ideas in motion

The sacrificed Left on the table of the military-financial complex

2012-01-31T03:30:00.001-08:00

Vinotinto y oropel, originally uploaded by felipe cifuentes.

thousand mile journey

2011-10-07T19:25:00.000-07:00

The youth in the UK and the US have been relatively late to the year of disenchantment; Moreover, one of the accusations against them has been the lack of a program, or set of coherent demands. Yet people forget this is the generation of the class-less society, for the parents had been convinced to shed such categorizations, which in effect has mostly led to directionless reactions.

Since mass movements are akin to alchemy, in the absence of external support, it's difficult to see them before they run their curse. Marking the points along the way can be a useful, when honest, exercise. The first point, raised by Jeffrey Sachs, is followed by quasi-anonymous views that stand in for the vox populi.

Jeffrey Sachs presents his latest book, The Price of Civilization: Reawakening American Virtue and Prosperity, on Charlie Rose's Show. You may want to pay attention to two dimensions in Sachs' view, which resonate with prior views I expressed on this blog:
1) Structural problem, or a) the mismatch between our skills supply and the demand of an economy to support our lifestyles;
2) Values problem, e.g., the common view on taxation not as a condition for civilization, but symptom of free-riders and/or government waste.

Surely, from the height of one's ivory tower, the commoner hears little about institutions mistakenly, if not criminally, entrusted with our money supply that have become too big to fail, a Tobin tax on financial speculation, or a qualified statement about the need for investment in scientific and technical education--yup, not all education is created equal. To place one close to Sachs, the discipline of economics should admit its limits and give up relax the status of dogma or ideology.

Couple Sachs' views with the following:

The price of arrogance

Mark
bennett "Mark"

Sachs basically wants to transform the US into Sweden. He
dresses up this call for social & economic transformation as a matter of
"morality" and "virtue". Over and over he makes his case
in an openly dishonest way. As of the United States had been Sweden in the
past, had somehow lost his way and needed to come back to that system. He
tells us that high taxation is equal to "good citizenship" and
"civilization". Or in other words that anyone who doesn't want a
country where half of national income is spent by the government is somehow a
selfish barbarian. Its the basic dishonesty of the man and his arguments as
presented in the book that makes it so bad. I could live with a book which
called for moving to a different economic system. But its a different matter
when a educated man confuses his own political desires with
"morality" and "virtue". When people start dressing up
their personal political goals as the sole embodiment of virtue, they have
crossed the line. If an author says "we should make the US look more
like Sweden", thats fine. But when that author tells us that any other
government model than that of Sweden is immoral, thats not acceptable.

Worst of all, Sachs is one of those people who believes in the paterialistic
saving of the "common man" by the rich. Normal people are simply
too stupid to know what is good for them. Therefore the rich should decide
for them and the rich should take up the cause of "fixing" America
in the name of the poor.

He tells us that throwing R&D is the magic solution to every problem. He
tells us, for example, that if we had just continued Jimmy Carter's energy
R&D, America's energy system today would look radically different. But
when you get beyond the empty phrases of "R&D" and look at what
Carter's program actually consisted of, its not so nice. Carter's program was
at its heart a program to shift the US to coal. And anyone who thinks that
transforming coal into liquid fuel or building coal slurry pipelines would
have been a step forward in American energy policy is crazy. And no amount of
"research" into solar power can overcome the basic problems of cost
and inconsistant power generation.

People like Sachs believe that science is "magic" and that throwing
money at R&D can change the laws of nature. But it is not so. We live in
a world that is resource interdependent. Jimmy Carter's energy programs were
based on the idea that science could make it 1950 again and deny the reality
that America was part of the world rather than a standalone fortress.
Carter's dream of an America run on coal was foolishness that was rightfully
abandoned. And its also worth pointing out that the so-called countries of
civilized virtue didn't themselves take it up in a way that led anywhere.

The only way to improve America is to fix the problems of America. Trying to
turn the United States into Sweden or Germany isn't a viable solution. What
that means is looking at the institutional problems of America and asking
hard questions about them. For example, that means asking WHY the costs of
higher education in the united states are going up rather than just throwing
more government money at the problem. That means asking WHY its impossible to
get health care outside of an insurance plan regardless of how much money a
person has. Why does it cost proportionally so much more today for simply
medical procedures (take a broken arm) than it used to? Why do those costs
seem to have nothing to do with the cost of the service delivered?

What people in the United States need to do is to stop talking about fixing
problems by throwing money at them and start fixing what is broken in
American institutions by asking hard questions. The sort of easy answers
(copy Sweden) that fill this book will ultimately lead nowhere.

An Eloquent Plea for
Meaningful

Tiger CK

In the Price of Civilization Jeffrey Sachs makes a
powerful call for significant changes in the way the U.S. government manages
the economy. According to Sachs, an economics professor at Columbia
University, Washington has not devised policies that meet the challenge of
globalization. Rather than investing in education and infrastructure, as many
Asian countries have during the last twenty years, they have resorted to
popular short-term stimulus measures such as cutting taxes and reducing interest
rates. These problems have been exacerbated by lobbyists whose influence over
Republicans and Democrats has made meaningful change impossible.

Sachs argues that the best solution for these problems is for Washington to
move toward a "mixed economy" in which a more effective government
plays a larger role in regulating businesses. He believes that the current
problems in the American economy are structural and not short-term. With the
Republicans and Democrats both seeking solutions that will prop up the economy
for a year or two rather than address the structural issues, the United
States is on the wrong course and not likely to return to the levels of
prosperity it previously enjoyed. These problems can only be solved if the
government makes a long-term commitment to investing in industry in part by
raising taxes on the wealthy and reducing the growing gap between the rich
and poor.

Sachs's bold argument is not likely to be welcome by either Democrats or
Republicans. One Republican congressman (Paul Ryan) has already published a
scathing review of the book in the Wall Street Journal more or less equating
Sachs's proposals with socialism. But I think Americans fed up with
Washington and its inability to solve the current crisis will find many of
Sachs's arguments very compelling. The majority of Americans do wish that the
government could be reclaimed form corporate lobbyists and the people
empowered and they recognize that politicians on boths ides of the spectrum
are part of the problem.

Is Sachs right? I don't agree with him on everything but I do think he makes
many valid points especially on the shortsightedness of our politicians and
the methods that they are now using to attack our economic problems. I am not
completely sold on Sachs's mixed economy solutions, however. I believe the
key to economic policy is not whether we lean toward laissez-fair or a mixed
economy. In fact, both of these have been successful in certain situations
and may be part of the solutions. The key is that our economic policy be
smart and farsighted. In this sense, Sachs's book is at least a step in the
right direction.

_________________________________
Rdl27c
Connecticut

There is an abundance of jobs out there, the problem is, Americans can't fill them!

The rapid advance in technology that facilitates and enhances our everyday lives has also rapidly eliminated many job positions that are no longer needed, or can be accomplished by far fewer hands. It's the biggest irony of our time in that we both benefit from technology but at the same time we are hurt by it because we are not prepared for it.

Americans do not focus on the right things. What's generally important to Americans is not what's important to the new job market. The emphasis should be on math, science and technology, etc.. But instead too many of our students major in things that don't build anything; things that don't improve anything; things that don't result in inventions for the future, or forward our understanding of the world we live in.

We have a whole generation growing up motivated and inundated by crime shows/news 24/7. They would rather work in a crime lab than for NASA! They don't want to be astronauts or mathematicians, but instead CSI forensic examiners and ambulance chasing lawyers. I'm not trying to disparage these positions, but we've got enough people performing these tasks and we don't need more of them, we need less.

Living in a culture that emphasizes all the wrong things, I'm not hopeful of a change anytime soon. The only thing we can do is continue to draw talent from other parts of the world to fill positions that we at the moment are not capable of filling. Sad, because we have the potential, but our culture says something different.

To briefly return to our militant youth, they are a symptom many are looking to pin to a cause now. However, from the above views, one can see there are no shortcuts. Some day, in the future, it may be said that the thousand mile journey started with/in a blog.

the end of our epoch will be one of image-nation

2011-09-22T05:30:00.001-07:00

photo repositories, originally uploaded by scleroplex.

Via Flickr:
andrewsullivan.thedailybeast.com/2011/09/chart-of-the-day...

The Greenback Effect - WARREN BUFFETT

2011-08-16T12:11:00.001-07:00

The Greenback Effect - WARREN BUFFETT, originally uploaded by Just Invested.

Via Flickr:
Warren Buffett now says that the backlash from the huge spending that made the recovery possible maybe just around the corner. Writing an Op-ed piece in New York Times, he says: In nature, every action has consequences, a phenomenon called the butterfly effect.

Stop Coddling the Super-Rich
By WARREN E. BUFFETT
Omaha

OUR leaders have asked for “shared sacrifice.” But when they did the asking, they spared me. I checked with my mega-rich friends to learn what pain they were expecting. They, too, were left untouched.

While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks. Some of us are investment managers who earn billions from our daily labors but are allowed to classify our income as “carried interest,” thereby getting a bargain 15 percent tax rate. Others own stock index futures for 10 minutes and have 60 percent of their gain taxed at 15 percent, as if they’d been long-term investors.

These and other blessings are showered upon us by legislators in Washington who feel compelled to protect us, much as if we were spotted owls or some other endangered species. It’s nice to have friends in high places.

Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.

If you make money with money, as some of my super-rich friends do, your percentage may be a bit lower than mine. But if you earn money from a job, your percentage will surely exceed mine — most likely by a lot.

To understand why, you need to examine the sources of government revenue. Last year about 80 percent of these revenues came from personal income taxes and payroll taxes. The mega-rich pay income taxes at a rate of 15 percent on most of their earnings but pay practically nothing in payroll taxes. It’s a different story for the middle class: typically, they fall into the 15 percent and 25 percent income tax brackets, and then are hit with heavy payroll taxes to boot.

Back in the 1980s and 1990s, tax rates for the rich were far higher, and my percentage rate was in the middle of the pack. According to a theory I sometimes hear, I should have thrown a fit and refused to invest because of the elevated tax rates on capital gains and dividends.

I didn’t refuse, nor did others. I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off. And to those who argue that higher rates hurt job creation, I would note that a net of nearly 40 million jobs were added between 1980 and 2000. You know what’s happened since then: lower tax rates and far lower job creation.

Since 1992, the I.R.S. has compiled data from the returns of the 400 Americans reporting the largest income. In 1992, the top 400 had aggregate taxable income of $16.9 billion and paid federal taxes of 29.2 percent on that sum. In 2008, the aggregate income of the highest 400 had soared to $90.9 billion — a staggering $227.4 million on average — but the rate paid had fallen to 21.5 percent.

The taxes I refer to here include only federal income tax, but you can be sure that any payroll tax for the 400 was inconsequential compared to income. In fact, 88 of the 400 in 2008 reported no wages at all, though every one of them reported capital gains. Some of my brethren may shun work but they all like to invest. (I can relate to that.)

I know well many of the mega-rich and, by and large, they are very decent people. They love America and appreciate the opportunity this country has given them. Many have joined the Giving Pledge, promising to give most of their wealth to philanthropy. Most wouldn’t mind being told to pay more in taxes as well, particularly when so many of their fellow citizens are truly suffering.

Twelve members of Congress will soon take on the crucial job of rearranging our country’s finances. They’ve been instructed to devise a plan that reduces the 10-year deficit by at least $1.5 trillion. It’s vital, however, that they achieve far more than that. Americans are rapidly losing faith in the ability of Congress to deal with our country’s fiscal problems. Only action that is immediate, real and very substantial will prevent that doubt from morphing into hopelessness. That feeling can create its own reality.

Job one for the 12 is to pare down some future promises that even a rich America can’t fulfill. Big money must be saved here. The 12 should then turn to the issue of revenues. I would leave rates for 99.7 percent of taxpayers unchanged and continue the current 2-percentage-point reduction in the employee contribution to the payroll tax. This cut helps the poor and the middle class, who need every break they can get.

But for those making more than $1 million — there were 236,883 such households in 2009 — I would raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains. And for those who make $10 million or more — there were 8,274 in 2009 — I would suggest an additional increase in rate.

My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice.

Warren E. Buffett is the chairman and chief executive of Berkshire Hathaway.

When are we told it's bad?

2011-08-02T13:13:00.001-07:00

Well in advance? Optimistic.
Not a day too early? Cautious.
A day later? Clever; It may OVER by then.

Congressman Ron Paul compares our debt ceiling Bunraku with the following situation:

This is akin to a family "saving" $100,000 in expenses by deciding not to buy a Lamborghini, and instead getting a fully loaded Mercedes, when really their budget dictates that they need to stick with their perfectly serviceable Honda[...] Our revenues currently stand at approximately $2.2 trillion a year and are likely to remain stagnant as the recession continues. Our outlays are $3.7 trillion and projected to grow every year. Yet we only have to go back to 2004 for federal outlays of $2.2 trillion, and the government was far from small that year. If we simply returned to that year's spending levels, which would hardly be austere, we would have a balanced budget right now. If we held the line on spending, and the economy actually did grow as estimated, the budget would balance on its own by 2015 with no cuts whatsoever. We pay 35 percent more for our military today than we did 10 years ago, for the exact same capabilities. The same could be said for the rest of the government. Why has our budget doubled in 10 years?

Now, who's the audience? Surely US. Outside the US, there might be those who'd still point out how responsible we are even when evidence suggested otherwise. Yet I have a feeling that the monied outsiders are not buying in and, to get a bit speculative about it, I'd not be all surprised if Mr. Murdoch followed his doctor's advice and took up residency in some warmer and humid climate, as in HK if you get my drift.

Here in the US we are well on our way to the structural adjustment I keep talking about, e.g., here, yet the latest Bunraku play in discussion shows that the burden won't be share equally, which can make the situation very volatile. The progressive left has been administered its 'leave politics for the lowly!' signal, now it's the turn of the Tea Party folk to be sent packing. Also here, as no bubble is in sight, the hope might well be that portions of the rest of the world would be become so much worse, and the more their difficulties are denominated in dollars the better, that we couldn't look so bad in comparison. So there you have a type of OVER. There could be many other types of OVER, but the fabricants of reality and money must have become so sure of their craft and our confusion that they are banking it all on the first kind of OVER. For the individuals not associated with these schemes there is only one way to see the light, get back to the fundamentals! Yup, those we've been conditioned to scorn. In case you don't know where to start, pick up any wise text that had been written more than, say, 100 years ago. Then, after internalizing some of that stuff, join conversations, talk back!

Ron Paul for President, 2008, originally uploaded by jshj.

What do you see outside?

2011-07-23T13:14:00.000-07:00

Francis Bacon, Study for Bullfight No 2 (1969)
I think that man now realizes that he is an accident, that he is a completely futile being, that he has to play the game without reason. [...] You see, all art has now become completely a game by which man distracts himself (Bacon-Sylvester, Interviews, pp. 28,29).

I have signaled the descent of our western system, based on economic liberalism and democracy projected to global proportions, since before its 2008 Crisis. After three years, during which governments have saved the capitalists by imposing austerity on the populace, we are semi-officially in a 'Small Depression' according to Paul Krugman. The ordering belief must be that in a world distracted from facts, the capitalists are the only ones to be trusted to {harness, muster, unleash, ...} {creativity, innovation, renewal, growth...}; indeed, capitalists are always selected according to their being best able to align self-interest with action, the best indicator of a well-running capitalist engine, that is. Stimulating the economy by placing money in the hands of the populace, yours and mine, mostly increases the trade deficit--I have written this too. Problem is that capitalists are known to buy imports too, unless they park the money in some unproductive niche.

So, what's a government to do anymore? A cynical may say that those populating governments are merely interested in preserving class privileges while subsidizing a nice show. While that is true, can you think of a way out?

For example, the French and Italians citizens thought that by electing economically-liberal demagogues, growth would be assured. I am skeptical Berlusconi or Sarkozy fulfilled any of their electoral promises. I am equally skeptical of Cameron's prospects in the UK.

Could it be that we need to take a half-step back from globalization? Taxing the incentive out of the financial speculation can certainly help. This addresses in part the flexibility of capital, and the question becomes, how flexible ought capital to be? For example, Simon Johnson, MIT professor and former Chief Economist of IMF, is not the only to suggest a tax on “excess leverage;" Tobin taxes are also quick to come to mind. Then, shouldn't we reconsider the French idea for a reduced work load for all, thus being able to employ more? Yes, we must also get adjusted to the idea that floating is better than sinking, while not as fun as swimming. In the end, I don't care much about the extent to which these ideas are in agreement with one's standard of free-market capitalism, for I remind you, what we've had so far hasn't been free-market capitalism either. Don't you also find it problematic that each time one tries to argue for active management of the situation, the capitalist (ventriloquist) counters that due to the complexity of the system, the self-adjustment capability of the markets, free of regulation and taxes, is better than any one's fallible mind?

In any case, the above ideas are neither of the left, nor of the right. They are about the art of living and reflecting upon it not long thereafter.

It's most regrettable what happened in Oslo. I have a feeling that just blaming Anders Behring Breivik is not going to deter forever another symptom of our common disease. Breivik seems to have been against multiculturalism, whatever that meant in his case beyond being anti-Muslim immigration as a new form of Marxist internationalism--I know, it's a mouthful and I could use some European help to unpack it.

Shock and/or incomprehension, ensuing the massive destruction inflicted by World War I on so many, was not enough to prevent fascism or Nazism from coalescing as reaction to the dissolution of the world order, perceived then by the former as the result of the centrifugal forces of communism and/or international finance.

As wise people have always said, and the demagogues exploited to i/a-mmoral ends, humans need to believe in something greater than, say, self-interest. That something had better be based on moral law. Replacing sacred religion with the secular religion of self-interest, briefly introduced as part of a moral code based on natural law by Adam Smith, has not worked too well. As for how religion is observed in the US, let me just say, per out tax code and all that, it's big business for a minority and of whatever comfort for most--read this last statement in terms of effectiveness.

Through my Window(s), I see Tauoromachia.

What do these youth know and the world hasn't figured out yet?
Do the police know whom they are con/fronting, as in interfacing?
Is democracy the legitimate monopoly of power? What makes it no longer so?
When humanism is lost, do we regress to homo homini lupus? How do we come back?

Crepuscular Murdoch or a falling media empire?

2011-07-18T15:13:00.000-07:00

Keith Rupert Murdoch, AC, KSG ( born 11 March 1931) is an Australian-American media mogul and the Chairman, and CEO of News Corporation.Murdoch's first permanent foray into TV was in the USA, where he created Fox Broadcasting Company in 1986. In the 2000s, he became a leading investor in satellite television, the film industry and the Internet, and purchased a leading American newspaper, The Wall Street Journal.

Rupert Murdoch was listed three times in the Time 100 as one among the most influential people in the world. He is ranked 13th most powerful person in the world in the 2010 Forbes' The World's Most Powerful People list. With a net worth of US$6.3 billion, he is ranked 117th wealthiest person in the world.

The resizing of the Murdoch media empire has just started. I think it's been payback time for a while, at least since Obama won the presidential election. While the circus took place on stage, with Obama and the other characters following their scripts, life was dandy. As the Conservatives switched places with the Progressives (recall those 8 too many years under Bush the lesser), the former needed some pacifying device; Murdoch obliged, everything looked under control while the stage and scripts were outside (Golem-like) surprise.

However, I think that some powerful figures must have gotten a bit nervous by media fueled chaotic phenomenon known as the Tea Party movement. I mean, they calmed Ron Paul down, someone who had built a credible image about fighting financial elites, and couldn't get some junior Congresspeople to toe the line? Ha, nobody should forget the Alexander Hamilton financial chapter in the history of the nation! That is, no mortal of the realm questions the financial logic.

So, I wonder where things went amiss and what Murdoch's contribution might have been. I suspect you cannot have good Americans think they may get Congress to listen to them on such arcane matters as kicking the financial can down the road. Could it be that Murdoch either switched masters or thought dangerously for one as if in defiance of old age?

Be that as it may, but what do you do when you've had a finger on all digital pulse? You start by turning Murdoch in to the British, let it go down with his base here, and finally administer justice.

Are we to witness a crepuscular Murdoch or a falling media empire? Are they going total war here? If it's the end of the person, we shall conclude that some people don't know how to age. Otherwise, I leave it to you, my reader(s) to figure the details of the next rise from the ashes of this media Phoenix...

re-newed public consciousness needed

2011-07-15T08:14:00.000-07:00

piglets!, originally uploaded by swissrolli.

...are these the capitalists sucking the government, or the many taxes sucking capitalism?

Here's what Greg, from Brooklyn NY, a NYTimes reader, wrote back recently:

Democracies cannot last, because eventually the majority realizes that it can vote itself a stipend. That is where we're headed--any politician who promises to provide lavish services while cutting taxes wins in a landslide, despite the basic idiocy of that position. Eventually we will end up like Greece. Just as Greece is gradually becoming an economic colony of the EU (specifically Germany, or German banks) we will soon be an economic colony of China, to which we owe more money that we can ever possibly pay. The only alternative is to tighten our belts, pay more taxes, and accept more limited services. But we won't. The American Century is over, and with it our way of life.

It's painful, some argue that even long necessary, but we are getting there.

Consummerism: Interpreting the Signs

2011-07-15T06:20:00.001-07:00

Day 24: Interpreting the Signs, originally uploaded by susanvg.

Via Flickr:
Stop - Female shoppers.
Stop Shopping.
Stop excessive Consummerism.
Stop - woman in high heels carrying too many bags crossing the street. Making meaning.

Article 25 of the Universal Declaration of Human Rights

Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control.

The United Nations General Assembly ratified Article 25 on Dec. 10, 1948.

Paradigm Shift

2011-06-26T13:06:00.001-07:00

Stephen Walt looks at 9 centrifugal developments rearranging the world now. Here they are in short line versions, italicized, followed by my comments:

1. The financial crisis has put the Eurozone under unprecedented stress, and the European Union's future looks increasingly bleak.

We've made EUro-pe a gift it couldn't resist, the Greek crisis. I'm not sure about the Germans' role in this, nor the French capitulation from pulling its traditionally pro-European levers. Are the Germans finally setting themselves free of the post-WWII system of checks and balances, or they've learned how to play the IMF to their advantage?

2. NATO looks more and more obsolescent.

The money has run out at the underwriting center of the alliance, while the rest have grown entitled to its benefits.

3. The Arab world is in upheaval, and seems likely to remain unsettled for years.

I wrote here that things were entering the territory of luck. I wrote elsewhere that I saw the whole thing as a measure of our despair.

