San Diego Wildfires

A recent post on The News Delirium discusses the effects of the wildfires throughout San Diego and the many economic repercussions that we face. However, what this post focused on was the news media and how it functioned more as a public service than a business for once. The author of this article makes the argument that "News is a public service, and for all the talk that television news is obsolete, this event proved once again that it is far from that status. From the first spark on Sunday to the relief drives on Friday, those involved with local news stations from the high-level managers to the unpaid interns all had a part in getting the message out, once again proving the necessity of a well organized, intelligent news media." Whatever the case may be, it will be interesting to see how news organizations respond in the future to crises of this kind.

The Antithesis of Globalization?

Get ready: US economic policy may soon make a complete u-turn and bump into several obstacles along the way. Hopefully it does not, but economic professionals may surprisingly pave the way for such a misguided point of view.

Recent and methodical analysis suggests that the effects of globalization are doing more harm than good for the individual. This is actually the conclusion of the latest report by the International Monetary Fund (IMF), one of if not the most long time celebrated supporters of globalization and its heralded contributions to the progress of mankind.

According to the report, the rapid rise of globalization throughout both rich and poor countries has improved their overall incomes, but at the same time increased income inequality among individuals. However, this larger gap between the earnings of more and less skilled workers represents a good consequence of globalization and not a bad one.

Over the past two decades, this inequality gap is attributed to the faster growth rates of incomes for the more skilled in greater quantities than the less skilled and means that “inequality has risen in all but the low-income country aggregates” (“Income and Inequality”). As countries in Latin America, Asia, and Eastern Europe have liberalized their economies, the level of income between rich and poor has widened. The surprising exception is sub-Saharan Africa where the income gap has diminished, but the IMF does not offer any clues as to why this anomaly occurs.

To understand why this spread in inequality may in fact be benevolent, one must first question what portion of this rise in inequality is in fact due to globalization and how much is due to other factors “such as the spread of technology and domestic constraints on equality of opportunity." The IMF found the effects of greater globalization are best grouped into three factors: “increased trade openness, an increase in foreign direct investment, and increased technological change” that have all increased per capita incomes of developing and developed countries (“Income and Inequality”).

However, the role of technology in increased globalization has most strongly created the inequality gap observed by the IMF. Since technological change favors those with higher skills such as using a computer, modern technology “exacerbates the skills gap” and “adversely affects the distribution of income in both developing and advanced economies by increasing the premium on skills and automating relatively low-skill inputs” (“Income and Inequality”). Further, newer technology favors those with better access to education and reinforces the skills gap.

Foreign direct investment also increases the “rewards for higher-value-added activities” and creates greater demand for the more skilled. On the other hand, increased trade openness has had the opposite effect and reduced income inequality according to the IMF. However, “the main factor driving the recent increase in inequality across countries has been technological progress” (“Income and Inequality”)

Thus, one must determine if these three variables effect upon the widening of the inequality gap is a positive result of globalization. Certainly greater inequality is a bad thing. However, the increased income gap by education “means that the returns on investments in schooling increased” (Becker-Posner). In other words, investment in human capital is paying off more and more as economies become more productive. This is certainly not a bad phenomenon, but it requires better access to education throughout the world.

Additionally, “although foreign direct investment is associated with greater income inequality over the period of this study, it is associated with higher growth overall” (“Income and Inequality”). The IMF thus believes that over a longer period of time, the effects of this factor of globalization would reduce income inequality.

Lastly, the IMF concludes that “trade globalization is not found to have a negative impact on income distribution in either developing or advanced economies” (“Income and Inequality”). Consequently, increased trade has actually diminished income inequality.

The report’s findings are summarized as follows: “Inequality has been rising in countries across all income levels, except those classified as low income” (“Income and Inequality”). Thus, while politicians from countries such as Africa and Latin America may condemn globalization, they misunderstand the problem. Their countries lack the greater access to education required to decrease income inequality.

Without doubt, this statement is of little comfort to the children of third world countries whose schooling systems are rudimentary at best. However, as the IMF report confirms, their problems are not the result of globalization. Instead, such countries must make increased access to education a key point on their policy agenda and not reduce foreign direct investment or suppress technological change. Hopefully the congresswomen and men in Washington agree with this assessment and do not scapegoat globalization as an easy way out of our problems.

Credit Ratings Agencies: What Were They Thinking?

Today Standard & Poor’s, the credit ratings agency, downgraded its ratings for several thousand bonds that invested in mortgage related debt in 2007. Of these securities, more than several dozen were even rated of the highest quality triple AAA and thus least likely to default (Source: New York Times).

