Volume VI, Issue IX
April 25, 2011
JHU POLITIK IN YEMEN, PROTESTS CONTINUE
PRESIDENT TO STEP DOWN
ISSUE IX, 4/25/11 Also in this Week’s Edition:
INTERNATIONAL CHINESE INFLATION AND GLOBAL INSTABILITY
By Anna Kochut, ‘13
-Page 3
FRANCE’S BURKA BAN
By Jordan Kalms, ‘14 -Page 3
OPINION WARREN BUFFETT’S LEGACY
By Neil O’Donnell, ‘13 -Page 4
(GETTY)
By Paul Grossinger, ‘11
by Sam Lichtenstein, ‘11 Editor-in-Chief
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housands of anti-government protestors gathered in Yemen’s capital on Sunday, despite President Ali Abdullah Saleh’s conditional acceptance of a proposal to resign after 32 years in power. Catalyzed by protests in other countries in the region, for more than two months demonstrators have called on President Saleh to immediately step down. Although the president has held his ground, on Saturday he agreed to a plan, which was proposed by a regional bloc of Gulf nations, that would see him step down and hand over power to his vice president within 30 days in exchange for immunity from prosecution for him and his family. Although a coalition of seven opposition political parties also agreed
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FINDING AMERICAN FISCAL CONSENSUS
-Page 5
to the proposal with some reservations, Saleh’s opponents come from a wide range of groups not party to the talks. Nearly all of these other groups have flatly rejected the proposal because they doubt Saleh’s intentions. “The proposals are not acceptable at all and the opposition parties don’t represent us,” said Khaled al-Ansi, a leaders of the youth movement organizing the protests, who was quoted by the Associated Press. As of now, military units that have defected from Saleh’s army ring around the thousands of protestors in Change Square in Sanaa, the scene of the demonstrations. The defense has been more than welcomed by the protestors, who hope that the defectors will be able to
JOHNS HOPKINS’s Only WeeklyPublished Political Magazine
protect them. More than 130 people reportedly have been killed by security forces and Saleh supporters since the demonstrations began. Most dramatically, at least 40 died in a single attack on March 18 when rooftop snipers began to fire on protestors in the square. While Saleh likely hoped that the show of force would scare the protestors back home, it seems that it has had the opposite effect. Following the March 18th attack, a wave of defections by those outraged by the violence began. Key military commanders, diplomats (including Yemen’s ambassador to the United Nations), and ruling party members (Continued on Page 2) www.JHUPOLITIK.com
Volume VI, Issue IX
April 25, 2011
The POLITIK EDITOR-In-Chief
Editor-in-Chief
Editor-in-Chief
Joshua Ayal
Harry Black
Sam Lichtenstein
Staff Writers
Executive Editors
Randy Bell Alex Clearfield Rachel Cohen Rohit Dasgupta Eric Feinberg Becca Fishbein Conor Foley Cary Glynn Benjamin Goldberg Paul Grossinger Dan Hochman Jordan Kalms Anna Kochut Briana Last Hilary Matfess Daniel Roettger Ari Schaffer
Managing Editor
Will Denton Morgan Hitzig Hannah Holliday
Matt Varvaro PRODUCTION MANAGERS
Casey Navin Neil O’Donnell Faculty Advisor
Steven R. David JHU POLITIK is a student-run political publication. Please note that the opinions expressed within JHU POLITIK are those solely of the author. Please sign up for our e-mail list on our website, www.JHUPOLITIK.com
INTERNATIONAL REPORT
(Continued from Page 1) have all abandoned the president. The defections are a worrying development for Saleh, a shrewd politician and former military officer, who has been able to hold power for decades by using his security forces to strike at opponents and use “divide and rule” strategies against the powerful tribes that rule most of Yemen’s remote deserts. For President Obama, the situation in Yemen has come to symbolize the dichotomy of American foreign policy in the region. For years, Saleh has been a useful ally in fighting al-Qaida in Yemen, which many analysts consider its most active branch. To that end, Saleh has received millions of dollars in grants to fight terrorism. Nonetheless, the heavy-handed tactics of Saleh have complicated American desires to see democratic change in the region, particularly in light of American support for the ouster of Libya’s Muammar Qaddafi. While President Obama has yet to take a definitive, public stand on the situation in Yemen, American diplomats have signaled that they would like to see Saleh leave office. The Department of State reacted somewhat cautiously to President Saleh’s announcement on Saturday. Its acting deputy spokesman, Mark Toner, said officials welcome his acceptance, but that “The participation of all sides in this dialogue is urgently needed to reach a solution supported by the Yemeni people.” The lack of a deliberate statement by American offi-
