Soros thinks the next boom should be in alternative energy

On a totally random note, here's an interesting clip with George Soros. He says that America's late 90s/early 00s bubble (the one that just exploded) was the result of Americans consuming more than they produced (made possible by very easy-to-get credit). To climb out of that hole, Soros says that America needs to get on top of alternative energy--investing into research, technology, etc.



His ideas are hardly new--you might want to check out what folks like Paul Krugman and Tom Friedman of the New York Times say about green energy and the future of economy--but when a bazillionaire like Soros talks about alternative energy, it's pretty important. (Because it means that doing nice things for the planet isn't just about tree-hugging, recycling, vegetarian hippies anymore...)

A summary of the economists' event and some thoughts

To sum up the event: Nobody really knows what's going on, not even the really smart guys, and one smart lady. Everyone is convinced that things must change, but all anyone has is theories. Right now, we are playing a game of "which theory is best, which should we choose?" The slightly unsettling part is that we have to try one to see if it'll work.

These are interesting times, indeed.

Ferguson came out as the unpopular one and that's because he is pro-private sector and against accumulating too much government debt. (Which actually doesn't seem to unreasonable to me, but then again, I'm a neophyte.) I was a bit surprised that Soros--given his reputation--was all for regulation (with some restraint, however).

Another note, and this might not have been clear in the coverage: No one really expressed any feeling of panic. (Though Ferguson was getting awfully passionate.) They all said things are looking better than worse. No one was VERY optimistic--there was an air of cauton--but no one said out loud that things were just rotten. If this is true, it's reassuring.

After the event, I stayed on to send out a couple of e-mails and wrap up my computer gear. Most of the place had cleared out, and when I looked up from my computer, I saw an immaculately groomed blond woman. She was either in her 30s, or a very well maintained woman in her 40s. Her make-up was perfect and her hair was styled into a kind of post-WWII poof. Behind her was Mr. Soros. He is shorter and older-looking in real life than he is on TV. The woman was clearly a part of his party. Then Krugman appeared. He is also shorter and heavier that he appears in pictures. He was with a woman, too--she was less notable--then they all started talking about dinner plans. Though I could not confirm it, it did seem that the financial folks would dine together.

It took me a good 15-20 minutes after the fact to realize I was arm's length from George Soros, the billionaire, and Paul Krugman, winner of a Nobel Prize. In the world of economics, these guys are rock stars! However, it also made me recognize that the problems of the world's economy, as well as the solutions to them, rest in just a few people's hands. (More than the two of them, of course, but not all that many.) And these guys are just guessing, too! (They devote their lives to this stuff, of course, so I'd imagine they are in a position to make better guesses.)

Back in my political, pink hair and nose ring days, I used to hang around a bunch of really smart philosophy people. (This was in Boston.) We'd read the papers and talk about politics, the economy and what could be done to improve the state of the world. At that time, I have to admit, we were all pretty convinced that there were definitely some conspiracies going on. "The Man" was most certainly trying to bring someone down. But now, I'm really not so sure about any of those ideas. Of course, I'm still a skeptic, but it really does seem to me, that when it comes to the economy, international policy and perhaps other things, no one really knows what's going on. Everyone just tries really hard to do their best.

To me, the economy is like a living animal. You can feed it, starve it, train it, beat it, love it, or tie it to a tree, but at the end of the day, it's still an animal with a mind of it's own, and you can't really always predict what it's going to do. I am coming to the point-of-view that most people usually just try to do what's right. However, we are all limited: Not just in understanding, but also by the finite number of years we all live, by communication (the left hand doesn't always know what the right foot is doing) and by the fact that to get really good at something, you have to give up other pursuits (thus limiting the creative process that is inherent to mental cross-training). Throwing a master conspiracy into all of that is just impractical.

In any case, I digress. It was great to hear what these folks had to say, even if there were no clear answers to life, the universe and everything. It's stuff like this really makes living in New York so worthwhile.

Top U.S. Economists talk in New York!

Live from the Grace Rainey Auditorium at the Metropolitan Museum of Art, New York City

Featured panelists: Senator Bill Bradley, Paul Krugman Niall Ferguson, Nouriel Roubini, George Soros and Robin Wells. Moderated by Jeff Madrick. Introduced by Robert Silvers.

" We, the greater good mob, contributed..."

Here is an interesting conversation I just had with my best friend at the j-school, Venkat. (Sorry Kim, Venkat just edited my last lit journ paper, so now he's number one.) He's a brilliant writer from India and he used to be an engineer. (I like both of these details.)

In any case, Venkat alerted me to a story in the New York Times about the Freddie Mac executive who hanged himself. (Or at least, he was found hung without any evidence of foul play.) This guy, David Kellerman, was brought in as CFO after the government seized the company last September. Then he was awarded a $800,000 bonus during a time when people don't think much of these things.

This is how our chat about this went:

Maile:

you know what my mother would say

in her chinese accent?

Venkat:

what?

Maile:

GUILTY CONSCIENCE!

Venkat:

no that isnt right

much as it feels that way

Maile:

i never said that my mother was reasonable, venkat!

Venkat:

:) alright

but seriously

the guy was employed after the collapse

Maile:

this is pretty hardcore

Venkat:

if i may, i am going to pick out some sentences

1. Mr. Kellermann, 41, had been Freddie Mac’s chief financial officer since September. He was named to the position when the federal government seized the company and ousted its top executives last fall.

2. Mr. Kellermann had received a bonus of about $800,000.

3. caused some controversy earlier this month, and some lawmakers called for them to be rescinded (*edit: lawmakers were acting on emotion)

4. Mr. Kellermann hired a private security firm after reporters came to his house to ask about his bonus. (*edit: kellerman threatened, hounded)

Maile:
we drove him to suicide?

the media did it?

Venkat:

i dont know the details at all

but i am inclined to believe we, the greater good mob, contributed.

who is to prove suicides, after all.

they almost certainly don't have a single factor.

it's just a bloody volatile world I live in.

anyway, nuf said.

back to reading and at some point, writing about copper.

i want one hard hitting compassionate story for the financiers.

I think Venkat really does bring up some valid points. But like he said, we don't know all the details. Kellerman might have had personal problems totally unrelated to his work, or mental health issues, or there is a sliver of a chance it was foul play. But yes, the media can really make life hell for others, especially when there are so many media groups ruthlessly competing for the same stories.

Something to think on...

The money war...

I like this. So true, so true...

I'm in New York! It's awesome!

Here's something from the NYT. It's a doozy...

Dr. Doom
By STEPHEN MIHM
Published: August 15, 2008

On Sept. 7, 2006, Nouriel Roubini, an economics professor at New York University, stood before an audience of economists at the International Monetary Fund and announced that a crisis was brewing. In the coming months and years, he warned, the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession. He laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt. These developments, he went on, could cripple or destroy hedge funds, investment banks and other major financial institutions like Fannie Mae and Freddie Mac.

