The Lonely Man of the Middle East

How much of Putin, Erdogan really has in him ?

by Stanley Weiss

When Turkish Prime Minister Recep Tayyip Erdogan met in July with Russian strongman Vladimir Putin about the civil war in Syria, political biographers had a right to be confused.

After all, one is the leader of a government that has imprisoned more journalists than China and Iran combined; empowered special courts to arrest citizens on suspicion of terrorism without evidence or the right to a hearing; sentenced two students to eight years in prison for holding a sign at a rally demanding “free education”; and has seen more than 20,000 complaints filed against it in the European Court of Human Rights since 2008.

The other is president of Russia.

That the leader of secular, democratic Turkey—a longtime US ally and member of the North Atlantic Treaty Organization—has managed to out-Putin Putin when it comes to steamrolling civil liberties the past ten years is just the beginning of the way politics is changing on the Black Sea. Even while Putin receives a fresh round of global scorn for the two-year prison sentence meted out to three young women of the “Pussy Riot” punk band, Erdogan has successfully executed every trick in the Putin playbook except one. But it is that one failure that may have the most dramatic effect on Turkey’s future and the direction of US foreign policy.

For two neighbors that fought eight wars between them from the eighteenth through the early twentieth century, Russia and Turkey have a lot in common. Both bridge Asia and Europe. Both enjoyed historic runs as world powers. Both have declared their intention to join Europe. And under Putin and Erdogan, both have taken historic steps away from democracy in an attempt to recapture past glory. Call it the four steps toward autocracy in a global age.

Policy for economic decay

There is of course the possibility that Bernankeism will collapse of its own accord 

By Martin Hutchinson

I discussed last week how Federal Reserve chairman Ben Bernanke's easy-money policies could be reversed should Mitt Romney win the presidency and wish to reverse them. It is only fair, therefore, to discuss the other possibility: should Barack Obama be re-elected and (ignoring his fiscal and regulatory policies, which in any case would be modified by congress) allow Bernanke to run free with US monetary policy for another four years.

In modern history, since Bernanke's policies are unprecedented, we have no easy benchmark by which we can measure this outcome. As in many cases however, Adam Smith, writing before economic growth was taken to be universal and inevitable, has an admirable template for our future in a Bernanke-driven United States, in his analysis of the declining fortunes of 18th century Bengal. 

In "Chapter VIII - The Wages of Labor" of his Wealth of Nations, having discussed the flourishing economies of Western Europe, the American colonies and the static but wealthy China, Smith turns his attention to the problem of decay: "But it would be otherwise in a country where the funds destined for the maintenance of labor were sensibly decaying," he begins. 

That is of course precisely the situation in which the United States finds itself after nearly seven years of Bernankeist monetary policy, which followed 11 years of monetary over-expansion under Alan Greenspan. A decade or more of balance of payments deficits in excess of US$500 billion annually, accompanied by interest rates that have depressed the US savings rate far below the capital needs of the economy and four years of $1 trillion plus budget deficits, have hollowed out the US capital base. 

At last, Japan may be about to abandon its disastrous Keynesian consensus

Moving towards a balanced budget 20 years late

By Thomas Pascoe

The world’s third largest economy is in crisis. That, in itself is not news. The world’s largest economy is also in crisis, as is its second, as is…

What is newsworthy is that, having tried and failed with every other option, the Japanese government may be taking a remarkably novel approach. It appears as though they are going to try to spend close to what they receive in taxation. The Keynesian consensus is coming to an end in Japan, although not before it has wrought enormous damage to one of the world’s great economies.

“The government running out of money is not a story made up. It's a real threat," said Japan’s finance minister Jun Azumi on Friday. Opposition parties in Japan are blocking a deficit financing bill which would allow the government to continue to drive its debt levels above 200pc of GDP. If the opposition holds firm, the government has threatened the unthinkable – it will spend less. Tax rises are also on the table, although the doubling of sales tax to 10pc will not come fully into force until 2015.

This is a turnaround for Japan. The nation’s government has already contorted itself in all the ways now common in the West while attempting to postpone this day. This, after all, is a country whose own central bank rebuked itself last month for breaking its own rule and buying more bonds than there is currency in issue.

