Peter L. Berger's Blog, page 508

China’s World Bank Competitor Holds Its First Meeting

The China-led World Bank competitor, the Asian Infrastructure Investment Bank (AIIB), held it first meeting this weekend, an accomplishment which Beijing has been trumpeting all week. The WSJ:

“It’s been a triumph for them, so I think it’s all right for them to take a bit of a victory lap,” said David Dollar, a fellow at the Brookings Institution in Washington, a former U.S. Treasury official in Beijing and a nonpaid adviser to the new Chinese bank. “But what they’ve done so far is relatively easy compared with what comes next.”

The bank, known as the AIIB, is starting out with $100 billion in capital and was conceived as China’s answer to the World Bank and Asian Development Bank, institutions dominated by Washington and Japan, respectively. The AIIB has delivered China a propaganda coup by attracting 57 founding members, far more than expected, including such U.S. allies as Britain, Germany, France and Australia.

The AIIB has indeed been a success for China thus far. And as we’ve said, the U.S. should have gotten in on the ground floor rather than opposing the bank and thus losing an opportunity to have some leverage over what could be an influential institution. But at this point, the bank, which intends to finance development in emerging market economies, is a sideshow to the bigger story of China’s global collapse. However much the bank spends in the next few years, it won’t match the hundreds of billions of dollars Chinese investors (state-controlled and private) are pulling out of developing countries. Nor will it compensate for the even more consequential collapse in Chinese demand for global commodities. As we wrote last week, exports from Africa to China plummeted by 40 percent in 2015. They’re likely to only fall even more this year—as are those from countries across Asia and Latin America.

When Beijing has finished off the Veuve Clicquot, it will face a sobering reality: China’s global economic power is on the wane in 2016.

Italians Hold Migrant Deal Hostage

Italy’s Prime Minister Matteo Renzi is once again playing the role of obstructionist in Europe, blocking the establishment of a €3 billion fund that’s part of the migrant deal negotiated between the EU and Turkey late last year. Reuters reports:

The move marks a further escalation in Italy’s combative position on EU issues. Prime Minister Matteo Renzi blasted German Chancellor Angela Merkel at an EU summit in December over EU policies on energy, banking and migration.

Since then, Italy has reiterated its opposition to the funding of the EU plan to stem migrants coming to Europe from the Middle East and Asia through Turkey, officials said. The plan is strongly backed by Germany, which is the final destination of most.“There is only one member state that still has objections against the funding for Turkey. We do not understand why Italy is blocking it,” a European diplomat said.

Here’s why. As we wrote when Rome held up the extension of sanctions against Russia in December, Italy is hurting economically, and feels that moves like these are the only way to send a message and get some much-needed relief from the north. Without control of its own central bank, Italy is bereft of many of the usual tools nations would use to ameliorate the economic pain and jump-start recovery. Meanwhile, as Italian PM Matteo Renzi has made clear in a series of blunt interviews recently, on issues ranging from Russia sanctions to the euro to migrant policy, Rome feels like decisions are being made up north without regard to the efforts Italy has gone through to be a good European neighbor, or the burdens the Italians must bear implementing those decisions.

The European Commission is set to make a decision on the Italian budget this spring, and Rome is pushing hard to be granted additional fiscal leniency under EU budget rules. Until that decision is made, we expect to see more moves like this one.

Pakistan’s Shakedown Cruise

Pakistan’s PM and its Chief of Army Staff are hitting the road in an ostensible attempt to mediate between Iran and Saudi Arabia. The Times of India reports:

Pakistan’s Prime Minister Nawaz Sharif and powerful army chief General Raheel Sharif are set to embark on an important visit to Iran and Saudi Arabia on Monday to reduce tensions between the two rival Muslim nations, his office has said.

The decision was taken after behind-the-scene contacts by Pakistan with both countries to lower the temperature in the region after Saudi Arabia executed a prominent Shia cleric earlier this month following which Iranian protesters attacked the Saudi embassy in Tehran and its consulate prompting Riyadh to sever relations.