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cialdom is unsurprising when the stakes are considered. In the view of many observers, the only thing worse than an illegitimate Saleh remaining in office is a situation in which there is a power vacuum. Indeed, in the absence of a clear leader, American policymakers worry that terrorists might be able to co-opt the support of demonstrators or simply take over the country altogether. Perhaps even worse, however, would be a civil war. In a country with many warring tribes, it is not inconceivable to see a breakdown in order in which old ethnic hatreds reappear, but are combined with terrorist tactics and modern weaponry. In that case, American officials also fear the response of Saudi Arabia, which is very worried about the lawlessness along its southern border. Already this year, Saudi soldiers have exchanged fire with Yemeni tribesmen from across the border. For the Saudi elite, the idea of violence spilling over into their country – and perhaps giving momentum to a nascent Saudi protest movement – is not acceptable. Thus, as the week unfolds, pay close attention to developments in Yemen. As any international relations theorist will tell you, beware of a leader who has run out of support and options. Whether the United States will be able to facilitate a peaceful and legitimate transfer of power is an open question, but what is certain is that the current standoff leaves the possibility of further violence and instability all the more worrying. s www.JHUPOLITIK.com
Volume VI, Issue IX
April 25, 2011
INTERNATIONAL REPORT Chinese Inflation and Global Instability by Anna Kochut, ‘13 Staff Writer As even a cursory glance at the news has shown, economies around the world, including our own, have been struggling. However, this is not the case for China. This is not to say that China’s economy has gone untouched by the global economic downturn, but rather that is has been suffering from a different ailment – inflation. Indeed, while America and European nations continue to try to jumpstart their economies, China is trying to figure out how to cool down its one. Overall, inflation poses a possible dilemma for global trade, as China surpassed Germany as the leading exporter in 2009. Observers agree that even the slight pos(AP) sibility of the country’s huge economy bursting in a bubble is enough to make other nations worry. Even if such a scenario is not realized, however, prices increases in the world’s largest exporter make for a serious study of the risks involved. China’s inflation poses myriad problems for the country’s both domestic and international role. According to Carmen M. Reinhart, an economist at the Peterson Institute for International Economics in Washington, D.C., the Chinese economy is “engaged in an economic tug of war, trying to encourage sustainable growth while struggling to control inflation.” She also reports that “the actual numbers” of China’s economy “are worse than officially reported.” On the international side, inflation is threatening China’s ability to supply cheap goods to the international markets, which are hungry for Chinese exports. On the other hand, the Chinese government has been enforcing tighter domestic restrictions to try to curtail the damage done to the economy by inflation. On the domestic front, food prices are soaring. According to the New York Times, the March consumer price index rose 5.4%. The government has raised agricultural subsidies with hopes to ease the damage done to the economy by the increase of food prices. Analysts tend to agree that this has yielded, and will continue to yield, mixed results for the Chinese economy. The observed results as of yet have been management of growth, but failure to control the country’s inflation. International factors beyond China’s control may be influencing the country’s growth, as well. For example, China cannot do much to control the increasing prices of global commodities, such as energy. The results of
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these increases cause Dong Tao, an economist at Credit Suisse in Hong Kong, to ague that “China is moving into a new era, a new norm… [that will see inflation] closer to 5% [per year]” as opposed to 1.8% of previous years. This shift threatens to impact not only domestic consumers; it involves the country’s international trade, too. For instance, China has become one of the largest suppliers for Wal-Mart, the world’s biggest retailer, in the past few years. However, with its inflationary struggles, Chinese coastal factories are being forced to demand more money for their exports. Thus, Chinese inflation will possibly be felt around the world when the country’s exports stop being so cheap. American and European importers might seek their low-cost goods elsewhere, or force companies such as Wal-Mart to increase their prices, as well. Of course, at this point worries about China’s rising inflation are just that – worries. There has been no indication that China’s inflation index has gotten out of control. Yet, as many economies have noted, simply fear of inflation in the world’s largest exporter is enough to begin to contemplate what would happen to the world economy if China’s prices began to climb. Thus, while the effect of Chinese inflation is yet to be determined, be sure to watch in the coming weeks as policymakers around the world confront the rising problem. s
France’s Burka Ban by Jordan Kalms, ‘14 Staff Writer
(GETTY)
Two weeks ago, France’s ban on the wearing of Islamic facial veil was put into effect. Just hours later, two women were arrested and fined for wearing the burka. Following the arrests, protests erupted in Paris outside of the Notre Dame cathedral, where almost 60 people where arrested, 19 of who were women wearing the veil. (Continued on Page 4) www.JHUPOLITIK.com
Volume VI, Issue IX
April 25, 2011
