rampant, remains very strong. A fall in the value of the dollar raises import prices, and thus is as an inflationary shock to the supply side of the economy just as the oil shocks of the 1970s were. The Fed today puts preserving its inflation-fighting credibility as priority one. The Fed will want to raise, not lower, interest rates; to sell, not buy, bonds; and thus to reinforce rather than damp the interest rate rise coming from the shift in the exchange rate.

Although I'm not an economist, I have great faith in a principle of wide disagreements with which many are familiar. The truth always lies between. Both the domestic and the international economists are right and wrong. The Fed has never been too worried about unemployment as long as there is a risk of inflation. However, they will not allow large financial institutions to panic either. They will instead balance the risk of inflation with a floating cap on high interest rates.
Meanwhile, China and Japan will not allow their economies to suffer under a falling dollar. They will continue to purchase dollars at a rapid although reduced rate, as much as their economies will allow.
The US imports the lion's share of the world's international trade, exporting a relative small proportion of it's imports. Meanwhile, the US is steadily borrowing most of the world's surplus income. The US consumer has been saving next to nothing and running up his own debt. The US consumer like the US government, is living well beyond it's means.
There is a reason for this consumer debt. Wages have stagnated and show all signs of begining to fall. Consumers have developed an sense of entitlement to a standard of living that appears to be unsustainable in the future. The cost of living will continue to rise driven by increasing interest rates and inflation, while wages fall because of the worldwide competition of Globalization.
The US worker is probably the least resilient of those involved. As interest rates rise the housing price bubble will deflate or collapse, depending on the speed of the interest rate increase. Workers will be saddled with mortgages that will not pay off upon selling the homes. Foreclosures will skyrocket, bankers will acquire property like mad. Mortgage equities, largely owned by pension funds will crash. The pension fund crisis will be universal and the US worker will be left without a retirement income beyond Social Security, just as it is a target for cutting.
The Fed and the international bankers in China and Japan will ride the teeter totter, while the American worker sees his buying power dip drastically at first when unemployment peaks, followed by re-employment at a lower wage. The US economy will resurge in a much better competitive position in the international market but in a world with a slower growth pattern and higher worldwide chronic unemployment.
And what happens if some part of this balancing act panics and turns the wrong way? Worldwide ecomonic chaos could be the result.

The Decline of a Super Power?

It appears to be a slow news Saturday, so everyone is doing reviews of where we are, where we've been, where we're going. Perhaps the most important issue facing the US today is the state of the economy, something everyone seems to ignore, maybe because things are so bad, no one wants to look at it.
Harry Hutton has a very interesting list of prices. There is a hidden inflation factor in packaging with astonishing consequences.

Barrel of crude- $59
Barrel of Evian water- $500
Barrel of orange juice (London prices)- $927
Barrel of Hewlett-Packard printer ink- $470,638

Perhaps we have more income, but the marketplace has found even more ways to eat it up. So effectively the US middle class income has stagnated. We have more expensive tastes and toys, but we're less able to find time to express our new preferences, because we're working longer hours, and commuting longer distances.
Worldwide, the US economy seems to be teetering on the edge of some sort of fundamental change. Brad DeLong's Semi-Daily Journal quotes from the NY Times.

The United States trade deficit widened by a surprisingly large 11 percent in September, reflecting both a surge in energy imports after Hurricane Katrina and a steep drop in airplane exports because of a strike, the government reported yesterday. The trade gap with China also set a record. The United States imported $66.1 billion more in goods and services than it exported in the month, breaking the record of $60.4 billion set in February, the Commerce Department reported. The trade deficit in the first nine months of the year totaled $529.8 billion, about 18 percent higher than in the first nine months of 2004. That figure itself was up 21 percent over the period in 2003.... "One-third of the widening of the deficit is the oil bill, and aircraft sales explains most of the rest," said Carl Weinberg, chief global economist at High Frequency Economics, a research firm.

"Only with very weak U.S. growth or a major drop in the U.S. dollar will the trade deficit improve on a sustained basis," said Ethan Harris, chief United States economist for Lehman Brothers. "The reason you need these dramatic movements is that the U.S. has, according to almost every study, an incredible appetite for imports."... "If the Chinese abandon our Treasury market, we would see an enormous jump in interest rates," Mr. Harris said, "and, of course, if we stop buying their products their economy is going to go into recession." The Chinese government reported yesterday that its October trade surplus with the rest of the world jumped to a record $12 billion in October. It had a total trade surplus of $80.4 billion for the first 10 months of the year, 2.5 times the figure for the period last year

The time we have to get the U.S. trade account unwedged is limited. We don't know how long we have before we enter the webzone, but we have a year less than we had last November.

It's not clear what DeLong means by the "webzone", but one of his commenters suggests a scenario I've been writing about and referencing for a time.

The slow decline of the US I see as inevitable. The graceful acceptance I see as highly unlikely. One could view Iraq as exactly what this sort of process might look like. Consider Suez in 1956. If Britain had not been through WW2, that's the sort of thing they might have gone to war over. And, of course, they would have won the war, but at some cost. Likewise I imagine the US will just keep over extending itself, occasionally kicking the sh_t out of some small country to make itself feel good, while, every day, the rest of the world gets on with the business of building a world that does not require, and is protected from, the US. (cf China doing booming business with Iran.)

I think that the risk of further aggressive actions in the face of decline is very high. Ronald Reagon tapped on the dissastisfaction of the middle class, and Bush renewed that link. Americans are frustrated for very complex reasons. My own personal beliefs focus on the creation of greed and product demand by advertising, combined with the shifting of wealth to the upper class. We are no longer as well off as many of our parents, despite having dramatically increase our income in this baby boomer generation. So the support for living on credit is massive.
The excess and chaos continues. King of Zembla posts on the biggest debtor nation in the world:

Our eminent colleague Richard Cranium of the All Spin Zone toasts the Bush administration for passing a couple of extraordinary milestones:

President George W. Bush and the current administration have now borrowed more money from foreign governments and banks than the previous 42 U.S. presidents combined, which the Blue Dog Coalition in the House of Representatives called “astounding.”


Throughout the first 224 years (1776-2000) of our nation’s history, 42 U.S. presidents borrowed a combined $1.01 trillion from foreign governments and financial institutions according to the U.S. Treasury Department. In the past four years alone (2001-2005), the Bush Administration has borrowed a staggering $1.05 trillion.

And:

The Commerce Department reported Thursday that September's trade deficit was a record $66.1 billion, 11.4 percent higher than August and much worse than economists had been forecasting. Analysts blamed much of the rise on hurricanes Katrina and Rita, which shut down production at Gulf Coast refineries and pushed oil prices to record highs. The trade deficit so far this year is running at a record annual rate of $706 billion, putting it on track to far surpass the old record of $617.6 billion set last year.


Critics say the deficit is the result of the Bush administration pushing free trade agreements that reduce the cost of products for U.S. consumers but send American jobs overseas, where labor costs are lower. The United States has lost 3 million manufacturing jobs since mid-2000.

We'd like to join the celebration too, if we may by saluting President Bush for achieving a downright gaudy 36% approval rating in the latest Fox News Poll.

Bush's popularity crash seems to be the only good news.