The audience seemed skeptical, even dismissive. As Roubini stepped down from the lectern after his talk, the moderator of the event quipped, “I think perhaps we will need a stiff drink after that.” People laughed — and not without reason. At the time, unemployment and inflation remained low, and the economy, while weak, was still growing, despite rising oil prices and a softening housing market. And then there was the espouser of doom himself: Roubini was known to be a perpetual pessimist, what economists call a “permabear.” When the economist Anirvan Banerji delivered his response to Roubini’s talk, he noted that Roubini’s predictions did not make use of mathematical models and dismissed his hunches as those of a career naysayer.

But Roubini was soon vindicated. In the year that followed, subprime lenders began entering bankruptcy, hedge funds began going under and the stock market plunged. There was declining employment, a deteriorating dollar, ever-increasing evidence of a huge housing bust and a growing air of panic in financial markets as the credit crisis deepened. By late summer, the Federal Reserve was rushing to the rescue, making the first of many unorthodox interventions in the economy, including cutting the lending rate by 50 basis points and buying up tens of billions of dollars in mortgage-backed securities. When Roubini returned to the I.M.F. last September, he delivered a second talk, predicting a growing crisis of solvency that would infect every sector of the financial system. This time, no one laughed. “He sounded like a madman in 2006,” recalls the I.M.F. economist Prakash Loungani, who invited Roubini on both occasions. “He was a prophet when he returned in 2007.”

Over the past year, whenever optimists have declared the worst of the economic crisis behind us, Roubini has countered with steadfast pessimism. In February, when the conventional wisdom held that the venerable investment firms of Wall Street would weather the crisis, Roubini warned that one or more of them would go “belly up” — and six weeks later, Bear Stearns collapsed. Following the Fed’s further extraordinary actions in the spring — including making lines of credit available to selected investment banks and brokerage houses — many economists made note of the ensuing economic rally and proclaimed the credit crisis over and a recession averted. Roubini, who dismissed the rally as nothing more than a “delusional complacency” encouraged by a “bunch of self-serving spinmasters,” stuck to his script of “nightmare” events: waves of corporate bankrupticies, collapses in markets like commercial real estate and municipal bonds and, most alarming, the possible bankruptcy of a large regional or national bank that would trigger a panic by depositors. Not all of these developments have come to pass (and perhaps never will), but the demise last month of the California bank IndyMac — one of the largest such failures in U.S. history — drew only more attention to Roubini’s seeming prescience.

As a result, Roubini, a respected but formerly obscure academic, has become a major figure in the public debate about the economy: the seer who saw it coming. He has been summoned to speak before Congress, the Council on Foreign Relations and the World Economic Forum at Davos. He is now a sought-after adviser, spending much of his time shuttling between meetings with central bank governors and finance ministers in Europe and Asia. Though he continues to issue colorful doomsday prophecies of a decidedly nonmainstream sort — especially on his popular and polemical blog, where he offers visions of “equity market slaughter” and the “Coming Systemic Bust of the U.S. Banking System” — the mainstream economic establishment appears to be moving closer, however fitfully, to his way of seeing things. “I have in the last few months become more pessimistic than the consensus,” the former Treasury secretary Lawrence Summers told me earlier this year. “Certainly, Nouriel’s writings have been a contributor to that.”

On a cold and dreary day last winter, I met Roubini over lunch in the TriBeCa neighborhood of New York City. “I’m not a pessimist by nature,” he insisted. “I’m not someone who sees things in a bleak way.” Just looking at him, I found the assertion hard to credit. With a dour manner and an aura of gloom about him, Roubini gives the impression of being permanently pained, as if the burden of what he knows is almost too much for him to bear. He rarely smiles, and when he does, his face, topped by an unruly mop of brown hair, contorts into something more closely resembling a grimace.

When I pressed him on his claim that he wasn’t pessimistic, he paused for a moment and then relented a little. “I have more concerns about potential risks and vulnerabilities than most people,” he said, with glum understatement. But these concerns, he argued, make him more of a realist than a pessimist and put him in the role of the cleareyed outsider — unsettling complacency and puncturing pieties.

Roubini, who is 50, has been an outsider his entire life. He was born in Istanbul, the child of Iranian Jews, and his family moved to Tehran when he was 2, then to Tel Aviv and finally to Italy, where he grew up and attended college. He moved to the United States to pursue his doctorate in international economics at Harvard. Along the way he became fluent in Farsi, Hebrew, Italian and English. His accent, an inimitable polyglot growl, radiates a weariness that comes with being what he calls a “global nomad.”

As a graduate student at Harvard, Roubini was an unusual talent, according to his adviser, the Columbia economist Jeffrey Sachs. He was as comfortable in the world of arcane mathematics as he was studying political and economic institutions. “It’s a mix of skills that rarely comes packaged in one person,” Sachs told me. After completing his Ph.D. in 1988, Roubini joined the economics department at Yale, where he first met and began sharing ideas with Robert Shiller, the economist now known for his prescient warnings about the 1990s tech bubble.

The ’90s were an eventful time for an international economist like Roubini. Throughout the decade, one emerging economy after another was beset by crisis, beginning with Mexico’s in 1994. Panics swept Asia, including Thailand, Indonesia and Korea, in 1997 and 1998. The economies of Brazil and Russia imploded in 1998. Argentina’s followed in 2000. Roubini began studying these countries and soon identified what he saw as their common weaknesses. On the eve of the crises that befell them, he noticed, most had huge current-account deficits (meaning, basically, that they spent far more than they made), and they typically financed these deficits by borrowing from abroad in ways that exposed them to the national equivalent of bank runs. Most of these countries also had poorly regulated banking systems plagued by excessive borrowing and reckless lending. Corporate governance was often weak, with cronyism in abundance.

Roubini’s work was distinguished not only by his conclusions but also by his approach. By making extensive use of transnational comparisons and historical analogies, he was employing a subjective, nontechnical framework, the sort embraced by popular economists like the Times Op-Ed columnist Paul Krugman and Joseph Stiglitz in order to reach a nonacademic audience. Roubini takes pains to note that he remains a rigorous scholarly economist — “When I weigh evidence,” he told me, “I’m drawing on 20 years of accumulated experience using models” — but his approach is not the contemporary scholarly ideal in which an economist builds a model in order to constrain his subjective impressions and abide by a discrete set of data. As Shiller told me, “Nouriel has a different way of seeing things than most economists: he gets into everything.”

Roubini likens his style to that of a policy maker like Alan Greenspan, the former Fed chairman who was said (perhaps apocryphally) to pore over vast quantities of technical economic data while sitting in the bathtub, looking to sniff out where the economy was headed. Roubini also cites, as a more ideologically congenial example, the sweeping, cosmopolitan approach of the legendary economist John Maynard Keynes, whom Roubini, with only slight exaggeration, calls “the most brilliant economist who never wrote down an equation.” The book that Roubini ultimately wrote (with the economist Brad Setser) on the emerging market crises, “Bailouts or Bail-Ins?” contains not a single equation in its 400-plus pages.