Democracy the loser in struggle to save the euro

It is not just Germans who should feel nervous

By  Gideon Rachman

The European Central Bank (ECB) has fired its magic bullet. By promising "unlimited" purchases of sovereign bonds, ECB president Mario Draghi may have kept his pledge to do "whatever it takes" to save the euro. But in rescuing the currency, Draghi’s magic bullet has badly wounded something even more important — democracy in Europe.

As a result of the ECB’s actions, voters from Germany to Spain will increasingly find that crucial decisions about national economic policy can no longer be changed at the ballot box. In Germany, in particular, there is a growing realisation that the ECB, an unelected body that prides itself on its independence from government, has just taken a decision that has profound implications for German taxpayers — but one they cannot challenge or change.

Previous European bail-outs had to be approved by the German parliament and were subject to review by the German courts. Indeed, the German supreme court will rule on the constitutionality of the most recent bail-out tomorrow. But the ECB’s decision to accept unlimited bond purchases is immune to such democratic controls. The bank cannot be overruled by the German parliament. And because it is a European Union institution, it cannot be checked by the German courts, only by the European Court of Justice.

America’s Descent into Poverty

Low-wage work is pandemic in US

By Paul Craig Roberts

The United States has collapsed economically, socially, politically, legally, constitutionally, and environmentally. The country that exists today is not even a shell of the country into which I was born. In this article I will deal with America’s economic collapse. In subsequent articles, i will deal with other aspects of American collapse.

Economically, America has descended into poverty. As Peter Edelman says, “Low-wage work is pandemic.” Today in “freedom and democracy” America, “the world’s only superpower,” one fourth of the work force is employed in jobs that pay less than $22,000, the poverty line for a family of four. Some of these lowly-paid persons are young college graduates, burdened by education loans, who share housing with three or four others in the same desperate situation. Other of these persons are single parents only one medical problem or lost job away from homelessness.

Others might be Ph.D.s teaching at universities as adjunct professors for $10,000 per year or less. Education is still touted as the way out of poverty, but increasingly is a path into poverty or into enlistments into the military services.

Edelman, who studies these issues, reports that 20.5 million Americans have incomes less than $9,500 per year, which is half of the poverty definition for a family of three.

There are six million Americans whose only income is food stamps. That means that there are six million Americans who live on the streets or under bridges or in the homes of relatives or friends. Hard-hearted Republicans continue to rail at welfare, but Edelman says, “basically welfare is gone.”

The Economic Consequences of Cheap Money

There is no means of fooling the public all of the time by tampering with the rate of interest

by Ludwig von Mises

I. The Unpopularity of Interest

One of the characteristic features of this age of wars and destruction is the general attack launched by all governments and pressure groups against the rights of creditors. The first act of the Bolshevik Government was to abolish loans and payment of interest altogether. The most popular of the slogans that swept the Nazis into power was Brechung der Zinsknechtschaft, abolition of interest-slavery. The debtor countries are intent upon expropriating the claims of foreign creditors by various devices, the most efficient of which is foreign exchange control. Their economic nationalism aims at brushing away an alleged return to colonialism. They pretend to wage a new war of independence against the foreign exploiters as they venture to call those who provided them with the capital required for the improvement of their economic conditions. As the foremost creditor nation today is the United States, this struggle is virtually directed against the American people. Only the old usages of diplomatic reticence make it advisable for the economic nationalists to name the devil they are fighting not the Yankees, but "Wall Street."

"Wall Street" is no less the target at which the monetary authorities of this country are directing their blows when embarking upon an "easy-money" policy. It is generally assumed that measures designed to lower the rate of interest, below the height at which the unhampered market would fix it, are extremely beneficial to the immense majority at the expense of a small minority of capitalists and hardboiled moneylenders. It is tacitly implied that the creditors are the idle rich while the debtors are the industrious poor. However, this belief is atavistic and utterly misjudges contemporary conditions.

The Gravy Train is Off the Rails

Europe, A Sterile Landscape...

by Clive Hale

A place incapable of supporting life as we know it – a good description of where ECB monetary policy is leading us. Currency debasement is almost certainly where we are headed because of Dr. Aghi’s assertion that the euro is irreversible, not despite it. He bravely assumes that in making such a statement he is creating an aura of consensus and strength. In its current form the euro is a busted flush and is being held together solely by political intransigence and ECB connivance. From the very beginning the rules of engagement were ignored because without political and fiscal centralisation they weren’t going to work anyway.