There is, in reality, less than zero chance that Pakistani diplomatic go-betweens can resolve the standoff between Saudi and Iran. But the trip is an excellent way to advance Pakistan’s interests from a certain perspective. It’s a way to remind both sides that Pakistan has options, that it has an important role in the regional balance, and that, to put it delicately, when it comes to relations with two oil rich neighbors, Pakistan is open for business.

Pakistan can best be understood as a state that is permanently in need of outside resources. The cost of its military establishment is much greater than the country’s economy can bear on its own, but keeping up the competition with India requires massive infusions of money. During much of the Cold War, the U.S. was willing to provide those resources, and after 9/11, it was again.But U.S. enthusiasm for Pakistan continues to wane, India continues to get richer, and the costs of competition are going nowhere but up. Pakistan has approached China for help, and is getting some aid and investment there. But China has so far been unwilling to be the kind of paymaster Pakistan really needs. The Saudi contributions are significant, as much in the form of generous payments to individuals in key positions as to the country as a whole. Even as Saudi revenues feel the pinch from low oil prices, Pakistan wants those payments kept up—and if possible increased.The Saudis, however, have been doing something Pakistan doesn’t much like: asking for a return on their investment in the form of Pakistani support in the standoff with Iran. That is something neither the military nor the political establishment wants to take on at this point—but nobody in Pakistan wants to pay a price in the form of lost Saudi aid, either.Hence the “peace-making” tour or, perhaps more accurately put, the “shakedown cruise.” By visiting both capitals and spreading a public message of sweetness and light, the top civilian and military authorities in Pakistan have the opportunity to get down to brass tacks in both countries. Reminding the Saudis of Pakistan’s deep ties to Iran is useful and should help to keep Riyadh’s checkbook open even as Pakistan, for now, stiffs it on some of its dicier political requests. And a timely visit to Iran offers the mullahs an opportunity to share some of the largesse coming from the end-of-sanctions windfall with their dear neighbors. No doubt the Pakistanis, nervous about what Iran will do with all the money, will be working to organize some kind of deal in Afghanistan, where Tehran and Islamabad back different tribal and religious groups.The Pakistanis have been in this business for a long time; it’s likely that both the generals and the politicians will return from their regional tour with some pleasant memories and valuable souvenirs. As for the regional tension, as long as it stays short of actual war (in which case Pakistan might just actually have to help the Saudis), it’s probably on balance good for Islamabad. The more Tehran and Saudi Arabia hate and fear one another, the more valuable Pakistan’s support, or at least neutrality, appears.

Terror-Wracked Africa

The wave of terror attacks continues unabated across Africa. The New York Times:

The Shabab militant group said on Friday that it had overrun an African Union base in a village in southern Somalia and killed dozens of peacekeepers.

Residents described what appeared to be a suicide car bombing, followed by a ferocious firefight that lasted at least five hours. The African Union confirmed an attack on its troops. But central details, including the identity of those killed, were not immediately clear.

Sheikh Abdulaziz Abu Muscab, a spokesman for the Shabab, which is affiliated with Al Qaeda, said the group had killed 63 Kenyan soldiers at the African Union base near the village of El-Adde and had seized ammunition and military vehicles.

Meanwhile, in Burkina Faso:

Attackers raided a luxury hotel in Burkina Faso overnight, shooting some and taking others hostage in a siege that lasted hours and ended with dozens of people dead.

An al Qaeda-linked terrorist group claimed responsibility for the assault at Splendid Hotel — a popular meeting place for Western diplomats in the capital, Ouagadougou.

The attack began Friday night and dragged on under the cover of darkness. Security forces circled the perimeter to assess the situation before they stormed in hours later.

There’s an emerging pattern of increasing jihadi activism across Africa. It’s important to remember that these attacks are partly the result of a set of unrelated local conflicts, often over things like grazing rights. But the growing presence of jihadi ideology, funding, training and weapons is beginning to pull these unrelated conflicts into something larger and more dangerous. With Africa now facing some serious economic problems due to the commodity crash, it’s going to be harder for governments to respond—either in military terms by enhancing the training and capacity of security forces, or in political terms by instituting reforms and promoting development that can attack the problem at its roots.