4. In fact, the "Arab spring" has done nothing to improve the U.S. image in the region.

The departure of Mubarak has put many on notice, they are nervous about it and closing ranks. Thus, we pay more for gas at the pump. Sure, it's got nothing to do with current supply-demand, but the smell of gunpowder in the oil lands. The Chinese are watching.

5. There may be a mounting power struggle in Iran, but its slow march toward a latent nuclear capability continues.

Wishful thinking--Clinton should have taken the Iranian hand when we were offered; as of now, we've got no leverage with the alternative power structures there.

6. The Afghan War will end -- but not soon -- and we will leave behind a dysfunctional country, a nuclear-armed Pakistan, and a lot of people who will either be angry for us for what we did or angry at us for what we failed to do.

Not knowing when to enter, what to do, and when the get out of wars is a sign of a dysfunctional military policy. The tail wags the dog, or the military action is the best diversion each time the honchos on Wall Street and in DC run out of options.

7. Japan -- which is still the world's third largest economy -- has suffered nearly two decades of economic stagnation and a costly nuclear disaster.

Japan is going its way, they must be looking for that way as we speak. They must have loved us so much that only their inertia is keeping that door from kicking our rear ends. Common values? Let's call that for short, the world order of the dollar.

8. China continues to rack up impressive rates of economic growth -- despite some signs of strain -- and it has avoided the foreign policy sinkholes that Washington has specialized in for the past two decades.

China operates with different scales. We have not developed a sense for how they think, nor who they are. Which is quite the opposite viewed from their end. The game is theirs, and many a US friend is looking up, openly or not, for the day they can play China against the US for a better place at the table. How things are going to be sorted out in Libya is likely to be the answer of the world to come.

We have the first post WWII generation to make it into the White House and the executive offices around the country to thank for this. Small-world minded, deluded by the "world is flat" platitudes, overconfident, and self-important. They wasted most of the hard work, lessons of history, good will of the world and other national intrinsic assets, all built over many decades since the 1930s.

9. As these various problems mount, America's political institutions seem increasingly paralyzed.

This is the symptom of a country that stopped learning because the feedback supposed to help us correct and improve had been distorted by the imaginary mind games our elites indulged themselves and led everybody else into. For example, recall the idea circulated early during our Iraq invasion in the Bush administration, reality doesn't matter, what we say it is becomes reality. This was rather the expression of how detached we've become from reality, not some play on words by those funny academics feeding Bush options.

Walt opens his thoughts with Yates' poem:

Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity...

For the full text on each one of the above, follow the pointer to Walt's blog with Foreign Policy.

The many lives of an idea(list)

2011-06-11T09:26:00.000-07:00

In the spring of 2008, I raised the following question/topic on LinkedIn:

...too much money got into the hands of too many people too fast?
Considering all current and near-future dramatic developments (e.g. environment, prices, trust in financial markets, etc.) could one argue that the world is trying to heal a disease whose symptoms include "too much money got into the hands of too many people too fast?"

People kind of got the idea, but not exactly--follow the above link to see for yourself. Had I raised the same question today, probably the answers would be different. But this is not the main point, for I've gotten used to waiting until people pass corners so they see what I sometimes talk about. The main point is how this little episode illustrates again what Keynes said:

The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood...
Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.

Case in point, I've just discovered this:

In a 1930 essay titled “Economic Possibilities for our Grandchildren,” John Maynard Keynes ridiculed economists for having a high opinion of themselves and their work. As the Great Depression engulfed the world, Keynes looked back at historic rates of economic growth, arguing that the real problem people would face in the future was not poverty but the moral quandary of how to live in a society of such abundance and wealth that work would cease to be necessary. The “economic problem,” as he put it, was technical, unimportant in the larger scheme of things. “If economists,” he wrote, “could manage to get themselves thought of as humble, competent people, on a level with dentists, that would be splendid!” (source: The Nation)

I could have described the problem I saw also in moral terms, yet I must have chosen to operate with the discursive tools of the time and place; LinkedIn being a professional network, moral argument does not weigh as much as money--I wonder if anything changed In essence, I stumbled upon the footprints of a defunct economist.

白隠

Obama's put option

2011-06-09T06:02:00.000-07:00

NYTimes has a piece on the weak economic recovery:

Economy’s Woes Shift the Focus of Budget
By JACKIE CALMES
Recent signs that the economic recovery is flagging have introduced a new tension into the bipartisan budget negotiations.

The general assumption, which I have not shared, is that the money handed to banksters was meant to stimulate economic recovery to pre-2008 levels. I argued here that our non-bubble economy has shrunk and people become unskilled to the point that the trillions spent by Bush and Obama could only be intended to prop the status qvo ante. Why are people looking for reversing a trend? Because they were told so. Like in the past, except that our money is increasingly perceived as mostly backed by paper, by those who push gold above $15oo or switch from dollars to other currencies.

After the .com bubble there has been little in terms of sustainable economy that could use stimulus. Let's not forget, bubble money went into the real-estate and war economies. This had taken place while the effects of offshoring were masked by cheap (also subsidized) imports.

Some wake up now and ask for stimulus, yet others in the world have been awake, at least since the crisis in 2008. The latter are not willing to finance us anymore, hence the difficulty of dancing round the deficit vs. stimulus opposite poles.

I think those who fight deficits aim at accomplishing several things, of which one is ignored in the current debate: the external credibility of our system. I'm afraid that's been eroded and we are only seeing how people take calculated steps away from US. The recent Libyan episode is but an incomplete exception, which may itself prove to be temporary.

So, while I can understand why there isn't and won't be a stimulus, I cannot understand why

People expect more stimulus, though it takes one to learn;
People like Krugman call for more stimulus, since he's a learned man;
The burden is not equally shared. By this, I mean the absence of higher taxation at the top, as in progressive tax. A VAT system, excluding those items that the lower income people depend on, may also be an option.

What are we afraid of? That everybody with money is going to start learning Chinese? I'm more apprehensive about Geithner's keeping his job, for he is Obama's put option on the status qvo.

________________
A version of this has been posted at the NYTimes blog.

The Power of Stories

2011-06-02T07:45:00.000-07:00

A recent NYTimes article informs us about the Chinese plan to redirect massive amounts of water to their dry north from their wet south. Here are two reader comments that show how stories can be points of contact or rather insulators between individuals, their experiences, values, and beliefs:

Sandy Lewis

Lewis Family Farm, Essex, New York (20 votes)

Edward Wong's account of China's Army Corps equivalent offers many lessons. LA is one. There are hundreds of others.

When man seeks to conquer his environment, duck. Mother Nature wins, sooner or later.

No dam will last forever. No canal will last. Nothing man builds will outlast Mother Nature.

When we oppose the forces of nature, we defy logic. It is so much easier to work with nature - and allow the natural order of things.

Many feel organic farming is a passing fad, a joke, simply silly. Well, it's cheaper, it's better, it's more tasty, and it's healthy for the soils, rivers, estuaries, oceans and atmosphere. And it's smarter by far.

The chemical giants have their need, the children have theirs.

Similarly, drought in China is but the message.

Hubris is expensive stuff. Always fails, sooner or later.

China is old, China is young, China is a despotic dictatorship, corrupt top down.

The Chinese people do not vote. The Chinese people are cannon fodder for the ruling class.

This is totalitarianism. The scale of things in China dwarfs all others.

The scale of the failure in China will dwarf all others.

There is no question where this stuff will end.

There is only the question of when.

End it will - in disaster.

Mankind needs to learn, again and again. It's almost as if there is no memory, no inherent logic.

Animals know more that we.

Anonymous

Seattle, WA (6 votes)

Your facile and percussive claims about mother nature don't change the way the world works. Your little paragraphs remind me of the things a child might throw around because he can't have more candy: they're not only futile, but embarrassing. Let me explain how the world works. I'll use the nice, simple sentences of which you and your ilk are fond:

We use science to make plants grow better. Science lets us grow more food on the same amount of land.

Without science, we would have less food. The remaining food would be a lot more expensive. We would use a lot more land to grow food. Land that is used for growing food can't be forests or parks or wetlands for migrating songbirds.

Organic farming makes farmers till the soil to get rid of weeds. Tilling makes the topsoil easier to wash away. The topsoil can't be replaced. Half of Iowa is already gone. Plants need topsoil to grow. Without topsoil, there is no food. Starvation is not good for children and other living things.

We need water. We know how to bring water from places with more than enough to places that do not have enough. That is a good thing. When water goes from a high place to a low place, we get free electricity by building a dam. Dams need to be fixed once a while. They work fine if we take care of them. If people like you let us.

You believe that mother nature a nice old lady would provide for us if we just talk to her. But actually, she's fierce. It's taken thousands of years to tame her. You don't appreciate that because you live in an age when we've thoroughly subdued nature. Hubris is substituting your confidence for evidence. Nature worship qualifies.

I hope the Chinese water project is a success. We should pay attention to what they're doing. We're going to need to build projects like theirs ourselves soon. Our cities don't run on antibiotic-free heirloom free-range chickens. The water mains don't need massages and soft world music. They need water.

Science is the only thing that stands between chatting with friends in warm houses and shivering in the dark while wondering what we did to make an angry god punish us with lightning. Using reason to make our lives better is not evil. It's not bad. Technology is wonderful.

What's the Solomonic way out of this conundrum? I'm afraid it's one own's experience, for we rarely exhibit signs of learning. Nothing wrong with experience in itself, except that it's costly.

reassurance makes strength or good excuse to skip town?

2011-05-25T14:50:00.000-07:00

While the US Congress was overjoyed with a visit meant to reassure about the Israeli-American friendship, our own president was addressing the British Parliament with the following:

“It is wrong to conclude that the rise of countries like China, India and Brazil means the end of American and European leadership. Even as more nations take on the responsibilities of global leadership, our alliance will remain indispensable.”

Moreover, president Obama stated that the United States and Britain remained “indispensable” nations for peace and stability and the “greatest catalysts for global action” in a time of war, terrorism and economic insecurity.

Equally reassuring, indeed.

Except that Germany and Japan are drawn into different orbits, while the Chinese are growing more nervous, if not assertive, by the day. Not to mention that the Brits see things differently as far as: a) tackling the economic crisis, b) military budgets, c) Libyan priorities, or d) the upcoming September vote at the UN when the Arab League intends to propose the recognition of the Palestinian state.

What's going on here, had we been liked and respected only as long as we could pay our way, or we've departed too much from what others saw and liked about us?

Do we even know or remember what it was? How we got there or how we lost it?

DSK facing... American Americanism?

2011-05-22T16:28:00.001-07:00

Vince Boston from San Mateo, California comments on NYTimes:

Bonjour, mon ami's ! It is I, ze great sophisticated and elegant Dominque Strauss-Kahn, who always selects ze perfect wine. Oui, I had a bit of fun with a mere chambermaid...so what? What else are ze chambermaids there for? Ze problem is ze puritanical Americans...not moi ! I merely do what I and my fellow government bankers have been doing for years, and it is ME who is supposedly ze problem? I reject your puritanical American Americanism !

Me and my fellow $3,000/night international government bankers spend all day long raping poor countries on behalf of rich countries. When we tire of that, we switch to raping the working class inside each country on behalf of the ruling class who went to the right schools and have the right last names. After all, I am ze most ridiculous of all ze politicians in ze entire world, a stalwart leader of ze French “Socialist” Party.

Why, ever since I was born with my nursemaid feeding me Dom Perignon in my baby bottle, I have dedicated my life to helping the struggling working classes…like ze hotel maid last night. She was struggling…does she not realize I was helping her in her fight against ze rich exploitive well-connected ruling class ? Ungrateful wench !

What could be more natural for me and my good banking fellows than to switch to raping hotel maids at ze end of a long tiring work day ? I do whatever I want whenever I want to whoever I want ! Yes, yes, you may, how you say, succeed in locking me up in one of your puritanical puritan prisons. But it matters little. There are 50, 100, 1,000 more international government bankers waiting to take my place and continue with our sacred, important "work". It is truly a calling, not merely a “job”.

It could be that this man is sick and his known dependency was exploited by the professional handlers of the victim(?).

Indeed, growing popularity in France was construed as a risk not only for L’américain, our ever obliging friend at Élysée Palace, but also to US capitalism itself–see DSK’s murmurs about the need for an international alternative to the dollar based on the IMF's special drawing rights, or about increased state-level financial regulation.

Another interesting question that comes into focus is if DSK was indeed the best face of the (French) Left. The vanishing of the working class in the west (read, post-industrial economy myth temporarily sustained by off-shoring / delocalization) has made reaction to the anti-popular excesses of capitalism very difficult.

Fukushima, mon amour: Letter to the Readers of the Capitalism Saga

2011-05-11T13:14:00.000-07:00

Capitalism is itself an artifact, based on a fiction. Sooner or later, it runs out. Some of its plot elements are property, law, innovation, technology, obstinate individualism, entrepreneurship, growth, greed, corporate personhood, market as deus ex machina... We identify many of these as natural; in fact they have become second nature, but who's drawing this distinction anymore?

The social ordering role of grand narratives can be hardly overstated. The Capitalism story has been so transformational a force that even a communitarian country like Japan could muster only 50 volunteers to risk their lives in limiting the scope of the fast spreading nuclear damage at Fukushima, not to mention how many weeks it had taken.* Contrasting this to the Soviet response at Chernobyl, where 0ver 300 thousand people had been mobilized to contain the damage, is better left for the ethicist.**

Besides filling the western world with stuff, capitalism has managed to achieve something even more remarkable, it puts the story from the opening paragraph between most and the real owners/handlers. In other words, capitalism has no customer support department, yet the few own and re-write it with legitimacy, if not impunity. What has gone missing? To name just one, the state as that entity greater than the sum of individuals in a country. Indeed, where was the state after Katrina, BP oil spill, or at Fukushima, when corporate or natural disasters hit? Please, don't confuse our political representatives for the state! They use whatever is left out the state, i.e. the monopoly of violence, to legitimately hang on their side of POWER. I also hope the reader won't think the state stood behind the big bank(er)s, for the same representatives put us, or the Irish, in that situation.

To return to the main epic, a country like the US has been addressing the intrinsic limits of capitalism by hard work, of its own and then of the scores of immigrants, chance, or by externalizing its problems. We have had many an advantage at our disposal that a place like Japan or Germany could only dream of.

Japanese capitalism reached its limits a while back. Sitting on a big pile of money and running on inertia might have seemed as heroic. Then something like Fukushima happens in short sequence from the 2008 Crisis and the 2010 BP oil spill in the Gulf of Mexico. Not to mention all the petro-wars.

What's the meaning of this? For each his own. While Germany interrupted the operations at several nuclear power plants, Japan has signaled that it would not increase its reliance on nuclear energy as once planned. Closer to home, I expect Obama will pass the immigration law, but am apprehensive it's going to be another political hack and not necessarily a solution to our problems. One of our solvable problems, by virtue of a redesigned immigration system, would be the math education: grant work visa to math teachers and fill our classrooms with people whose knowledge and IQ would otherwise qualify them for running... banks.

Japan, I anticipate, will be the first one to turn the page away from Capitalism. Or at least away from its ferociously anti-civilization aspects--read, consumerism, growth... As for the energy problem, it should be rephrased as opportunity: stargazing will be again possible even in a Tokyo neighborhood.

______________
* With this occasion, I've come to better understand the Japanese communitarian values, which in the west are seen mostly with indulgence. It must have been many a natural disaster that fused this people into what it is.
** Thinking that the international community, for the past 10 years, has not come up with the estimated billion dollars needed to consolidate the leaking and fast aging cover of the Chernobyl blown up reactor is even more indicative of the values ordering our world.

the view from our end

2011-05-03T03:42:00.001-07:00

P050111PS-0210, originally uploaded by The White House.

Via Flickr:
President Barack Obama and Vice President Joe Biden, along with members of the national security team, receive an update on the mission against Osama bin Laden in the Situation Room of the White House, May 1, 2011. Seated, from left, are: Brigadier General Marshall B. “Brad” Webb, Assistant Commanding General, Joint Special Operations Command; Deputy National Security Advisor Denis McDonough; Secretary of State Hillary Rodham Clinton; and Secretary of Defense Robert Gates. Standing, from left, are: Admiral Mike Mullen, Chairman of the Joint Chiefs of Staff; National Security Advisor Tom Donilon; Chief of Staff Bill Daley; Tony Binken, National Security Advisor to the Vice President; Audrey Tomason Director for Counterterrorism; John Brennan, Assistant to the President for Homeland Security and Counterterrorism; and Director of National Intelligence James Clapper. (Official White House Photo by Pete Souza)

Dr Helen Caldicott: The Earth is in the Intensive Care Unit

2011-05-01T08:25:00.001-07:00

Dr Helen Caldicott: The Earth is in the Intensive Care Unit, originally uploaded by Pepperspray Productions' "Indymedia Presents".

Via Flickr:
See the "Dr Helen Caldicott: The Earth is in the Intensive Care Unit" video

This week we devote the entire episode to Dr. Helen Caldicott, one of the founders of Physicians For Social Responsibility (PSR). In this piece, edited by PepperSpray's Patricia Boiko, Dr. Caldicott talks of the nuclear issues and the health of the earth from the perspective of a healer/physician. PepperSpray collective members kept her in the viewfinder during on-air radio interviews in Seattle and accompanied her to the Washington meeting of PSR where she was the keynote speaker. Physicians for Social Responsibility an organization of 23,000 doctors committed to educating their colleagues and the public about the dangers of nuclear power, nuclear weapons and nuclear war. www.psr.orgAfter being instrumental in the formation of PSR in the US, Dr. Caldecott helped start similar medical organizations in many other countries. The international umbrella group (International Physicians for the Prevention of Nuclear War) won the Nobel Peace Prize in 1985. www.ippnw.org She also founded the Women's Action for Nuclear Disarmament, now Women's Action for New Directions (WAND) in the US in 1980. www.wand.org Other professions took up the challenge of "social responsibility," and the 1980s and 90s saw an array of organizations such as Computer Professionals For Social Responsibility, each with their own focus.http://www.cpsr.orgBooks by Helen Caldicott referenced in the video:Nuclear Power Is Not the Answerhttp://books.google.com/books?id=iEVb...The New Nuclear Danger: George W. Bush's Military-Industrial Complexhttp://books.google.com/books?id=Diy9...War in Heaven: The Arms Race in Outer Spacehttp://books.google.com/books?id=FoJu..."Indymedia Presents" is a weekly public access program produced on behalf of the Seattle Independent Media Center (IMC) by PepperSpray Productions... now also a weekly podcast available at:http://indymediapresents.blip.tvhttp://miroguide.com/channels/1786Pubic Access producers, community screeners, and IMCs
are encouraged to screen or air "Indymedia Presents." To obtain the show on a regular basis, please contact us at pepperspray@riseup.net.Related Free Speech Websites:Independent Media Centerhttp://www.indymedia.org/en/index.shtmlIndymedia NewsRealhttp://www.newsreal.indymedia.orgFree Speech TV:http://www.freespeech.orgDemocracy Now!http://www.democracynow.orgThis video was originally shared on blip.tv by Pepperspray Productions with a Creative Commons Attribution-NonCommercial-NoDerivs license.

Unsafe at Any Dose
Sydney, Australia

SIX weeks ago, when I first heard about the reactor damage at the Fukushima Daiichi plant in Japan, I knew the prognosis: If any of the containment vessels or fuel pools exploded, it would mean millions of new cases of cancer in the Northern Hemisphere.

Many advocates of nuclear power would deny this. During the 25th anniversary last week of the Chernobyl disaster, some commentators asserted that few people died in the aftermath, and that there have been relatively few genetic abnormalities in survivors’ offspring. It’s an easy leap from there to arguments about the safety of nuclear energy compared to alternatives like coal, and optimistic predictions about the health of the people living near Fukushima.

But this is dangerously ill informed and short-sighted; if anyone knows better, it’s doctors like me. There’s great debate about the number of fatalities following Chernobyl; the International Atomic Energy Agency has predicted that there will be only about 4,000 deaths from cancer, but a 2009 report published by the New York Academy of Sciences says that almost one million people have already perished from cancer and other diseases. The high doses of radiation caused so many miscarriages that we will never know the number of genetically damaged fetuses that did not come to term. (And both Belarus and Ukraine have group homes full of deformed children.)

Nuclear accidents never cease. We’re decades if not generations away from seeing the full effects of the radioactive emissions from Chernobyl.

As we know from Hiroshima and Nagasaki, it takes years to get cancer. Leukemia takes only 5 to 10 years to emerge, but solid cancers take 15 to 60. Furthermore, most radiation-induced mutations are recessive; it can take many generations for two recessive genes to combine to form a child with a particular disease, like my specialty, cystic fibrosis. We can’t possibly imagine how many cancers and other diseases will be caused in the far future by the radioactive isotopes emitted by Chernobyl and Fukushima.

Doctors understand these dangers. We work hard to try to save the life of a child dying of leukemia. We work hard to try to save the life of a woman dying of metastatic breast cancer. And yet the medical dictum says that for incurable diseases, the only recourse is prevention. There’s no group better prepared than doctors to stand up to the physicists of the nuclear industry.

Still, physicists talk convincingly about “permissible doses” of radiation. They consistently ignore internal emitters — radioactive elements from nuclear power plants or weapons tests that are ingested or inhaled into the body, giving very high doses to small volumes of cells. They focus instead on generally less harmful external radiation from sources outside the body, whether from isotopes emitted from nuclear power plants, medical X-rays, cosmic radiation or background radiation that is naturally present in our environment.

However, doctors know that there is no such thing as a safe dose of radiation, and that radiation is cumulative. The mutations caused in cells by this radiation are generally deleterious. We all carry several hundred genes for disease: cystic fibrosis, diabetes, phenylketonuria, muscular dystrophy. There are now more than 2,600 genetic diseases on record, any one of which may be caused by a radiation-induced mutation, and many of which we’re bound to see more of, because we are artificially increasing background levels of radiation.

For many years now, physicists employed by the nuclear industry have been outperforming doctors, at least in politics and the news media. Since the Manhattan Project in the 1940s, physicists have had easy access to Congress. They had harnessed the energy inside the center of the sun, and later physicists, whether lobbying for nuclear weapons or nuclear energy, had the same power. They walk into Congress and Congress virtually prostrates itself. Their technological advancements are there for all to see; the harm will become apparent only decades later.

Doctors, by contrast, have fewer dates with Congress, and much less access on nuclear issues. We don’t typically go around discussing the latent period of carcinogenesis and the amazing advances made in understanding radiobiology. But as a result, we do an inadequate job of explaining the long-term dangers of radiation to policymakers and the public.