After analyzing the markets that collapsed in the ’90s, Roubini set out to determine which country’s economy would be the next to succumb to the same pressures. His surprising answer: the United States’. “The United States,” Roubini remembers thinking, “looked like the biggest emerging market of all.” Of course, the United States wasn’t an emerging market; it was (and still is) the largest economy in the world. But Roubini was unnerved by what he saw in the U.S. economy, in particular its 2004 current-account deficit of $600 billion. He began writing extensively about the dangers of that deficit and then branched out, researching the various effects of the credit boom — including the biggest housing bubble in the nation’s history — that began after the Federal Reserve cut rates to close to zero in 2003. Roubini became convinced that the housing bubble was going to pop.

By late 2004 he had started to write about a “nightmare hard landing scenario for the United States.” He predicted that foreign investors would stop financing the fiscal and current-account deficit and abandon the dollar, wreaking havoc on the economy. He said that these problems, which he called the “twin financial train wrecks,” might manifest themselves in 2005 or, at the latest, 2006. “You have been warned here first,” he wrote ominously on his blog. But by the end of 2006, the train wrecks hadn’t occurred.

Recessions are signal events in any modern economy. And yet remarkably, the profession of economics is quite bad at predicting them. A recent study looked at “consensus forecasts” (the predictions of large groups of economists) that were made in advance of 60 different national recessions that hit around the world in the ’90s: in 97 percent of the cases, the study found, the economists failed to predict the coming contraction a year in advance. On those rare occasions when economists did successfully predict recessions, they significantly underestimated the severity of the downturns. Worse, many of the economists failed to anticipate recessions that occurred as soon as two months later.

The dismal science, it seems, is an optimistic profession. Many economists, Roubini among them, argue that some of the optimism is built into the very machinery, the mathematics, of modern economic theory. Econometric models typically rely on the assumption that the near future is likely to be similar to the recent past, and thus it is rare that the models anticipate breaks in the economy. And if the models can’t foresee a relatively minor break like a recession, they have even more trouble modeling and predicting a major rupture like a full-blown financial crisis. Only a handful of 20th-century economists have even bothered to study financial panics. (The most notable example is probably the late economist Hyman Minksy, of whom Roubini is an avid reader.) “These are things most economists barely understand,” Roubini told me. “We’re in uncharted territory where standard economic theory isn’t helpful.”

True though this may be, Roubini’s critics do not agree that his approach is any more accurate. Anirvan Banerji, the economist who challenged Roubini’s first I.M.F. talk, points out that Roubini has been peddling pessimism for years; Banerji contends that Roubini’s apparent foresight is nothing more than an unhappy coincidence of events. “Even a stopped clock is right twice a day,” he told me. “The justification for his bearish call has evolved over the years,” Banerji went on, ticking off the different reasons that Roubini has used to justify his predictions of recessions and crises: rising trade deficits, exploding current-account deficits, Hurricane Katrina, soaring oil prices. All of Roubini’s predictions, Banerji observed, have been based on analogies with past experience. “This forecasting by analogy is a tempting thing to do,” he said. “But you have to pick the right analogy. The danger of this more subjective approach is that instead of letting the objective facts shape your views, you will choose the facts that confirm your existing views.”

Kenneth Rogoff, an economist at Harvard who has known Roubini for decades, told me that he sees great value in Roubini’s willingness to entertain possible situations that are far outside the consensus view of most economists. “If you’re sitting around at the European Central Bank,” he said, “and you’re asking what’s the worst thing that could happen, the first thing people will say is, ‘Let’s see what Nouriel says.’ ” But Rogoff cautioned against equating that skill with forecasting. Roubini, in other words, might be the kind of economist you want to consult about the possibility of the collapse of the municipal-bond market, but he is not necessarily the kind you ask to predict, say, the rise in global demand for paper clips.

His defenders contend that Roubini is not unduly pessimistic. Jeffrey Sachs, his former adviser, told me that “if the underlying conditions call for optimism, Nouriel would be optimistic.” And to be sure, Roubini is capable of being optimistic — or at least of steering clear of absolute worst-case prognostications. He agrees, for example, with the conventional economic wisdom that oil will drop below $100 a barrel in the coming months as global demand weakens. “I’m not comfortable saying that we’re going to end up in the Great Depression,” he told me. “I’m a reasonable person.”

What economic developments does Roubini see on the horizon? And what does he think we should do about them? The first step, he told me in a recent conversation, is to acknowledge the extent of the problem. “We are in a recession, and denying it is nonsense,” he said. When Jim Nussle, the White House budget director, announced last month that the nation had “avoided a recession,” Roubini was incredulous. For months, he has been predicting that the United States will suffer through an 18-month recession that will eventually rank as the “worst since the Great Depression.” Though he is confident that the economy will enter a technical recovery toward the end of next year, he says that job losses, corporate bankruptcies and other drags on growth will continue to take a toll for years.

Roubini has counseled various policy makers, including Federal Reserve governors and senior Treasury Department officials, to mount an aggressive response to the crisis. He applauded when the Federal Reserve cut interest rates to 2 percent from 5.25 percent beginning last summer. He also supported the Fed’s willingness to engineer a takeover of Bear Stearns. Roubini argues that the Fed’s actions averted catastrophe, though he says he believes that future bailouts should focus on mortgage owners, not investors. Accordingly, he sees the choice facing the United States as stark but simple: either the government backs up a trillion-plus dollars’ worth of high-risk mortgages (in exchange for the lenders’ agreement to reduce monthly mortgage payments), or the banks and other institutions holding those mortgages — or the complex securities derived from them — go under. “You either nationalize the banks or you nationalize the mortgages,” he said. “Otherwise, they’re all toast.”

For months Roubini has been arguing that the true cost of the housing crisis will not be a mere $300 billion — the amount allowed for by the housing legislation sponsored by Representative Barney Frank and Senator Christopher Dodd — but something between a trillion and a trillion and a half dollars. But most important, in Roubini’s opinion, is to realize that the problem is deeper than the housing crisis. “Reckless people have deluded themselves that this was a subprime crisis,” he told me. “But we have problems with credit-card debt, student-loan debt, auto loans, commercial real estate loans, home-equity loans, corporate debt and loans that financed leveraged buyouts.” All of these forms of debt, he argues, suffer from some or all of the same traits that first surfaced in the housing market: shoddy underwriting, securitization, negligence on the part of the credit-rating agencies and lax government oversight. “We have a subprime financial system,” he said, “not a subprime mortgage market.”

Roubini argues that most of the losses from this bad debt have yet to be written off, and the toll from bad commercial real estate loans alone may help send hundreds of local banks into the arms of the Federal Deposit Insurance Corporation. “A good third of the regional banks won’t make it,” he predicted. In turn, these bailouts will add hundreds of billions of dollars to an already gargantuan federal debt, and someone, somewhere, is going to have to finance that debt, along with all the other debt accumulated by consumers and corporations. “Our biggest financiers are China, Russia and the gulf states,” Roubini noted. “These are rivals, not allies.”