Taiwan’s Landmark Election

Taiwan watchers have been predicting Tsai Ing-wen would win today’s presidential election, but few expected such a landslide. With 99 percent of the polling stations reporting, Taiwan’s first female president-elect had 56 percent of the vote to her opponent’s 31 percent. The New York Times:

Tsai Ing-wen was elected as Taiwan’s president Saturday, becoming the first woman to win the office. Voters gave her Democratic Progressive Party, which is skeptical of closer ties with China, control of Taiwan’s legislature for the first time, giving her broad authority to push her policies in office.

“The results today tell me the people want to see a government that is willing to listen to people, that is more transparent and accountable and a government that is more capable of leading us past our current challenges and taking care of those in need,” she said in a news conference outside her party’s headquarters.

Her main opponent, Eric Chu of the Kuomintang, conceded just after 7 p.m. “I congratulate Chairman Tsai Ing-wen of the Democratic Progressive Party on her victory,” he said. “This is the choice of Taiwan’s people.”

The DPP’s victory tells us that Tsai is no lightweight, and it signals real progress for women. Tsai wasn’t a legacy candidate like Indira Gandhi or Benazir Bhutto, but was elected in her own right like Thatcher. Her success says something impressive about her, and about Taiwan.

The campaign focused on economic issues, such as stagnant wages and slowing economic growth. Taiwan is locked into mainland China, and is feeling the pain of the Chinese slowdown. Taiwan’s other giant neighbor, Japan, continues to have problems as well. More than that, Taiwan faces what all of Asia and in fact the whole world does: manufacturing can no longer provide stable middle class incomes for much of the population. The same forces that are polarizing income distribution in the West are at work in Taiwan. There’s a tough road ahead for Tsai and for the DPP party.The election will strain Taiwan’s relationship with China. During her campaign, Tsai made a high-profile visit to Tokyo. Tsai’s Democratic Progressive Party favors formal independence from China; many of its members believe that Taiwan has its own distinct national identity. Up until now, both the Chinese and Taiwanese governments have considered Taiwan to be a Chinese province. Yet the Taiwanese do not recognize the communist regime as China’s legitimate rulers, and the Chinese do not recognize the Taiwanese government. Despite the rhetoric of many DPP members, the status quo doesn’t appear likely to change. Drawing on lessons from her loss in 2012 when she ran on a more hawkish platform, Tsai pledged not to change Taiwan’s relationship with China during this campaign.Still, Beijing clearly isn’t thrilled. Even before the polls opened, Chinese media mocked the elections, reporting that many Taiwanese were suffering from “election syndrome” including such symptoms as “sleeplessness, headaches, faintness, loss of appetite, anger and violent tendencies.” Also in recent days, China caused a stir by forcing a 16-year-old pop star to apologize for waving a Taiwanese flag.Xi might prefer to let sleeping dogs lie, but as China’s economic situation gets more complicated, domestic pressures will increase, including the pressure to play the nationalist card. And at least for the rest of 2016, the U.S. is led by someone other world leaders, rightly or wrongly, think can be rolled. The temptation to take advantage of perceived U.S. weakness will add to the attraction in the mainland of confronting Taiwan.

Iran Releases Prisoners in Swap With US

With the Iran nuclear deal set to go into effect later today, a prisoner exchange between Iran and the U.S. has been announced, with the Washington Post journalist Jason Rezaian among the most prominent among the prisoners set to be released. :

“In line with the Supreme National Security Council approvals and general expedience of the system, four dual-nationality Iranian prisoners have been freed today under exchange mechanism,” Tehran prosecutor Abbas Jafari-Dolatabadi said.

A state television report said those freed included Mr. Rezaian; Amir Hekmati, a former Marine from Arizona; and Saeed Abedini, an ex-Muslim convert to Christianity. A fourth person named Nosratollah Khosravi was also released, it said.Seven Iranian prisoners held by the U.S. were to be released as part of the exchange, state television said, but they weren’t named. Another 14 Iranians wanted by Interpol at U.S. request would no longer be pursued, it added.U.S. officials didn’t immediately comment on the announcement of a release.A fifth U.S. citizen, former FBI agent Robert Levinson, disappeared in Iran in 2007, and Iran has denied any knowledge of his whereabouts. Another U.S. citizen, Iranian-American businessman Siamak Namazi, detained approximately three months ago, wasn’t mentioned.

