The Economist Magazine reports that since 1989 foreigners have owned more assets in America than Americans have owned overseas; in the jargon, the net international investment position (NIIP) has been negative.

One would expect that a negative NIIP would result in a negative sub component of the  Current account, namely the Net Interest Account. If foreigners have been investing more in the US than US companies invested in the rest of the word, one would expect that the US is paying more in interest payments to the rest of the world to generate a negative NIA. But no, the NIA has been constant at about 1% in the past decade… How could that be possible?

Import Substitution, thought to be the source of spectacular economic failures in the 1970s (see the textbook, chapter 11),

is undergoing a revival. The policy is always guaranteed to be popular in technologically laggard countries. The NYT article is 

a nice application how import substitution hurts the domestic consumer. 

Will world leaders who gather in Copenhagen in December 2009 be able to negotiate a successful successor to the Kyoto Protocol of the Climate Change Convention?  Individual countries are starting from very divergent negotiating positions, and success is not assured.  On the other hand, some observers are worried that the US and China, as the two biggest greenhouse gas polluters, will reach some accord outside of this multilateral framework.  Even though there are many scientific and economic unknowns in this area, some of the biggest stumbling blocks appear to be political.  Check out the views of an economist, Jeff Frankel, about the political pieces that must come together for a feasible agreement to be reached.

Another contentious aspect of the debate is recent cap-and-trade legislation in the United States to levy a carbon tariff on imports from countries that do not agree to control their emissions.  Paul Krugman explains why he disagrees with President Obama's opposition to this strategy.  A hard line interpretation of exactly what is meant by failure to control emissions, however, may be a non-starter in reaching concensus internatiionally.  Frankel suggests an approach based on developing nations committing to no increase in their emissions above a business-as-usual trajectory over the next three or four decades, before they reduce their rate of increase.  A snapshot of his analysis is shown below.

Various countries have adopted incentive programs for automobile owners to trade in their old, fuel inefficient vehicles for more environmentally friendly models.  At the same time, these programs may shift consumption into the current year, when demand is depressed, and thereby help stimulate an economic recovery.  As with any policy initiative, however, there may be unexpected side effects.  In this case, we might wonder what would have been done with those vehicles that are being taken out of service.  Two authors at UCLA and Berkeley suggest that trade in used cars will decline.  If these used cars previously were exported to Mexico, and if they were more fuel efficient that those being driven in Mexico, then US emissions may decline, but Mexican emissions may rise.  When the relevant externality is global, both effects need to be considered.