The United States, Roubini went on, will likely muddle through the crisis but will emerge from it a different nation, with a different place in the world. “Once you run current-account deficits, you depend on the kindness of strangers,” he said, pausing to let out a resigned sigh. “This might be the beginning of the end of the American empire.”

Stephen Mihm, an assistant professor of economic history at the University of Georgia, is the author of “A Nation of Counterfeiters: Capitalists, Con Men and the Making of the United States.” His last feature article for the magazine was about North Korean counterfeiting.

An op-ed piece from the New York Times on the proposed "solution" to the recession. You can also check it out here: http://www.nytimes.com/2008/01/25/opinion/25krugman.html

Stimulus Gone Bad
By PAUL KRUGMAN
January 25, 2008

House Democrats and the White House have reached an agreement on an economic stimulus plan. Unfortunately, the plan — which essentially consists of nothing but tax cuts and gives most of those tax cuts to people in fairly good financial shape — looks like a lemon.

Specifically, the Democrats appear to have buckled in the face of the Bush administration’s ideological rigidity, dropping demands for provisions that would have helped those most in need. And those happen to be the same provisions that might actually have made the stimulus plan effective.

Those are harsh words, so let me explain what’s going on.

Aside from business tax breaks — which are an unhappy story for another column — the plan gives each worker making less than $75,000 a $300 check, plus additional amounts to people who make enough to pay substantial sums in income tax. This ensures that the bulk of the money would go to people who are doing O.K. financially — which misses the whole point.
The goal of a stimulus plan should be to support overall spending, so as to avert or limit the depth of a recession. If the money the government lays out doesn’t get spent — if it just gets added to people’s bank accounts or used to pay off debts — the plan will have failed.

And sending checks to people in good financial shape does little or nothing to increase overall spending. People who have good incomes, good credit and secure employment make spending decisions based on their long-term earning power rather than the size of their latest paycheck. Give such people a few hundred extra dollars, and they’ll just put it in the bank.

In fact, that appears to be what mainly happened to the tax rebates affluent Americans received during the last recession in 2001.

On the other hand, money delivered to people who aren’t in good financial shape — who are short on cash and living check to check — does double duty: it alleviates hardship and also pumps up consumer spending.

That’s why many of the stimulus proposals we were hearing just a few days ago focused in the first place on expanding programs that specifically help people who have fallen on hard times, especially unemployment insurance and food stamps. And these were the stimulus ideas that received the highest grades in a recent analysis by the nonpartisan Congressional Budget Office.
There was also some talk among Democrats about providing temporary aid to state and local governments, whose finances are being pummeled by the weakening economy. Like help for the unemployed, this would have done double duty, averting hardship and heading off spending cuts that could worsen the downturn.

But the Bush administration has apparently succeeded in killing all of these ideas, in favor of a plan that mainly gives money to those least likely to spend it.

Why would the administration want to do this? It has nothing to do with economic efficacy: no economic theory or evidence I know of says that upper-middle-class families are more likely to spend rebate checks than the poor and unemployed. Instead, what seems to be happening is that the Bush administration refuses to sign on to anything that it can’t call a “tax cut.”

Behind that refusal, in turn, lies the administration’s commitment to slashing tax rates on the affluent while blocking aid for families in trouble — a commitment that requires maintaining the pretense that government spending is always bad. And the result is a plan that not only fails to deliver help where it’s most needed, but is likely to fail as an economic measure.

The words of Franklin Delano Roosevelt come to mind: “We have always known that heedless self-interest was bad morals; we know now that it is bad economics.”

And the worst of it is that the Democrats, who should have been in a strong position — does this administration have any credibility left on economic policy? — appear to have caved in almost completely.

Yes, they extracted some concessions, increasing rebates for people with low income while reducing giveaways to the affluent. But basically they allowed themselves to be bullied into doing things the Bush administration’s way.

And that could turn out to be a very bad thing.

We don’t know for sure how deep the coming slump will be, or even whether it will meet the technical definition of a recession. But there’s a real chance not just that it will be a major downturn, but that the usual response to recession — interest rate cuts by the Federal Reserve — won’t be sufficient to turn the economy around.

And if that happens, we’ll deeply regret the fact that the Bush administration insisted on, and Democrats accepted, a so-called stimulus plan that just won’t do the job.

Life remains status quo: work, study, work, study, worry. As usual, I'm coming down with something (the weather is changing unusually rapid this year--I was roasting two weeks ago and now I'm well under my duvet at night) and as usual, I am consuming copious amounts of smelly Chinese herbs. I am taking the written portion of the GRE Friday morning, and I will write more about my reasons for that in a later post.

Today, all I have to offer is a very interesting article about China and its growing role in contemporary world order. It's lengthy, true, but well worth the read. Here it is in its entirety.
---

The World According to China

By JAMES TRAUB
Published: September 3, 2006

In Late July, as the United Nations Security Council argued long into the night over the wording of a so-called presidential statement castigating Israel for the bombing attack that killed four U.N. observers in southern Lebanon, Wang Guangya, the Chinese ambassador, blew his stack. This was almost unprecedented: Wang, a veteran diplomat, typically comports himself with unnerving calm. But one of the four fatalities had been Chinese, and Wang had grown increasingly frustrated with the refusal of the United States to condemn Israel outright for the bombing. Worse still, the United States was represented not by Ambassador John Bolton but by a junior diplomat, a breach of etiquette that Wang apparently took to be a calculated insult.

Without naming any countries — he lost his temper, not his grip — Wang lashed out at “a tyranny of the minority in the council” and vowed that there would be “implications for future discussions” on other subjects. Once the meeting ended, Wang planted himself before the U.N. beat reporters and engaged in 10 minutes of robust public diplomacy, complaining that the presidential statement had been “watered down,” observing in several different formulations that “we have to take into account the concerns of other countries” and predicting that the “frustration” his country felt “will affect working relations somewhat.”

It was a delicately calibrated performance. In an earlier era, when the People’s Republic of China tended to conduct diplomacy by tantrum, this might have been the signal for a real breach. But China cares too much about the international order for such revolutionary shenanigans.

Actually, in an earlier era Chinese nationals would not have served in an observer mission in Lebanon, and the People’s Republic would have taken a pass on the whole subject. But China now aspires to play an active role on the global stage, which is why it sends skilled diplomats like Wang Guangya to the U.N. That’s the good news. The bad news is that China’s view of “the international order” is very different from that of the United States, or of the West, and has led it to frustrate much of the agenda that makes the U.N. worth caring about. The People’s Republic has used its position as a permanent, veto-bearing member of the Security Council to protect abusive regimes with which it is on friendly terms, including those of Sudan, Zimbabwe, Eritrea, Myanmar and North Korea. And in the showdown with Iran that is now consuming the Security Council, and indeed the West itself, China is prepared to play the role of spoiler, blocking attempts to levy sanctions against the intransigent regime in Tehran.