The Guardian notes that another Iranian source identified the seven Iranian prisoners as those being held by the United States for circumventing sanctions against Iran.

It appears as if the moderate Iranian strategy continues to be to honor the terms of the nuclear deal and cozy up to Obama on a limited number of issues, all while keeping an absolutely free hand to advance Iranian power in the region. The calculus is that its regional and economic gains will more than make up for any slowdown on the nuclear front. Ultimately, this is not a good thing from the perspective of U.S. interests. What would be a sign of better times would be evidence that Iran was preparing to moderate its regional stance. Unfortunately, there is little evidence at hand.

Taiwan Voted—the US Should Listen

The presidential and parliamentary elections held today in Taiwan are just the latest battle in a larger struggle to steer the country either closer to unification with China (the perceived platform of Taiwan’s ruling party, the Kuomintang, or KMT), or toward independence (the anticipated path of Taiwan’s primary opposition party, the Democratic Progressive Party, or DPP). For the first time in Taiwan’s history, its executive office is controlled by the DPP, which also appears poised to capture the legislature as final votes are tallied. The United States should support Taiwanese voters’ will, as most recently expressed in these elections, to remain autonomous from China.

Since President Ma Ying-jeou of the KMT took office in 2008, China and Taiwan have grown closer than ever. Following his election, the two countries signed 23 agreements to expand economic and cultural ties. China is Taiwan’s largest trade partner; trade with the United States, its second-largest trade partner, is less than half as large. From 2007 to 2014, annual cross-strait trade increased nearly 44 percent, with Taiwan’s imports from China accounting for nearly 18 percent of its total imports and its exports to China making up more than 40 percent of its total exports. In 2009, the number of direct flights each week between China and Taiwan grew from 108 to 270. In 2014, an average of almost 11,000 Chinese visited Taiwan daily—up from an earlier daily quota of 300. In February 2014, the Chinese and Taiwanese governments held their first official talks, and this past November, the first meeting between leaders of those countries took place.But the KMT strategy backfired. Many Taiwanese fear their country’s growing dependence on China and the possibility that China could compel unification without force. As a result, there is now widespread Taiwanese opposition to the KMT’s policy of deepening ties with China. In March 2014, after the KMT reneged on an agreement to allow a public, clause-by-clause review of a proposed trade-services agreement with China, Taiwanese activists protested for weeks. The following June, protests cut short a visit by a high-level Chinese government official to discuss the trade-services pact and to mend cross-strait ties. In the subsequent Taiwanese elections, the KMT suffered major losses in local races across the country, including in the race for Mayor of Taipei, a post the KMT had held for 16 years. The DPP’s consolidation of national power is thus the latest in a series of cases in which Taiwanese voters have expressed a desire to remain separate from China.Strategic and moral considerations compel the United States to support Taiwanese independence. First, a free, thriving Taiwan reminds mainland Chinese how poorly their government treats them, a potential catalyst for liberalization in China, or at least a complication forcing that country to reduce its defense spending to improve domestic opinion. Second, if the United States were to abandon Taiwan, it would send the signal that Chinese efforts to drive the United States out of Asia are working. Beijing would then press even harder its territorial claims in the East and South China Seas, and Washington’s regional partners would be more likely to acquiesce to Beijing’s demands, or to develop nuclear deterrents. Third, given Taiwan’s strategic location, high mountaintops ideal for radars, and deep-water ports allowing submarine access, reunification would significantly strengthen China’s military and extend its reach.The U.S. government must take the following steps to help Taiwan remain free and to maintain the Asian balance of power.First, it must strengthen Taiwan’s military. It is debatable whether Taipei should acquire costly, advanced weapons given that its meager defense budget is nearly 14 times smaller than Beijing’s, and because China fields a barrage of missiles to destroy large, less mobile targets. Even so, the Obama Administration’s planned arms sales to Taiwan—offered after both waiting longer than any U.S. administration and cutting the package value by two-thirds compared to its previous transfer in 2011—are deficient. The offer excludes requested big-ticket items (including upgraded F-16 jets and submarines), as well as a large number of more affordable, asymmetric weapons that are dispersible and can swarm invading forces (such as unmanned underwater vehicles, mobile missile launching platforms, and mines). Weary of unfulfilled promises to tender such systems (typically resulting from Beijing’s pressure), the island now plans to manufacture its own weapons. But Taipei lacks the experience and time needed to develop all of its defenses. Washington and Tokyo must therefore help. Additionally, the United States should invite Taiwan to co-develop military equipment and to participate in a military exchange program and joint military exercises.Second, the United States must help Taiwan grow economically. While additional cross-strait trade is good, Taiwan should also diversify. Excluding its pact with China, Taiwan has trade agreements with only seven countries, each of which account for little of its total trade. The United States should thus nominate Taiwan to join the Trans-Pacific Partnership (TPP), a free trade agreement among 12 countries, including the United States, Japan, Vietnam, Australia, and Singapore, as a second round member. TPP signatories make up about 40 percent of global output and more than a third of world trade. These numbers will rise as additional countries join. As a member, Taiwan will be less susceptible to Chinese pressure and economic downturns, and it can increase its deficient defense spending.Third, the United States must support greater Taiwanese participation in the international community. Given Chinese pressure, Taiwan has few diplomatic allies, foreign leaders refuse to meet with Taiwanese government officials, and the island is barred from joining many international organizations. The U.S. government should therefore press for Taiwanese membership in regional and international organizations, and President Obama or his successor should meet with Taiwan’s new President. Foreign leaders may then follow suit, showing China that others will rally behind the United States to oppose it.Weakening the U.S.-Taiwan relationship will not moderate China’s response to the DPP’s election victories, nor will it meaningfully improve U.S.-China relations. Indeed, China has grown its most aggressive in the past four years, while President Ma pursued rapprochement with it and President Obama withheld arms from the island. Instead, a strong Taiwan, more closely allied to the United States and its regional partners, is the best recipe for cross-strait peace. Washington must begin working with its newly elected partners in Taipei to make this happen.