However, as the recent credit crisis continues to play out and develop in greater and greater significance, one must ask: Why were these bonds rated so highly before? Investment banks are the result of such shoddily rated investments. Merrill Lynch posted a writedown of $7.9 billion in mortgage related securities this month; Citigroup posted a $3 billion writedown; and Morgan Stanley posted a $940 billion writedown also related to subprime mortgages. These record losses are phenomenal compared to past earnings due to trading at financial services firms. This is indeed exemplified by the mass number of layoffs taking place across Wall Street, such as the firing of Merrill Lynch CEO Stan O’Neal.

However, not all the blame rests upon the executives at these investment banks, hedge funds, and private equity funds. Investigation of credit ratings firms such as S&P and Moody’s must take place immediately. These firms rated as extremely safe thousands of securities related to the subprime mortgages whose values have plummeted in a matter of weeks. Nobody knew how to value these investments and now that firms have been forced to sell their investments to raise cash, the values of these debt instruments are literally reaping $0.20 on the dollar.

As the New York Times illustrates today:

"The action provides further evidence that lending standards remained loose even as default rates on home loans made in 2005 and 2006 were raising alarms among investors and regulators this year. A recent investment bank report showed that loans made to borrowers with weak, or subprime, credit this year had higher default rates than similar loans in 2006 did at the same time in their lives.

S.& P. downgraded bonds worth $23.4 billion, or about 6 percent of mortgages classified as subprime and Alt-A that it has rated through June; Alt-A loans are made to borrowers with better credit. The bonds that were downgraded included 39 securities that had been rated AAA, the highest grade awarded by the agency; some of these were downgraded several notches to A. (Bonds rated at BBB and above are considered investment-grade securities.)”

Hopefully these companies are held accountable and mistakes of this magnitude occur less frequently in the future.

The American South: A Burgeoning Economy

America’s southern states throughout history have been associated with images of violence, backwardness, and racism. However, the picture of this region today is dramatically different as discussed in The Economist’s recent article “Goodbye to the Blues.” In this special report, the author traverses the history of the American South and delineates the Civil War as the pivot of the region’s dramatic change.

Before this conflict, the south was plagued by low average incomes, few industries besides agriculture, and slavery. After the conflict, none of these problems immediately disappeared. However, slavery was eventually abolished, new industries grew, and incomes began to rise into the twentieth century. Throughout this entire time period, violence was ever present. However, what the past has taught is that

“non-violence works, both in that narrow sense and in a broader one. An economic system based on free labor and free exchange is far more dynamic and adaptable than a system based on coercion. And a political system that heeds all voices is far more stable than one that heeds some and seeks to silence the rest.”

The article’s examples of individuals who have profited from the fruits of this new economy are particularly interesting. Their voices are positive and give hope to the future of these southern states.

“Last May, Matthews's granddaughter, Katrice Mines, joined the southward surge of young black professionals and moved to Atlanta, Georgia. Over a lunch of chicken with peaches, crushed walnuts and snap peas, Ms Mines admits that, before she moved, she was somewhat afraid of the South. But she quickly found a job, as an associate editor of the Atlanta Tribune, a black business magazine. Up north in Sandusky, Ohio, she had felt her talents were untapped. Down South, she feels more optimistic. Atlanta is majority-black. It is also rich, with more Fortune 500 headquarters than any other American city bar New York and Houston. “There are so many African-Americans in powerful positions,” says Ms Mines. “You can get your foot in the door.”

While Hurricane Katrina focused national attention on the many problems in New Orleans, one needs not look very far to see a renaissance of sorts occurring throughout the rest of the state and its border states. How the South’s success affects its culture, politics, and economy should thus prove to be very fascinating.

Crackdown on Immigration

As immigration becomes a heated topic of debate during the upcoming presdiential election, it is important to examine current events surrounding the issue. For example, Xandre in Cuentame Los Angeles posted some information on a recent massive sweep in Los Angeles that has deported hundreds. "The US Immigration and Customs Enforcement is on the warpath with 1300 arrests in the last two weeks at homes, workplaces and jails; 600 have already been deported, and ICE says there is more to come. Most of those picked up either have criminal records or failed to abide by orders for deportation. Immigrants' rights groups say there's a climate of fear—even among citizens and legal residents—with risk to the economy. Anti-immigrant groups say it's about time. We hear from all three."

These arrests are of economic and social importance, because of the jobs that will now go unfilled by those who have left the country. As other recent news articles have discussed, something needs to be done about illegal immigration and the sooner the better.