When patients come to us with cancer, we deem it rude to inquire if they lived downwind of Three Mile Island in the 1980s or might have eaten Hershey’s chocolate made with milk from cows that grazed in irradiated pastures nearby. We tend to treat the disaster after the fact, instead of fighting to stop it from happening in the first place. Doctors need to confront the nuclear industry.

Nuclear power is neither clean, nor sustainable, nor an alternative to fossil fuels — in fact, it adds substantially to global warming. Solar, wind and geothermal energy, along with conservation, can meet our energy needs.

At the beginning, we had no sense that radiation induced cancer. Marie Curie and her daughter didn’t know that the radioactive materials they handled would kill them. But it didn’t take long for the early nuclear physicists in the Manhattan Project to recognize the toxicity of radioactive elements. I knew many of them quite well. They had hoped that peaceful nuclear energy would absolve their guilt over Hiroshima and Nagasaki, but it has only extended it.

Physicists had the knowledge to begin the nuclear age. Physicians have the knowledge, credibility and legitimacy to end it.

Helen Caldicott, a founder of Physicians for Social Responsibility, is the author of “Nuclear Power Is Not the Answer.”

I wish all of US LUCK!

2011-02-08T19:36:00.000-08:00

There are no spontaneous revolutions. Popular anger needs coordination, channeling, resources.

No outsider would have dared trouble the waters in a place like Egypt. The US would have eventually found out and the whole thing become a casus belli.

The security apparatus in a place like Egypt could have put down any manifestation in a matter of hours. The Egyptian Army must have been in.

If all goes well, Capitalism gets a new lease on life, long live democracy for capital!

Meanwhile, the West should hold together, yet the US will re-discover (the virtues of) nylon.

Officially, I am happier

2011-01-30T08:23:00.000-08:00

This is a time we'll remember. It's taken history a little over 20 years to re-expose the cracks in our world system, just as they were before the cold war froze them, apt metaphor indeed. Except that this time, it takes the news much less to reach that many more.

In November we had Wikileaks/Cablegate, now we have Tunisia and Egypt, episodes of violence of one type or another. They all challenge the status qvo, which has its own defenders. For one, there are the current elites, who'd been able to stage a smooth show until the 2008 Crisis, or until the most recent onset of the crisis in 2008. Up until 2008, genetically modified food and cheap Chinese imports had kept the hoi polloi climbing the pyramid of growth in this or that market, the up and coming could still find a place at the lower tables, whereas the true elites were taxing the addiction of democracies to credit financed pyramidal-growth.

The underlined text is the least exposed, topmost, yet more interesting, part of a 3-layered machinery whereby to each his own. The low strata provide the labor and standing army in exchange for a chance at The American Dream, the idea that tomorrow ought to be better than today, given that you play by the rules, regardless of the initial conditions. It's a social compact of sorts to which most still subscribe to, in form if not in spirit. In other parts of the world with comparable per capita/GDP metrics, the compact is not framed in such probabilistic terms but actual indemnification--this also goes by the name of welfare state, a creation of contractual parties enlightened by experience. So until 2008, the American Dream had been in sight for many, though people in places like Ohio may take exception--for them, the Crisis started in 2000-2001. We were conditioned to measure our betterment in terms of stuff acquired on credit, but that's part of the status qvo ante. When the magic behind credit is questioned, we all look at a house of cards.

What was the top stratum doing? They have privatized just about everything, including war, the means to persuade the elected few and, most importantly, the money supply. Some could argue that The Fed has been private since its inception, for how else to keep the democratically elected populist from printing more money? To which I'd say, there used to be rules restricting self-serving abuse by the money handlers themselves. Also, more or less functioning markets were supposed to operate and keep the whole financial industry efficient, if not effective, at allocating the money resource in the economy. To return to privatizing everything, it increases liquidity, reduces waste, generates commissions; what's not to like about it? Indeed, it puts The American Dream on the market autopilot. Except that for whatever reasons, and they vary from human nature to the late stage of our capitalism, the money handlers have gone far beyond taxing our addiction for cheap credit into generating virtual capital, orders of magnitude in excess to the real economies of the world combined, and transactions for their own sake. In other words, increased money supply and transactions leading to more commissions--if measured by the banksters' bonuses alone, quite an expensive addiction to have. So, those private entities that were supposed to keep the democratic government fiscally honest must have hijacked the game along the way. Never mind the role of the state, read something about regulatory capture and the cycle is complete.

To open a parenthesis, the 2008 Crisis has reached even those whose money supply has not been privatized. Indeed, they needed growth for an aging population just about as much as we needed for our pyramids, so they had to join in while the music was playing. Who doesn't find it ironic that in Ireland, for example, the population has to suffer because of imprudent private banks' lending practices and not because of some over-generous welfare scheme? These are all details, which the little people may someday put together into a call to action, unless real reform is undertaken. So far, we've been headed where the theorists of socio-economics have told as for about 160 years. Can capitalism regenerate itself? Better yet, what will it morph into?

As I wrote here in the past, downward adjustment is on the books for us. Obama's recently calling for increased competitiveness means that our individual incomes would go down and we can kiss goodbye whatever is left of the welfare state; let's just forget about the alternative of all turning into neurosurgeons or microprocessor designers.(*) An oil crisis brought about by street movements in the Arab world can be a good external diversion to spring the whole west back into action on behalf of capitalism and value$.(**) Indeed, how do you defy the cycle if not by some expansion? If the financial expansion has run its course, what's left? We should also keep in mind the lesson of the late British Empire, at twilight military expansionism speeds things up instead of allowing the belligerent to choose solutions. We cannot bankroll Pax Americana far into the 21 century.

Yes, I am all for supporting the consequences of our pyramidal dreams, meaning downward corrections and/or inflation, but so far I find the idea of justice lacking in the process. Reform ought to be real and aimed at the practices of the top layer, just as much if not more than the base. Otherwise, officially I am told that 2011 will have been already better!

_______________

(*) Lawrence Summers, former Obama's officially economy expert, has given an interview about the way he sees the future; here's an excerpt from NYTimes:

The key to higher employment, he said, is increasing the demand for the goods and services produced by American companies. “You don’t hire more waiters unless the waiters you have in your restaurants have more work than they can handle,” he said. “There’s a continuing shortage of demand, and that’s the root cause of unemployment. It’s the root cause of low-capacity utilization…What you need to do is have more output with more people, and the way you have more output with more people is you need people who want to buy that output, and that’s why it comes back to demand.”

This should give us all an indication of what competitive means to our leaders, waiter-level incomes/benefits. As well, we won't come out of unemployment unless willing to get such jobs. That may well be so for us, what about THEM? THOSE who restart the economy of waiters-based models.
(**) The events in Tunisia and Egypt are most puzzling. I don't believe in street movements beyond drama and opportunity (lost or made). The west has grown too dependent on oil in its own terms, to which the US added dollar-denominated trade. The standing question of the moment is cui prodest, or what's behind? As for the role of (internet) technology in democratizing, allow me to take exception. Moreover, the voting experiment in Palestine yielded populist-Islamics, not the garden variety politician our elite has been so effective at co-opting.

As for the "value$" in question, truth be told, the might dollar has turned us oblivious to many of our deficiencies--see for example the reflex call for money each time we are faced with a problem--thus we stopped learning. The west has gone along, more or less (see the 1971 decoupling of the dollar from gold), for all kinds of reasons, e.g., red scare, security clients, markets, etc. All in all, there has been no one to fundamentally question what we were doing. I would not take this as guarantee for future behavior.

They Have Spoken

2010-12-28T12:16:00.000-08:00

Two recent articles, in Foreign Affairs and HBR, feature the views of two Harvard professors about the road ahead. I commented on each one of them, and conclude here that the kind of intellectual leadership that has brought us where we are, through 2008, is alive and well. Have a look for yourself, and draw your own conclusions!

------------8<-------------------------------------------------

The Future of American Power
Dominance and Decline in Perspective
Joseph S. Nye Jr.
Summary: It is currently fashionable to predict a decline in the United States' power. But the United States is not in absolute decline, and in relative terms, there is a reasonable probability that it will remain more powerful than any other state in the coming decades.
JOSEPH S. NYE, JR., is University Distinguished Service Professor at Harvard University. Parts of this essay are drawn from his forthcoming book, The Future of Power (PublicAffairs, 2011).

Yes, our perceptions about the future have gone up and down through our history, yet people's lives went also up and down unless they counted themselves among the lucky/Ivied. Each time our common fortune went up, it followed some long period of pain and was the result of some major transformation.

Professor Nye doesn't say a word about the type of transformation ahead. He talks generalities and quotes selectively in support of his argument. For example, he counts us as leaders in biosciences, but then why doesn't he look at the flip-side, to the requirement for this? A lousy and expensive medical system whose results are half as good, for twice the money, as in other developed economies. Surely, the argument could be extended to his dear universities--compare $50k to quasi-free in annual college tuition. Oh, his list of where we are #1 is almost comprehensive, for if he added military and financial innovation, the list would have been complete.

What do these observations make me think?

1) That our being #1 cannot be sustainable under status qvo, even in a reduced number of areas. Indeed, for example, an overburdened and socially under-performing medical system cannot be counted on to keep going forever. The author's prescriptions amount to folklore.
2) That Professor Nye may be, well, a bit out of touch. I guess, they don't call some the Boston Brahmin for nothing...

No, China won't go up and higher forever; Yet, a question lost on the author is, How big China's economy needs to be to turn it into a challenger? Going into GDP or per capita comparisons is not as relevant as the author makes it sound. Switzerland may get higher grades on many dimensions, yet it is hardly a menace for the US.

Nor will we reach the bottom in free fall. More likely to happen is a world choosing between our type of capitalism and state-capitalism. If we overcome the political gridlock (à la Fallows/Nye), the two types of capitalism will converge. Meanwhile, texts like this are meant to put the middle class to sleep.

------------8<-------------------------------------------------

The Big Idea: Creating Shared Value
by Michael E. Porter and Mark R. Kramer
The capitalist system is under siege. In recent years business increasingly has been viewed as a major cause of social, environmental, and economic problems. Companies are widely perceived to be prospering at the expense of the broader community.

Alas, this has been written by:

* E. Porter is the Bishop William Lawrence University Professor at Harvard University. He is a frequent contributor to Harvard Business Review and a six-time McKinsey Award winner.
* R. Kramer cofounded FSG, a global social impact consulting firm, with Professor Porter and is its managing director. He is also a senior fellow of the CSR initiative at Harvard’s Kennedy School of Government.

For the reader skeptical of my comment, let me quote from the article:

"Shared value is not social responsibility, philanthropy, or even sustainability, but a new way to achieve economic success. It is not on the margin of what companies do but at the center. We believe that it can give rise to the next major transformation of business thinking."

How many times has it been that we've heard such calls? Each time, they are similarly worded and meant to supplant government responsibility&action for a clean environment, sustainable societies and so on.

Now, allow me to state what the problem is with this: I have little control over how businesses operate, for they are subject to their institutional imperative of making short-term money. Arguably, the government is responsible to me. Do you see the problem? I can do little to nothing to influence business, I can vote every electoral cycle to keep the government honest. For those countering that we vote for business everyday with our wallet, I'd say, not anymore when you are in debt and/or the business in question is a monopoly. Moreover, if the behavioral requirement is not normative, as in a law subjecting all players to the same constraint, there will always be businesses trying to get advantage of not respecting otherwise self-generated social objectives.

So, the rule must be the same for all businesses, and the enforcer should be from the sphere of government/society, not businesses themselves.

------------8<-------------------------------------------------

Yes, I know, we don't do government, lest someone calls us socialist, but then why all the talk about business-this and business-that? To pacify us while waiting for the next bubble? If so, why not stop sucking on the damn rubber?

covering mirrors

2010-11-29T06:15:00.001-08:00

The 2nd installment of wikileaks, Cablegate, has been partially released, as in 1/000.

The story behind the whole data-spill seems to have been initiated by Bradley Manning, 22, one of those we like to cheer about in terms such as our brave men and women serving in harm's way. Until he was locked up in solitary confinement, Manning used to be an intelligence analyst with the Army, outside Baghdad. In his own words, the facts were: "I would come in with music on a CD-RW labeled with something like 'Lady Gaga' … erase the music … then write a compressed split file. No one suspected a thing ... [I] listened and lip-synched to Lady Gaga's Telephone while exfiltrating possibly the largest data spillage in American history." He said that he "had unprecedented access to classified networks 14 hours a day 7 days a week for 8+ months." He even anticipated some reactions, "Hillary Clinton and several thousand diplomats around the world are going to have a heart attack when they wake up one morning and find an entire repository of classified foreign policy is available, in searchable format, to the public ... Everywhere there's a US post, there's a diplomatic scandal that will be revealed. Worldwide anarchy in CSV format ... It's beautiful, and horrifying." Stated motivation: "Information should be free. It belongs in the public domain."

Now, how symptomatic is this for the state of our empire, er, nation? Did we need a 22-year old to come and show how ugly empire is? Below are what can be two answers:

Dovid
Monsey, NY

This is what I call treason!

Recommended by NYTimes 237 Readers

Diana
New York

To Commenter #4, [Dovid] I'd say, No, compiling and releasing documents, 'none of which was marked top secret,' is not treason, it's democracy in action.

For a truly treasonous act, see the outing of an undercover CIA operative, Valerie Plame, who had worked for years setting up very successful false operation directed at uncovering 'weapons of mass destruction.' Her husband told the truth about the lies being that would justify getting into war, lies told by very powerful and deeply unpatriotic war profiteers, and she was 'outed' in revenge. She--and our country--continue to pay the price; the war profiteers continue to go free.

Recommended by 371 NYTimes Readers (highest number of recommendations)

I'd posit that running a large and complex system like the US, implies effective and efficient control mechanisms. Effective as in get the job done, efficient as is make those controlled do the control themselves. Efficiency comes wrapped in all the talk about our being a nation of laws, fighting for human rights and justice for all. So, is it that a smart young man, driven by patriotism, enlists with the Army, yet his self-control breaks when he gets deployed and sees our relations with the world out there being so different from what we espouse at home?

From a slightly different angle, let's review all the above from a 1992-perspective in Hollywood, a year after the official demise of the USSR due to our upholding higher values. You'll recognize Colonel Nathan R. Jessep, from 'A Few Good Man' in the You Can't Handle the Truth-moment.

To each his own, but considering the mounting problems we face, both internally and internationally, I'm afraid that not wanting to know the truth is akin to covering mirrors in the house after someone died. It may be efficient but hardly effective.
______________________________________________________

12/12/2010 Update
Whatever one may think of Bradley Manning, who took an oath when joined the Military, the situation with Julian Assange is a whole different matter. Being on offensive will erode our standing, it's about principle not about any one individual. We should accept OUR mistake(s), e.g. of not setting up proper systems, and leave Assange in peace. The earlier we do this, the less painful for all involved. This is neither the way to set an example, nor the type of example you want to set.

A Lincoln or Roosevelt moment?

2010-11-13T14:35:00.000-08:00

The latest elections were remarkable for lacking surprise, no wonder many don't bother to vote!

The democratic machinery may be a little overrated to take us out of the many-decades-in-the-making slump. Somehow, the voters are still to figure this out, for this being one among the few dramatic swings, which otherwise would take several electoral cycles to happen, which shows that people still think they control the machinery by playing with a fake knob. Not to forget the enlightened skeptics, who may or may not vote, they think not much can be done anyway since the system is complex, as in don't bother to learn anything about it with the idea of improving. They hope, yet pass it for thinking, that somehow whatever it is they have been doing would keep them in their positions, while the world turns upside down round them. Of course, you recognize their ivory towers as skewers for the meat and vegetables exposed to the flame.

To return to major political/electoral swings, the one before was when we thought Obama and Democratic majorities would go for change. I guess, the 2010 swing is to appease the folk on the right, whereas the one before, in 2008, was to appease the left after 8 too many years of aggravation under Bush the lesser.

That we are going for a gamble has become obvious. It is not so clear how things will go from here. Internally, everybody is going to take a hit on everything they hold in cash--see the $600Bn as fuel for inflation eroding cash and confidence. Another way change will be effected internally is by virtue of the recommendations of the Obama's bipartisan debt-reduction commission.

"Cap revenue at or below 21% of G.D.P.”
“Lower Rates”
“Reduce the Deficit”

Follow this link to see the actual options as suggested by the NYTimes!

I read these to mean, status qvo on taxes and cut spending! The conservative approach towards taxes is to keep the elites happy, cutting the federal budget to size is to say 'swim or sink!' to the rest. The risk here is for the most people to perceive that budget cuts are somewhat unjust. If the twin issue of taxes & budget splits the electorate along the same line, I am afraid, it's time we reckon a Lincoln or Roosevelt moment in our nation.

But then again, we may also have war. No, it's not about Bush's open wars. For one, it could be economic war. The other countries are probably running through their options after the recent G20 in Seoul. Nobody wants to give up an inch, make it centimeter, or at least not in the open. If the Chinese-American relation gets rebalanced anew round an exchange rate, chances are that conflict is postponed. Otherwise, it's maybe wise to stock up on some trinkets; of course, I'm joking.

For another variant on the last point, brush up on your pre-1914 history. A good place to start may be here: Is globalization enough carrot...

Thoughts on stimulusTo break the deadlock we need a plan before we need more money

2010-08-28T17:29:00.000-07:00

There is an economic school of thought in the U.S. that is advocating for more and earlier stimulus as a way to revive the economy. This school has in Paul Krugman its most vocal supporter, and claims no less than Keynesian roots/legitimacy.

I employed "claims" instead of a more categorical verb, for a couple of reasons. On the one hand, Keynes was much more aware of context whenever he made a recommendation than the scores of economists who followed him in all but spirit. On the other hand, Krugman offers NO mechanism by which yet another money supply can stimulate anything except for a bigger bubble.

Given that Krugman, no less than Nobel laureate for economy, has been calling for a bigger stimulus for about 2 years, at least once a week in his NYtimes editorials, I decided to comment on one of his recent pieces. Here it is:

Krugman keeps talking about stimulus, yet what could a stimulus have done other than reignite another consumption-fueled bubble? And this could be so only if outsiders kept buying US paper.

We should have started rebuilding the country in 2000, yet we cut taxes, started a war on terror, and invaded Iraq in 2003. Bush should have signed Kyoto so the de-industrialization of America could have slowed down. Except that a future Nobel laureate economist was still praising trade liberalization, without concern for the unaccounted negative externalities associated with cheap imports. What was the middle American doing? Playing at the hands of the Government (Bush, Greenspan, Bernake), rating agencies, investment banks, and media&intellectual elites. Anyone still remembers the Republican Congress dealing with such important matters as doping in professional sports in June 2004? The public discourse had been about redoing the desert sands into oases of this and that while the bubbles in housing, defense, banking, healthcare and education (at all levels) were inflating.

At personal level, we should look at lowering expectations and increasing commitments. And, to avoid social collapse, let's make sure everybody puts skin in this game proportionate with their standing. People will mobilize to levels long-unseen if the burden of reinventing America is spread across, in a general climate of fairness. Treating us like responsible adults would be a good place to start. We did it, we'll do it again, just try us!

Being treated like adults is a right we gave up long time ago, just see how the other guys keep pushing non-issues such as the Ground Zero Mosque(-rade). Krugman, as if to appease a bunch of kids, is thinking short term and the reason for people like him to ask for stimulus, without a plan to spend it that would actually rebuild our economy, is his complete pessimism and/or his distance from the real economy. The real economy is yet to find a way to move one car 1 mile with Twitter, yet that would be one of the more valuable pieces of American innovation in the last decade.

As a study in contrasts, consider how the Germans have approached their crisis. After 2 years of almost ignored calls for dumping money into banks, the Germans are rebuilding their post WWII cities:

Photo Gallery:A New City Quarter for Hamburg
Living with Sin: Germany Comes to Terms with its Ugliest Buildings (08/20/2010)
SPIEGEL Interview with Architect Christoph Ingenhoven: 'Modernism Is an Attitude, Not a Style' (08/13/2010)
Out of the Ashes: A New Look at Germany's Postwar Reconstruction (08/10/2010)
Interview with Architect Albert Speer: 'Calamity of Postwar Construction Came from Rejecting History' (08/11/2010)

The Germans, sometimes more capitalist than the US, have not fallen for the services economy, or the sanctity of the self-regulating market. They take their time to understand the consequences of their actions, and that goes even for their relation with China.

What are the Germans doing, do their cities need a makeover? Be it as it may; I think the Germans are investing in quality, for what else can you do in advanced capitalist economies? Just as I called it in 2008, Encourage quality. And we should say, there is a lot of unmet demand for quality in the US. Unless you are, say, in some northeastern American state going through the annual ritual of re-paving the same traffic-jammed highways.

In closing, let's admit that what passes for stimulus has been of little consequence for the real economy. It was meant to slow down the fall and give the decision makers some time. From that perspective it was a qualified success. A bigger stimulus could only have bought us more time, yet we also needed to signal fiscal responsibility/toughness to our partners. Bernake has just told us that he is willing to move a lot of money from one pocket to the other. I wonder who's going to be caught holding a mountain of paper in their hands. To break the deadlock we need a plan before we need more money.

Break in reason vs. Rational narrative props

2010-08-21T06:23:00.000-07:00

Here's a recent quote from the Nobel laureate economist Paul Krugman:

Appeasing the Bond Gods
As I look at what passes for responsible economic policy these days, there’s an analogy that keeps passing through my mind. I know it’s over the top, but here it is anyway: the policy elite — central bankers, finance ministers, politicians who pose as defenders of fiscal virtue — are acting like the priests of some ancient cult, demanding that we engage in human sacrifices to appease the anger of invisible gods.

In this case, the invisible gods are bond merchants, those who move lots of pension/insurance money into lower yield and risk investment vehicles. Given our reliance on reason, at least at every official narrative level, is a moment like this a wake-up call? A call for a return to the whole man, as in the Vitruvian Man's mix of art and science? In our quest to build a better society, by emphasizing the rational, have we come to a point where reason breaks, or reason-based narratives are proven to be just the clever backdrop against which the unabated drama of our human condition goes on?

Let the professional left eat cake! symptom of a 1-term president

2010-08-16T21:16:00.000-07:00

"I hear these people saying he’s like George Bush. Those people ought to be drug tested," Gibbs said. "I mean, it's crazy."

The press secretary dismissed the “professional left” in terms very similar to those used by their opponents on the ideological right, saying, "They will be satisfied when we have Canadian healthcare and we’ve eliminated the Pentagon. That’s not reality."

Of those who complain that Obama caved to centrists on issues such as healthcare reform, Gibbs said: “They wouldn’t be satisfied if Dennis Kucinich was president."