The Return of Postal Banking

How The Other Half Banks: Exclusion, Exploitation, and the Threat to Democracy

by Mehrsa BaradaranHarvard University Press, 2015, 336 pp., $29.95

One of the great paradoxes of the American banking system is that the less money you earn, the more it costs you to get access to it. Up to 90 percent of American citizens today consider themselves middle class, and yet between 20 to 40 percent of the population relies on “alternative” financial institutions—such as payday lenders—to turn checks into cash, pay monthly bills, gain access to credit, or transfer money.

In How The Other Half Banks: Exclusion, Exploitation, and the Threat to Democracy, Mehrsa Baradaran, professor of law at the University of Georgia, argues that the flourishing of this fringe banking sector illuminates how class-tiered and discriminatory the financial system in the United States presently is. Baradaran posits that this inequality does not operate in tandem with the basic economic laws of supply and demand; neither does the U.S. banking system play according to standard market rules. This is a highly regulated and therefore distorted market; the question is how and for whose benefit the distortions are arrayed.

The inequality that is part and parcel of this distorted market, however, is not just an economic problem. It’s also, Baradaran believes, a threat to traditional American democratic values. Even though banks enjoy broad government support, they still refuse to provide even a basic form of credit to a huge proportion of working American taxpayers. Baradaran also believes that the initial fears about banks growing too concentrated, first expressed by Thomas Jefferson—who predicted that profits and efficiency would be put ahead of the needs of the American people—have now been realized.

J.P. O’ Malley sat down with Professor Baradaran on December 18 to discuss why the traditional reciprocal relationship between banks and government has now become so lopsided; why there is a pervasive misunderstanding about the role that debt plays in the American economy; and how the U.S. Postal Service may provide a solution to this present banking crisis.

Professor Baradaran, why do you believe the current structure of the banking system is a threat to America’s democratic values?

Well, Federal government money is funneled into the banking system with the premise that it is supposed to trickle down, or be lent out at a reasonable rate.

Normally this kind of thing would be determined by supply and demand.

But there really isn’t a market price for credit the way there is for other things in the market. The Federal government creates credit through its policy decisions. But when banks then refuse to lend to 40 percent of the American public, well, that clogs up some of the channels of our democracy.

