The Driving Force Behind Infrastructure Spending

Economics writer Stephen Moore was printed in the Wall Street Journal in 2009. Moore stated that he used to visit Milton Friedman and his wife, and together they would dine at a favorite Chinese restaurant:

"At one of our dinners, Milton recalled traveling to an Asian country in the 1960s and visiting a worksite where a new canal was being built. He was shocked to see that, instead of modern tractors and earth movers, the workers had shovels. He asked why there were so few machines. The government bureaucrat explained: 'You don’t understand. This is a jobs program.' To which Milton replied: 'Oh, I thought you were trying to build a canal. If it’s jobs you want, then you should give these workers spoons, not shovels.'"

This is the foundation of an assortment of problems that accompany government spending projects to create infrastructure jobs (though this example may be hyperbolic).

Brad Plumer, an author at the Washington Post's Wonkblog, published an article recently, which was titled "The U.S. government keeps predicting we’ll drive more than we actually do." You can find it here: http://www.washingtonpost.com/blogs/wonkblog/wp/2014/01/22/the-u-s-government-keeps-predicting-well-drive-more-than-we-do-thats-a-problem/
The basis of his argument is this graph, which records predicted number of trillions of miles Americans will drive in certain years vs. the actual amount driven:

Plumer argues that this kind of blatantly incorrect prediction by the U.S. Department of Transportation has had disastrous consequences on American infrastructure spending and policy-making. He fears we have fallen into the Milton Friedman trap. However, I have to disagree.

Alan Pyke of Thinkprogress published this graph in November last year:

An Economist article from last year found similar results specific to spending on highway and road maintenance and building.

The amount of money spent on transportation infrastructure in the United States has declined more than 2.4% per year for the past decade, despite DOT predictions that we will be driving 25% more than we actually do. We aren't paying 25% more people than we need to build more roads with spoons. We're drastically decreasing the number of infrastructure jobs, perhaps even falling in line with Plumer's wants.

I don't really have a point to make with this blog post. I just thought the discrepancy between predictions (and increased associated cost with more predicted drivers) and reality was interesting.

World Wealth Distribution in 5 Charts

I cried very hard when Ezra Klein left the Washington Post. I think his most influential article was this one:
http://www.washingtonpost.com/blogs/wonkblog/wp/2014/01/22/10-startling-facts-about-global-wealth-inequality/

Klein brought my attention to something startling. He cited a report from Oxfam International published in January that indicated that the top richest 80 people in the world have amassed the same amount of wealth over their lifetimes as the poorest 3.5 billion.

It gets even more astonishing, though. Klein quotes Oxfam: "Our estimates suggest that the lower half of the global population possesses barely 1% of global wealth, while the richest 10% of adults own 86% of all wealth, and the top 1% account for 46% of the total. "

Think about that for a second. The number of people living in your neighborhood are richer than the number of people living here:


Dylan Matthews, another excellent writer for WP, composed one of my other favorite articles: "40 Charts that Explain the World." You can find it here:
http://www.washingtonpost.com/blogs/wonkblog/wp/2014/01/15/40-charts-that-explain-the-world/

These few graphs also show exactly how far the discrepancy reaches.

The share of wealth going to laborers is also waning as more goes to investors.

Energy consumption in China is also increasing as their economic productivity also increases.


I'll let you click the link and browse the other 37 graphs and charts. It's well worth your time. For now, though, the growing disparity between rich and poor is something to think about.

The Ukrainian Crisis: Context, Recent Developments, and Policy Recommendations

Introduction
Ukraine has almost always been a divided nation. Since its creation, the word "Ukraine" has been translated to mean one of two things: "homeland" or "borderland". It is that very dichotomy which has been tearing the nation apart, ripping at the social fabric that binds a government to its constituency. I care a lot about this issue, for those of you reading this blog that did not watch the Harvard Congress Final, because I have family and friends currently living in Ukraine, and I am 7/8ths Ukrainian, myself. Before we address how to solve the problem, though, we should first understand the context of the situation.

