Rational World

A blog about a varitey of topics: politics, government, philosophy, news, etc.

The Nicaraguan Canal

Map of Nicaragua and Panama

As being reported by the BBC, Nicaragua wants to build a canal through its country connecting the Atlantic and Pacific oceans. Supposedly, they will break ground this year and finish by 2019. If this happens this would be quite a feat, although not the first time it would have been tried. In fact, prior to the building of the Panama Canal, Nicaragua was the preferred location for a canal.

In the mid-nineteenth century interest in the United States for building a canal began to gain momentum. Most of the initial efforts to plan for the construction of a canal focused on Nicaragua. In the US interest in building a canal was driven in part by the need for more efficient travel for trade ships but also by a desire to control the operation of any canal for the sake of keeping the Europeans out.

The construction and control of a hypothetical Central American canal was a source of tension between the then superpower (the British Empire) and a rising power (the United States). The tension was so acute that a treaty (Clayton-Bulwer, 1850, which was widely criticized as a violation of the Monroe Doctrine) was hammered out in which both the US and Great Britain agreed that any canal would be jointly administered. 

In 1876, President Grant’s secretary of State, Hamilton Fish, attempted to ‘negotiate’ a treaty for the construction of a canal with the Nicaraguan government. However, Nicaraguan envoy Adan Cardenas rejected the US’s terms because they would have given the United States and Great Britain too much control of the canal and forfeited much of Nicaragua’s sovereignty.  

Again in 1884, President Arthur’s Secretary of State, Frederick Frelinghuysen, attempted to secure the rights to build a canal through Nicaragua. Frelinghuysen negotiated a treaty with Nicaragua’s minister to the United States, Joaquín Zavala. The Frelinghuysen-Zavala treaty provided for a joint US-Nicaraguan administration of the canal and a US guarantee of Nicaraguan sovereignty. Both sides agreed to terms however the treaty was not ratified in the US Senate.

Eventually, as is well known, the United States under President Theodore Roosevelt, assisted Panamanian rebels in seceding from Colombia in exchange for rights to build and exclusively control a canal through the Isthmus of Panama.

What I find interesting and relevant in this story is that early on, questions regarding the control of a canal produced tension between the United States and Great Britain. Could a new canal in Nicaragua create similar tensions between the current superpower, the US, and the rising power of China (a Chinese engineering firm will design and construct the canal)?

At a time when many American politicians came to accept a more active role for the federal government, [President Grover] Cleveland looked backward, insisting upon the strict construction of the Constitution and the delegation of power to states and local communities. When Congress passed a bill providing relief to drought-ridden farmers in 1887, Cleveland vetoed it, preferring that private charities do the work. “Though the people support the Government,” Cleveland asserted in his veto message, “the Government should not support the people” The only thing Cleveland feared more than an active federal government was the increased traction of radical ideas, such as socialism, trade unionism, and agrarian populism. When workers at the Pullman Car Company in Illinois went on strike in 1894, Cleveland and his then attorney general Richard Olney deployed federal forces to break it up.

Jay SextonThe Monroe Doctrine: Empire and Nation in Nineteenth-Century America

The history of “small government” capitalist ideology in the US summed up in one paragraph.

The city is humanity’s most enduring symbol of power. States and empires rise and fall, armies conquer and collapse, ideologies come and go, but the world’s great cities endure.

—Harm de Blij, The Power of Place.

On Banks, the Maldistribution of wealth, and the Middle Class

A few excerpts from Land of promise: An Economic History of the United States, by Michael Lind.

"Successful public purpose banks have a long and successful history in the United States. They include not only the Reconstruction Finance corporation, which was abolished after World War II, but also the Farm Credit system and the Home Loan Bank system. The worst failures were Fannie Mae and Freddie Mac. But those two government-sponsored enterprises (GSEs) failed not because they were public but because they were compelled to act like profit-maximizing corporations instead of public utilities. Free-market ideology was responsible for the privatization of Fannie Mae and the creation of Freddie Mac as a would-be competitor. Ginnie Mae, which remained a government corporation, did not engage in similar profit-driven risk taking. Nor did the Federal Home Loan Bank system, which, like the Farm Credit System, is a nonprofit cooperative, owned by risk-averse member banks. The lesson of the Fannie/Freddie debacle during the housing bubble and subsequent crash is not that public financial institutions are a bad idea, but rather that they work only when they are organized as nonprofit government corporations or public-private cooperatives." (p. 467)

The moral of this story is: don’t try to be something that you are not. As Alexander Hamilton said, banking should be a public utility and not a profit making endeavor. 

"The maldistribution of income and wealth that has occurred in the United States since the 1980s should not have come as a surprise. What else could one expect to happen, once unions were crushed, the minimum wage was reduced by inflation, labor markets were flooded with low-wage immigrants, taxes on the rich were dramatically lowered, and salaries and stock options for corporate executives were raised to obscene levels? […] 

When too much of the wealth of a nation or the world is channeled to too few people, industries are starved of the mass demand they need to keep running or to expand. At the same time, the economy can be destabilized, when the rich try to become even richer by speculating with the money they do not consume or save. The series of asset bubbles the world economy has experienced in recent years-in housing, in stocks, and in commodities such as gold and energy-is a telltale sign that too much money is going to the rich, who use it to gamble on assets, rather than the middle class and the poor, who would have spent the money on goods and services generated in the productive economy.” (p. 470)

After reaching very high levels of inequality in the 1920s the US (and global) economy crashed into the Great Depression. The Depression was followed by a period lower inequality, growth, and stability, The great recession happened after the US once again developed high levels of inequality, however the period immediately following the Great Recession has only increased inequality.  