Most of your book focuses specifically on the United States, but the idea that the banking market does not operate according to standard market rules can be applied to the entire world, right?

Yes. And the reason for this is because every banking system in the world is intertwined with government. We saw this during the financial crisis in 2008, when there wasn’t a single country that was able to let their banks fail. It’s the business of banks to deal with other people’s money, and that basic structure inevitably invites heavy government involvement.

But banks are private entities that have shareholders, and do run according to normal market incentives, are they not?

Yes. But the difference is that their failures are not treated like corporate failures.

And once we understand that, we need to work back and say: Okay, so if we cannot let the banking system fail, how then do we want to re-structure this system?

Is it your belief that the government had to intervene when the banks failed in 2008 in order to let the economy get back on its feet?

Absolutely. People tend not to understand why that was a necessary measure.

On the Right, the argument is: There is too much government involvement. On the Left, the argument is: it’s cronyism and the government is just helping its buddies.

The reality is the government did have to help the banks. But after that emergency measure, we should have asked: What does this mean going forward? That’s not a conversation we seem to have had in any serious way so far in the United States.

Can you talk about how so many pivotal events in the history of the United States have often centered around a struggle over how public needs would shape banking policy?

Well, it starts with Thomas Jefferson and Alexander Hamilton . It then carries through with Andrew Jackson, to Woodrow Wilson, and then Franklin D. Roosevelt, during the New Deal. Then after the New Deal it disappears from the public dialogue, primarily because, under FDR, there was a major restructuring process, and we subsequently had sixty years in the United States with no banking crisis.

Has the main fear about banking in this debate always been centralization?

Right, that if you created a central bank, or allowed money to conglomerate, that people would be left out. Jefferson thought that the future of the country was in popular agrarian farmers. Hamiltonians were right from the beginning when they said, in effect: We are going to be an industrial nation that needs some degree of financial centralization, some efficient way to manage money in the Federal government. This struggle over banking has been going on ever since in our nation’s history.

Fast forward to the 1980s, however, and there is a push in American banking toward conglomeration. Was this the main problem?

Yes, and the fact that nobody at the higher level of policy have asked: Do we really want Bank of America to swallow up nearly every bank in the country and be so big that there is nothing we can do about it? That, essentially, was Jefferson’s initial fear. There should have been a push to make sure these banks were regulated and controlled in a way that their failures would not be catastrophic.

The Federal Reserve has recently engaged in a controversial strategy called quantitative easing. What does this mean exactly?

Quantitative easing is the buying up of assets from banks, and the cash acquired from the Fed goes into the economy through the banks. In other words, the Fed creates trillions of dollars, buys bank assets, and doles out the cash, the idea being that so much easy money enables the banks not to use their reserves or increase their interest rates. That is supposed to facilitate lending and stimulate economic activity.

But is quantitative easing an effective method in getting a slow economy moving when other measures have failed?

I don’t think anybody knows the answer to that yet. The Federal Reserve would say quantitative easing has worked because the economy is better now. But it’s a mystery as to what the long-term effects of quantitative easing actually are.

It’s still not yet clear, for instance, that all of the money that quantitative easing puts on the banks balance sheets will be able to force inflation to come down or stay down in the slightly longer run.

Why do you believe the social contract has become lopsided between the banking industry and the U.S. government?

Well, there used to be a quid pro quo idea that the government is happy to provide private insurance bailouts if the banks stay small, and lend accordingly. But the one activity banks are supposed to be good at—providing credit to people—they are no longer doing much of. That is a major breach of the tacit contract. So we need to ask: why are we giving the banks all of this money if they are no longer lending and providing credit?

Why did the model of banking change in the United States in the late 1970s and early 1980s? Did a shift toward neoliberal thinking play a big role?

Yes, the ideological shift came with the Chicago School, and the idea of the free market at all costs, which came with the conservative revolution: first with Margaret Thatcher [in Britain] and then President Reagan here in the United States. There were also market changes, foreign competition, and technological changes that played a role. But the main problem during this period was this myth that banks are just like other corporations. They are not.