INTERNATIONAL REPORT / OPINION (Continued from Page 3) The history behind this new law, which critics have called Draconian and an infringement on the rights of French Muslims, has been fraught with debate and consternation. Whereas many Muslim community groups and academics accuse this law of restricting their religious freedoms, members of the French right have claimed that this law has nothing to do with religion, and simply enforces a general standard within French society. The penalty for wearing a burka and subsequently, breaking this law, does seem to stand in line with what the rightists claim the law is trying to enforce, which is social cohesion throughout French society. If arrested, the person in question is subject to a fine of 150 Euros ($215) or classes in French citizenship. The law, though by far the most stringent yet in France, follows the heels of a 2004 prohibition of Islamic headscarves in classrooms. According to the current law’s supporters, it is very careful to protect against offending the religious sensitivities of Muslim women. For instance, the law prohibits French authorities from requiring women to remove their veils in the street and in other public areas. Instead, women are asked to accompany the police officers to a local station, where they are required to remove their veil and provide identification. Rachid Nekkaz, a very public figure in France, stated that he would be supporting women who defied the ban, and would pay their fines once they were arrested. Nekkaz was quoted as saying, “The street is the universal home of freedom and nobody should challenge that so long as these woman are not impinging on anyone else's freedom”. French authorities expected these kinds of backlashes from the public. Officials have stated that they intend to continue upholding the new law despite protests, civil disobedience, and claims that that law is a debasement of human rights. The French government has claimed that the law is enforcing a fundamental standard of French secular society that has existed in the country for hundreds of years. More than nearly any other country in Europe, France has a long history of an extreme separation of religion and the state – which the French refer to as “laïcité.” After Belgium, France is just the second country in Europe to officially ban the burka and other face veils in public spaces. Of course, despite what the French officials say, the law is not completely ambiguous with regards to religion, and does address the notion that highly
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pious Muslim men may force women to wear religious veils. Accordingly, men who force their wives or daughters to wear burkas will face up to a year in prison, and fines of up to 25,000 pounds. Rest assured, Spain, Holland, Switzerland, and other countries considering similar prohibitions will be watching as the drama unfolds. Whether or not the ban on the veil succeeds in forcing a conformation to French values or further alienates a growing Muslim population remains to be seen. s
Warren Buffett’s Legacy by Neil O’Donnell, ‘13 Production Manger In January, Warren Buffett announced that he would step down from the board of the Washington Post in May, when his term as a director expirers. At the time of his announcement, Buffett’s departure saddened many of his fellow board members. The CEO of the Washington Post quipped “only our cholesterol levels will be better going forward,” a joke referring to Buffett’s love of greasy fast food. Now, only a few short weeks away, it is a fitting time to assess the role of arguably the greatest investor in American history. In 2006, Buffett left the board of Coca-Cola after more than 15 years. Most tellingly, last year Warren Buffett named an heir to invest Berkshire Hathaway’s billions after Buffett leaves Berkshire Hathaway. Todd Combs, a hedge fund manager in Greenwich, Connecticut, will succeed Mr. Buffett as “Chief Investment Officer” (a term Buffett crafted to describe his unique duties at Berkshire Hathaway). Before naming Todd Combs as his investing heir, Buffett joked that he planned to invest Berkshire’s capital and communicate to Berkshire’s managers “via regular séances.” The gradual devolution of duties of Warren Buffett, an octogenarian, is of course inevitable. Yet, as Buffett disappears from corporate boardrooms, American corporations lose a key source of prudence and common sense. Many of Warren Buffett’s warnings to corporate America seem poignant, particularly after the “Great Recession.” In Warren Buffett’s annual letter to Berkshire Hathaway shareholders in 2002, Buffett called derivatives and other complex financial instruments “time bombs” and “financial weapons of mass destruction.” (Continued on Page 5) www.JHUPOLITIK.com
Volume VI, Issue IX
April 25, 2011