But did this stop most of the eurozone countries – and the Southern “Methadone” Zone in particular – from getting on board the gravy train and going on one hell of a trip courtesy of German style interest rates. It would have been rude not to! And no worries about the lack of a long term structure to keep this thing on the rails; we can deal with that later. Well later is now and guess what? They all want to stay on the train but can no longer afford the fare; ignoring the fact that they never could in the first place.

One of the many problems the eurozone faces, along with the US, UK, Japan et al, is how to service their massive debt burden. They can’t, but insist on reapplying the band aid to create the illusion of progress. As Einstein put it, “insanity is doing the same thing over and over again and expecting different results.” We now have OMT to ponder upon – Outright Monetary Transactions. My reaction thus far has been “OMG!” Typical of an ill conceived contrivance, the press release on the “technical” features of OMT comprises 17 short sentences; one of which says, “the liquidity created through Outright Monetary Transactions will be fully sterilised,” but doesn’t say how – that would just be too technical!

The Heart of the US Election

The American Dream is getting out of middle class reach

By Raghuram Rajan

A real debate is emerging in America’s presidential election campaign. It is superficially about health care and taxes. More fundamentally, it is about democracy and free enterprise.

Democracy and free enterprise appear to be mutually reinforcing – it is hard to think of any flourishing democracy that is not a market economy. Moreover, while a number of nominally socialist economies have embraced free enterprise (or “socialism with Chinese characteristics,” as the Chinese Communist Party would say), it seems to be only a matter of time before they are forced to become more democratic.

Yet it is not clear a priori why democracy and free enterprise should be mutually supportive. After all, democracy implies regarding individuals as equal and treating them as such, with every adult getting an equal vote, whereas free enterprise empowers individuals based on how much economic value they create and how much property they own.

How Draghi Opened The Door To Hyperinflation

... And Denied The Fed An Exit Strategy

by Martin Sibileau

We finally heard the intentions of Mr. Draghi, President of the European Central Bank (“ECB”). We only need to know the conditions Germany’s Verfassungsgericht will impose on September 12th. We believe they will be relevant.

On Thursday, Draghi told us he intends (1) to purchase sovereign debt in the secondary market, (2) that before he does so, the issuing country must submit to certain conditions within a fiscal adjustment program, (3) that when he finally buys the debt, he will buy any debt (new or outstanding) with a maturity lower than three years, (4) that after buying it, he will sterilize the transaction, (5) that the collateral pledged so far for liquidity lines will not be subject to minimum credit ratings any longer, (6) that the ECB will accept to rank pari-passu with other creditors going forward, and (7) that the Securities Market Programme will be terminated, with the purchased debt held until maturity. According to Mr. Draghi (but not toGermany), buying debt with a tenor lower than three years does not constitute government financing. The number three, it seems, is a magical number.

We will mince no words: Mr. Draghi has opened the door to hyperinflation. There will probably not be hyperinflation because Germany would leave the Euro zone first, but the door is open and we will explain why. To avoid this outcome, assuming that in this context the Eurozone will continue to show fiscal deficits, we will also show that it is critical that the Fed does not raise interest rates. 

There Must Be Some Way Out Of Here

Debunking Some Myths

By Mark J. Grant

First let me state , with a certain calmness, that there is a Transfer Union underway in Europe. This is the subject, you may recall, that Germany has tried to avoid at all costs which is why Eurobonds and other similar schemes have not been implemented. Europe, however, has found a clever way of implementing such a program and keeping it under the radar from the German citizens. I will explain: 

In Greece, Spain, Portugal and Italy the ECB has implemented a program where the sovereign guarantees some bank’s bonds. The bank then pledges them as collateral at the ECB and gets cash. The bank then turns around and lends the money back to the sovereign nationand provides liquidity and economic sustenance. The Transfer Union is completed as Germany guarantees 22% of the ECB and the European Central Bank is nothing more than a conduit to lend money to the various nations. This contrivance is also not sterilized so that the ECB is, in fact, printing money which is another part of this subterfuge that no one in Europe wants you to know anything about. This strategy is what has kept all of these various countries alive while the political entity, the European Union, tries to decide what to do about the future of the troubled nations. In a very real sense the ECB is the only fully operational part of the European construct at present as the European Union does not have the “political will” to carry out its mandate.