Without psychoanalyzing Gibbs, I take it that we have no chance for change. Obama's middle name could be status qvo, just as well. By 2012 one can say, Der Mohr hat seine Schuldigkeit getan, der Mohr kann gehen. Moreover, by the time we are ready to inflate another bubble the Chinese may well be #1.

Speaking of bubbles, a very real one is in education, where the situation is just as in healthcare, even including the need for a national system* similar to a single payer. Local budgets being already bankrupt and universities being so expensive relative to the earning power of their graduates, turn education into a luxury item. Besides costs, the other taboo in education is the quality of the graduates relative to the needs of an economy that is competitive beyond Twitter or American Idol--just ask the executives at Intel or Microsoft. We have run for so long an economy that functionally distorts education that even if we were able to correct the situation today, we'd still be 20 years away from the results. It was also with this second taboo in mind that, at one point in time, I pledged for turning the US universities in the 21st Century Ellis Island. Obama is considering instead the legalization of the millions of illegal low-skills/intensive laborers when a work permit, if anything less than repatriation, would be the way. So, between the pressures coming from 3rd world low wages and illegal immigrants, and considering the disappearance of the school as a leveling social force, we'll converge quietly to a low station. Will polarization be internalized or tear us apart?

Why is education important in any revival scheme? To match human potential with the needs of the world. How responsible is Obama? At certain level, no more than any individual who's put up with made-up stories about better education for several decades now. Oh well, we really have a chance to see how feedback works in capitalism, won't we?

_____________________
* For those objecting on principle about the idea of a national education system, consider that many a school superintendent makes probably just as much as the secretary of education in a country like France. If that's not enough, consider also the billion dollar industries round testing and textbooks.

Good summary from blogosphere

2010-08-02T16:06:00.000-07:00

The Truth About the Bailout

There’s so much information (not to mention “information”) about the big banks, the Bailout regime, and the financialized economy the banks and government constructed and now use as the vehicle of tyranny.

How to process it all? How to separate the good information from the bad, the useful from the pointless, the truth from the lies? How to weaponize each idea, anecdote, and piece of data?

Here’s a list of criteria which are true and, I think, useful.

1. The big banks caused the crash. They hold the overwhelming responsibility for a Tower of Babel which was bound to come down and is bound to come down again. Any other responsibilities are trivial. The proximate causes are irrelevant.

2. The Bailout artificially props up insolvent banks. But in spite of their phony profits, the banks remain collectively insolvent, and most if not all of them individually so. Every cent they gamble and loot comes directly or indirectly from the Bailouts, from free QE money, from the TBTF premium. It’s ALL taxpayer money. The big banks are now permanent wards of the state. We the people OWN them once and for all, and are free to do anything we want with them, the moment we are inclined to do so.

3. The Bailout accomplishes no socially valid end, but only enables the banks to reopen the casino.

4. The Bailout only intensifies monopoly concentration, which lay at the core of the Too Big To Fail extortion dilemma. (The policy of TBTF only helps confirm the structure in a positive feedback loop.)

4A. (Wealth and power concentration in themselves are anti-democratic, socially and economically destabilizing, and morally perverted.)

5. The finance sector is a purely rent-seeking monopoly. We can place pretty much anything it does on the list of feudal tactics. Every cent they extract is a TAX upon us. All their “innovations” are con jobs, and all their lobbying is bribery and extortion. Rentier Wall Street is the driver of all federal government policy, with the corporatist government serving as a functionary, a conduit, and as a goon.

6. No true reform will be legislated thanks to corruption. We can extend this: The system is so corrupt beyond redemption that there will never be constructive major legislation again. All major bills will be Potemkin at best (like the finance “reform” bill is looking to be), or a further assault (like the health racket bill). In either case they will only seek to further entrench the rackets oppressing us.

7. Anything which is legislated will not be enforced thanks to corruption and capture. We can extend the principle: The law itself is a battleground, and the rule of law in great jeopardy.

8. We don’t need the big banks for recovery, for lending, for international competition, for anything else. All the evidence is that smaller banks provide the real value here, while big banks are not only unable and unwilling to engage in constructive action themselves, but their monopoly power actively hinders the smaller banks.

9. The size of the banks runs counter to our need for a decentralized economy with greater resiliency and robustness. The stimulus has been remarkable for how little money has headed in a constructive direction. This is because of the banks.

10. Only the rich have benefited from the Bailout. Only they will continue to benefit. Everyone else is prey.

11. The banks (and therefore the Bailout) fund the permanent war, which in turn militarizes the country for the benefit of the banks.

12. The stock market is the terrorist wing of finance monopoly. Its purpose is to punish all public interest government action (for example letting the market work in Lehman’s case, or the Congressional rejection in the first Bailout vote). Such punishment is a tool of disaster capitalism, generating the sense of immediate crisis, the Shock Treatment, to terrorize and stampede policy-makers, the media, and the public into allowing or enabling the power and loot grabs.

(On the other hand, it rewards official crime. Thus health insurance stocks have been a barometer of the policy debate on health reform, for example going up after every racket-friendly action on Obama’s part.)

Appendix: The mainstream media’s coverage is systematically biased in favor of corporatism, often atrociously so. The infrequent good articles are accidents, incidental to the media project.

The Bailout is a war upon America. This is Bailout Nation, Bailout America. (We should settle on a name for this debased regime, this perversion of America.)

The basic principles of freedom and humanity tell us that the only measures of an economy’s health, practically and morally, is how well it empowers the people of a society to produce real goods and services for themselves, and how many good jobs it empowers them to create and preserve for themselves.

No other metric has any inherent validity, and nothing else as far as money flow has any value. The rest is just a shell game.

These truths dictate the right positive principle, relocalization, and the necessary negative principle, anti-corporatism. the need to smash the banks. For we are at war.

The call – Smash the banks! Break up Too Big to Fail! Too Big to Fail is Too Big to Exist.

Of any policy we must ask first, What will it do to help Smash the Banks? Of any alleged leader or would-be leader: Where is their call to relocalize? And what have they done to help Smash the Banks?

rene

most look for the past, the lucky seize the moment, the very few look round the corners

2010-08-02T14:27:00.000-07:00

At the thinking person level, the economy is mostly a narrative line or another. Sometimes, we feel like joining narratives, yet the ideologues in charge with economic policy would have none of that. This would matter only little had the economic narratives remained constrained to the space of ideas. But economic narratives drive policy and passions, they commingle dialectically with reality.

Looking ahead, in normal times, consists of plotting the dominant narrative in some future, accounting for those kind of medium-term foreseeable changes one can come up with. Our time does not allow such comfort.

The biggest challenge to our capitalist storyline is WAR--assuming no natural cataclysm. I am not taking about war with Iran, though most any war can turn into WAR. Such capital event can be imagined as the result of tension-escalation between a overly sensitive incumbent, magnifying some real or perceived wound, and an incumbent.

I wonder if a renewal of the US Congress with new faces can bring about lawmakers who are more aware of our grassroots-vulnerabilities, -possibilities, and -opportunities. Today, most people in Congress resemble too much the Soviet Politburo in the last years of Brezhnev.

Another challenge, against which the State started preparing after 9/11, is internal unrest. Lacking a support system and facing structural unemployment for years to come, the American fabric may be wearing thin. The legalization of the illegal immigrants can fuel the State for a while longer. Nothing is guaranteed, though. Indeed, think of the leaked names and addresses of the illegal immigrants in the state of Utah. For one, from Utah hail many a patriot, this being the top contributor state to the US Army. For another, such list could only come from inside the power enforcing mechanism... Just as Bradley Manning, who also came from inside the power enforcing mechanism.

If we make it through, the big challenge becomes in structuring a post-capitalist society. Can we get so productive and have such a progressive tax system to (sustainably) land in post-capitalism? To those wishing a return to capitalism I can only say that it's tardy late, unless we are ready to lock ourselves in and wait for about two decades until we can achieve some level of self-sustainability.

In closing, I feel like I also need to stand in for today's elites. If a new world order were to happen things might go on for a few more decades. Several managed crises will be necessary, provided that the sense of injustice won't be too high/widespread. Again, the keyword is "managed."

P.S. At a time I used to be more optimistic I authored "Open Letter, for O8." It was a 7-point summary of what I thought we needed at the time Obama and McCain were presidential candidates in 2008. I think President Obama has done more or less about most points with one exception, Let wages converge lower; I have to say that this is the direction we are moving towards, and the slowness of getting there is commensurate only with the size of the task itself. No easy there!

the voice of big business

2010-07-23T14:20:00.000-07:00

Especially at a time like this, views from the commanding heights of American business are a necessity.

Ivan G. Seidenberg, Chairman of the Board and Chief Executive Officer
Washington, DC - June 22, 2010

As Delivered

[Introduction by David Rubenstein, President, Economic Club of Washington.]

Thank you, David, and good afternoon, everyone. Thank you for the very nice introduction. It's very nice to be here this afternoon. The Economic Club of Washington stands at the intersection between policy and business, which is where my Business Roundtable colleagues and I spend a good deal of our time these days. Based on your invitation list I see you've had a number of business leaders here recently to give their prescriptions for putting the U.S. back on the path to growth.

So in my remarks this afternoon I will try to add to this same conversation today. But first, I'd like to tell you a bit about Verizon and the enormously exciting industry we're in.

Before I start though, I might be the only speaker to encourage you to stay on your Blackberries. It's good for business.

Today, almost 2 billion people - about a quarter of the world's population - are connected to the Internet. Twice that many - 4 billion people - have mobile phones, which are themselves becoming smarter and more connected every day. On Verizon's networks alone, we carry more than 1.7 billion text messages, 50 million picture and video messages, 1 billion phone calls, 400 million emails and the equivalent of 4 million full-length movies - all in a single day.

Verizon invests some $17 billion a year to put ourselves in the center of this expanding marketplace.

We operate Internet backbone networks that serve as the digital trade routes for the global economy. We're reinventing our legacy backbone telephone networks around fiber technology capable of delivering 100-megabit capacity directly to customers' homes. In wireless, we operate 3G networks across the country. Later this year, we'll start to roll out our fourth-generation wireless network, which will increase data speeds by up to 10 times and initiate the era of the "Internet of things." Soon, wireless will be embedded in everything we touch, infusing intelligence into all our systems and presenting us with a whole new way to run a home or an enterprise, or even a country.

When it comes to innovation in communications, the U.S. has a clear, decided edge. The smart phone revolution is centered in the U.S. The creation of tens of thousands of wireless applications is a U.S. phenomenon. Our 4G LTE networks - 4th generation networks - will leapfrog the world in wireless. Verizon alone has deployed more fiber-to-the-home than all the countries of Europe, combined. And a new ecosystem of devices, applications and operating systems is coming together around these platforms for innovation, spawning new businesses and driving our industry forward.

America's communications companies have made a big bet on this vision of the future, investing around $130 billion in 2009 alone. Last year, total investment in information and communications technology accounted for an astonishing 43 percent of all non-structural capital investment in the U.S. And while private investment in general fell by almost 23 percent from 2006 to 2009, communications investment rose by almost 9 percent over the same period.

These investments are a major engine of our economy. Businesses report that every dollar invested in Internet technology creates four dollars of value in return. Robert Crandall of Brookings says broadband investment can produce more than half a million new jobs over the next five years, while creating new demand for computers, software, network equipment and applications. And on a global basis, one study estimates the annual economic benefits of the commercial Internet to be $1.5 trillion - more than the global sales of medicine, investment in renewable energy and government R&D investments, all combined.

Broadband, wireless and global IP are at the heart of American competitiveness. At Verizon, we're excited about the future and believe - fervently - that our industry can continue to play a big role in addressing the challenges we face as a country.

Now, it's important that we not throw sand in the gears of this critical growth engine. You may have seen that last week the Federal Communications Commission began a proceeding to establish a new regulatory regime for broadband, which would impose old utility-style regulation on the Internet. We are very concerned that, in attempting to address legitimate issues about access to the Internet, the FCC has proposed basically an unimaginative and overbearing set of rules that essentially tries to retrofit a new industry into an old framework and expand their regulatory reach well beyond what is necessary. As we've said - and as we've demonstrated - communications companies will continue to work with the Commission and the other players in the Internet space to protect customers and ensure an open and robust broadband environment. The FCC's current course of action will really do little to achieve those objectives, but rather will cause uncertainty in the marketplace, create disincentives for investment and make one of the true success stories of the American economy less competitive on the global stage.

***

Now, Competitiveness is also on the minds of the 170 members of the Business Roundtable, which, as David said, I am the chairman. Together, Business Roundtable companies generate more than $6 trillion in revenues and employ more than 12 million people. We account for 60 percent of all corporate taxes, 60 percent of all charitable contributions, and one-half of all private R&D spending in the U.S. Our market capitalization is one-third of the total value of the stock market, and we pay some $167 billion in dividends to individual investors, pension funds and retirement accounts. For every person employed by a BRT company, there are two more employed by the medium and small businesses that supply the goods and services that we need to keep our businesses running.

So obviously, the companies of the Business Roundtable have a huge stake in the success of the American economy. We create jobs all along the food chain. We invent and manufacture and sell the things consumers need. And we have the technology, expertise and capital capacity to play a huge role in contributing to our nation's economic growth.

It should be equally obvious that our collective resources are not being sufficiently engaged.

The BRT has accepted our responsibility as partners in moving the country forward. My colleagues and I have worked closely with policy-makers across the political spectrum on matters from health care to trade and tax policy to energy and climate change. But frankly, we have become somewhat troubled by a growing disconnect between Washington and the business community that is harming our ability to expand the economy and grow private-sector jobs in the U.S. We see a host of laws, regulations and other policies being enacted that impose a government prescription of how individual industries ought to be structured, rather than produce an environment in which the private sector can innovate, invest and create jobs in this modern global economy.

In our judgment, we have reached a point where the negative effects of these policies are simply too significant to ignore.

In the search for short-term revenue fixes, we're doing long-term damage to growth.

By reaching into virtually every sector of economic life, government is injecting uncertainty into the marketplace and making it harder to raise capital and create new businesses.

Meanwhile, without a sufficiently comprehensive focus on growth and jobs, our unemployment rate continues to hover close to 10 percent. The CBO says debt will rise to 90 percent of G.D.P. in 10 years. And last month's job report showed the private sector creating only 41,000 jobs, a figure the Economic Policy Institute says is "nothing closely resembling the job growth needed to dig us out of our very deep hole."

So, from our perspective, it's time to refocus public policy on creating the conditions that will drive private-sector jobs.

Recently, in response to a request from Dr. Peter Orszag of the OMB, the Business Roundtable and the Business Council polled our members about laws, rules and regulations that are inhibiting growth. We summarized our concerns in an extensive report, which we have already delivered to OMB, and I am very much encouraged that the Administration has already reached out to us to set up a process for discussing recommendations and ideas and set the discussion for the future.

From the avalanche of examples included in our OMB submission, let me share some specifics in three categories: taxes, trade and financial reform.

***

One message we heard loud and clear from our members is that the current U.S. tax system is a major impediment to international competitiveness. Our corporate tax rate is the second highest among 30 OECD nations. We're one of only five OECD countries to tax companies on worldwide income. Moreover, since 1990 every other OECD country has lowered its corporate tax rates, while the U.S. is going in somewhat the opposite direction.

Recently, the House passed a tax extender bill containing several provisions that raise taxes on multinational companies. We believe these actions would impair America's competitiveness and harm American workers. Multinational companies account for 63 million jobs, nearly half of U.S. exports and most of the productivity gains in the U.S. economy - facts that need to be taken into account when making tax policy.

Sometimes the problem isn't too much action, but too little. Dividend taxation is one example. Next year, unless the Congress takes action, the tax on dividends is scheduled to rise to that of ordinary income, with rates topping out at 39 percent. On its face, this may seem to be an easy revenue-raising idea. But at a time of extreme market volatility, do we really want to disadvantage stable, dividend-paying stocks - and the retirement funds and millions of long-term dividend investors who depend on them?

Another area in which we fear good intentions will have unintended consequences is financial reform. Clearly, the government has an interest in ensuring a stable financial system, efficient capital markets and ethical and transparent business practices. That's why the BRT completely supports the idea of financial reform. However, we believe some of the current proposals with respect to derivatives and proxy access go a step too far, imposing one-size-fits-all solutions on highly dynamic and diverse businesses. Instead of focusing on the inputs to a transparent and efficient financial system, the proposed reforms will increase risk and volatility at a time when just the reverse is required.

We also see a disconnect between objectives and actions in the area of international trade. The Administration has indicated its intent to double U.S. exports over the next five years, recognizing that with 75 percent of the world's purchasing power and 87 percent of its growth coming from outside the U.S., an export-focused trade policy will grow jobs here at home.

The Business Roundtable agrees wholeheartedly with this goal. But while the European Union is moving ahead in implementing free trade agreements, we have seen very little movement on pending agreements with Colombia, Panama and South Korea to name a few. Nor have we made it a priority to seek more expansive trade negotiating authority to keep up with foreign competitors.

We also could do more to make America a more attractive destination for foreign direct investment, which fell by nearly 60 percent from 2008 to 2009. Now, to be fair, much of that is due to the global recession. But the truth is, the U.S. share of global capital inflows has been declining for decades. A new survey by Ernst & Young found that, whereas 48 percent of global investors saw North America as a desirable location for investment in 2006, by 2010 this percentage had fallen to just 22 percent. The most attractive market is China, favored by 39 percent. To quote the Ernst & Young study, we're competing for capital in a "new multi-polar world"in which investors can shop the globe for "growth, talent, technology and productivity."

We need to make sure that the U.S. isn't a fly-over zone when it comes to international trade and investment.

***

These are just a few of the issues we have laid out in our response to Dr. Orszag's request. The full report contains literally hundreds of separate actions and decisions that, taken together, create an increasingly hostile environment for investment and job creation here in this country.

As I said before, it would be better to re-focus public policy on creating private-sector jobs. In general, among BRT CEOs there is remarkable consensus around a few fundamental pillars to achieve this growth.

First, we need tax policies that promote capital formation. As Fred Smith, CEO of FedEx, noted recently in the Wall Street Journal, the correlation between domestic job growth and business investment is very strong. He calls for an extension of accelerated depreciation tax provisions as a way to give an immediate boost to the economy. According to the Institute for Policy Innovation, every $1 of tax cuts devoted to accelerated depreciation generates about $9 of growth in G.D.P.

Second, we need to increase exports and improve our international competitiveness. Here, the rhetoric from policy-makers has been right but the actions need to be better aligned through an emphasis on trade agreements, corporate tax reform and other initiatives to put us on more competitive footing internationally.

Third point, we need infrastructure investment to create jobs and build the platforms for 21st century growth. Jim Owens, the Chairman and CEO of Caterpillar, points out that since the 1970s, U.S. investment in infrastructure has grown at only half the rate of G.D.P. growth. Roads and bridges are in disrepair and the power grid is inefficient. In particular, we need to upgrade our transportation and energy systems with communications and information technology to create "smart"grids that will radically improve efficiency and productivity. You've heard the story before. Some of this will take public investment, but most can be done by the private sector, if we don't impose so many rules and regulations that it becomes an uneconomic proposition.

The fourth area is education. We fully support the Administration's actions to shore up America's educational system, particularly in science, technology, engineering and math. Verizon is directing more than $25 million this year from our charitable foundation this year to support education, working with partners like the New York Hall of Science, the National Academy Foundation, Jobs for America's Graduates and the many educational partners in our on-line educational resource, Thinkfinity.org. This is also a top priority for the Business Roundtable, which is leading a business-wide initiative to increase the number of American students with college degrees in STEM fields.

And the fifth area of Business Roundtable's CEO focus, we need to promote the innovation and entrepreneurism that are the beating heart of the economy. While the government has a lot of innovation initiatives, we need better focus and coordination in this vital arena. We need a permanent tax credit for research and development, more effective protection for intellectual property, and sustained federal investment in basic research. Both government and private sectors have a critical role to play here. Now, government invented the Internet, mapped the human genome and developed GPS technology - extraordinary advancements. But it took private industry to commercialize these discoveries, develop real businesses around them and make them available to average Americans. There are many areas, from renewable energy to transportation to homeland security protections, where government and industry can and should be working together to develop the technologies that will create new industries and new jobs. To do that, though, we need a more favorable environment for investment and new business formation.

The BRT believes that these five areas - capital formation, exports, infrastructure, education and innovation - are the necessary inputs for creating growth and private-sector jobs. We also believe that, if we can focus on the big goal and stop trying to micromanage industries, we could make real progress in these areas immediately by taking some of the pragmatic, targeted actions I just mentioned.

As further evidence of our commitment to being a good partner to the public sector, the Business Roundtable is forming an initiative around fiscal reform with the goal of providing constructive suggestions and input to government about deficit and entitlement reform. The single most important step government could take to stabilize the financial markets and create an environment for growth would be to show a real commitment to fiscal discipline and a recognition that sustainable growth will only occur when the private sector - not the government - is expanding.

***

Now clearly we have a lot of work to do. The U.S. Department of Commerce estimates that each $1 billion of capital spending generates about 18,000 new jobs for U.S. workers. This means that if we could stimulate an additional $50 billion in capital spending we could create nearly 1 million new jobs. That same $50 billion in capital would also accelerate productivity growth by one or two basis points a year. Over the past 10 years, U.S. productivity growth has averaged 2.8 percent a year. Raising that by a single basis point -- to 2.9 percent a year -- would raise real incomes for Americans by 1 percent over the next ten years, injecting an additional $200 billion into the economy.

We have so much untapped potential, if we can come together around a pro-jobs economic strategy.

To do that, we need to focus on the inputs required to create investment and private-sector jobs.

We need a world view that embraces engagement abroad to support growth here at home.

Most of all, we need accountable leaders in government as well as the business community who reject the false choices between job creation or deficit reduction, growth or sustainability, serving consumers or investors, managing for the short term or the long term, being profitable or doing things right.

Real leadership isn't about making false choices - it's about finding solutions to real problems.

Every one of us should find it unacceptable that so much capacity for growth is sitting on the sidelines. It's time for us all to raise our game and embrace the power of the private sector that will create real value and real growth for our country. If we work together to unleash the private sector's investment and innovative power, I have no doubt that America can accelerate its competitive footing and lead the world in the industries that will create jobs and raise living standards for many decades to come.

For the US Government view, check this letter from Emanuel&Jarrett

You don't know where it's going? Neither do they...

2010-07-06T15:33:00.000-07:00

what i wish i wrote

2010-06-30T17:47:00.001-07:00

grusilag
chicago

"John Maynard Keynes was still a practicing economist in those days, and his central insight about depressions — that governments need to spend when the private sector isn’t — was not widely understood."