OPINION (Continued from Page 4) The unregulated trade of derivatives was a key cause in the financial crisis, which began just a few short years after Warren Buffett penned his letter. Similarly, Warren Buffett has long criticized outsized pay for corporate executives. In the 2009 annual Berkshire Hathaway shareholder meeting, Buffett declared that corporate executives receive hefty pay checks and lavish executive perks because “the CEO has dominated” the compensation system. Warren Buffett supports his rhetoric with his actions. Despite being one of the most successful CEO’s in history, Warren Buffett has received a salary of $100,000 for more than 25 years. Warren Buffett has also criticized excess risk taking on Wall Street, America’s yawning trade deficit, and flawed tax code within the United States. Indeed, he has been a vocal supporter of higher taxes on rich Americans. Yet, Warren Buffett has not only served a soothsayer (AP) in modern finance, but a bastion of common sense and wisdom. By purchasing and funding great companies like See’s Candy and Fruit of the Loom, Warren Buffett has allowed these great companies to serve the globe. Furthermore, Buffett has created sturdy reinsurance companies that can imbibe the risk of natural disasters and catastrophes, thereby improving the integrity of the financial markets. With his simple calculations, Warren Buffett has identified more undervalued stocks than any modern securities expert. With successful investing, Warren Buffett has not only enriched the shareholders of Berkshire Hathaway, but also improved the lives of thousands across the globe. Perhaps most impressively, Buffett has pledged virtually all of his incredible fortune to charity. In 2006, Buffett’s gift of Berkshire stock to the Bill and Melinda Gates Foundation was valued at nearly $37 billion. The following day, after pledging to give his fortune away to provide for the needy, Buffett returned to work at Berkshire Hathaway. Without Warren Buffett, the history of American capitalism and commerce would be sadly different. Therefore, as Buffett prepares his company for his inevitable exit, Americans must cling fast to his ideals of industry and thrift. As America seems to be losing ground to China, India, and other emerging economies, Buffett’s values will ensure that American corporations remain competitive. As our financial markets become increasingly complex, we must retain Buffett’s copious common sense. The next time financial innovation promises a quick road to wealth, we should heed Buffett’s warning
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“beware of geeks bearing formulas.” As an uncertain, sputtering economy casts a pall over the lives of Americans, we must remember the Buffett’s words: “America’s brightest days lie ahead.” Buffett pointed out that “this country works” – America weathered two world wars and a global depression while tremendously increasing the average American citizen’s quality of life. Warren Buffett’s knack for predicting future trends and identifying low priced stocks resulted in his nickname, “the Oracle of Omaha.” However, Warren Buffett success did not depend on his capacities as a prognosticator, but rather his steadfast devotion to creating a valuable, sustainable business. It does not require an oracle to discern that Warren Buffet will forever remain a role model in American business. s
Finding American Fiscal Consensus by Paul Grossinger, ‘11 Staff Writer Last week, I woke up and, as is my habit, checked the stock prices on my iPhone. What I found was disturbing: the market was tanking early in the day. While the market’s sharp decline was disturbing on its own, the reason for the early morning decline was chilling: the credit rating agency Standard and Poor’s had reduced its outlook for the long term debt of the United States from “stable” to “negative”. A reduction in long-term debt ratings is something that happens to countries in fiscal decline. Americans watched this happen to Greece, Spain, Ireland, Portugal, and a host of Eastern European states last year. But our concern for those countries and their fiscal woes hardly extended to our own shores: the idea that the United States, the world’s hegemonic behemoth, might one day default on its debts was inconceivable. Yet, although we remain far, far away from a time when that could actually happen, the Standard and Poor’s downgrade brought home a critically important point to investors: if the U.S. does not change its fiscal habits then one day this country will default on its debts. We will end up like Greece et al: buried in debt, bankrupt, and in need of a global bailout and a booster shot of austerity. I used the words “fiscal habits” instead of “spending habits” for a reason: America’s government spending (Continued on Page 6) www.JHUPOLITIK.com
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April 25, 2011
OPINION (Continued from Page 5) levels need to come down, but that is only half the coming battle; the other half will be to change the way that the U.S. taxes its citizens. The good news, and the reason that the Standard and Poor’s rating change may be shortlived, is that these economic changes are very possible; all that is holding them up is political deadlock. Democrats and Republicans in Washington fundamentally disagree about how the government should raise and spend money in the future and, until they compromise, America will not be able to make changes and move forward. However, simply saying “they disagree” avoids the million-dollar question that will decide our country’s future: what exactly do they disagree on and how can those disagreements be bridged into a bipartisan consensus that reduces spending, increases the government’s ability to raise money in a responsible way, and solves our looming deficit and debt crises? The answer is that the parties’ disagreements run deep, but the possible compromises between them make fiscal sense and could be the key to solving America’s long-term fiscal problems and restoring confidence in the country’s future as a superpower. The most important issues that Democrats and Republicans disagree on are entitlements and taxes. Let us look at entitlements first: America’s three major