Context
The two primary political parties in Ukraine are the Party of Regions and the Party of Peoples.
The PoR operates primarily in the East (where the ethnic composition of Ukraine is roughly 80% Russian) and holds 204 seats out of the 450 seats in the Ukrainian parliament. This is the largest plurality of seats held by any political party operating within Ukraine.
The PoP operates primarily in the East (where the ethnic composition of Ukraine is roughly 80% Ukrainian) and holds 104 seats out of the 450 seats in the Ukrainian parliament. This is the second-largest plurality of seats held by any political party operating within Ukraine.
The so-called "Ukrainian crisis" (and its ensuing protests) is a relatively recent development in the much larger ethnic, linguistic, and political divide that has severed Ukraine since the early 2000s. Several uprisings such as the Orange Revolution in 2004, the presidential election in 2008 whose results were contested on grounds of legitimacy, and the recent outbreak of violence in early 2013 have been collectively referred to as "Euromaidan", which literally translates to "Eurosquare". The reason for such political divides lies in the geographic differences in partisan control of Ukraine as well as the differences in each of the parties' political platforms.
The PoR has traditionally supported the former President Viktor Yanukovich and has harbored pro-Russian sentiment, failing to allow Ukraine to join the North Atlantic Treaty Organization (NATO) in 2008 or the European Union (EU) in 2013, and advocating for it to join the Belorussian Customs Union.
The PoP has traditionally supported the opposition leader Yulia Tymoshenko and has harbored pro-Western sentiment, advocating for Ukraine to join NATO and the EU and to cut ties with Russia.
According to a December 2013 study by Research & Branding Group 46% of Ukrainians supported the integration of the country into EU, and 36% into the Customs Union of Belarus, Kazakhstan, and Russia.
Most support for EU integration could be found in West (81%) and in Central (56%) Ukraine; 30% of residents of South Ukraine and 18% of residents of Eastern Ukraine supported the integration with EU as well.
Integration with the Customs Union was supported by 61% of East Ukraine and 54% of South Ukraine and also by 22% of Central and 7% of Western Ukraine.
Such results of this political divide can be seen in the following maps (courtesy of multiple articles by the Washington Post):

This political and ethnolinguistic divide is further complicated by Ukraine's abysmal economic status. The CIA World Factbook and Bloomberg Businessweek pointed out in December last year that Ukraine was greatly affected by the economic crisis of 2008 and, as a result, a 15.1% decrease in Ukraine's GDP took place over 2008 and 2009. Inflation has increased at approximately 8% per year, and Ukraine imports 90% of its oil and most of its natural gas--most of it from Russia.
Recent analyses by the World Bank and the IMF have indicated that Ukraine risks defaulting on its $10 billion debt unless drastic measures take effect. The European Union and Russia, both seeking to improve their political standing with Ukrainians, have offered a total of more than $30 billion split between them. The United States has just passed a bill that granted Ukraine $1 billion USD. However, I would argue that both sides are mistaken if they believe that political alignment can be bought with bailout money. Ukraine's loyalty cannot be sold to the highest bidder. In fact, offers of aid from opposing sides have made the PoP and PoR even more inflamed in their protests and counterprotests, respectively.

Recent Developments
On Friday, March 28, Russian President Vladimir Putin signed the official documents required to effectively annex the Crimean Peninsula in Southeast Ukraine. The referendum held in Crimea on Sunday, March 23, resulted in overwhelming (95%) support for the option to join Russia and leave Ukraine. However, critics have (in my opinion, rightfully) argued that this referendum was not an accurate representation of the will of the people, especially considering that the ballot did not have an option to stay with Ukraine...
Another argument I would like to bring forth, however, is that even if popular support lies with Russia, this tyranny of the majority is devastating to minority groups within the Crimean peninsula.
A Reuters article published yesterday brought forth evidence noting that the Tartars, which comprise 15% of the Crimean population and represent 300,000 Muslim people living in the area, boycotted the initial referendum by refusing to vote and also voted overwhelmingly among themselves yesterday for "ethnic and territorial autonomy" from newfound Russian control. That Tatars are a Turkish-speaking group native to Crimea. Below is a map based on the 2001 Ukrainian census (most recent available data) indicating what percent of Tatars live in certain regions within Crimea:

Unfortunately, this particular minority group has been ethnically cleansed for several decades, facing such wrongdoings as genocidal mass murders to political and linguistic persecution. It is unlikely that the vote they passed yesterday will have much of an impact on Russia's decision.
In response to Crimea's annexation, the United States has increased the number of Russian government officials that have had sanctions imposed upon them. More than 50 Russian officials now have had their assets frozen, according to a Washington Post article published three days ago. Juan Zarate, deputy national security adviser under the Bush administration, has advocated for more, tighter sanctions and "aggressive investigations of illicit financial activity of Russian interests globally" in an effort to "isolate" those Russian banks financing havoc in Crimea.
However, when the Obama administration has threatened similar actions in the past, Putin has traditionally just rolled his eyes and continued.

"Your sanctions are no match for my bear."

Policy Recommendations
Former Secretary of State Henry Kissinger wrote an article for the Washington Post last week outlining a four-prong list of principles for approaching the Ukrainian problem:

1. Ukraine should have the right to choose freely its economic and political associations, including with Europe.
2. Ukraine should not join NATO.
3. Ukraine should be free to create any government compatible with the expressed will of its people.
4. Russia should recognize Ukraine’s sovereignty over Crimea. Ukraine should reinforce Crimea’s autonomy in elections held in the presence of international observers.

I'm not going to disagree with Henry Kissinger. Those are some pretty good recommendations. (Unfortunately, it's too late for numero cuatro.) But there is so much more that can and should be done in Ukraine than just Mr. Kissinger's solution.
If Ukraine is truly to be bettered as a country, a few things need to happen:

1. Economic aid should be provided to Ukraine to prevent an IMF overhaul and Ukrainian default.
It shouldn't matter who is providing the aid, and said aid shouldn't be mutually exclusive with aid from other places. The EU and Russia both have a vested interest in seeing Ukraine be successful in the long-term, and to do that means bailing it out in the short term, especially after all the economic crashes that have occurred as a result of its economic instability.
Russia and the EU should cooperate to offer an aggregate in $10 billion in monetary aid to be used exclusively for Ukraine to pay off its debts to other nations and get rid of that nasty CCC credit rating Moody's placed on it in January. Russia and the EU should match what each other contribute so it does not appear that one is trying to sway the other side and gain more leverage. This way, Ukraine's economy at least seems stable enough for investment to continue from private firms, and the Ukrainian people don't have to deal with both violent protests and an economic cataclysm at the same time.

2. Humanitarian aid should be provided by non-governmental and intergovernmental organizations to improve the quality of life in Crimea and elsewhere.
Ukraine just went through some awful protests. Tens of thousands of people died or were injured, and 1.2 million people took to the streets. They need help. The Tatars need protection from ongoing persecution and Kiev, Ivano-Frankivsk, and scores of other towns in both East and West Ukraine need rebuilding. It doesn't matter who the aid is provided by. The United Nations, the International Red Cross and Red Crescent, and local NGOs can easily provide aid while remaining unaffiliated and neutral.

3. Ukrainian leaders should remain neutral in the long term, as hard as it will be.
Henry Kissinger directed our attention to Finland, a nation that has economic ties primarily with the West, but is not anti-Russian. He recommends that Ukrainian leaders follow suit, doing what is economically most beneficial for the nation while remaining diplomatic with both sides. It would be a mistake for Ukraine to join NATO or take on more military ties with Russia. No militarization needs to occur here. Economic stability can be achieved. There is no reason Ukraine can't join both the European Union and the Belorussian Customs Union. That would be the best of both worlds.

Conclusion
Ukraine should be a bridge between Russia and the West. Russia needs to respect the sovereignty of Ukraine and tone down the aggressive expansionism that brings back Cold War sentiments. The West needs to understand that Ukraine can never simply sever its relationship with Russia entirely. They have been intertwined since they were originally inhabited as the province of Kievan-Rus. If both sides can cooperate and lower their weapons and sanctions, the people of Ukraine may not need to take sides after all. My relatives may survive and thrive.

Love ya, Babi!