Religion: Just as Important as Economics

While analysis of American history is certain to delineate the importance of economics upon politics and public society, religion has played just as if not a more important role. Specifically, faith and spirituality always have held strong roles in radical social reform movements, where public intellectuals with theological backgrounds are at the front and center of them. This is the story of American history where change is inherent to the country’s democratic upbringing. However, according to Stephen Mack in “Wicked Paradox: The Cleric as Public Intellectual”, the men and women who advocated these revolutions are individuals “whose religious training and experience shaped their vision of a just society and required them to work for it” (Mack). This argument is proved further true by the public acts of religiously influenced individuals such as John F Kennedy, Al Sharpton, Jesse Jackson, Martin Luther King, and even Malcolm X. Therefore, American history proves that throughout time strong religious principles and beliefs instill the moral values that have allowed some of America's greatest public intellectuals to bring about social reform.

Indeed, public intellectuals in the church began one of the earliest social reform movements in America, the abolition of slavery. In the eighteenth century, before anyone else the Quakers questioned the morality of slavery and demanded its demise. The Quaker faith is a Christian religious denomination with a wide range of theological themes such as “peace, equality, integrity, and simplicity” (Hetherington). Members of the religion such as George Fox and Anthony Benzet are public intellectuals who literally became renowned for their fights against slavery (Duquella). Consequently, Quakers were radical Christians whose religious and moral beliefs of egalitarianism led them to conclude that slavery was morally repulsive. However, their moral beliefs soon spread to other public intellectuals such as Benjamin Franklin who turned abolitionist due to his relationship with Benzet (Duquella). Also, though not a member of any single religion, Franklin’s generic “religious experience shaped [his] vision of a just society” and must have at least partly influenced his acts in Congress that urged the abolition of slavery (Mack).

Nonetheless, this chapter of history characterizes American social reform’s relationship to spirituality only in its infancy. The American civil rights movement is perhaps an even better known blip in time where discrimination against African Americans was strongly denounced by many leaders who were influenced by religious beliefs. The civil right’s movement challenged discrimination through legislation such as Brown vs. Board of Education, but perhaps more importantly the concerted acts of individual citizens. For example, Martin Luther King urged tolerance and the mixing of all races. However, he stressed his religion in speeches such as where he states, “we are Christian people. We believe in the Christian religion. We believe in the teachings of Jesus” (Spartacus Educational). King wanted to achieve social change through nonviolence and very frequently suggested the influence Christianity had upon his actions and those of others. For example, when discussing Rosa Park’s ordeals, King states that “nobody can doubt the depth of her Christian commitment and devotion to the teachings of Jesus.” His spirituality rain deep through his veins and coursed his every thought. Just like Mack suggests, King is part of a “history of activist theologians,” whose faith led him to orchestrate change (Mack).

Later on after the civil rights movement, many other theologians have become involved in peace movements of various kinds. The fight against apartheid though similar to the American civil rights movement occurred throughout Africa and was only recently ended in the early 1990s. This effort was spearheaded by religious and other public intellectuals including most prominently Desmond Tutu. As Mack alludes, Tutu was truly molded by his religious experience and as a result was a “key player in [one] of our most important reform movements” (Mack). Tutu devoted his life to theological study earning many degrees in theology and held a wide range of Church affiliated positions ranging from bishop to the Dean of St. Mary’s Cathedral (“Desmond Tutu”). Due to his evangelical background however, he was raised with a number of beliefs that beckoned for correction in the apartheid era. This denomination believes in the absolute correctness of the Bible and largely must have inclined Tutu to object for “equal rights for all” in his fight to end apartheid (“Desmond Tutu”). Without a doubt, his unprecedented background in theology led Tutu to be a firm believer in Christian virtues and propelled him to advocate for social reform.

While these social reform movements represent only a small number of the many that have transformed American society, they are of immense symbolic importance. These examples highlight the role that religion and spirituality have played in the lives of many key leaders who commanded social development. From the abolition of slavery to the civil rights movement to the demise of apartheid, public intellectuals’ faith plays an integral role in the process of social change. As Mack alludes in his article, “in many ways, American political history is the history of activist theologians” (Mack). Hopefully this continues into the future, as these public intellectuals have certainly served America well thus far.

Works Cited

“Desmond Tutu – Biography.” 01 Oct 2007

Duquella, Guy. “Anti-slavery Movement: Quakers.” 01 Oct 2007

Hetherington, Ralpha. “Quaker Testimonies.” 02 Oct 2007

Mack, Stephen. “Wicked Paradox: The Cleric as the Public Intellectual.” 14 Aug 2007. 02 Oct 2007

Spartacus Educational. “Martin Luther King.” 01 Oct 2007