Is there a paradox in this idea?

Absolutely—because other corporations are able to fail, and that is the difference.

Other corporations don’t deal with the leverage that banks deal with. Take Apple, for example; that company is basically all cash, and it has no debt. Compare that to Lehman Brothers, which had a 28:1 leverage ratio. Banks are never like other corporations, because they are in the business of safeguarding, and using, other people’s money.

You discuss in How The Other Half Banks how debt can be an effective way to grow an economy and build individual wealth, too. If credit is the foundation of the U.S. economy, then why is debt always spoken about in such negative terms?

There is a great deal of misunderstanding about this subject in the public realm. People say public debt is like a family budget that you have to balance. But that is not the way the government operates its public finances. This is just a stupid boogeyman’s argument. The people who are having this debate have very little understanding about the economy.

Is this misinformation in the public realm about debt purposely constructed in such a way as to scaremonger people?

Well, I’m not a conspiracy theorist. I’m not sure if there is a villain in the background here. Some of the theatrics around the subject of debt, however, are sinister. Take Ted Cruz, for example. I think he knows better. But he uses it every chance he gets to push his own political agenda, and it plays well to the popular psyche.

If banks are not providing credit to the poor, you say the state should provide it directly? You suggest a form of postal banking, which lots of other countries, like Japan for example, use. How would that work?

A postal savings stamp, in the form of a plate block, issued in May 1941 (from the Adam Garfinkle collection). Postal savings stamps were issued to serve four slightly different savings programs (sometimes in conjunction with the Treasury and War Departments) from 1911 to 1961; the program was discontinued on June 30, 1970.

Yes. This already happens in countries like the United Kingdom, Germany, and France as well as Japan, and it used to happen in the United States. Here, basically, is how it works: Small bank accounts operate in Post Office branches. The Post Office could do what payday lenders do, but with much more reasonable interest rates—and the profits from this new line of service could also help keep the USPS solvent in an age of technological change. It would be a new product line, in effect. We could do what the UK does, which is allow people to have a savings account to use to pay bills, and only charge interest when the account is overdrawn for as long as it stays overdrawn.

Because the Post Office is still a public institution—or at least a semi-public one in the United States since 1971—does it make this potentially a more workable idea?

Yes, I think it would. The USPS doesn’t have those mixed incentives that private banks do. It doesn’t have shareholders to pay attention to, for example.

Is the main problem in the United States right now that so many people have to operate in cash?

Yes, when you operate in cash all of the time, you need some place to deposit that cash to turn it into electronic currency, so you can pay your bills. And that’s why so many people go to the payday lenders and the check cashers, because they need immediate cash and they can’t get credit cards. So there is still this huge divide: Most of us use electronic currency; we use our credit and debit cards and we don’t worry about cash. But in the bottom socio-economic tier people operate in cash only. This is time consuming and expensive. So we want to get them into the electronic currency system, and a postal banking system is a great way to do that.

Thank you, Professor.

My pleasure, and thank you.

Go See “The Pearl Fishers” in HD Near You This Saturday

Earlier this week, Nicholas M. Gallagher wrote a rave review in these pages of the Metropolitan Opera’s new production of The Pearl Fishers, by Georges Bizet. This prompted one longtime reader to comment that, “It’s only on rare occasions like this that I envy your living in NYC.” (H/t @LukeLea) And indeed, the regular performance of opera is one “New York value” that many of us can embrace. But this weekend, you don’t have to live in the Big Apple to see The Pearl Fishers. On Saturday, January 16, at 12:55 PM, the matinee production of this other Bizet masterpiece will be broadcast to 2,000 movie theaters worldwide as part of the Met in HD program. (Click here to find a cinema near you.)