It’s a truism that the Security Council can function only insofar as the United States lets it. The adage may soon be applied to China as well.

t was only in 1971 that the People’s Republic of China supplanted Taiwan as the representative of China in the United Nations. During the remaining years of the cold war, the hermetic Communist regime was generally content to follow the lead of the Soviet Union. Little changed even after the fall of the Berlin Wall: China’s permanent representative in the early 90’s, Li Daoyu, was known around the U.N. as Ambassador Look Out the Window. The Chinese stirred to action only in order to block peacekeeping missions to countries that had been so foolish as to recognize Taiwan.

Beijing sleeps no longer. The astonishing growth of China’s economy has made it a global force, and the accompanying need for resources has pushed it to forge new ties throughout Asia, Africa and Latin America. The old revolutionary ardor is gone, and China surveys the world with increasing pragmatism and confidence. China is now a status quo power — “an exporter of good will and consumer durables instead of revolution and weapons,” as David Shambaugh, a China scholar at George Washington University, remarked in a recent essay. Unlike the United States and the West generally, China views the current global situation as fundamentally benign and malleable — a setting conducive to diplomacy.

China has chosen to enmesh itself in global bodies like the World Trade Organization, regional groupings like the six-member, security-oriented Shanghai Cooperation Organization and a vast range of bilateral partnerships. China has begun routinely signing arms-control agreements and antiterrorism conventions. And it has begun playing a more active role at the U.N., contributing troops — almost all of whom provide medical or engineering services rather than front-line patrolling — as well as policemen to U.N. peacekeeping operations.

Wang Guangya, at 56, is a senior member of a new generation of Chinese diplomats vastly more sophisticated and better educated than the party ideologues of old. His English is quite good, and he so relishes speaking to the U.N. press corps that he sometimes keeps answering questions even as he edges away from the pack while graciously thanking the reporters. Still, he doesn’t often attend diplomatic functions, and the occasional dinner in his Trump Tower apartment is normally limited to Asian diplomats. Earlier this summer, I became the first Western reporter to whom he agreed to speak at length.

Wang greeted me in a cheerless reception room in the Chinese mission and invited me to sit parallel to him, as though we were a pair of notables at a reviewing stand. (I took a corner chair instead.) The embassy spokesman and a political counselor seated themselves at a respectful distance across the room. At first the ambassador dutifully recited China’s history at the U.N. But once we got on subjects that exercised him, like Japan’s bid for Security Council membership, he dispensed with the abstractions and assumed the forthright and confident manner that seems natural to him. Throughout our conversation, Wang chain-smoked Chinese cigarettes — Zhonghuas — a habit that had turned his teeth slightly brown.

Wang is bespectacled and slight and has little of the artful smoothness of the more Westernized Asian diplomats. He grew up in Shanghai, the son of a worker, he says, with a low-level position in the Communist Party. Wang graduated from high school in the midst of the Cultural Revolution and along with tens of millions of other Chinese was sent out to the countryside for “re-education.” But after President Richard Nixon’s visit to China in 1972, the leadership recognized that it needed trained officials to exploit the new opening to the West. Wang passed a test that gained him entry to one of the country’s 11 foreign-language schools. In 1974, he was selected as part of a group of 140 to go to England for further study, making him among the very first citizens of postrevolutionary China to receive a Western education. “You think it’s a good thing or a bad thing?” Wang asked me, with a disarming grin.

Apparently, it was a good thing. At the London School of Economics, Wang met Cong Jun, a student from the Beijing foreign-language school and the daughter of Chen Yi, one of Mao’s great comrades. They married soon thereafter. (Cong Jun now works as a minister counselor in the mission and has served as co-president, with the wife of the British ambassador, Emyr Jones Parry, of a discussion group called the Women’s International Forum.) In 1977 Wang was sent to New York as a junior diplomat and stayed for six years. He returned as a political counselor in 1988, remaining until 1992. He became director of international-organizations policy in the Foreign Ministry, ultimately rising to the position of vice foreign minister before returning to New York as ambassador in 2003. Wang is considered the favored candidate to replace China’s foreign minister, Li Zhaoxing, when he steps down a year from now.

Wang is one of the U.N.’s most adroit diplomats. Ambassador Jones Parry says that his Chinese colleague has a trick he’s never seen anyone else perform: “In the council, he speaks in Chinese, but at the same time he listens to the English translation. Sometimes he pauses, and then he’ll switch into English to say something similar to the translation but nuanced from it.” Wang operates by suggestion, by indirection — often by silence. “They play a very skillful game at the U.N.,” says Vanu Gopala Menon, the Singaporean ambassador. “They make their opinions felt without much talking. They never come in first and make a statement. They always listen first and then make a statement which captures the main thrust of what the developing world wants.”

But the game the Chinese play virtually ensures the U.N.’s regular failure in the face of humanitarian crisis. Indeed, the combination of Wang’s deft diplomacy and China’s willingness to defend nations it does business with from allegations of even the grossest abuse has made a mockery of all the pious exclamations of “never again” that came in the wake of the Security Council’s passive response to Rwanda’s genocide in 1994. The most notorious example of China’s new activism in this regard is Darfur. While none of the major powers, with the intermittent exception of the United States, have shown any appetite for robust action to protect the people of this Sudanese province from the atrocities visited upon them by the government and its proxy force, known as janjaweed, the Chinese, who buy much of the oil Sudan exports, have appointed themselves Khartoum’s chief protector.

China first worked to keep the issue of Darfur off the council agenda when both Kofi Annan and Jan Egeland, the U.N.’s humanitarian coordinator, tried to mount a publicity campaign in early 2004. When this failed and Egeland publicly described the horrors there, Wang — along with the ambassador of Pakistan, a regular ally — diluted the ensuing press statement so that the council simply called on “the parties concerned to fully cooperate in order to address the grave situation prevailing in the region.” In the summer, after Congress had declared the ruthless assault on unarmed villagers “genocide,” China vowed to veto an American resolution threatening (not even imposing) sanctions against Khartoum.

And yet, according to Munir Akram, the ambassador of Pakistan: “China was not nearly as active on Darfur as people think. The proposals came from us or from Algeria.” The Islamic countries then serving on the council, as well as several African nations, considered any interference in Sudan’s affairs a violation of its national sovereignty, even though the citizens being abused were Islamic and African. Wang was more circumspect. At moments of friction, according to a Western diplomat, he would quietly insist, “You cannot alienate the Sudan government; without them, the U.N. mission will fail.” Akram is the kind of bombastic figure who suits Chinese purposes to a tee. “Their national style is different from the style of other people, including India and Pakistan,” as Akram puts it. “We are an oral people; the Chinese are not. They make their position clear, and they stand by it.”