    “The tears I have cried over Germany have dried. I have washed my face.”                      -Marlene Dietrich

The costs of sovereign default

Theory and reality

By Ugo Panizza, Eduardo Borensztein

Sovereign debt is different. Private debt contracts can be enforced in court and court rulings enforced by asset seizures. By contrast, public-debt creditors:

·        Lack procedures for enforcing sovereign debt contracts – partly due to the principle of sovereign immunity.

·        Have ill-defined claims on the sovereign's assets as they cannot attach assets located within the sovereign’s borders, and typically have limited success in going after sovereign assets located abroad.

Since contracts cannot be enforced, why do sovereigns repay and why do lenders lend?

The economist's natural answer is that it must be the case that repaying is cheaper than defaulting (Dooley 2000). But what are the costs of default? In a seminal paper that kick-started the sovereign debt literature, Eaton and Gersovitz (1981) focused on reputational costs and showed that, under certain conditions, the threat of permanent exclusion from financial markets is a sufficient condition for repaying. Successive work by Bulow and Rogoff (1989) emphasised the possibility of trade sanctions. Cole and Kehoe (1998) showed that positive lending can be sustained even if creditors cannot punish defaulting countries. In this class of theoretical models incentives to pay come from the fact that a default would reveal negative information about the government to other parties that are engaging in transactions with the defaulting government (for a detailed discussion, see Panizza et al. 2009).

Measuring the costs of default

In a recent paper (Borensztein and Panizza 2009), we look at four possible costs of default: loss of reputation, reductions in trade, costs to the domestic economy, and political costs (Inter-American Development Bank 2006 provides a detailed description of default episodes over the last two hundred years).

General Motors Co sold a record number of Chevrolet Volt sedans in August

But that probably isn't a good thing for the automaker's bottom line

by Paul Lienert, Bernie Woodall and Ben Klayman

Nearly two years after the introduction of the path-breaking plug-in hybrid, GM is still losing as much as $49,000 on each Volt it builds, according to estimates provided to Reuters by industry analysts and manufacturing experts.

Cheap Volt lease offers meant to drive more customers to Chevy showrooms this summer may have pushed that loss even higher. There are some Americans paying just $5,050 to drive around for two years in a vehicle that cost as much as $89,000 to produce.

And while the loss per vehicle will shrink as more are built and sold, GM is still years away from making money on the Volt, which will soon face new competitors from Ford, Honda and others.

GM's basic problem is that "the Volt is over-engineered and over-priced," said Dennis Virag, president of the Michigan-based Automotive Consulting Group.

And in a sign that there may be a wider market problem, Nissan, Honda and Mitsubishi have been struggling to sell their electric and hybrid vehicles, though Toyota's Prius models have been in increasing demand.

GM's quandary is how to increase sales volume so that it can spread its estimated $1.2-billion investment in the Volt over more vehicles while reducing manufacturing and component costs - which will be difficult to bring down until sales increase.

But the Volt's steep $39,995 base price and its complex technology — the car uses expensive lithium-polymer batteries, sophisticated electronics and an electric motor combined with a gasoline engine — have kept many prospective buyers away from Chevy showrooms.

Why early sovereign default could save the euro

By forestalling timely sovereign default, the ECB is digging the euro's grave

By Harald Hau

The crisis in the Eurozone is primarily a debt crisis. Debt overhang, whether public or private (as it originally was in Ireland and Spain), impedes investment and growth (Reinhart and Rogoff 2010). And it diminishes incentives for fiscal rigor if the benefits accrue mainly to creditors, and aggravates the macroeconomic effects of austerity if much of the additional saving that deleveraging requires is transferred to creditors abroad. Low growth and capital flight reinforce the debt problem and create a downward spiral, from which belated budgetary austerity provides no exit.

Any strategy of dealing with the Eurozone crisis therefore must be evaluated in light of its effectiveness in dealing with the debt overhang problem. Two solutions are possible.

·        Inflation reduces the real value of nominal debt, lowering the debt burden both on the sovereign and all other debtors.

An unanticipated inflation increase of three percentage points amounts to a 34% (compounded) debt relief on a ten-year bond; little of the government debt in question is inflation-indexed (less than 8% in Italy and none in Spain). But such relief hits all investors alike, independent of the solvency of their respective debtors.