It’s an opportunity you won’t want to miss, if you have the time. As Gallagher wrote:

All but eclipsed by Bizet’s more famous Carmen, The Pearl Fishers tells the story of two Sri Lankan divers, Nadir and Zurga, who both fell in love with the same Hindu priestess, Leila. For the sake of their friendship, they vowed not to pursue her—but when Leila (soprano Diana Damrau) comes to their village, Nadir (tenor Matthew Polenzani) is unable to help himself. The villagers catch the couple in flagrante delicto in the midst of a tempest, blame the destructive storm on Leila’s failure to keep her vow of virginity, and demand the pair be put to death. Overwhelmed by jealousy, Zurga (baritone Mariusz Kwiecien), who has recently been appointed village chieftain, condemns the two. Just as Nadir and Leila are about to be burned alive, however, Zurga bursts back onstage with news that the village is aflame. While villagers rush to save their children, he cuts his old friend and his beloved free, confiding that it was he who set the fire. The couple flees to live in happiness, while Zurga remains to face his fate.

The traditional rap on Pearl Fishers is that it has a weak libretto and brilliant but uneven music. But the Met’s new staging, directed by Penny Woolcock, reveals unexpected dramatic depth as well as moments of intense lyric beauty, all brought to life by a stunning set (by Dick Bird) and strong acting. At its New Years’ Eve gala opening, the new Pearl Fishers received ovation after ovation.[..]

The audience could appreciate the performance more completely, Gallagher argued, because of two (relatively) new technologies that are changing opera—one of which is the Met in HD program:

The first supertitles were introduced in the early 1980s; the back-of-the-seat “Met Titles” came into use in 1995. That means we’re only one generation into a world in which American audience members can yet again understand the words they’re listening to. It took a while for the new possibilities to sink in for directors, for a new generation of singers trained to be as much actors as vocal stars to grow up, and for audiences to work through the old classics under new conditions. The first time they were intelligible to audiences in the ‘80s and ‘90s, the repertory standards must have seemed marvelously fresh. After a few reinterpretations of the same 40–60 works, though, it makes sense to start expanding our horizons.

Similarly, the Met in HD program, which at ten years old is even younger, also disrupted old expectations. For one thing, you can now see a dozen or more operas a year without living in Manhattan or going bankrupt (but I repeat myself). For another, the pressure on singers to act increases when they know their facial expressions will be seen up close and in HD. When Pearl Fishers gets its turn for the Hollywood treatment on January 16, it will be broadcast to 2,000 cinemas and 70 continents—that’s a lot of close-ups.Together, these technologies have been changing the rules of the game. By removing the language barrier, supertitles (or the subtitles, in the case of the Met in HD broadcasts) allow for the rediscovery of operas as dramas—which expands the repertory.

As a result, more works are coming back to life—and being seen by more people, in more places. We highly recommend you read the whole thing—and then go see The Pearl Fishers.

South Korea and China Discuss the Norks

Ever since North Korea announced it had conducted a nuclear test last week, China, Pyongyang’s closest ally, has been under pressure from Tokyo, Seoul, and Washington. But South Korean President Park Geun-Hye has come under scrutiny as well. In the past, Park has made improving relations with China a priority, arguing that closer ties with Beijing would not only be good for South Korea’s economy, but would also give Seoul Korea more leverage over the Norks. For a time, it seemed that Park was getting what she wanted. Beijing even set up a hotline for Seoul in the event of a nuclear event. But when South Korean officials dialed the number last week, no one answered. The failed call did, apparently, wake up President Park to certain realities about China, as she has since publicly and loudly asked Beijing to take a tougher stance toward its restive ally. Today, South Korean officials met with Chinese defense officials, according to the AFP:

The director-level defence talks are held every year, but were completely overshadowed this time around by the North’s fourth nuclear test last week, which triggered global condemnation and the promise of fresh UN sanctions [. . .]

The talks came two days after South Korean President Park Geun-Hye urged China to step up to the plate and support genuinely punitive sanctions that would help bring Pyongyang to heel.

“I believe China is aware that if its strong determination is not put into actual, necessary actions, we will not be able to prevent a fifth or sixth nuclear test,” Park said.

In recent years, the relationship between Seoul and Beijing appeared to be warming. Last fall, President Park made a high-profile appearance in President Xi’s box at the Victory Day parade—a symbolic gesture that sent a clear signal. Yet, China is clearly unable (or unwilling, as many in South Korea suspect) to control North Korea, even while still insisting on retaining Pyongyang as an ally. This means that, despite the efforts of the past few years, there’s a pretty shallow limit to how deep the friendship between South Korea and China can become.