And then, when it no longer suits their purposes, they change their position. Several years ago, China joined India in principled repudiation of the chlorofluorocarbon reductions mandated by the Montreal Protocol. But when the international community offered to pay for the technology needed to reduce emissions, China decided that global regulation of pollution did not, in fact, constitute a violation of national sovereignty, leaving the Indians all alone in their principled opposition. On Darfur, as well, China has seen the virtue of bending before the wind, if ever so slightly. As the hopelessly overmatched troops of the African Union failed to stem atrocities throughout 2005, China (along with Russia) continued to block a resolution authorizing a U.N. peacekeeping force. Then this past May, the Sudanese regime and one of the rebel armies signed a cease-fire pact, increasing the pressure for U.N. intervention. China’s position was looking increasingly untenable. And so Beijing agreed to withhold its veto from — though not actually endorse — a resolution authorizing a U.N. military-planning mission.

The great issue that divides the U.N. is no longer Communism versus capitalism, as it once was; it is sovereignty. Ever since the catastrophes of Bosnia and Rwanda, and increasingly in recent years, the Security Council has been asked to defend individuals against an abusive state. When critics in the West deride the U.N. as a failed institution, they almost always mean that the Security Council cannot find the will to do so, whether through intervention, sanctions or merely opprobrium. But this failing is a Western preoccupation: most developing nations, with their history of colonial rule and often their wish to abuse their own citizens without interference, object to all such inroads on sovereign rights. And in China, where memory of “the century of humiliation” at the hands of Western imperialists runs deep — and where the state’s right to abuse its own citizens is not to be questioned — sovereignty has long been a fighting word. During the 90’s, the Chinese abstained on, or publicly criticized, key resolutions authorizing the use of force to dislodge Saddam Hussein from Kuwait and establishing or fortifying peacekeeping missions in Somalia, Bosnia, Rwanda and Haiti. China is now more flexible in practice, but the doctrine of absolute sovereign rights remains central to its foreign policy.

My conversations with Wang kept looping back to this fraught topic. “Each country has to provide the well-being of their own people,” Wang said to me. “In some countries there is a problem, where the protection of their own people is” — here the diplomatic diplomat searched for the right word — “neglected. The U.N. can come in a quiet way, providing help, providing advice. But the role to play is not to impose it when the government is functioning. Of course there are cases where you can say that the country is a failed country. But wherever there is a government, I think the best way to do it is by giving good advice wherever you can, tough way or soft way, to let the government pick up its main responsibility.”

China has, for example, engaged in some gentle prodding of Myanmar — the former Burma — whose authoritarian regime depends on Beijing for weapons and trade. But the generals who run the country have shown no signs of releasing their grip or of ending the house arrest of Daw Aung San Suu Kyi, the opposition leader and recipient of the Nobel Peace Prize. Nevertheless, Wang says that he has “firm” instructions to block a U.S. resolution, now circulating in draft form, that would condemn the regime and threaten sanctions. China does not feel that this issue belongs in the Security Council. “In our contact with the United States,” he says, “their argument is that of course they have the human rights problem, they have the problem of drugs, they have the problem of AIDS. And then may I ask: ‘The U.S. doesn’t have the problem of AIDS, doesn’t have the problem of human rights, doesn’t have the problem of drugs? Then you ask the Security Council to be involved?’ I don’t think that is the case.” I said that I didn’t think John Bolton would be much impressed by this claim of moral equivalency. Wang waved this away.

In another conversation, held a week later in the U.N.’s Delegates Lounge, where Wang blithely violated the no-smoking rules, the ambassador insisted that the right to exercise sovereignty free from outside interference was enshrined in international law. But, I asked, when the world’s heads of state, gathered at the U.N.’s 60th-anniversary summit last September, approved the principle of “the responsibility to protect,” didn’t this, too, become a matter of international law?

This was true, Wang conceded — even though China has strong reservations about the doctrine — “but you have to decide how to apply this.” And since this new obligation applied only to genocide or “massive systematic violations of human rights,” it had no bearing on Darfur. Wang had just returned from a Security Council visit to the region, where he had concluded that the situation was very complicated and that the government had been unfairly criticized. China still stood by Khartoum. After abstaining on the peacekeeping resolution, Wang had asked for the floor in order to reiterate China’s position that U.N. peacekeepers could deploy only with the government’s consent.

Unfortunately, I observed, President Omar Hassan el-Bashir of Sudan had just flatly rejected the proposed peacekeeping force.

The African Union “is doing a good job on the ground,” Wang insisted. “The U.N. force would be a good way to help them, but if in their judgment the Sudan government thinks the A.U. forces are enough, that is their decision.” And second, the Sudanese had agreed to disarm the janjaweed.

“And if they can’t?”

Wang ground a cigarette into his ashtray. “If you are not sure that it will not be successful, then why impose a solution on them before you prove that they will not be able to do it?”

hina has become so influential a country, such an object of imitation, respect and fear, that you can no longer talk about an “international community” that does not include it. The West has a profound interest in China’s development as a global power and its acceptance, however gradual and grudging, of the rules by which the West has defined global citizenship. As Mark Malloch Brown, the deputy secretary general of the U.N., puts it, “How much less intractable so many issues would be if China was as fully engaged in the management and leadership of the United Nations as so many Western nations are.” Malloch Brown takes the optimistic, or perhaps wishful, view that China will find itself inevitably adopting Western rules as it seeks to join the global club, arguing that “as soon as you start grappling with global issues, you find that things like human rights and development and legitimate government are things you come to care about as vital to international stability.”

You can see why a high-ranking U.N. official would wish for such a denouement. If, alternatively, China continues to insist that the Enlightenment principles enshrined in the U.N. Declaration of Human Rights are little more than a Western hobbyhorse, then the great issues will remain intractable, and they will be resolved elsewhere than the U.N. In recent years, both liberal interventionists and conservative unilateralists have begun to call for some new body, or new mechanism, that will not sit idly by during the next Darfur (or more problematically, the next Iraq). This new entity would not include obstructive nations like China and Russia. But excluding China from the world’s foremost decision-making body could have very grave consequences, since it might well rekindle the Middle Kingdom’s old sense of encirclement and exclusion. You’d have to save a great many lives to compensate for that kind of damage.

China plainly wishes to join the international community on its own terms. The People’s Republic is a singular entity, a world-class power almost wholly preoccupied with harnessing its internal energies and preventing domestic conflict. Unlike Russia, for example, China has little wish to use the power at its disposal, save to establish a harmonious environment for its “peaceful rise.” And in any case, China has progressed so rapidly from an insular and impoverished state to a confident and immensely influential one that it has not had time to figure out what to do with its power, or even fully to acknowledge it. China thus cares a very great deal about matters of little concern in the West — “territorial integrity,” for example — and very little about the burning issues in Washington, London and Paris. China has, for example, played almost no affirmative role in the reform debate that has exercised the U.N. over the last year. China is a member of the bloc of developing nations known as the Group of 77 — the group’s formal name is “the G77 plus China,” even though the 77 have grown to 131 — and it shares the organization’s view that the U.N. should pay more attention to economic and social issues and less to matters of peace and security. But even on these questions, according to Ambassador Menon of Singapore, “They were basically just going with the tide.”