·        Or sovereign default writedowns of the face value and interest payments or reprofiling of such payments. These can take various forms.

For example, exchanges of short-run debt for long-run debt and adjustments of the interest payments can help restore sustainability to debt dynamics.

Scandals Show California Is Broken, Not Broke

The gaming of the system is an art form

By Steven Greenhut

Voters are accustomed to the scare tactics of tax-hungry politicians who warn of looming cuts in schools and public safety.

But nothing gets people’s attention like closing parks. And in California, where the state beaches and mountain refuges are as beloved as the politicians are cynical, the strategy has exposed practices that border on the corrupt.

It started in May 2011 when Governor Jerry Brown announced that “turbulent times” required the “unthinkable” -- the shuttering of 70 parks to deal with the state’s enduring fiscal problems. Brown’s critics sensed that he found the proposed cuts to be quite “thinkable” -- at least as a ploy to encourage Californians to loosen the grip on their wallets.

Brown has staked his governorship on the idea that Californians need to pay higher taxes to help plug a budget gap estimated at almost $16 billion -- specifically a proposition on the state ballot in November that would boost the sales tax by a quarter cent for four years and impose supposedly temporary income-tax increases on residents who earn more than $250,000 a year.

Brown and his fellow Democrats didn’t count on two things. First, nonprofit groups and local governments came up with the money to keep most of the targeted parks up and running, thus illustrating the effectiveness of nongovernment or local solutions in the face of state-government failure.

Employee Payouts

Second, it turned out that the state parks department, rather than being strapped, was soawash in cash that it handed out huge payouts to employees and hid millions of dollars in special accounts. (Some private groups backed away from their promises to finance individual parks when they learned about the hidden funds.)

Οur "lying eyes"

Are Chinese Banks Hiding “The Mother of All Debt Bombs”?

By Minxin Pei

China's massive bank financed stimulus was intended to keep the economy moving. It may instead lead to economic disaster.

Financial collapses may have different immediate triggers, but they all originate from the same cause: an explosion of credit.  This iron law of financial calamity should make us very worried about the consequences of easy credit in China in recent years.  From the beginning of 2009 to the end of June this year, Chinese banks have issued roughly 35 trillion yuan ($5.4 trillion) in new loans, equal to 73 percent of China's GDP in 2011. About two-thirds of these loans were made in 2009 and 2010, as part of Beijing's stimulus package.  Unlike deficit-financed stimulus packages in the West, China's colossal stimulus package of 2009 was funded mainly by bank credit (at least 60 percent, to be exact), not government borrowing.

Flooding the economy with trillions of yuan in new loans did accomplish the principal objective of the Chinese government — maintaining high economic growth in the midst of a global recession.  While Beijing earned plaudits around the world for its decisiveness and economic success, excessive loose credit was fueling a property bubble, funding the profligacy of state-owned enterprises, and underwriting ill-conceived infrastructure investments by local governments.  The result was predictable: years of painstaking efforts to strengthen the Chinese banking system were undone by a spate of careless lending as new bad loans began to build up inside the financial sector.

When the Chinese Central Bank (the People's Bank of China) and banking regulators sounded the alarm in late 2010, it was already too late.  By that time, local governments had taken advantage of loose credit to amass a mountain of debt, most of it squandered on prestige projects or economically wasteful investments.  The National Audit Office of China acknowledged in June 2011 that local government debt totaled 10.7 trillion yuan (U.S. $1.7 trillion) at the end of 2010.  However, Professor Victor Shih of Northwestern University has estimated that the real amount of local government debt was between 15.4 and 20.1 trillion yuan, or between 40 and 50% of China’s GDP.  Of this amount, he further estimated, the local government financing vehicles (LGFVs), which are financial entities established by local governments to invest in infrastructure and other projects, owed between 9.7 and 14.4 trillion yuan at the end of 2010.

A kinder, gentler empire

Dumb and dumber

By John Feffer

US President Barack Obama is a smart guy. So why has he spent the past four years executing such a dumb foreign policy? True, his reliance on "smart power" - a euphemism for giving the Pentagon a stake in all things global - has been a smart move politically at home. It has largely prevented the Republicans from playing the national-security card in this election year. But "smart power" has been a disaster for the world at large and, ultimately, for the United States itself.