entitlement commitments are Medicare, Medicaid, and Social Security. Social Security is not yet a serious problem, so the debate rages over the first two: Medicare and Medicaid. Put simply, the Democrats agree that spending on Medicare and Medicaid needs to be reduced, but think that the fiscal gap can be made up through a combination of aggressively combating fraud and eliminating double-commitments with President Obama’s new healthcare plan. Republicans, as shown in Paul Ryan’s proposed budget, would like to see Medicare and Medicaid changed from government insurance operations to voucher programs with spending on both drastically reduced and then capped in perpetuity. Neither of these party-favored, partisan options is either politically or economically realistic. Medicare and Medicaid are expected to triple by percentage as a share of federal spending within a decade and a half as the whole baby boomer generation retires; clearly, combating fraud and eliminating some double programs will not fix the problem. By the president’s own admission, savings from implementing the healthcare plan and eliminating doubles within Medicare will eliminate less than two trillion dollars in spending over two decades – not nearly enough. However, the Republican plan is equally
unrealistic: politically, the Democrats will never agree to privatize Medicare and, economically, the plan ignores the massive costs to millions of uninsured individuals who would squander their voucher and then pay tens of thousands of dollars every time they go to the emergency room for even the most minor of health ailments. The reality is that a compromise between these two competing visions is the only real answer to the country’s fiscal problems with entitlements. An effective compromise plan would see Republicans agree to keep Medicare and Medicaid as government programs (an axiomatic political issue for Democrats) and keep some form of the president’s healthcare plan. In exchange, it would see Democrats agree to drastic changes to the programs. These would include changes that are easy to agree on: more aggressive combat of fraud, more stringent guidelines for what the programs cover particularly with regard to emergency room visits and tests, and the elimination of double programs. However, the Democrats would also agree to the larger changes needed to ensure the program’s long term fiscal solvency: raising eligibility ages for the two programs to either 70, 72, or 75 years to spread out baby boomers’ retirements and reduce the program’s drastic cost increase over the coming decade, a drastic reduction in prescription drug coverage under President Bush’s Medicare Part D, which accounts for the largest increase in program costs in future decades, and a future cap on Medicare and Medicaid spending as a percentage of federal spending at close to current levels. There is hope for this type of compromise because both Democrats and Republicans now understand that America’s future fiscal crisis must be solved now and divided government for the foreseeable future ensures that a compromise is the only way to solve these endemic problems. The second set of issues that must be solved via compromise are the critical problems with America’s tax system. Currently, 45% of Americans do not pay taxes and the top two percent of earners account for nearly 50% of all revenue. That is not workable in the long term and the problem is exacerbated by the tax systems’ very complicated-and unnecessary-set of loopholes that help many taxpayers cheat the system. Democrats would like to see large tax increases on the rich through higher top rates and the elimination of loopholes, but that plan is fiscally unrealistic because it would result in real tax rates (including city, state, and (Continued on Page 7)
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Volume VI, Issue IX
April 25, 2011
OPINION (Continued from Page 6) payroll taxes) on the wealthy approaching 50% and reduce that group’s willingness and ability to invest money in the economy. However, the Republican plan is equally unrealistic: lowering taxes on the wealthy to 25% and keeping some loopholes would only deepen the fiscal crisis. What about a compromise in the middle? For example, base taxes at Bush-era levels (a Republican goal) with the elimination of tax loopholes (a Democratic one) would be stomach-able for both sides and go a long way towards raising enough money in a responsible manner to solve the country’s long term fiscal problems. There are many different potential compromises to solve these issues. Clearly, the ideas here do not represent the only options that the debating parties can agree on; the final solution may be totally different. However, one thing is clear: regardless of what the compromise is, one must be made or this country will default on its debt and cease to be a world power. s
Hopkins This Week The Foreign Affairs Symposium presents LIEUTENANT GENERAL PAUL J. SELVA Assistant to the Chairman of the Joint Chiefs of Staff Chief Military Advisor to Secretary of State Clinton April 26, 8:00PM Mason Hall
JHU Business in China Association presents
AMBASSADOR WENDY SHERMAN Former Assistant Secretary of State Chief Advisor to Madeline Albright. on THURSDAY, APRIL 26 Reception and dinner at 6:00 PM in the Hopkins Club Keynote address at 7:30 in Hodson Hall for more information go to jhuchinabiz.com
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