Even with its negative agenda — the reforms it wanted to prevent — Ambassador Wang was happy to remain in the shadows. China had spent more than a decade fighting off resolutions introduced in the U.N.’s Human Rights Commission, and it implacably opposed Kofi Annan’s proposal to replace the toothless commission with a much tougher body. But in the crucial final days last September, it was Munir Akram, not Wang, who produced a vague plan supposedly designed to break the deadlock. Western diplomats theorized that China allowed Pakistan to show good faith, intending all the while to block any substantive reforms. Akram, not surprisingly, denies this and says that he does not generally coordinate tactics with Wang. In the end, the General Assembly established a new Human Rights Council with membership standards sufficiently lax that Iran, Cuba, Russia and, of course, China were elected members.

The one issue that roused China to fury was Japan’s bid for permanent membership on the Security Council. China’s all-hands-on-deck mobilization was a reminder that propriety goes out the window on matters China deems to be of national interest, just as had been the case a decade earlier when it openly tried to kill peacekeeping missions in Guatemala, Haiti and Macedonia to punish those countries for their dealings with Taiwan. The merits were plainly not on China’s side. No other country so self-evidently belongs on the council as Japan, which pays 19 percent of the U.N.’s budget, slightly below the U.S. assessment. (China pays 2 percent, and Russia 1 percent.) But Japan is China’s chief competitor in Asia, as well as America’s staunchest ally in the region.

Even more important, though, is China’s deep sense of historical grievance over Japan’s notorious invasion of Nanking in 1937 and its aggression in World War II. Wang explained to me that Japan’s wealth and generosity could not erase this blot: “The current five has been selected not because of their economic power but because of the role they played during the Second World War. China played an important role, and also we didn’t occupy other people’s territory” — unlike you-know-who. (It seemed too niggling to point out that the regime that had fought with the Allies now held sway in Taipei, not Beijing.) China’s bitterness at Japan’s alleged lack of repentance has only been sharpened by the annual visits of Prime Minister Junichiro Koizumi to the Yasukuni shrine, popularly seen to be a symbol of militarism. “For the last couple of years,” as Wang expressed this in his oblique manner, “the signal from Tokyo is not that positive.”

In April 2005, soon after Japan, Germany, India and Brazil formalized their candidacy for an expanded Security Council, anti-Japanese demonstrations sprang up in China. Japanese missions and businesses were trashed. The Japanese were shocked both by the virulence of the demonstrations and by the obvious signs of high-level toleration, if not approval. Meanwhile, Wang and several of his lieutenants worked on the ambassadors of wavering countries. Prince Zeid Ra’ad Zeid al-Hussein, the permanent representative of Jordan, which was considering becoming a co-sponsor of the resolution expanding the council’s permanent membership, says that he was called to a caucus room at the Security Council to meet with a Chinese diplomat. “The guy was apoplectic,” Prince Zeid recalls. “He said, ‘How can a great power refuse to accept essential, fundamental truths and yet take pride in the good works it does across the globe?’ ” He later sent Prince Zeid a copy of a book titled “The Rape of Nanking: An Undeniable History in Photographs.” Jordan continued to support the resolution but declined to become a sponsor.

China failed to persuade African countries to reject Security Council expansion as such, yet it still delivered the coup de grâce at a meeting of the African Union in Libya in early August, where heads of state met to choose two nations that would join the other four in seeking permanent membership. Several weeks earlier, China was the host of a lavish state visit for Robert Mugabe, the increasingly tyrannical and eccentric Zimbabwean strongman and a longtime Chinese client. Soon after returning, Mugabe declared that African countries must insist not only on permanent representation in the Security Council but also on the veto. This demand was obviously self-defeating, since neither China nor the four other permanent members would agree to dilute the value of their veto. Nevertheless, vast shoals of Chinese diplomats roamed the halls in Tripoli, appealing to African pride, to the imperative of global parity and so on. The demand for an African veto carried the day, and with that, Security Council expansion died. The corpse bore no sign of Chinese fingerprints.

Last month, the U.N. began the process of selecting a successor to Secretary General Kofi Annan. Asian countries feel that it is their “turn” for the job, and China has promised to deliver an Asian. Any potential successor must survive both American and Chinese scrutiny. The Americans will reject too open an advocate for the third world agenda; China will reject an aspirant from too close an ally of Washington. Other difficulties will arise. China may be happy to firm up its ties with India by backing Shashi Tharoor, a career U.N. official who is India’s candidate, but Pakistan, a close ally, may object strenuously. China may, for once, have to disappoint or even anger some fraternal members of the G77 — a situation it tries very hard to avoid.

The Chinese are much too subtle to throw their support behind a single candidate, but it is widely assumed that they want a technocrat who will put aside Annan’s (admittedly tarnished) mantle of moral authority. Wang, of course, disclaims any such ambition, but he does express the hope that Annan’s successor “might bring some perspective from Asia.” By this, he explained, he meant “patience over rush” and an emphasis on collective rights — those of the state — rather than individual ones. If China succeeds in this regard, the U.S. might find the U.N. an even less hospitable place than it is now.

China and the United States are the twin bêtes noires of the U.N.: the U.S. insists on enlisting the organization in its crusades, while China refuses to let any crusade get in the way of national interest. Washington is all blustering moralism; Beijing, all circumspect mercantilism. Both can afford to defy the consensus view. The emissaries of the two capitals are united by a wary mutual regard and understanding. Bolton and Wang met as midlevel diplomats in the early 90’s and worked together on nonproliferation issues in 2001 and 2002. In their first meeting in this latter capacity, according to an American diplomat, who agreed to talk with me only if he remained unnamed, as he was not authorized to speak publicly, Bolton and Wang talked for four and a half hours without finding much common ground. As the discussion drew to a close, the time came for the inevitable speech on China’s inalienable claims to Taiwan. Wang, who knew Bolton to be impervious to all such oratory, simply said, “Taiwan.” And Bolton nodded and said, “And Taiwan.”

Relations between the two are strictly professional. But Bolton, who declined to be interviewed for this article, is said to appreciate his counterpart’s pragmatism and lack of polemics. China and Russia take the same view on issues involving sovereignty, but whereas Russia, with a home audience to play to, likes to snap Uncle Sam’s suspenders, China, with no wish to harm its relations with Washington, looks for common ground. While Russia openly threatened to veto any resolution authorizing war in Iraq, for example, China stated its opposition as undemonstratively as possible. More recently, both Russia and China have resisted any Security Council condemnation of Iran’s nuclear program, but China has proved far more accommodating of White House concerns. “The Russians spent 45 minutes arguing over the meaning of consult,” the American diplomat recalls. “Wang finally said, ‘Consult is fine.’ ” Wang also earned points when he and the “director” of Taiwan’s unofficial mission to the U.N. happened to arrive simultaneously at the Saudi mission to sign the condolence book after the death of King Fahd; Wang walked over and shook the hand of his diplomatic nemesis.