This still isn't understood. His insight really isn't that governments need to spend. Its that governments need to borrow when the private sector isn't borrowing. The interest bearing debt based economy needs to "grow" constantly. If someone isn't willing to create a larger layer of interest bearing debt to support the previous layer of interest bearing debt then the pyramid will begin to collapse. Today the private sector refuses to go into debt to create this larger layer so governments have to. But now it seems that governments too are refusing to go into debt to create the larger base layer of debt. If no one steps up then the previous layers of the pyramid will collapse - i.e. previous loans will start to default and what will ensue is joblessness, foreclosures and shrinking corporate profits - all of which depend on a constantly growing pyramid of interest bearing debt.

BTW, the reason I keep mentioning interest is because it is the satisfaction of the desire for interest that necessitates a "growing pyramid" - without interest we would have a flatter debt structure and it would debt would be much more sustainable.

Andrew
Colesville, MD

The tragedy of monopoly financial capitalism is that it grabs most surplus of the real economy and contributes almost no economic surplus to society. Its high non-productiveness monopolizes the societal economic activity and renders the low productiveness of the real economy even lower everyday. Enormous over-production hence over-capacity in the real economy make accumulation of profits emaciated whereas monopoly financial capital accumulation outshines its real economy junior partner.

To solve these tragic internal contradictions, the most basic approach is to reduce the over-production and capacity that resulted from competitions on the global market. In good times, the well-employed and –expending middle class of the world would have briskly made the over-produced economy well in hand. Now the heavily indebted and demoralized middle class as a result of the financial crisis wants to buy but finds themselves shy of funds. Are there other ways to break up the siege? Well, war is the most notoriously wasteful and cruel way to do the job of massive consumption of the over-produced goods and then to lift employment by expansion in production. The other way to waste off surplus goods is to buy them from the market and physically destroy or burn them. Both had been adopted during the Hoover Great Depression. The Second World War did indeed solve the problem of severe unemployment due to deflation.

Would a short-term deficit spending and stimulating program extricate the over-production-deflation debacle from the Bush Great Recession and now Obama Depression? Yes, for a short time of period when government spending replaces an anemic private spending but no, for long term. It is not a cure-all strategy but only a temporary relief tactics.

In connection with the deficit-reduction and austerity program, on the other hand, there is the tendency to aggravate bankruptcies and foreclosures, both to so much higher levels, that would serve the purpose of destroying not only surplus goods on the market but also, more importantly, means of production of the capitalists. As a consequence, drastically reduced inventories as well as destroyed capital surplus eventually would emerge over the world, renewed investment and production would start in earnest. The economy would reach its recovery stage, if every unfavorable condition would be made harmless and all conditions propitious to accumulation of capital. The petite and less profitable capital assets, however, would be auctioned off to the big and monopolistic capital, making the capitalist system further monopolized and away from democracy. Thus this deflationary approach would break out the debacle at great social costs of declining working class dignity and status, unemployment, bankruptcy, misery, destitution, and fierce class warfare. A protracted struggle between the two dominant classes would almost certainly engender the Second World Revolution after the first one that broke out in early 20th century. The First World Revolution retreated from the world’s political arena after holding power for almost half a century in the periphery of the capitalist world system. It was incomplete and not without mistakes due to its confinement to only the less developed areas. The Second one will occur most likely in the center because the crisis-prone area is now concentrated in the advanced capitalist countries rather than the peripheral areas as before.

In summary, both the inflationary and deflationary tactics are subpar. They may relieve severity to some extent and temporarily but can never eradicate the poisons of private profits and expropriations of the society-oriented means of production.

Its solutions will have to be sought elsewhere in the radical political economies.

condensed thoughts

2010-06-29T15:20:00.000-07:00

The just concluded G-20, where the US was part of a minority of 3 calling for more spending, countries agreed to disagree, otherwise the default option in a quickly diverging (unraveling?) world.

On the one hand, smaller countries may be reluctant to keep spending, thus growing deficits and possibly losing some of their sovereignty--see Greece, that little economy that was used to remind some that they cannot undo 50 years of prosperity just by offering savings and trade alternatives to the dollar.

On the other hand, if the US believes in stimulus, what's there to stimulate anymore, besides deficit-growing consumption? The US move could be seen as an effort to make to world in the eyes of the bond-holders/buyers equally leveraged.

All in all, I expect that what I wrote more than 2 years ago to increasingly become part of our daily lives, protectionism. Who said that the renewal part of capitalism was fun?

Given the current strengthening of the power of the US executive branch, I wonder how prepared the system will be to cope with a downward readjustment. On paper, the government and the corporations look stronger by the day. In reality, a major diversion will be required to put all that in motion.

remnants of any defeated ideology

2010-04-04T07:44:00.001-07:00

En passant photography / Fotografie im Vorübergehen: Gully, originally uploaded by wwwuppertal [formerly nikkormatftnuser].

Their main mistake was acting too late to reform the elites

2010-03-14T16:00:00.000-07:00

Perestroika Lost
By MIKHAIL GORBACHEV

Moscow

PERESTROIKA, the series of political and economic reforms I undertook in the Soviet Union in 1985, has been the subject of heated debate ever since. Today the controversy has taken on a new urgency — not just because of the 25th anniversary, but also because Russia is again facing the challenge of change. In moments like this, it is appropriate and necessary to look back.

We introduced perestroika because our people and the country’s leaders understood that we could no longer continue as we had. The Soviet system, created on the precepts of socialism amid great efforts and sacrifices, had made our country a major power with a strong industrial base. The Soviet Union was strong in emergencies, but in more normal circumstances, our system condemned us to inferiority.

[N.B. The Chinese are about there now.]

This was clear to me and others of the new generation of leaders, as well as to members of the old guard who cared about the country’s future. I recall my conversation with Andrei Gromyko, the foreign minister, a few hours before the plenary meeting of the Central Committee that elected me as the party’s new general secretary in March 1985. Gromyko agreed that drastic change was needed, however great the risk.

[N.B. The Soviet/Russian elites must have seen some of this during the time of Brezhnev when the war in Afghanistan could not be won. Other voices indicate the decrease in oil prices as a trigger.]

I am often asked whether my fellow leaders of perestroika and I knew the full scope of what we had to do. The answer is yes and no — not fully and not immediately. What we had to abandon was quite clear: the rigid ideological, political and economic system; the confrontation with much of the rest of the world; and the unbridled arms race. In rejecting all that, we had the full support of the people; those officials who later turned out to be die-hard Stalinists had to keep silent and even acquiesce.

[N.B. Had they known would they still have undertaken the changes? How much is the US today captive to "rigid ideological, political and economic system; the confrontation with much of the rest of the world; and the unbridled arms race?"]

It is much more difficult to answer the follow-up question: What were our goals, what did we want to achieve? We came a long way in a short time — moving from trying to repair the existing system to recognizing the need to replace it. Yet I always adhered to my choice of evolutionary change — moving deliberately so that we would not break the backs of the people and the country and would avoid bloodshed.

[N.B. The goals were probably to have another go at empire.]

While the radicals pushed us to move faster, the conservatives stepped on our toes. Both groups must bear most of the blame for what happened afterward. I accept my share of responsibility as well. We, the reformers, made mistakes that cost us, and our country, dearly.

[N.B. Self-serving?]

Our main mistake was acting too late to reform the Communist Party. The party had initiated perestroika, but it soon became a hindrance to our moving forward. The party’s top bureaucracy organized the attempted coup in August 1991, which scuttled the reforms.

[N.B. This should be sent on a postcard to president Obama, possibly rested as following: Our main mistake was acting too late to reform the elites.]

We also acted too late in reforming the union of the republics, which had come a long way during their common existence. They had become real states, with their own economies and their own elites. We needed to find a way for them to exist as sovereign states within a decentralized democratic union. In a nationwide referendum of March 1991, more than 70 percent of voters supported the idea of a new union of sovereign republics. But the coup attempt that August, which weakened my position as president, made that prospect impossible. By the end of the year, the Soviet Union no longer existed.

[N.B. Let's hope that all the divisive talk (gov. Perry of Texas) is hot electoral air.]

We made other mistakes, too. In the heat of political battles we lost sight of the economy, and people never forgave us for the shortages of everyday items and the lines for essential goods.

[N.B. Maybe that postcard to president Obama should include the above as a 2nd line.]

Still, the achievements of perestroika are undeniable. It was the breakthrough to freedom and democracy. Opinion polls today confirm that even those who criticize perestroika and its leaders appreciate the gains it allowed: the rejection of the totalitarian system; freedom of speech, assembly, religion and movement; and political and economic pluralism.

After the Soviet Union was dismantled, Russian leaders opted for a more radical version of reform. Their “shock therapy” was much worse than the disease. Many people were plunged into poverty; the income gap grew tremendously. Health, education and culture took heavy blows. Russia began to lose its industrial base, its economy becoming fully dependent on exports of oil and natural gas.

By the turn of the century, the country was half destroyed and we were facing chaos. Democracy was imperiled. President Boris Yeltsin’s 1996 re-election and the transfer of power to his appointed heir, Vladimir Putin, in 2000 were democratic in form but not in substance. That was when I began to worry about the future of democracy in Russia.

I understood that in a situation where the very existence of the Russian state was at stake, it was not always possible to act “by the book.” Decisive, tough measures and even elements of authoritarianism may be needed at such times. That is why I supported the steps taken by Mr. Putin during his first term as president. I was not alone — 70 percent to 80 percent of the population supported him in those days.

[N.B. Should our deviations from the Constitution be taken on this note?]

Nevertheless, stabilizing the country cannot be the only or the final goal. Russia needs development and modernization to become a leader in an interdependent world. Our country has not moved closer to that goal in the past few years, even though for a decade we have benefited from high prices for our main exports, oil and gas. The global crisis has hit Russia harder than many other countries, and we have no one but ourselves to blame.

[N.B Alright, a 3rd line would be in order: Fighting terrorism cannot be the only or the final goal!]

Russia will progress with confidence only if it follows a democratic path. Recently, there have been a number of setbacks in this regard.

For instance, all major decisions are now taken by the executive branch, with the Parliament rubber-stamping formal approval. The independence of the courts has been thrown into question. We do not have a party system that would enable a real majority to win while also taking the minority opinion into account and allowing an active opposition. There is a growing feeling that the government is afraid of civil society and would like to control everything.

We’ve been there, done that. Do we want to go back? I don’t think anyone does, including our leaders.

I sense alarm in the words of President Dmitri Medvedev when he wondered, “Should a primitive economy based on raw materials and endemic corruption accompany us into the future?” He has also warned against complacency in a society where the government “is the biggest employer, the biggest publisher, the best producer, its own judiciary ... and ultimately a nation unto itself.”

[N.B. We can echo and ask: Should an economy based on imports and endemic corporate and political corruption accompany us into the future?” Can the financial sector remain “the top employer, running its regulatory and judiciary ... and ultimately a nation unto itself?"]

I agree with the president. I agree with his goal of modernization. But it will not happen if people are sidelined, if they are just pawns. If the people are to feel and act like citizens, there is only one prescription: democracy, including the rule of law and an open and honest dialogue between the government and the people.

What’s holding Russia back is fear. Among both the people and the authorities, there is concern that a new round of modernization might lead to instability and even chaos. In politics, fear is a bad guide; we must overcome it.

Today, Russia has many free, independently minded people who are ready to assume responsibility and uphold democracy. But a great deal depends now on how the government acts.

Translation by Pavel Palazhchenko

From Taleb's Tweeiter Feed

2010-03-13T15:50:00.000-08:00

From Nassim Taleb's Twitter Feed:

1. In nature we never repeat the same motion. In captivity (office, gym, commute, sports), life is just repetitive stress injury. No randomness about 6 hours ago via web
2. Using, as excuse, others' failure of common sense is in itself a failure of common sense. 9:33 AM Mar 12th via web
3. Dubai borrowed to put vanity buildings on postcards; America and W. Europe need to borrow to just survive. 4:52 AM Mar 12th via web
4. We unwittingly amplify commonalities with friends, dissimilarities with strangers, & contrasts with enemies. 3:30 PM Mar 11th via web
5. The mark of a mediocre mind is the subdued and passive reaction in front of the truly exceptional. 11:32 AM Mar 11th via web
6. [Explanation: The biggest error since Socrates has been to believe that lack of clarity is the SOURCE of all our ills, not the result. ] 11:22 AM Mar 10th via web
7. Mental clarity is the child of courage, not the other way around. 11:07 AM Mar 10th via web
8. What they call play (gym, travel) looks like work;what I call work (effortless daydreaming) looks like play.They lose freedom trying harder. 3:27 AM Mar 10th via web
9. The differences between Goldman Sachs & the mafia: GS has a better legal-regulatory expertise; but the mafia understands public opinion. 7:13 AM Mar 9th via web
10. Common minds find similarities in stories (& situations), finer minds detect differences [Essay on the Universal & the Particular] 12:47 AM Mar 8th via web
11. I wish to say some day about someone "Voilà un homme!" as Napoleon said upon meeting Goethe: mixture of passion & intellect (& elegance too) 5:45 AM Mar 7th via web
12. Übermen tolerate others' small inconsistencies though not the large ones;losers tolerate others' large inconsistencies though not small ones 6:16 AM Mar 5th via web
13. If you want people to read a book, tell them it is overrated. 1:07 PM Feb 28th via web
14. Their sabbatical is to work six days and rest for one; my sabbatical is to work for (part of) a day and rest for six. 7:05 AM Feb 28th via web
15. City-states organize by tinkering; nation-states produce bureaucracies, empty suits, Bernankes, deficits, and the toobigtofail. Too obvious. 6:49 AM Feb 27th via web
16. answ:[ If you can't detect (w/out understanding) the difference betw sacred & profane you'll never know what religion means. Same with art ] 7:36 AM Feb 26th via web
17. Atheism/materialism means treating the dead as if they were unborn. I won't. By respecting the sacred you reinvent religion. 4:47 AM Feb 26th via web
18. I wonder if a lion (or a cannibal) would pay a high premium for free-range humans. [modern bondage] 8:00 AM Feb 25th via web
19. Writing is the art of repeating oneself without anyone noticing. 12:40 PM Feb 24th via web
20. You know you have influence when people start noticing your absence more than the presence of others. 3:26 PM Feb 23rd via web

A step closer to the core of one of our most common problems

2010-03-06T05:03:00.000-08:00

Trading Away Productivity
By ALAN TONELSON and KEVIN L. KEARNS

FOR a quarter-century, American economic policy has assumed that the keys to durable national prosperity are deregulation, free trade and a swift transition to a post-industrial, services-dominated future.

Such policies, advocates say, drive innovation, which leads to enormous labor productivity and wage gains — more than enough, supposedly, to make up for the labor disruptions that accompany free trade and de-industrialization.

[N.B. In fact, labor productivity has been an eternal obsession of the US capitalist, shared at one point by the now-defunct comrades in the planned economies. Have a look at The Politicos vs An old man]

In reality, though, wage gains for the average worker have lagged behind productivity since the early 1980s, a situation that free-traders usually attribute to workers failing to retrain themselves after seeing their jobs outsourced.

[N.B. So what does it mean if this were indeed a failure of the workers? Too bad they could not retrain themselves to become neurosurgeons or derivative traders?]

But what if wages lag because productivity itself is being grossly overstated, especially in the nation’s manufacturing sector? Then, suddenly, a cornerstone of American economic policy would begin to crumble.

Productivity measures how many worker hours are needed for a given unit of output during a given time period; when hours fall relative to output, labor productivity increases. In 2009, the data show, Americans needed 40 percent fewer hours to produce the same unit of output as in 1980.

But there’s a problem: labor productivity figures, which are calculated by the Labor Department, count only worker hours in America, even though American-owned factories and labs have been steadily transplanted overseas, and foreign workers have contributed significantly to the final products counted in productivity measures.

The result is an apparent drop in the number of worker hours required to produce goods — and thus increased productivity. But actually, the total number of worker hours does not necessarily change.

This oversight is no secret: as Labor Department officials acknowledged at a 2004 conference, their statistical methods deem any reduction in the work that goes into creating a specific unit of output, whatever the cause, to be a productivity gain.

This continuing mismeasurement leads economists and all those who rely on them to assume that recorded productivity gains always signify greater efficiency, rather than simple offshoring-generated cost cuts — leaving the rest of us scratching our heads over stagnating wages.

[N.B. Why would few push this, where was the organized labor?]

Of course, just because productivity is mismeasured doesn’t mean that genuine innovations can’t improve living standards. It does mean, however, that Americans are flying blind when it comes to their economy’s strengths and weaknesses, and consequently drawing the wrong policy lessons.

Above all, if offshoring has been driving much of our supposed productivity gains, then the case for complete free trade begins to erode. If often such policies simply increase corporate profits at the expense of American workers, with no gains in true productivity, then they don’t necessarily strengthen the national economy.

[N.B. This seems a clear case when regulation should help protect capitalism from capitalists.]

In this regard, the case for free trade as a stimulus for innovation weakens, too. Because productivity gains in part reflect job offshoring, not just the benefits of technology or better business practices, then the American economy has been much less innovative than widely assumed.

How can we actually increase innovation and real productivity? Manufacturing, long slighted by free-market extremists, needs to be promoted, not pushed offshore, since it has historically accounted for the bulk of research and development spending and employs the bulk of American science and technology workers — who in turn spur further innovation and real productivity.

Promoting manufacturing will require major changes in tax and trade policies that currently foster offshoring, including implementing provisions to punish currency manipulation by countries like China and help American producers harmed by discriminatory foreign value-added tax systems. It also means revitalizing government and corporate research and development, which has languished since its heyday in the 1960s.

Much of government policy and business strategy rides on false assumptions about innovation, and although the Obama administration acknowledges the problem, it has done nothing to correct it. With the economy still in need of government life support and the future of American manufacturing in doubt, relying on faulty productivity data is a formula for disaster.

Alan Tonelson, a fellow at the United States Business and Industry Council, is the author of “The Race to the Bottom.” Kevin L. Kearns is the president of the council, which is an association of small manufacturers.

Brecht/Eco: Unhappy the land where heroes are needed

2010-02-06T08:03:00.001-08:00

Umberto Eco

What is your idea of perfect happiness?
A state of satisfaction that lasts a little more than five minutes.

What is your greatest fear?
To lose my sense of humor at the moment of my death.

Which historical figure do you most identify with?
Baruch Spinoza.

Which living person do you most admire?
Let me wait until they die, so to be sure of my feelings.

What is your greatest extravagance?
I quit smoking.

What is your favorite journey?
The years during which I am writing a new novel. I am wandering through a private and secret territory, nobody knows what I am doing, and I feel happy.

What do you consider the most overrated virtue?
No real virtue, if such, can be overrated.

What do you dislike most about your appearance?
Everything—I do not like my image in the mirror. However, I do not feel disturbed, because several times I discovered that a lot of nice people had a different opinion.

Which living person do you most despise?
Once again, let me wait until their death. (They must have time to change.)

What or who is the greatest love of your life?
Since four years and a half, my grandchild.

When and where were you happiest?
When I had time enough for my hobby: work.

If you could change one thing about your family, what would it be?
To have another grandchild.

What is your most treasured possession?
My collection of old rare books.

What do you regard as the lowest depth of misery?
Intolerance (but because I have enough money to live well; otherwise it would be starvation).

What is your favorite occupation?
I said it above: work. But do not forget that I am one of those happy persons who identify their work with their hobby and vice versa.

What do you most value in your friends?
The capacity to keep a secret.

Who are your favorite writers?
Dante, Nerval, Joyce, Borges.

Who is your favorite hero of fiction?
Julien Sorel. No, perhaps Mickey Mouse.

Who are your heroes in real life?
As Brecht said, “Unhappy the land where heroes are needed.”

What are your favorite names?
Aureolus Theophrastus Bombastus, and Jim.

What is your motto?
As James Joyce once said to his brother, “The music hall, not poetry, [is] a criticism of life.”

The politicos vs. An old man

2009-12-17T16:28:00.001-08:00

P120909PS-0140, originally uploaded by The White House.

Watching Pete Peterson in an interview with McKinsey shows that our road ahead will be bumpy--not to mention the odds of getting off the road completely. One gathers that tax increases and spending cuts are bound to come, yet the recovery is not in sight. Moreover, the economically conservative theoretic machine has set in motion, with resources from Mr. Peterson as well. The elections in 2010 will most definitely see a dramatic change in Congress unless the employment situation doesn't improve.

In case the player is acting up, here's the transcript.

Pete Peterson—businessman, statesman, philanthropist—has developed an economic
perspective informed by three distinct and first-hand relationships with American policy. In this video interview, the cofounder of Blackstone and former secretary of commerce reflects on his storied career and his recent memoir, The Education of an American Dreamer. He also looks forward—sharing his ideas on deficit reduction, changes in private equity, the fate of the dollar, and how to rebuild the US economy for future generations. Rik Kirkland, McKinsey’s director of publishing, spoke with Mr. Peterson in New York in November 2009.

The Quarterly: We’re here today with Pete Peterson, who is cofounder of the Blackstone Group, former secretary of commerce, and chairman emeritus of the Council on Foreign Relations. Pete, thanks for being with us today.

Peter Peterson: My pleasure.

The Quarterly: Now, in your long and distinguished career as a business executive and a statesman, you’ve also been an author. Your latest book is The Education of an American Dreamer. So why did you write it, and what are some of the things you learned?

Peter Peterson: Well, you know, when you’re a businessman and you’re pompous enough and presumptuous enough to write books, you have to be prepared to be roasted. And my favorite roaster is Ted Sorenson, who, about my last book said, “Once you put it
down, you will not be able to pick it up.” That was not enough to discourage me, but I think this is the last one. This is a memoir.
Why did I write it? Well, I have nine grandchildren and five children. I’m particularly concerned that the American dream that has made me into an American dreamer will no longer be there for them. So I thought it would be worthwhile for those nine grandchildren, and who else wants to read it, to realize that there are opportunities in this country if you work hard enough and make the right decisions.

One of the lessons I’ve learned is to apply the Adam Smith principle in your business career: comparative advantage. Focus on the things that you do better than the other things that you do, and resist the seductions of a little more pay or a little nicer office or a little better title if it does not play to your strengths. Secondly, pick a field where your passions are, because the combination of playing to your strengths and being passionate about it can make a very big difference in a career.

The Quarterly: The book ends with you taking the fortune you earned when Blackstone went public and putting it into a private foundation, the Peterson Foundation. I was wondering if you could talk about that.