"The fact that middle classes are made in part by enlightened public policy is illustrated by the contrast between the South and the rest of the nation. While independent yeoman farmers formed a majority in the North in the first half of the nineteenth century, in the South poor farmers were squeezed between a tiny oligarchy of rich planters and the slaves they exploited. In northern factories, despite employer resistance, unions made gains, particularly during the New Deal and World War II. But the one-party South used law and intimidation to prevent unions from taking root in a region whose elites viewed themselves as employers or brokers of poor black, white, and Latino workers deprived of bargaining power. As a result, in the twenty-first century, many southern states have levels of inequality, poverty, and illiteracy similar to those of developing countries." (p. 472)

Like the South in the 19th century there are many in the US today seem to be intent on pursuing policies designed to undermine the middle class.

Consisting of two parts history and one part liberal economic manifesto the Land of Promise is worth a read.

Why Chinese Study the Warring States Period

File:China autonomous regions numbered.svg

It is well known that China is not a homogeneous state. The country is home to 55 minority groups who occupy roughly 60 percent of its territory. Conventional wisdom tends to suggest that the Chinese state is vulnerable to minority separatist movements in three strategic, geographic areas: Xizang, Xinjiang, and Inner Mongolia. If an upheaval occurs in one of these regions, it could have a domino effect in the other regions home to separatist movements. So the Chinese leadership remains concerned that minority secessionist movements could challenge the integrity and stability of the Chinese state.

But counter to conventional wisdom, the leadership also faces threats of instability from very different sources. As in the Warring States era, these threats originate from “states” with powerful systems. Specifically the threats come from one area functioning as an autonomous region, another region home to a powerful independence movement challenging the Communist Party of China’s (CPC) legitimacy, and yet another area typically home to influential leaders who are able to cultivate powerful factions. What’s more, the leaders in these areas control territory with engaged populaces, formidable economic systems, and effective governance structures. They are namely Hong Kong (now approaching a 2017 chief executive election), Taiwan, and Shanghai (now home to a new pilot free trade zone). For these reasons, these areas perhaps pose a greater threat to the internal integrity and stability of the Chinese state system than areas home to minority secessionist movements. The Chinese leadership recognizes this reality. So how does the leadership manage these potential threats?”

-J. M. Norton, “Why Chinese Study the Warring States Period,” The Diplomat.

The linked article provides an excellent primer on the history of the Warring States era (ca. 475 BC to 221 BC) and explains why this time period is still relevant today. The author argues that the growing power of some of these autonomous regions is creating centripetal forces similar to those that existed during the Warring States period. Consequently, Chinese government officials have begun studying this era trying to learn from the past.  

(Image via: Wikipedia)

Should any political party attempt to abolish social security, unemployment insurance, and eliminate labor laws and farm programs, you would not hear of that party again in our political history. There is a tiny splinter group, of course, that believes you can do these things. […] Their number is negligible and they are stupid.

—President Dwight Eisenhower, 1954.

What Do Americans Believe Fifty Years After the JFK Assassination?

Recently, the American Enterprise Institute (AEI) conducted several surveys and concluded that 60% of Americans believe that the assassination was the result of a conspiracy. However, what I think would be more interesting to know is: how has this percent changed over the decades? Has the figure fluctuated, perhaps in response to current events? I would think so. To me it seems likely that the 60% number (which I believe is incredibly high) is being influenced by an increasing distrust of the US government that has been spawned by various factors such as the NSA surveillance program.

The early financial history of the United States reads like a playbook of things to avoid: an experimental central bank with almost no accountability, regional banks with even less oversight of their own back-room currency printing presses, and an easy credit mentality driven by the new national pastime of Western expansionism. This heady mix of credit and confidence exacerbated a boom and bust cycle that would last until well after the American Civil War.

Many of these booms and busts in early U.S. history can be attributed to the emergence of the agricultural futures markets in Chicago, the use of leverage in those markets, and the ability of banks to use local harvests as a source of credit in the form of new loans without centralized control. This newly created credit exacerbated price volatility around harvest times, which was made even worse by leveraged commodity speculation. The frequent outcome was widespread bank failure.

—Christian H. Cooper, “Saving Afghanistan’s Economy: The 1818 Model,” The Diplomat.

Isaiah Berlin pointed out that “because” is used differently in science and history. In science, it means reliably causal. In history, it means a looser, narrative kind of causation, a useful explanation of the complex web of factors affecting a particular situation. Since Plato many have privileged universal timeless truths. But history’s truths are typically particular and time bound, describing changes through time.

Pinker’s science needs types and theories. It assumes that phenomena “may be explained by principles that are more general than the phenomena themselves.” But Berlin noted that knowledge can be nomothetic or idiographic. “Nomothetic” means fit for law-like generalizations, having reliably repeatable regularities. “Idiographic” means much the same as the Hebrew word “da’at”: knowledge gained through direct relationship with the particular (not via theories or types).

—Jag Bhalla, “Is Economics More Like History Than Physics?Scientific American.

In a spirit of philosophical bipartisanship, it would be pleasant to conclude that each of these traditions of political economy has made its own valuable contribution to the success of the American economy and that the vector created by these opposing forces has been more beneficial than the complete victory of either would have been. But that would not be true.

What is good about the American economy is largely the result of the Hamiltonian developmental tradition, and what is bad about it is largely the result of the Jeffersonian producerist school.

—Michael Lind, The Land of Promise: An Economic History of the United States.