Wang talked with me about Bolton, and about America diplomacy generally, with the faint irony and mellow wisdom of an antique culture. “I can talk to many people,” he said equably, “those who wish to have nice discussion or those who wish to quarrel.” Wang is, of course, a partisan of the nice discussion. “I do not want to give advice to my good friend,” he went on to say, delicately, “but I believe that sometimes the way that you work, especially the way that your work is respected by others as showing due respect for others, is where common ground can be found.” But what exactly does Wang mean by “common ground”? The consensus that China has sought on Darfur looks like a formula for paralysis. And China’s insistence on showing “due respect” for Iran seems designed less to persuade Tehran to end its nuclear program than to preclude any of the punitive actions currently being contemplated by the West.

Wang told me he believed that blunderbuss diplomacy is the American way “because America is a superpower, so America has a big say.” China would appear to have a big say of its own, but that’s not Wang’s view. At the end of our second conversation, he returned to a favorite theme. “The Americans have muscle and exercise this muscle,” he said. “China has no muscle and has no intention of exercising this muscle.”

I said that, in fact, China had a great deal of muscle but punched below its weight. Wang smiled at the expression and said, “It’s not good?” Well, I said, that depends. And then Wang said something quite startling: “China always regards itself as a weak, small, less powerful country. My feeling is that for the next 30 years, China will remain like this. China likes to punch underweight, as you put it.”

Why was that? Why did China want to punch underweight? Wang spoke of China’s peaceful rise, of the need to reassure all who fear its growing clout. “We don’t,” he said, “want to make anyone feel uncomfortable.”

I am in Hawaii. I will write something about it when the ideas about which I wish to write present themselves in good proximity to a computer. It hasn't happened just yet.

But here is an article about Hawaii that I found in the Economist. It is very loosely related to ideas of my own...it will have to suffice until the next post.

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Embarras de richesse
Apr 7th 2005 | WAIKIKI
From The Economist print edition

Visitors to the Aloha State are both a boon and a bane

THE hotels are full, Japanese tourists throng the designer stores of Waikiki, and the unemployment rate is a mere 3% of the workforce. So what could possibly knock Hawaii, the “aloha” or “welcome” state, off its wave? The answer, according to Rex Johnson, the president of the Hawaii Tourist Authority, is that Hawaii's 1.2m residents may one day get fed up with playing host to overseas visitors, 7m of them this year. “Once we lose this thing called aloha and the residents no longer think of tourism as a wonderful industry, we'll be like any other sand and surf destination, but farther away.”

Indeed, some residents are already fed up. KAHEA, an alliance of environmentalists and defenders of native Hawaiian culture, bemoans the pollution caused by the cruise ships and the risk posed by the tourist hordes to creatures such as the dark-rumped petrel and the Oahu tree snail, or to plants like the Marsilea villosa fern. KAHEA has a point: the US Fish & Wildlife Service currently lists some 317 species, including 273 plants, in the Hawaiian islands as threatened or endangered—the highest number of any state in the nation. Even the state flower, the hibiscus brackenridgei, is on the danger list. The loss of species, says one government report, has been “staggering”. As for the impact of tourism on Hawaiian culture, a KAHEA spokeswoman wryly notes the element of exploitation: “Native Hawaiian culture is used as a selling point—come to this paradise where beautiful women are doing the hula on your dinner plate.”

So what else is new? Hawaii's environment and culture have been under threat ever since Captain Cook and his germ-carrying sailors dropped anchor in 1778. Foreign imports, from the Dole pineapple plantation on Oahu to the Parker cattle ranch on the Big Island, have inevitably had an impact on species that evolved over the millennia in isolation. Moreover, with up to 25 non-native species arriving each year, the impact will continue. But, as the US Geological Survey argues, the impact can add to biodiversity as well as lessen it. The real challenge, therefore, is for Hawaii to find a balance between the costs and the benefits of development in general and tourism in particular.

The benefits are not to be sneezed at. The state's unemployment rate has been below the national average for the past two-and-a-half years (at the moment, only Wyoming, at 2.9%, has a lower rate). Economists at the University of Hawaii reckon that Hawaiians' real personal income rose by 2.8% last year, will rise by 2.7% this year and will continue through 2007 at 2.5%. According to the state's “strategic plan” for the next decade, tourism should take much of the credit, accounting directly and indirectly for some 22% of the state's jobs by 2007, more than 17% of its economic output and around 26% of its tax revenues. Only the presence of the armed forces comes close in economic importance.

The trouble is that the costs can be high, too. As one economist puts it, “We have a Manhattan cost of living and Peoria wage rates.” That translates into a median house price today on the island of Oahu, home to three-quarters of the state's population, of $500,000, and a need for many workers to take on more than one job. Social activists point to the disparity between the modest homes of most Hawaiians and the gated communities and resort complexes that provide second homes for visitors from the American mainland. A 2002 survey of Hawaii residents found that 50% of the sample thought tourism had been “mostly good” for themselves and their families—but this was down from 58% in 1999, and 54% blamed tourism for the increased traffic that clogs Hawaii's few roads.

So should Mr Johnson and his pals in tourism be worried? Though the 2000 census reckoned native Hawaiians and other Pacific Islanders were a mere 9% of the population (Asians, notably Filipinos and Japanese, made up 42%, whites 24%), probably a fifth of the population has some native Hawaiian blood, and virtually everyone, regardless of race, professes to care for Polynesian culture.

This means that the University of Hawaii, which has managed the star-gazing observatory on the summit of the Mauna Kea volcano since the late 1960s, is now seeking forgiveness for desecrating what turns out to be sacred native Hawaiian land. It also means widespread support for the “Akaka bill”, a move by Hawaii's politicians in Washington, led by Senator Daniel Akaka, to secure federal recognition of a “native Hawaiian governing entity”. The bill deliberately does not envision independence, the demand of some in the “sovereignty movement”. For too many Hawaii residents that evokes alarming thoughts of a loss of their American passports, or American-Indian-style casinos. Instead, it would give native Hawaiians their own office within the federal government, more control over their lands and protection from legal challenge for any affirmative-action programmes.

Such sensitivities should, in the end, be an asset to Hawaii's tourism, forcing it to go for quality rather than quantity in its choice of visitors. In a sense, that choice has already been made. Flights to Hawaii are expensive; Waikiki, the main attraction for February's 122,500 visitors from Japan (a fifth of the total), is a tiny area wedged between the beach and a canal, and so cannot expand; and every development project has to get local political approval. In their darker moments Hawaii's economic planners may worry about airline bankruptcies, a return of SARS or a Pacific tsunami—but the fact is that the sun shines, the surf is clean and over 60% of tourists are repeat visitors. In other words, so far at least, that aloha spirit is alive and well.