Peter Peterson: There are certain long-term challenges that I call “undeniable, unsustainable, and yet politically untouchable.” I thought of myself on my deathbed looking back and saying, “I’ve been very concerned about these challenges,” of which I include entitlements, Social Security, Medicare, our huge balance of payments, deficits, our foreign debts, our lack of savings in this country, and why I think they’re going to impair
our future.

The Quarterly: So what are some of the things the foundation is doing?

Peter Peterson: Well, we’re doing a number of things. We’re focusing pretty heavily on the young, because it’s their future that’s being impaired. And you know the old joke about the philosophy class where the professor says to the class, “Which is worse, ignorance or apathy?” And some sleepy kid from the back says, “I don’t know and I don’t care.”

Well they had better start caring, because on the track we’re on, their taxes are going to increase dramatically. The unfunded liabilities total nearly $60 trillion, falling squarely on them.

I have a dream, which is that we would be smart enough and lucky enough to set up an organization called the American Association of Young People. We have the American Association of Retired Persons, 39 million strong, who are an enormously effective lobbying group. But I think our kids need a lobby too—they and their parents. So we’re putting a lot of focus on the young.

The Quarterly: This is an issue that you’ve talked about for 20 years very articulately, and it obviously concerns a lot of people in this country. And I mean no disrespect to you, but the fact is, for the whole period you’ve talked about it, the problem hasn’t gone away.

In fact, it’s probably gotten worse. What gives you hope that we will finally begin to deal with it? And how do we deal with it right now at a time when the stimulus bill and the need to get out of this economic slump have made the deficit temporarily bigger?

Peter Peterson: What we’ve got to do is somehow make it safer for the politicians to
do the right thing. And we have to make it unsafe for them to do nothing. So I think a lot of this is the politics of short-termism and the politics of entitlements—one of my least favorite words. We think the time has come for a very special bipartisan commission, composed of equal numbers of Democrats and Republicans.

The Quarterly: It’s along the lines of the Greenspan commission?

Peter Peterson: Yes, with some special wrinkles, in which everything is on the table. And the procedures are a little bit like how we handle military base closings, where we’ve discovered that if you only handle these military bases one at a time, you kind of get cherry picked. What we’re envisioning is a group in which everything is on the table.

You can’t eliminate the need for tax increases. We will need some tax increases. You
cannot avoid the fact that the major part of the burden is going to have to be in spending reductions. We have a political system now in which too many Republicans have never met a tax cut they didn’t like, and too many Democrats have not met an entitlement spending program they don’t adore.

So what has happened? We’ve ended up with both of them. So there’s going to be enormous financing needs. I’m just talking to an expert that I’m working with on this. He’s trying to predict how much the treasury financing is going to have to be. And he said, “I can just tell you, they are skyrocketing and unbelievable.” Well, we’d better start asking the question, “Where’s the money going to come from?” And it’s terribly important, in my opinion, to send a signal to the foreign sources that we’re going to get our fiscal house in order.

The Quarterly: Let me close by asking you about one other area of your expertise, which is the private-equity markets, where Blackstone is a huge player and a very successful player. I’m just wondering if you could sort of both look over the evolution of the industry and look, say, five years out from now. Will it have bounced back to what it was a year or so ago? Will it be different in any fundamental ways?

Peter Peterson: Well, it’s changed enormously since Steve Schwarzman and I started
the firm in 1985. If you stop and think about it, the ’90s were a golden period for any leverage business. If you can get a lot of leverage—and we could get leverage (four to eight times)—and you have low interest rates and you have price earnings ratios doubling as they did during the ’90s, you’d have to be intellectually challenged not to make some money in that kind of an environment. And we got in the habit of believing it was our own financial genius that enabled us to make 30 and 40 percent returns. And it was very importantly a matter of dumb luck—plus whatever abilities we did have.
Now, the recent years have been the opposite. There has not been a lot of money left for leverage. You know, you have to go out and earn it by more productivity and more operational improvements. So the center of gravity of the private-equity business shifted from financial engineering to operational improvements. I have every reason to believe that’s going to continue, because once it starts, those who improve earnings and have confidence in our ability to improve earnings will be able to pay more than the firms that are relying totally on financial engineering.

The Quarterly: There’s been a lot of talk in the last few months about the role of the dollar and the dollar’s role to reserve currency. Do you believe the dollar’s role will be fundamentally different? Will it be about the same? Does it depend?

Peter Peterson: I think the most likely outcome, if we don’t get our act together, will be some kind of crisis in the dollar. And we all know the dollar falls suddenly and steeply. Interest rates rise very dramatically. So we have inflation and recession at the same time.

The Quarterly: So we can do this the hard way or the harder way?

Peter Peterson: The hard way. There are no easy alternatives. We’re long past that point. We’re talking about $60 trillion, in today’s dollars, of unfunded liabilities and promises. Totally unsustainable. And you’re never going to be able to solve this just by increasing taxes. You could get rid of the Bush tax cuts. You could get rid of all earmarks. You could get out of both wars. And it only covers 15 percent of our unfunded liabilities and promises.

The Quarterly: It really is Medicaid, Medicare, and Social Security.

Peter Peterson: Medicare and Medicaid. Medicare is $38 trillion; Social Security is $7 trillion, basically.

The Quarterly: And that’s where all the voters are. So go back to your association of young people, right? That’s what it’s going to take. Pete, thank you for being with us today. You’re still dreaming, and it’s a great story. We appreciate it.

Peter Peterson: Thank you.
__________________________

Now, Pete Peterson may look and sound like the old-wise guy, but doesn't he see any problem with our system/ He should know better, being an insider to many a power circle. A look at his recent book reveals that while he had been CEO of Bell&Howell, an American manufacturing operation, in the '60s, productivity grew under his command, but the sustainability of the business proved to be lacking not long after he left--the Japanese manufacturers saw the future in electronics, the American executive, concentrating on productivity improvements (read, cost cutting, which in today's version spells offshoring) could not see. I'm sure the reader of this blog is smarter than Mr. Peterson lets us in...

Learning hope even though summer will stay coming for a while

2009-12-11T14:26:00.000-08:00

Xmas in the 21st century: Bad Salzuflen, Germany. Army of angels and futuristic christmas tree

2009-12-11T06:58:00.001-08:00

Xmas in the 21st century: Bad Salzuflen. Army of angels and futuristic christmas tree, originally uploaded by nikkormatftnuser.

...east-Asian angels: Can we dum... err, change our dollars here?

vox populior what I wish I wrote

2009-11-30T12:44:00.000-08:00

Steve Jobs

Fremont, CA

[...]

It is every economist's stupidity to think we need to keep expanding the economy to keep us at full employment. We have a few billion people in the world who are slowly reaching to the productivity levels of the developed countries, hence we will need to expand the economy 10 fold to keep them all employed. Alternately, as productivity goes up, we cut down our hours. I would dare to suggest that if Americans merely worked 20 hrs a week on average, we can complete all the work we have plus more. It appears like we work hard for nothing at all.

Europeans seem to be getting it right - you can't really employ everyone at high productivity levels. You can employ everyone and have huge inefficiencies (still pretending to be efficient) or employ a few and give out everyone else welfare checks or cut down hours for all.

_____________________________

I've been thinking about this for a while: Can we indeed go on with our type of economy, or we need to take a page from, say, the Europeans? This is not to say Europe doesn't have its own problems--just ask any young person between 20 and 35 years of age. It only means that we seem to only push harder in directions of diminishing returns, more expensive with less returns, that is. And this goes on for just about everything we do, from wars and foreign policy to K-12 education and local government budgets. The only question I have not been able to answer is whether we can improve the system gradually as it goes, or need a full stop. If history is of any use here, stop ahead--mind the gap! Yes, I do tend to side with history in uncertain times.

what else is there

2009-11-25T18:03:00.001-08:00

what else is there, originally uploaded by c-h-l.

President Obama with his national security team to discuss Afghanistan in the Situation Room of the White House, Nov. 23, 2009

2009-11-23T18:45:00.001-08:00

P112309PS-0830, originally uploaded by The White House.

Let's get out, folks! Money has been running out, and the more we spend the stronger our creditors get.

Der Spiegel:
[...] following an extended Asia trip that produced no palpable results. The "first Pacific president," as Obama called himself, came as a friend and returned as a stranger. The Asians smiled but made no concessions.

Upon taking office, Obama said that he wanted to listen to the world, promising respect instead of arrogance. But Obama's currency isn't as strong as he had believed. Everyone wants respect, but hardly anyone is willing to pay for it. Interests, not emotions, dominate the world of realpolitik. The Asia trip revealed the limits of Washington's new foreign policy: Although Obama did not lose face in China and Japan, he did appear to have lost some of his initial stature.

Obama visited a new China, an economic power that is now making its own demands. America should clean up its government finances, and the weak dollar is unacceptable, the head of the Chinese banking authority said, just as Obama's plane was about to land.

Obama's new foreign policy has also been relatively unsuccessful elsewhere, with even friends like Israel leaving him high and dry. For the government of Israel Prime Minister Benjamin Netanyahu, peace is only conceivable under its terms. Netanyahu has rejected Obama's call for a complete moratorium on the construction of settlements. As a result, Obama has nothing to offer the Palestinians and the Syrians. "We thought we had some leverage," says Martin Indyk, a former ambassador to Israel under the Clinton administration and now an advisor to Obama. "But that proved to be an illusion."

Even the president seems to have lost his faith in a genial foreign policy. The approach that was being used in Afghanistan this spring, with its strong emphasis on civilian reconstruction, is already being changed. "We're searching for an exit strategy," said a staff member with the National Security Council on the sidelines of the Asia trip.

http://www.spiegel.de/international/world/0,1518,662822,00.html

Can a reserve currency be protected from the whims of people in a democracy?

2009-11-21T08:20:00.000-08:00

There are all kinds of views about what has brought the world crisis in 2008. Several conversations seem to point the source either to the FED, or to the so called "savings glut" from oil exporting or manufacturing countries. A good place to start would be with the view that the FED lowered its rates below some natural interest rate. (Nota Bene: This account beats revisionist Greenspan's dead horse).

I think the above views are only partial, and not even when held together could explain 2008. For one, the low US rates must have been met indeed by excess money supply or the so called "savings glut." It always takes two to tango. On the other hand, this is all Popperian science at best. It goes in small small steps and sees not the bigger picture. For example, Beckworth (link) doesn't take into account the fact that the increased productivity he contrasts to the decreasing FED rates was due in great part to outsourcing&offshoring.

Another view is that the FED is responsible for the well doing of the international monetary system. This is an interesting assumption to which I will return. One of the economists operating with this assumption is John B. Taylor (link to paper), who also shows that the FED, by lowering the interest rates, should be held accountable for what happened in 2008. In this case, on the grounds of incomplete models and such, the question becomes: How could the FED be held responsible for the Chinese manipulating their currency?

It's time now I posit that China's entering WTO has been the catalyst of our capitalism's demise.

To counter the point that FED alone could not have caused the events in 2008, one could argue that we had similar situations in the past (war: Vietnam + creditors: Germany/Japan). My answer would be yes, but check also the pains our capitalism had at the time in addition to saying that China's effect comes at a different order of magnitude. Not to mention that both Germany and Japan were US clients for their national security. So, while what China is doing is not entirely different in principle from other partners we've had, it is the size that matters and the stage of decay of our own capitalism (institutions, players, etc.).

As an observation, what's compelling China to keep buying the US paper? I say that in part it's the same reason that had made them do so until 2008. At this time, the other reason may be the fact that if they stop buying they may risk the value of whatever they have bought so far and then some more--it would be so Chinese-unlike.

Let's turn now to Brad DeLong to see the emerging consensus view among economists about the causes for the 2008 crisis:

the Federal Reserve and the Treasury decided to nationalize AIG rather than to support AIG's counterparties last fall, allowing financiers to pretend that their strategies were fundamentally sound rather than things that would have shut down their firms had the Feds not paid AIG's bills. (Nota Bene: This is probably a mistake, not a cause)
the Federal Reserve and the Treasury decided to let Lehman Brothers go into an uncontrolled bankruptcy last fall in order to try to teach financiers that having an ill-capitalized counterparty was not riskless and that people should not expect the government to come to their rescue always. (Nota Bene: I agree with this and blogged about it)
the long-ago decision was made to eschew principles-based regulation and allow the shadow banking sector to grow unregulated with respect to its leverage and its compensation schemes in the belief that government regulation of finance should be minimal and that the government's guarantee of the commercial banking system was enough to keep us out of messes like the one we are currently in. (Nota Bene: This seems to be how economists account for the complexity of the causes, while operating with sketch models that only make good Popperian science).

These are pertinent views, yet incomplete--read, easy to model by economists practicing Popperian science.

At this time, I would add to the above reasons the following:

We should pay more attention to the stage of capitalism in the US/west. I've done so, here as well.
The US failed to adjust its post WWII trade policies to account for China's entry in WTO. This has led to an implicit contract of sorts. The US party in the contract had an increase in productivity, otherwise hard to come by at our stage in capitalism, and maintained purchasing power of displaced workforce at home. The Chinese bought our dollars, manipulated their currency, gave a better tomorrow to hundreds of millions of their own and, most importantly, they've got a massive know-how transfer that money otherwise could not buy. In effect, this fueled indeed the Chinese share of the "savings glut" symptom.
The other point I'd like to make, and DeLong's 3rd cause would come close, is about looking for another cause/mechanism of the "savings glut." It must indeed have been everywhere people's looking for YIELD--in itself a behavior due to low interest rates and late stage capitalism. Yield that had been conveniently MANUFACTURED by the collusion between our politicos and bankers.

Now it's time I returned to John B. Taylor's assumption that the US FED be responsible for the stability of the international monetary system. This view does not seem all unreasonable since the US dollar enjoys the status of reserve currency. In other words, we owe the world that much. That might have been so in the past, notwithstanding the lousy job we did of it. In this day and age, I would argue, if we want globalization to continue its course, especially among democracies, one has to return to Keynes and his recommendation at Bretton Woods for a global currency (Bancor); China seems to favor such thing, and this may be our opportunity to keep the game straight after the demise of the dollar from its position as reserve currency. Indeed, if a democracy controls the reserve currency, what guarantee can it be that the respective currency will be protected from the whims of the people in that democracy?

On a very personal level, I think we are still far from recovery, for I don't think recovery can come in sight before we've heard the truth being spoken in public. Yes, truth is socially constructed, but unless we come together (read, pressed by reality/fused into nationhood) to first see the problem with the same eyes, how can we figure out a solution? If you like, outside observers of all times have always wagered this bet against America--on our inability to come out of a paper bag of our own making. Will we prove them wrong once again? Coming out of the two wars NOW would be a start...

On US, NATO and EU

2009-11-20T18:52:00.000-08:00

Here are excellent accounts on the history, present and future of the relation among the US, NATO and EU. Things can go in different directions from here, and one would have to ask what's keeping them from so doing?

Where the distinguished speaker's treatment of the subjects falls short is Afghanistan and the suspiciously unanimous reliance on a poll indicating that the regular Afghans want us there. In fact, Mr. Brzezinski questioned himself the quality of such poll, but then backtracked quickly. So, if this poll is just a WMD-type of excuse, life cannot be good. An indication of what's what will come from the decision of our NATO partners in Europe to withdraw or not.

We Like Lists Because We Don't Want to Die

2009-11-15T18:46:00.001-08:00

By Susanne Beyer and Lothar Gorris

Italian novelist and semiotician Umberto Eco, who is curating a new exhibition at the Louvre in Paris, talks to SPIEGEL about the place lists hold in the history of culture, the ways we try to avoid thinking about death and why Google is dangerous for young people.

SPIEGEL: Mr. Eco, you are considered one of the world's great scholars, and now you are opening an exhibition at the Louvre, one of the world's most important museums. The subjects of your exhibition sound a little commonplace, though: the essential nature of lists, poets who list things in their works and painters who accumulate things in their paintings. Why did you choose these subjects?

Umberto Eco: The list is the origin of culture. It's part of the history of art and literature. What does culture want? To make infinity comprehensible. It also wants to create order -- not always, but often. And how, as a human being, does one face infinity? How does one attempt to grasp the incomprehensible? Through lists, through catalogs, through collections in museums and through encyclopedias and dictionaries. There is an allure to enumerating how many women Don Giovanni slept with: It was 2,063, at least according to Mozart's librettist, Lorenzo da Ponte. We also have completely practical lists -- the shopping list, the will, the menu -- that are also cultural achievements in their own right.

SPIEGEL: Should the cultured person be understood as a custodian looking to impose order on places where chaos prevails?

Eco: The list doesn't destroy culture; it creates it. Wherever you look in cultural history, you will find lists. In fact, there is a dizzying array: lists of saints, armies and medicinal plants, or of treasures and book titles. Think of the nature collections of the 16th century. My novels, by the way, are full of lists.

SPIEGEL: Accountants make lists, but you also find them in the works of Homer, James Joyce and Thomas Mann.

Eco: Yes. But they, of course, aren't accountants. In "Ulysses," James Joyce describes how his protagonist, Leopold Bloom, opens his drawers and all the things he finds in them. I see this as a literary list, and it says a lot about Bloom. Or take Homer, for example. In the "Iliad," he tries to convey an impression of the size of the Greek army. At first he uses similes: "As when some great forest fire is raging upon a mountain top and its light is seen afar, even so, as they marched, the gleam of their armour flashed up into the firmament of heaven." But he isn't satisfied. He cannot find the right metaphor, and so he begs the muses to help him. Then he hits upon the idea of naming many, many generals and their ships.

SPIEGEL: But, in doing so, doesn't he stray from poetry?

Eco: At first, we think that a list is primitive and typical of very early cultures, which had no exact concept of the universe and were therefore limited to listing the characteristics they could name. But, in cultural history, the list has prevailed over and over again. It is by no means merely an expression of primitive cultures. A very clear image of the universe existed in the Middle Ages, and there were lists. A new worldview based on astronomy predominated in the Renaissance and the Baroque era. And there were lists. And the list is certainly prevalent in the postmodern age. It has an irresistible magic.

SPIEGEL: But why does Homer list all of those warriors and their ships if he knows that he can never name them all?

Eco: Homer's work hits again and again on the topos of the inexpressible. People will always do that. We have always been fascinated by infinite space, by the endless stars and by galaxies upon galaxies. How does a person feel when looking at the sky? He thinks that he doesn't have enough tongues to describe what he sees. Nevertheless, people have never stopping describing the sky, simply listing what they see. Lovers are in the same position. They experience a deficiency of language, a lack of words to express their feelings. But do lovers ever stop trying to do so? They create lists: Your eyes are so beautiful, and so is your mouth, and your collarbone … One could go into great detail.

SPIEGEL: Why do we waste so much time trying to complete things that can't be realistically completed?

Eco: We have a limit, a very discouraging, humiliating limit: death. That's why we like all the things that we assume have no limits and, therefore, no end. It's a way of escaping thoughts about death. We like lists because we don't want to die.

'People Have Their Preferences'

SPIEGEL: In your exhibition at the Louvre, you will also be showing works drawn from the visual arts, such as still lifes. But these paintings have frames, or limits, and they can't depict more than they happen to depict.

Eco: On the contrary, the reason we love them so much is that we believe that we are able to see more in them. A person contemplating a painting feels a need to open the frame and see what things look like to the left and to the right of the painting. This sort of painting is truly like a list, a cutout of infinity.

SPIEGEL: Why are these lists and accumulations so particularly important to you?

Eco: The people from the Louvre approached me and asked whether I'd like to curate an exhibition there, and they asked me to come up with a program of events. Just the idea of working in a museum was appealing to me. I was there alone recently, and I felt like a character in a Dan Brown novel. (???) It was both eerie and wonderful at the same time. I realized immediately that the exhibition would focus on lists. Why am I so interested in the subject? I can't really say. I like lists for the same reason other people like football or pedophilia. People have their preferences.

SPIEGEL: Still, you are famous for being able to explain your passions …

Eco: … but not by talking about myself. Look, ever since the days of Aristotle, we have been trying to define things based on their essence. The definition of man? An animal that acts in a deliberate way. Now, it took naturalists 80 years to come up with a definition of a platypus. They found it endlessly difficult to describe the essence of this animal. It lives underwater and on land; it lays eggs, and yet it's a mammal. So what did that definition look like? It was a list, a list of characteristics.

SPIEGEL: A definition would certainly be possible with a more conventional animal.

Eco: Perhaps, but would that make the animal interesting? Think of a tiger, which science describes as a predator. How would a mother describe a tiger to her child? Probably by using a list of characteristics: The tiger is big, a cat, yellow, striped and strong. Only a chemist would refer to water as H2O. But I say that it's liquid and transparent, that we drink it and that we can wash ourselves with it. Now you can finally see what I'm talking about. The list is the mark of a highly advanced, cultivated society because a list allows us to question the essential definitions. The essential definition is primitive compared with the list.

SPIEGEL: It would seem that you are saying that we should stop defining things and that progress would, instead, mean only counting and listing things.

Eco: It can be liberating. The Baroque era was an age of lists. Suddenly, all the scholastic definitions that had been made in the previous era were no longer valid. People tried to see the world from a different perspective. Galileo described new details about the moon. And, in art, established definitions were literally destroyed, and the range of subjects was tremendously expanded. For instance, I see the paintings of the Dutch Baroque as lists: the still lifes with all those fruits and the images of opulent cabinets of curiosities. Lists can be anarchistic.

SPIEGEL: But you also said that lists can establish order. So, do both order and anarchy apply? That would make the Internet, and the lists that the search engine Google creates, prefect for you.

Eco: Yes, in the case of Google, both things do converge. Google makes a list, but the minute I look at my Google-generated list, it has already changed. These lists can be dangerous -- not for old people like me, who have acquired their knowledge in another way, but for young people, for whom Google is a tragedy. Schools ought to teach the high art of how to be discriminating.

SPIEGEL: Are you saying that teachers should instruct students on the difference between good and bad? If so, how should they do that?

Eco: Education should return to the way it was in the workshops of the Renaissance. There, the masters may not necessarily have been able to explain to their students why a painting was good in theoretical terms, but they did so in more practical ways. Look, this is what your finger can look like, and this is what it has to look like. Look, this is a good mixing of colors. The same approach should be used in school when dealing with the Internet. The teacher should say: "Choose any old subject, whether it be German history or the life of ants. Search 25 different Web pages and, by comparing them, try to figure out which one has good information." If 10 pages describe the same thing, it can be a sign that the information printed there is correct. But it can also be a sign that some sites merely copied the others' mistakes.

SPIEGEL: You yourself are more likely to work with books, and you have a library of 30,000 volumes. It probably doesn't work without a list or catalogue.