Power was not always Obama's strong suit. When he ran for president in 2008, he appeared to friend and foe alike as Mr Softy. He wanted out of the war in Iraq. He was no fan of nuclear weapons. He favored carrots over sticks when approaching America's adversaries. 

His opponent in the Democratic primaries, Hillary Rodham Clinton, tried to turn this hesitation to use hard power into a sign of a man too inexperienced to be entrusted with the presidency. In 2007, when Obama offered to meet without preconditions with the leaders of Cuba, North Korea and Iran, Clinton fired back that such a policy was "irresponsible and frankly naive". In February 2008, she went further with a TV ad that asked voters who should answer the White House phone at 3am. Obama, she implied, lacked the requisite body parts - muscle, backbone, cojones - to make the hard presidential decisions in a crisis. 

Obama didn't take the bait. "When that call gets answered, shouldn't the president be the one - the only one - who had judgment and courage to oppose the Iraq war from the start?" his response ad intoned. "Who understood the real threat to America was al-Qaeda, in Afghanistan, not Iraq. Who led the effort to secure loose nuclear weapons around the globe." 

Like most successful politicians, Barack Obama could be all things to all people. His opposition to the Iraq war made him the darling of the peace movement. But he was no peace candidate, for he always promised, as in his response to that phone-call ad, to shift US military power toward the "right war" in Afghanistan. As president, he quickly and effectively drove a stake through the heart of Mr Softy with his pro-military, pro-war speech at, of all places, the ceremony awarding him the Nobel Peace Prize.

Place and Space

The Space Between

by ERIC JACOBSEN

Place and Space

Place, in contrast to space, is a context-specific, meaning-rich concept. Although many use the two words interchangeably, a fairly clean distinction can be made between them. Space is more abstract and undifferentiated than place. Space often is used to express a freedom from or a potential for something—“give me some space” or “we need space for this relationship to develop.” Place, by way of contrast, describes a realm where something significant has happened or is happening; “there’s no place like home.”

Walter Brueggemann identifies place as “storied.” One way to easily visualize the relationship between space and place is to think of a college dorm room. Before a student moves in, the dorm room has everything that is needed for college life, but it’s generic, undifferentiated space. Typically, there is a desk, a bed, a closet, a mirror, and a light. Within a week or two after the student moves in, this space is transformed into a place. There are pictures on the mirror, a cover on the bed, posters on the walls, and bric-a-brac on the desk. The story of that particular semester of college in that student’s life has already begun to be inscribed on the walls.

There is a dynamic relationship between space and place. Place is good, but we sometimes need a break from it. As a person lives life, one’s narrative begins to etch meanings on a particular space, causing it to become a place. As the meanings and memories crowd a place, a person may express a desire for more space. This is why we go on vacations to be restored or sometimes long to start over.

Space can be good in and of itself as well. Space is sometimes necessary for personal growth or identity formation within a group. Often we go on retreats not to disengage, but to reconnect with God, with ourselves, or with others. Often, however, new spaces are lonely and disorienting. Strangers finding themselves in this kind of situation long to find a place that they can call home.

A Doomed Marriage

Britain and Europe

BY THEODORE DALRYMPLE

There is nothing quite like self-interest for blinding people to the obvious, and it is the genius of the European Union to have placed an entire cadre of powerful but blind beneficiaries—unable and unwilling to see writing on the wall, even if inscribed in flashing blue neon lights—in strategic political and economic positions in every European country. And so the continent limps toward the abyss, its “ever closer union” resuscitating old national stereotypes and antagonisms and increasing the likelihood of real conflict.

Daniel Hannan is a British Member of the European Parliament who first came to wide notice with his brief but devastating (because entirely accurate) attack in that body on Britain’s then–prime minister, Gordon Brown, who responded to it with all the wit of a hanged sheep. Hannan has now written a short and brilliant book setting forth with inexorable logic and a fine command of the salient historical and economic facts the deficiencies of the so-called European Project, from its premises to its practices—all of which are not only wrong, but obviously wrong.