Eco: I'm afraid that, by now, it might actually be 50,000 books. When my secretary wanted to catalogue them, I asked her not to. My interests change constantly, and so does my library. By the way, if you constantly change your interests, your library will constantly be saying something different about you. Besides, even without a catalogue, I'm forced to remember my books. I have a hallway for literature that's 70 meters long. I walk through it several times a day, and I feel good when I do. Culture isn't knowing when Napoleon died. Culture means knowing how I can find out in two minutes. Of course, nowadays I can find this kind of information on the Internet in no time. But, as I said, you never know with the Internet.

SPIEGEL: You include a nice list by the French philosopher Roland Barthes in your new book, "The Vertigo of Lists." He lists the things he loves and the things he doesn't love. He loves salad, cinnamon, cheese and spices. He doesn't love bikers, women in long pants, geraniums, strawberries and the harpsichord. What about you?

Eco: I would be a fool to answer that; it would mean pinning myself down. I was fascinated with Stendhal at 13 and with Thomas Mann at 15 and, at 16, I loved Chopin. Then I spent my life getting to know the rest. Right now, Chopin is at the very top once again. If you interact with things in your life, everything is constantly changing. And if nothing changes, you're an idiot.

Interview conducted by Susanne Beyer and Lothar Gorris

After 20 years

2009-11-15T17:49:00.000-08:00

Gorbachev on 1989
By Katrina vanden Heuvel & Stephen F. Cohen

This article appeared in the November 16, 2009 edition of The Nation.
October 28, 2009

On September 23, Nation editor Katrina vanden Heuvel and her husband, Stephen F. Cohen, a contributing editor, interviewed former Soviet President Mikhail Gorbachev at his foundation in Moscow. With the twentieth anniversary of the fall of the Berlin Wall approaching, we believed that the leader most responsible for that historic event should be heard, on his own terms, in the United States. As readers will see, the discussion became much more wide-ranging. --The Editors

KVH/SFC: Historic events quickly generate historical myths. In the United States it is said that the fall of the Berlin Wall and the end of a divided Europe was caused by a democratic revolution in Eastern Europe or by American power, or both. What is your response?

MG: Those developments were the result of perestroika in the Soviet Union, where democratic changes had reached the point by March 1989 that for the first time in Russia's history democratic, competitive elections took place. You remember how enthusiastically people participated in those elections for a new Soviet Congress. And as a result thirty-five regional Communist Party secretaries were defeated. By the way, of the deputies elected, 84 percent were Communists, because there were a lot of ordinary people in the party--workers and intellectuals.

On the day after the elections, I met with the Politburo, and said, "I congratulate you!" They were very upset. Several replied, "For what?" I explained, "This is a victory for perestroika. We are touching the lives of people. Things are difficult for them now, but nonetheless they voted for Communists." Suddenly one Politburo member replied, "And what kind of Communists are they!" Those elections were very important. They meant that movement was under way toward democracy, glasnost and pluralism.

Analogous processes were also under way in Eastern and Central Europe. On the day I became Soviet leader, in March 1985, I had a special meeting with the leaders of the Warsaw Pact countries, and told them: "You are independent, and we are independent. You are responsible for your policies, we are responsible for ours. We will not intervene in your affairs, I promise you." And we did not intervene, not once, not even when they later asked us to. Under the influence of perestroika, their societies began to take action. Perestroika was a democratic transformation, which the Soviet Union needed. And my policy of nonintervention in Central and Eastern Europe was crucial. Just imagine, in East Germany alone there were more than 300,000 Soviet troops armed to the teeth--elite troops, specially selected! And yet, a process of change began there, and in the other countries, too. People began to make choices, which was their natural right.

But the problem of a divided Germany remained. The German people perceived the situation as abnormal, and I shared their attitude. Both in West and East Germany new governments were formed and new relations between them established. I think if the East German leader Erich Honecker had not been so stubborn--we all suffer from this illness, including the person you are interviewing--he would have introduced democratic changes. But the East German leaders did not initiate their own perestroika. Thus a struggle broke out in their country.

The Germans are a very capable nation. Even after what they had experienced under Hitler and later, they demonstrated that they could build a new democratic country. If Honecker had taken advantage of his people's capabilities, democratic and economic reforms could have been introduced that might have led to a different outcome.

I saw this myself. On October 7, 1989, I was reviewing a parade in East Germany with Honecker and other representatives of the Warsaw Pact countries. Groups from twenty-eight different regions of East Germany were marching by with torches, slogans on banners, shouts and songs. The former prime minister of Poland, Mieczyslaw Rakowski, asked me if I understood German. "Enough to read what's written on the banners. They're talking about perestroika. They're talking about democracy and change. They're saying, 'Gorbachev, stay in our country!'" Then Rakowski remarked, "If it's true that these are representatives of people from twenty-eight regions of the country, it means the end." I said, "I think you're right."

KVH/SFC: That is, after the Soviet elections in March 1989, the fall of the Berlin Wall was inevitable?

MG: Absolutely!

KVH/SFC: Did you already foresee the outcome?

MG: Everyone claims to have foreseen things. In June 1989 I met with West German Chancellor Helmut Kohl and we then held a press conference. Reporters asked if we had discussed the German question. My answer was, "History gave rise to this problem, and history will resolve it. That is my opinion. If you ask Chancellor Kohl, he will tell you it is a problem for the twenty-first century."

I also met with the East German Communist leaders, and told them again, "This is your affair and you have the responsibility to decide." But I also warned them, "What does experience teach us? He who is late loses." If they had taken the road of reform, of gradual change--if there had been some sort of agreement or treaty between the two parts of Germany, some sort of financial agreement, some confederation, a more gradual reunification would have been possible. But in 1989-90, all Germans, both in the East and the West, were saying, "Do it immediately." They were afraid the opportunity would be missed.

KVH/SFC: A closely related question: when did the cold war actually end? In the United States, there are several answers: in 1989, when the Berlin Wall came down; in 1990-91, after the reunification of Germany; and the most popular, even orthodox, answer, is that the cold war ended only when the Soviet Union ended, in December 1991.

MG: No. If President Ronald Reagan and I had not succeeded in signing disarmament agreements and normalizing our relations in 1985-88, the later developments would have been unimaginable. But what happened between Reagan and me would also have been unimaginable if earlier we had not begun perestroika in the Soviet Union. Without perestroika, the cold war simply would not have ended. But the world could not continue developing as it had, with the stark menace of nuclear war ever present.

Sometimes people ask me why I began perestroika. Were the causes basically domestic or foreign? The domestic reasons were undoubtedly the main ones, but the danger of nuclear war was so serious that it was a no less significant factor. Something had to be done before we destroyed each other. Therefore the big changes that occurred with me and Reagan had tremendous importance. But also that George H.W. Bush, who succeeded Reagan, decided to continue the process. And in December 1989, at our meeting in Malta, Bush and I declared that we were no longer enemies or adversaries.

KVH/SFC: So the cold war ended in December 1989?

MG: I think so.

KVH/SFC: Many people disagree, including some American historians.

MG: Let historians think what they want. But without what I have described, nothing would have resulted. Let me tell you something. George Shultz, Reagan's secretary of state, came to see me two or three years ago. We reminisced for a long time--like old soldiers recalling past battles. I have great respect for Shultz, and I asked him: "Tell me, George, if Reagan had not been president, who could have played his role?" Shultz thought for a while, then said: "At that time there was no one else. Reagan's strength was that he had devoted his whole first term to building up America, to getting rid of all the vacillation that had been sown like seeds. America's spirits had revived. But in order to take these steps toward normalizing relations with the Soviet Union and toward reducing nuclear armaments--there was no one else who could have done that then."

By the way, in 1987, after my first visit to the United States, Vice President Bush accompanied me to the airport, and told me: "Reagan is a conservative. An extreme conservative. All the blockheads and dummies are for him, and when he says that something is necessary, they trust him. But if some Democrat had proposed what Reagan did, with you, they might not have trusted him."

By telling you this, I simply want to give Reagan the credit he deserves. I found dealing with him very difficult. The first time we met, in 1985, after we had talked, my people asked me what I thought of him. "A real dinosaur," I replied. And about me Reagan said, "Gorbachev is a diehard Bolshevik!"

KVH/SFC: A dinosaur and a Bolshevik?

MG: And yet these two people came to historic agreements, because some things must be above ideological convictions. No matter how hard it was for us and no matter how much Reagan and I argued in Geneva in 1985, nevertheless in our appeal to the peoples of the world we wrote: "Nuclear war is inadmissible, and in it there can be no victors." And in 1986, in Reykjavik, we even agreed that nuclear weapons should be abolished. This conception speaks to the maturity of the leaders on both sides, not only Reagan but people in the West generally, who reached the correct conclusion that we had to put an end to the cold war.

KVH/SFC: So Americans who say the cold war ended only with the end of the Soviet Union are wrong?

MG: That's because journalists, politicians and historians in your country concluded that the United States won the cold war, but that is a mistake. If the new Soviet leadership and its new foreign policy had not existed, nothing would have happened.

KVH/SFC: In short, Gorbachev, Reagan and the first President Bush ended the cold war?

MG: Yes, in 1989-90. It was not a single action but a process. Bush and I made the declaration at Malta, but Reagan would have had no less grounds for saying that he played a crucial role, because he, together with us, had a fundamental change of attitude. Therefore we were all victors: we all won the cold war because we put a stop to spending $10 trillion on the cold war, on each side.

KVH/SFC: What was most important--the circumstances at that time or the leaders?

MG: The times work through people in history. I'll tell you something else that is very important about what subsequently happened in your country. When people came to the conclusion that they had won the cold war, they concluded that they didn't need to change. Let others change. That point of view is mistaken, and it undermined what we had envisaged for Europe--mutual collective security for everyone and a new world order. All of that was lost because of this muddled thinking in your country, and which has now made it so difficult to work together. World leadership is now understood to mean that America gives the orders.

KVH/SFC: Is that why today, twenty years after you say the cold war ended, the relationship between our two countries is so bad that President Obama says it has to be "reset"? What went wrong?

MG: Even before the end of the cold war, Reagan, Bush and I argued, but we began to eliminate two entire categories of nuclear weapons. We had gone very far, almost to the point when a return to the past was no longer possible. But everything went wrong because perestroika was undermined and there was a change of Russian leadership and a change from our concept of gradual reform to the idea of a sudden leap. For Russian President Boris Yeltsin, ready-made Western recipes were falling into his hands, schemes that supposedly would lead to instant success. He was an adventurist. The fall of the Soviet Union was the key moment that explains everything that happened afterward, including what we have today. As I said, people in your country became dizzy with imagined success: they saw everything as their victory.

In Yeltsin, Washington ended up with a vassal who thought that because of his anticommunism he would be carried in their arms. Delegations came to Russia one after the other, including President Bill Clinton, but then they stopped coming. It turned out no one needed Yeltsin. But by then half of Russia's industries were in ruins, even 60 percent. It was a country with a noncompetitive economy wide open to the world market, and it became slavishly dependent on imports.

How many things were affected! All our plans for a new Europe and a new architecture of mutual security. It all disappeared. Instead, it was proposed that NATO's jurisdiction be extended to the whole world. But then Russia began to revive. The rain of dollars from higher world oil prices opened up new possibilities. Industrial and social problems began to be solved. And Russia began to speak with a firm voice, but Western leaders got angry about that. They had grown accustomed to having Russia just lie there. They thought they could pull the legs right out from under her whenever they wanted.

The moral of the story--and in the West morals are everything--is this: under my leadership, a country began reforms that opened up the possibility of sustained democracy, of escaping from the threat of nuclear war, and more. That country needed aid and support, but it didn't get any. Instead, when things went bad for us, the United States applauded. Once again, this was a calculated attempt to hold Russia back. I am speaking heatedly, but I am telling you what happened.

KVH/SFC: But now Washington is turning to Moscow for help, most urgently perhaps in Afghanistan. Exactly twenty years ago, you ended the Soviet war in Afghanistan. What lessons did you learn that President Obama should heed in making his decisions about Afghanistan?

MG: One was that problems there could not be solved with the use of force. Such attempts inside someone else's country end badly. But even more, it is not acceptable to impose one's own idea of order on another country without taking into account the opinion of the population of that country. My predecessors tried to build socialism in Afghanistan, where everything was in the hands of tribal and clan leaders, or of religious leaders, and where the central government was very weak. What kind of socialism could that have been? It only spoiled our relationship with a country where we had excellent relations during the previous twenty years.

Even today, I am criticized that it took three years for us to withdraw, but we tried to solve the problem through dialogue--with America, with India, with Iran and with both sides in Afghanistan, and we attended an international conference. We didn't simply hitch up our trousers and run for it, but tried to solve the problem politically, with the idea of making Afghanistan a neutral, peaceful country. By the way, when we were getting ready to pull out our troops and were preparing a treaty of withdrawal, what did the Americans do? They supported the idea of giving religious training to young Afghans--that is, the Taliban. As a result, now they are fighting against them. Today, again, not just America and Russia can be involved in solving this problem. All of Afghanistan's neighbors must be involved. Iran cannot be ignored, and it's ill-advised for America not to be on good terms with Iran.

KVH/SFC: Finally, a question about your intellectual-political biography. One author called you "the man who changed the world." Who or what most changed your own thinking?

MG: Gorbachev never had a guru. I've been involved in politics since 1955, after I finished university, when there was still hunger in my country as a result of World War II. I was formed by those times and by my participation in politics. In addition, I am an intellectually curious person by nature and I understood that many changes were necessary, and that it was necessary to think about them, even if it caused me discomfort. I began to carry out my own inner, spiritual perestroika--a perestroika in my personal views. Along the way, Russian literature and, in fact, all literature, European and American too, had a big influence on me. I was drawn especially to philosophy. And my wife, Raisa, who had read more philosophy than I had, was always there alongside me. I didn't just learn historical facts but tried to put them in a philosophical or conceptual framework.

I began to understand that society needed a new vision--that we must view the world with our eyes open, not just through our personal or private interests. That's how our new thinking of the 1980s began, when we understood that our old viewpoints were not working out. During the nuclear arms race, I was given a gift by an American, a little figure of a goose in flight. I still have it at my dacha. It is a goose that lives in the north of Russia in the summer and in the winter migrates to America. It does that every year regardless of what's happening, on the ground, between you and us. That was the point of this gift and that's why I'm telling you about it.

KVH/SFC: Listening to you, it seems that you became a political heretic in your country.

MG: I think that is true. I want to add that I know America well now, having given speeches to large audiences there regularly. Three years ago I was speaking in the Midwest, and an American asked me this question: "The situation in the United States is developing in a way that alarms us greatly. What would you advise us to do?" I said, "Giving advice, especially to Americans, is not for me." But I did say one general thing: that it seems to me that America needs its own American perestroika. Not ours. We needed ours, but you need yours. The entire audience stood and clapped for five minutes.

KVH/SFC: And do you think President Obama will be the leader of such an American perestroika?

MG: As far as I know, Americans did not make a mistake in electing him. Barack Obama is capable of leading your society on a very high level and of understanding it better than any political figure I know. He is an educated person with a highly developed capacity for dialogue, and that too is very important. So I congratulate you.

reality seems to stubbornly follow its own ways

2009-11-15T14:19:00.000-08:00

From today's NYTimes:

In a July meeting, Chinese officials asked their American counterparts detailed questions about the health care legislation making its way through Congress. The president's budget director, Peter R. Orszag, answered most of their questions. But the Chinese were not particularly interested in the public option or universal care for all Americans.

"They wanted to know, in painstaking detail, how the health care plan would affect the deficit," one participant in the conversation recalled. Chinese officials expect that they will help finance whatever Congress and the White House settle on, mostly through buying Treasury debt, and like any banker, they wanted evidence that the United States had a plan to pay them back.

In the face of so much conversation about modeling our way out of the current problems, reality seems to stubbornly follow its own ways. Even a happy accident may be possible, but not before we see higher taxes, I said it then, I say it now. One of the effects of this situation is probably a more common understanding in the US of what national interest is.

When action speaks louder than words, yet the message remains... oracular

2009-09-09T08:04:00.000-07:00

Here's an interesting comment on a recent decision of Warren Buffett to sell Moody stock:

Rob G
Niskayuna, NY

Buy low, sell high depends on the QUALITY of information one receives from reputable sources.

Over the past decade or so, there's been a disturbing decrease in the quality and clarity of reporting from organizations normally tasked to report fundamentals. Where are all the big accounting houses that used to audit and certify financial statements? What happened to responsible, effective government oversight? Why is everyone keen on moving to the "mark to model" securities valuation methods when those models are NOT PUBLISHED and therefore not critically scrutinized?

That Buffett is divesting Moody's should sound alarms everywhere. Moody's makes money publishing quality research. "Moody's Investors Service is among the world’s most respected and widely utilized sources for credit ratings, research and risk analysis," its website reads. If Buffett sees no future (especially in light of the recent past) in that critical and iconic institution, what is he thinking?

Without quality and clarity of information, effective financial transactions become the domain of large investors who have access to inside, non-public information - that being the only way left to accurately judge risk. Smaller investors, who have no such access, shut themselves out for their own good.

Buffett may have trusted public sources before, and that may have contributed to his losses. But his methodology of using fundamentals to gauge risk remains valid. The real question is, can we trust the fundamentals?

In other words, is the world of rating agencies as we know them over? If so, what does it mean? For Buffett it means at least the chance for lower income. That lower income may be the result of a loss of market--outside US capital markets may come up with their own rating mechanisms, and/or the revenue model will be impaired by regulatory constraints placed on rating agencies. For the rest of us it changes the way we get our information about capital and its working. Rob G. seems to think we'll enter an even darker age...

The Remote Control Presidency

2009-09-03T20:16:00.000-07:00

I think the current healthcare debate reveals we may have a problem ourselves. Could it be that too much reward relative to the effort for too many of us has eroded the culture of the people? Indeed, how else could the current disenchantment with, say, Obama be justified if not by the fact that many think they must have voted for the remote control presidency? Such arrangement, ideally, requires little engagement, lest commitment for action, other than the equivalent of operating a remote control button.

Assuming that a good man can make all the needed difference by himself, even if he inhabits the residence at 1600 Pennsylvania Ave., is oversimplifying, if not outright delusional. For one, insurance companies are one of the capitalism pillars, by supplying investment capital (together with banking, retirement funds and the state itself). Then, proving commitment in terms of some sort of action is the best way to be taken seriously.

Yukio HatoyamaThe New Prime Minister of Japan

2009-09-03T16:31:00.001-07:00

We are currently standing at a turning point in global history, and therefore our resolve and vision are being tested, not only in terms of our ability to formulate policies to stimulate the domestic economy, but also in terms of how we try to build a new global political and economic order. I would like to conclude by quoting the words of Count Coudenhove-Kalergi, the father of the EU, written 85 years ago, when he published Pan-Europa.

"All great historical ideas started as a utopian dream and ended with reality".

"Whether a particular idea remains as a utopian dream or it can become reality depends on the number of people who believe in the ideal and their ability to act upon it."

Excerpted from “My Political Philosophy”, by Yukio Hatoyama, Prime Minister of Japan

The above excerpt, as well as the entire text, would not mean much unless Mr. Hatoyama were not the head to the government whose country is the 2^nd largest buyer of US treasuries.

still enjoying the internet while it's here

2009-08-12T09:24:00.000-07:00

By now, most of us take the internet for granted, not unlike any utility resource. Its popularity is seldom considered together with its vulnerability--technical, behavioral, political, etc. In fact, I would ponder as whether or not the vulnerability of the internet grows with its popularity, especially beyond reaching some adoption threshold.

Here are two directions in which the internet as we know it today may go into:

Stuff of any value won't be free of charge;
Countries, or groups thereof, will enforce permanent or temporary "safe areas;" communications in and out of such areas will have to be cleared at router level.

In evaluating the above suggestions, just consider the "unipolar world" as a brief between bi- and multi-polarity, and the fact that advertising alone cannot pay for it all. In fact, if one really understood the eventual costs of the "free stuff," one might volunatrily want to pay for it, no strings attached. Just like paying to have your phone number unlisted...

Chinese VP Wang Qishan, center, holds the autographed basketball given to him by Obama

2009-07-28T17:42:00.001-07:00

P072809PS-0458, originally uploaded by The Official White House Photostream.

The US-Chinese train has left the station long ago; We are only checking the roadmap and recalculating the schedule now.

back from the summit

2009-07-15T10:43:00.001-07:00

yohaku-no-bi: beauty of extra white

The implicit magnificence makes you cry--for joy, or otherwise.

on the nature of work

2009-07-01T07:27:00.000-07:00

Timothy Garton Ash, in a recent Der Spiegel interview implicitly talks about the nature of work in our society.

Garton Ash: [..]We must make the social market economy credible again as the central solution for the middle class.

SPIEGEL: How?

Garton Ash: There are two major domestic policy challenges for the European Union. First: Creating meaningful work for the majority of society. And second: the integration of fellow citizens of non-European descent.

In fact, it was Albert Camus who spoke earlier (cca. 1951) about work's lacking meaning. Making a living has become comparatively much easier than ever before. But we lost something in the process, which, despite Mr. Garton Ash prescription, won't be easy to come by.

It still can go anywhere

2009-05-31T14:13:00.000-07:00

As Secretaries Clinton and Geithner went to China, I wondered if and how long before we had a roadmap for the reunification of Taiwan. Such roadmap would be a prerequisite of Chimerica.

However, some important voices consider the notion of a duopoly between China and America (Chimerica) a mirage and suggest that a way out would be for the US and other countries to speak to China with one voice. Moreover, from Der Spiegel, we learn that:

Last month, Beijing completed the last of a series of so-called currency swaps -- providing yuan to other central banks for use in trade with China -- with Argentina, Hong Kong, Indonesia, Malaysia, South Korea, and others. These arrangements theoretically removed any need for these trading partners to use the dollar as an intermediary currency in dealing with China. Last week, Beijing denominated a bilateral trade deal with Brazil in the two countries' currencies, rather than in dollars; the value of the agreement was not specified. The value of the other agreements comes to $95 billion (€68 billion). By way of comparison, US-Chinese trade amounted to $333 billion (€238 billion) in 2008.

So China is using bilateralism, not unlike the US has since the end of the Cold War, to grow its status. Moreover, China is coopting US friends as well into her bilateralism.

One can only ask, where is multilateralism when you need it? Bush, the president about whom the Economist wrote that there had been no multilateral agreement to his liking, and his neocon apparatus have a lot to answer for this. The most that camp could come up with was the group of democracies, through the writings of Robert Kagan, during John McCain's electoral campaign.