Like all people with bad habits, politicians and bureaucrats are infinitely inventive when it comes to rationalizing the European Project, though they’re inventive in nothing else. Without the Union, they say, there would be no peace; when it’s pointed out that the Union is the consequence of peace, not its cause, they say that no small country can survive on its own. When it is pointed out that Singapore, Switzerland, and Norway seem to have no difficulties in that regard, they say that pan-European regulations create economies of scale that promote productive efficiency. When it is pointed out that European productivity lags behind the rest of the world’s, they say that European social protections are more generous than anywhere else. If it is then noted that long-term unemployment rates in Europe are higher than elsewhere, another apology follows. The fact is that for European politicians and bureaucrats, the European Project is like God—good by definition, which means that they have subsequently to work out a theodicy to explain, or explain away, its manifest and manifold deficiencies.

Geography Strikes Back

To understand today's global conflicts, take a hard look at a map

By ROBERT D. KAPLAN

If you want to know what Russia, China or Iran will do next, don't read their newspapers or ask what our spies have dug up—consult a map. Geography can reveal as much about a government's aims as its secret councils. More than ideology or domestic politics, what fundamentally defines a state is its place on the globe. Maps capture the key facts of history, culture and natural resources. With upheaval in the Middle East and a tumultuous political transition in China, look to geography to make sense of it all.

As a way of explaining world politics, geography has supposedly been eclipsed by economics, globalization and electronic communications. It has a decidedly musty aura, like a one-room schoolhouse. Indeed, those who think of foreign policy as an opportunity to transform the world for the better tend to equate any consideration of geography with fatalism, a failure of imagination.

But this is nonsense. Elite molders of public opinion may be able to dash across oceans and continents in hours, allowing them to talk glibly of the "flat" world below. But while cyberspace and financial markets know no boundaries, the Carpathian Mountains still separate Central Europe from the Balkans, helping to create two vastly different patterns of development, and the Himalayas still stand between India and China, a towering reminder of two vastly different civilizations.

Technology has collapsed distance, but it has hardly negated geography. Rather, it has increased the preciousness of disputed territory. As the Yale scholar Paul Bracken observes, the "finite size of the earth" is now itself a force for instability: The Eurasian land mass has become a string of overlapping missile ranges, with crowds in megacities inflamed by mass media about patches of ground in Palestine and Kashmir. Counterintuitive though it may seem, the way to grasp what is happening in this world of instantaneous news is to rediscover something basic: the spatial representation of humanity's divisions, possibilities and—most important—constraints. The map leads us to the right sorts of questions.

Dirtier Lives May Be Just the Medicine We Need

An Epidemic of Absence

By Matt Ridley

Your great-grandparents faced infectious diseases that hardly threaten you today: tuberculosis, polio, cholera, malaria, yellow fever, measles, mumps, rubella, smallpox, typhoid, typhus, tapeworm, hookworm…. But there's also a long list of modern illnesses that your great-grandparents barely knew: asthma, eczema, hay fever, food allergies, Crohn's disease, diabetes, multiple sclerosis, rheumatoid arthritis. The coincidence of the rise in these "inflammation" diseases, characterized by an overactive immune system, with the decline of infection is almost certainly not a coincidence.

Natural experiments in recent decades support the idea that while modern hygiene defeats infection, it also promotes allergy and autoimmunity. Finns isolated in an impoverished Soviet province had more parasites and fewer allergies than Finns in Finland. Swedes in clean Stockholm had three times as much asthma as Estonians in smoky Estonia. Ethiopians and Gambians got allergies when they lost their intestinal worms. Growing up on a farm greatly cuts allergy risk.

In a remarkable new book, "An Epidemic of Absence," Moises Velasquez-Manoff draws together hundreds of such studies to craft a powerful narrative carrying a fascinating argument. Infection with parasites prevents or ameliorates many diseases of inflammation. The author briefly cured his own hay fever and eczema by infecting himself with hookworms—before concluding that the price in terms of diarrhea and headaches was too high.

I've touched on the "hygiene hypothesis" in these pages before. In its cartoon form the argument—that in a clean world our immune system gets bored and turns on itself or on harmless pollen—isn't very convincing. But Mr. Velasquez-Manoff makes a far subtler, more persuasive case. Parasites have evolved to damp our immune responses so that they can stay in our bodies. Our immune system evolved to expect parasites to damp it. So in a world with no parasites, it behaves like a person leaning into the wind when it drops: The system falls over.