The challenge now is for Obama to convince the US allies, and the world at large, that there is in the self interest of everyone to continue to support Pax Americana, and the US dollar. In other words, it's worth paying protection tax, as it were. However, the challenge then becomes how to frame LARGE the loses of leaving the US shrinking umbrella when countries and peoples suffer what they may soon imagine as a deluge.

And, for whatever reason, I now feel compelled to make the following observation: There is no tax cut, or at least not as it's been defined by the conservative camp. It's only a taxation position along a continuum defined between front-loading and back-loading.

Trends in Work Attire 2009-2010

2009-05-28T19:16:00.001-07:00

2009-04-30T10:17:00.000-07:00

Beethoven was just like you and I, only that much more.

Ten principles for a Black Swan-proof world

2009-04-18T19:18:00.000-07:00

Published: Financial Times, April 7 2009

1. What is fragile should break early while it is still small. Nothing should ever become too big to fail. Evolution in economic life helps those with the maximum amount of hidden risks – and hence the most fragile – become the biggest.

2. No socialisation of losses and privatisation of gains. Whatever may need to be bailed out should be nationalised; whatever does not need a bail-out should be free, small and risk-bearing. We have managed to combine the worst of capitalism and socialism. In France in the 1980s, the socialists took over the banks. In the US in the 2000s, the banks took over the government. This is surreal.

3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus. The economics establishment (universities, regulators, central bankers, government officials, various organisations staffed with economists) lost its legitimacy with the failure of the system. It is irresponsible and foolish to put our trust in the ability of such experts to get us out of this mess. Instead, find the smart people whose hands are clean.

4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks. Odds are he would cut every corner on safety to show “profits” while claiming to be “conservative”. Bonuses do not accommodate the hidden risks of blow-ups. It is the asymmetry of the bonus system that got us here. No incentives without disincentives: capitalism is about rewards and punishments, not just rewards.

5. Counter-balance complexity with simplicity. Complexity from globalisation and highly networked economic life needs to be countered by simplicity in financial products. The complex economy is already a form of leverage: the leverage of efficiency. Such systems survive thanks to slack and redundancy; adding debt produces wild and dangerous gyrations and leaves no room for error. Capitalism cannot avoid fads and bubbles: equity bubbles (as in 2000) have proved to be mild; debt bubbles are vicious.

6. Do not give children sticks of dynamite, even if they come with a warning . Complex derivatives need to be banned because nobody understands them and few are rational enough to know it. Citizens must be protected from themselves, from bankers selling them “hedging” products, and from gullible regulators who listen to economic theorists.

7. Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”. Cascading rumours are a product of complex systems. Governments cannot stop the rumours. Simply, we need to be in a position to shrug off rumours, be robust in the face of them.

8. Do not give an addict more drugs if he has withdrawal pains. Using leverage to cure the problems of too much leverage is not homeopathy, it is denial. The debt crisis is not a temporary problem, it is a structural one. We need rehab.

9. Citizens should not depend on financial assets or fallible “expert” advice for their retirement. Economic life should be definancialised. We should learn not to use markets as storehouses of value: they do not harbour the certainties that normal citizens require. Citizens should experience anxiety about their own businesses (which they control), not their investments (which they do not control).

10. Make an omelette with the broken eggs. Finally, this crisis cannot be fixed with makeshift repairs, no more than a boat with a rotten hull can be fixed with ad-hoc patches. We need to rebuild the hull with new (stronger) materials; we will have to remake the system before it does so itself. Let us move voluntarily into Capitalism 2.0 by helping what needs to be broken break on its own, converting debt into equity, marginalising the economics and business school establishments, shutting down the “Nobel” in economics, banning leveraged buyouts, putting bankers where they belong, clawing back the bonuses of those who got us here, and teaching people to navigate a world with fewer certainties.

Then we will see an economic life closer to our biological environment: smaller companies, richer ecology, no leverage. A world in which entrepreneurs, not bankers, take the risks and companies are born and die every day without making the news.

In other words, a place more resistant to black swans.

Nassim Nicholas Taleb

The deregulation before deregulation

2009-04-15T06:36:00.000-07:00

We are where we are, don't like it so some soul searching is in order. Thomas Geoghegan, a Chicago (labor) lawyer, takes a historical detour to search for the root causes of today's situation beyond the deregulation of the last decade or so. In a recent Harper's article “Infinite Debt: How Unlimited Interest Rates Destroyed the Economy ,” Geoghehan is looking at:

Interest rates deregulation--worth mentioning is that both Adams Smith and JM Keynes were in favor of capping interest rates, for otherwise, in addition to hurting the masses, capital flees from production to banking due to higher rates of return;
Weakening of labor unions, which in turn led to lower negotiating power for skilled labor--as the author puts it, the side effect was that union cards were replaced by credit cards;
The ability of corporations to eliminate contractual employee-liabilities (read pensions and health-care obligations) through Chapter 11 reorganization.

Following is a Democracy Now! interview where the main points in the article and suggestions for the future are provided:

Obama - Gorbachev

2009-03-30T09:33:00.000-07:00

Due either to the vagaries of the body-politik in Washington DC, or to his own temperament and biases, Obama is taking the Japanese way out of the current problems--read, long.

On the other hand, at times, it's hard to resist a growing sense of déjà vu: Obama as the Financial Capitalism's Gorbachev.

Click here to read what the LinkedIn professionals think of this subject.

(Photo Source: President Barack Obama drops by VP Joe Biden's meeting with former Soviet Union President Mikhail Gorbachev in the Vice President's Office, West Wing 3/20/09. Official White House Photo by Pete Souza)

Home to Roost or the banker as chicken

2008-11-18T11:51:00.000-08:00

The chickens

are circling and
blotting out the
day. The sun is
bright, but the
chickens are in
the way. Yes,
the sky is dark
with chickens,
dense with them.
They turn and
then they turn
again. These
are the chickens
you let loose
one at a time
and small—
various breeds.
Now they have
come home
to roost—all
the same kind
at the same speed.

...and now click here to hear it in the voice of the author, Kay Ryan

The following YouTube Kay Ryan insert illustrates how interestingly beautiful life can turn amidst language commons.

On Obama's tax Plan

2008-10-20T17:12:00.000-07:00

Paying taxes is a suckers' game for many. Too often, big money is being spent on tax avoidance schemes, which in turn distort behavior. Apparently, some individuals cannot think of what it takes to run modern states, while corporations have become states within states.

Our presidential hopefuls make all kinds of tax-related promises that are either unrealistic or incompletely specified. Even if McCain were to win, he could only raise taxes. Obama has come out as favoring tax-increases for those families making more than $250,000/year. Since Obama appears to have better chances to win, I will quote a couple of tax-related comments pertaining to his tax plan:

1) I'm a Democrat and an Obama supporter -- a volunteer, in fact. I am also a salaried professional, married to Joe the construction manager. Together, we earn about $250,000 a year, after deductions, and therefore will be paying higher taxes under Obama's tax plan. This even though we live in the NYC metro area, where the cost of living is 2.5 times the national average. That means that our income has the purchasing power of $100,000 in Podunk. We ain't starving, but neither are we Mr. & Mrs. Richie the Hedge Fund Manager.

My point is that Obama's plan will in fact impact the urban, professional middle class. Most of us are voting for him, but let's be honest; we are paying high taxes already here in Westchester County, plus high energy costs, plus high health care costs, and the extra $3,000 or so per year that Obama's plan will cost a family in my income bracket will not come easily.

I wish that Obama would include a "cost of living" adjustment in his tax plan, so that middle-class professionals in big cities wouldn't take a hit. On the other hand, if I have to sacrifice so that Richie finally pays his share, then I'll bite the bullet.
— KT, Chappaqua, NY
2) My husband and I have worked hard over the course of our careers. Now that we are in our late 50s, we are mature in our professions and in our earning capacities. After many years of post-graduate education, we each attained the credentials necessary for our respective professions, and we have each subsequently put in countless hours (and immeasurable passion) to serve, in his case, patients, and, in my case, clients. We net more than $250,000 annually. Although we are now worried about the value of our investments, we are still looking forward to a comfortable retirement in the next decade.

While we don't particularly enjoy paying taxes, we do enjoy being citizens of the United States. We do expect to contribute to the education, infrastructure, public health, social welfare, safety, and culture of the country we live in. We do want to do our part to insure its future. So, while we may sigh when we write checks to the IRS, we also take some satisfaction in the belief that we are integral to the success of our country. Moreover, because we can afford to pay a larger share of our income than others can, we expect to do so.

Regardless of our professional success, however, we still are limited in our income potential by our relying principally on reimbursement for our labor. There are many others in the over $250,000/year category with incomes much greater than ours. There are many whose earnings come from their investments or their executive positions enabling them to partake of large shares of corporate earnings. Fairness requires that these individuals pay even greater amounts/percentages of their income than those of us who are essentially high-earning workers do. The tax rate needs to continue to slide upward, for top incomes go way, way, way above $250,000 annually. Those corporate executives who take millions in cash, bonuses, and stocks do not even breathe the same air as my husband and I. Their tax rate has to be greater than ours. In the tax realm, that's all I ask of Obama when he takes over the reins of this country, which he will do, and not a moment too soon.
— Shelley, Santa Barbara

For the middle of the road family of professionals, I would say, expect to pay about 10 - 15 percentage points more in taxes. In other words, a 30% rate will go to about +40%. And, judging by the way Democrats on Capitol Hill voted for all financial issues, I would not hold my breath on the points raised in the above two comments, unless one really believed in transformational presidencies.

Andrew Lahde's Farewell Letter

2008-10-18T18:31:00.000-07:00

October 17, 2008
Today I write not to gloat. Given the pain that nearly everyone is experiencing, that would be entirely inappropriate. Nor am I writing to make further predictions, as most of my forecasts in previous letters have unfolded or are in the process of unfolding. Instead, I am writing to say good-bye.

Recently, on the front page of Section C of the Wall Street Journal, a hedge fund manager who was also closing up shop (a $300 million fund), was quoted as saying, “What I have learned about the hedge fund business is that I hate it.” I could not agree more with that statement. I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.

There are far too many people for me to sincerely thank for my success. However, I do not want to sound like a Hollywood actor accepting an award. The money was reward enough. Furthermore, the endless list of those deserving thanks know who they are.

I will no longer manage money for other people or institutions. I have enough of my own wealth to manage. Some people, who think they have arrived at a reasonable estimate of my net worth, might be surprised that I would call it quits with such a small war chest. That is fine; I am content with my rewards. Moreover, I will let others try to amass nine, ten or eleven figure net worths. Meanwhile, their lives suck. Appointments back to back, booked solid for the next three months, they look forward to their two week vacation in January during which they will likely be glued to their Blackberries or other such devices. What is the point? They will all be forgotten in fifty years anyway. Steve Balmer, Steven Cohen, and Larry Ellison will all be forgotten. I do not understand the legacy thing. Nearly everyone will be forgotten. Give up on leaving your mark. Throw the Blackberry away and enjoy life.

So this is it. With all due respect, I am dropping out. Please do not expect any type of reply to emails or voicemails within normal time frames or at all. Andy Springer and his company will be handling the dissolution of the fund. And don’t worry about my employees, they were always employed by Mr. Springer’s company and only one (who has been well-rewarded) will lose his job.

I have no interest in any deals in which anyone would like me to participate. I truly do not have a strong opinion about any market right now, other than to say that things will continue to get worse for some time, probably years. I am content sitting on the sidelines and waiting. After all, sitting and waiting is how we made money from the subprime debacle. I now have time to repair my health, which was destroyed by the stress I layered onto myself over the past two years, as well as my entire life – where I had to compete for spaces in universities and graduate schools, jobs and assets under management – with those who had all the advantages (rich parents) that I did not. May meritocracy be part of a new form of government, which needs to be established.

On the issue of the U.S. Government, I would like to make a modest proposal. First, I point out the obvious flaws, whereby legislation was repeatedly brought forth to Congress over the past eight years, which would have reigned in the predatory lending practices of now mostly defunct institutions. These institutions regularly filled the coffers of both parties in return for voting down all of this legislation designed to protect the common citizen. This is an outrage, yet no one seems to know or care about it. Since Thomas Jefferson and Adam Smith passed, I would argue that there has been a dearth of worthy philosophers in this country, at least ones focused on improving government. Capitalism worked for two hundred years, but times change, and systems become corrupt. George Soros, a man of staggering wealth, has stated that he would like to be remembered as a philosopher. My suggestion is that this great man start and sponsor a forum for great minds to come together to create a new system of government that truly represents the common man’s interest, while at the same time creating rewards great enough to attract the best and brightest minds to serve in government roles without having to rely on corruption to further their interests or lifestyles. This forum could be similar to the one used to create the operating system, Linux, which competes with Microsoft’s near monopoly. I believe there is an answer, but for now the system is clearly broken.

Lastly, while I still have an audience, I would like to bring attention to an alternative food and energy source. You won’t see it included in BP’s, “Feel good. We are working on sustainable solutions,” television commercials, nor is it mentioned in ADM’s similar commercials. But hemp has been used for at least 5,000 years for cloth and food, as well as just about everything that is produced from petroleum products. Hemp is not marijuana and vice versa. Hemp is the male plant and it grows like a weed, hence the slang term. The original American flag was made of hemp fiber and our Constitution was printed on paper made of hemp. It was used as recently as World War II by the U.S. Government, and then promptly made illegal after the war was won. At a time when rhetoric is flying about becoming more self-sufficient in terms of energy, why is it illegal to grow this plant in this country? Ah, the female. The evil female plant – marijuana. It gets you high, it makes you laugh, it does not produce a hangover. Unlike alcohol, it does not result in bar fights or wife beating. So, why is this innocuous plant illegal? Is it a gateway drug? No, that would be alcohol, which is so heavily advertised in this country. My only conclusion as to why it is illegal, is that Corporate America, which owns Congress, would rather sell you Paxil, Zoloft, Xanax and other addictive drugs, than allow you to grow a plant in your home without some of the profits going into their coffers. This policy is ludicrous. It has surely contributed to our dependency on foreign energy sources. Our policies have other countries literally laughing at our stupidity, most notably Canada, as well as several European nations (both Eastern and Western). You would not know this by paying attention to U.S. media sources though, as they tend not to elaborate on who is laughing at the United States this week. Please people, let’s stop the rhetoric and start thinking about how we can truly become self-sufficient.

With that I say good-bye and good luck.

All the best,
Andrew Lahde

Andrew Lahde's Farewell Letter -

Gimme the next bubble!

2008-10-15T16:41:00.000-07:00

After a long sequence of not doing the right thing-s, our western world is headed if not down then lower. " Down" is probably too sudden relative to how history evolves and the preparedness of the Chinese, or lack thereof.

The "low," as I see it, can be described in terms of under-, and un-employment, but one can think of many other metrics.

In the US, even if the ever shifting targets of the (now) $700Bn TARP are reached, how does this address the more real problem of jobs creation? For the time being, the voices one can hear, from the House Speaker Pelosi to über-investor Buffet, sound optimistic about the financial prospects of the system and pessimistic about jobs.

So, one gets the feeling that the government has extricated itself from several of the responsibilities associated with running the state. We've come to rely on Wall Street to sort out most society decision-making needs--from pensions to child-care, from environment to efficient allocation of resources, from war to peace.

That free markets have more in common with flea markets than financial markets is a fact we painfully reckon with periodically. And, re-adjusting for such facts, read bailing the system out, is probably a tax on our beliefs (e.g. in smaller government) and hope that the next bubble will rescue ME. Somehow, the growing problem with Wall Street is that it needs more money each time it's crying for rescue.

Bush tried to privatize social security for he most probably learned about the real problem in the economy 8 years ago to these days. Failing to privatize social security, and succeeding only moderately to stimulate jobs growth with the Iraq War, he had given free hand to the bankers.

Yet, for people like us, the recession started in 2000-2001. By “us” I mean people who have not worked in: defense, real estate, healthcare (insurance, included), banking. Now, one can only wish the military Keynesianism had been applied towards national infrastructures instead of sand castles in Iraq…

Most probably, the upcoming elections will effect a kind of Keynesianism different from the one characterizing the last 8 years. If this is going to be the case, healthcare automation and alternative energy would be two areas where bubblets, if not bubbles, are likely to develop.

As a side issue, the huge size of our economic/financial actors has dealt these days' near fatal blow to our system, yet nobody seems to notice that most all solutions lead to even further size increases and fewer players.

Wall Street: How good of an approximation for market-based capitalism?

2008-09-23T18:57:00.000-07:00

Four months ago I challenged the LinkedIn community with a topic titled "Survival of Capitalism." Last week, one of my LinkedIn connections asked the question "Is capitalism dead?"

Needless to say, within the time between these two almost identical questions, the answers have taken quite different paths. Here's what I've learned myself, or how I replied to the second question:

There is a useful distinction between capitalism and free markets as illustrated by Arrighi and others. According to Arrighi, the US form of capitalism entered its final stage in the 1970s. Moreover, capitalism does not die, it just goes to live in another country, with better/more accommodating systems.

At this point in time, increasingly, the answer to your question is in the hands of the US creditor(s). They'll have an increasing say in how the capitalism evolves from here on.

On the other hand, I raised a very similar question to yours, about 4 months ago. I was not aware at that time of the distinction between capitalism and free markets, yet I felt there was something rotten in capitalism. Worth reading are all the answers at that time--see also the implicit "socialist" cries from folks in very regulated industries....

As I've been writing about markets and their actors for some time, allow me to reference the following: Wall Street: How good of an approximation it makes? ... for market-based capitalism?

“No Directions to the Solzhenitsyn(s)”

2008-08-04T08:30:00.000-07:00

my takes on the short and medium term future

2008-07-14T14:28:00.000-07:00

There is a lot of talk about the upward gyrations in prices and one can easily look for answers in whatever quarter suits one's taste. Here in the US, the loudest voice seems to attribute this to the growth in demand from places like China and India. Across the Atlantic, speculation is considered as source if the problem.

Recently, I wrote the following in response to a question posted on LinkedIn by a fellow professional (Would you agree with these predictions).

In the best case scenario, we are one to two years away from an unqualified uptrend.

Internationally speaking, follow: Iran-Israel-NATO, the ability and willingness of the Chinese to maintain growth in today's terms.

In the US, follow: elections, war(s) cost/debt, interest rates vs. inflation, policy, institutional restructuring, immigration.

Upon deciding which way the above variables are likely to swing, the particular answers to your questions come closer to one's reach. Right now, it is not the intrinsic state of any one economy that creates as much problem as the general level of uncertainty.

boltzmann's brain

2008-02-27T20:50:00.000-08:00

A recent NYTimes article on Boltzmann's Brain poses a few problems about our being (self aware as) the result of a stochastic fluctuation in the level of entropy, or the sense of time. Especially in our (en-)lightened cities, where star gazing has become a mere metaphor, such problems are as powerful as disturbing.

a world of change

2008-01-31T15:36:00.000-08:00

Amidst the electoral noise, ranging from Ron Paul's ghost state to John McCain's 100-year long involvement in Iraq, Waving Goodbye to Hegemony, a recent NYTimes piece by PARAG KHANNA, makes for a timely and noteworthy change in perspective. Even though business people are not its main target, they would learn a great many lesson, as well. In fact, the aforementioned article, together with works like The 86 Percent Solution: How to Succeed in the Biggest Market Opportunity of the 21st Century should give business people plenty of food for thought. Indeed, in a recent LinkedIn Q&A exchange, Steve Terry, President with Triact Associates, had to say the following about the The 86 Percent Solution:

I think the biggest challenge is for product marketing pros in the wealthy nations to get their minds wrapped around the daily concerns of folks with very litte money. Things we take for granted (reliable utilities, quality medical care, cheap transportation) are top-of-mind for the 86% of humanity.

If western companies don't change their mindset, or create subsidiaries to address these markets, the consequence is that producers in India and China will clean up. While we may think of China as the manufacturer for the (rich) world, their local talent is better able to imagine and design products for the 86% market than the industrial giants of the west.

And now, here's an excerpt with Parag Khanna's recommendations. See what's in them for you and your business.

Less Can Be More

So let’s play strategy czar. You are a 21st-century Kissinger. Your task is to guide the next American president (and the one after that) from the demise of American hegemony into a world of much more diffuse governance. What do you advise, concretely, to mitigate the effects of the past decade’s policies — those that inspired defiance rather than cooperation — and to set in motion a virtuous circle of policies that lead to global equilibrium rather than a balance of power against the U.S.?

First, channel your inner J.F.K. You are president, not emperor. You are commander in chief and also diplomat in chief. Your grand strategy is a global strategy, yet you must never use the phrase “American national interest.” (It is assumed.) Instead talk about “global interests” and how closely aligned American policies are with those interests. No more “us” versus “them,” only “we.” That means no more talk of advancing “American values” either. What is worth having is universal first and American second. This applies to “democracy” as well, where timing its implementation is as important as the principle itself. Right now, from the Middle East to Southeast Asia, the hero of the second world — including its democracies — is Lee Kuan Yew of Singapore.

We have learned the hard way that what others want for themselves trumps what we want for them — always. Neither America nor the world needs more competing ideologies, and moralizing exhortations are only useful if they point toward goals that are actually attainable. This new attitude must be more than an act: to obey this modest, hands-off principle is what would actually make America the exceptional empire it purports to be. It would also be something every other empire in history has failed to do.

Second, Pentagonize the State Department. Adm. William J. Fallon, head of Central Command (Centcom), not Robert Gates, is the man really in charge of the U.S. military’s primary operations. Diplomacy, too, requires the equivalent of geographic commands — with top-notch assistant secretaries of state to manage relations in each key region without worrying about getting on the daily agenda of the secretary of state for menial approvals. Then we’ll be ready to coordinate within distant areas. In some regions, our ambassadors to neighboring countries meet only once or twice a year; they need to be having weekly secure video-conferences. Regional institutions are thriving in the second world — think Mercosur (the South American common market), the Association of Southeast Asian Nations (Asean), the Gulf Cooperation Council in the Persian Gulf. We need high-level ambassadors at those organizations too. Taken together, this allows us to move beyond, for example, the current Millennium Challenge Account — which amounts to one-track aid packages to individual countries already going in the right direction — toward encouraging the kind of regional cooperation that can work in curbing both terrorism and poverty. Only if you think regionally can a success story have a demonstration effect. This approach will be crucial to the future of the Pentagon’s new African command. (Until last year, African relations were managed largely by European command, or Eucom, in Germany.) Suspicions of America are running high in Africa, and a country-by-country strategy would make those suspicions worse. Finally, to achieve strategic civilian-military harmonization, we have to first get the maps straight. The State Department puts the Stans in the South and Central Asia bureau, while the Pentagon puts them within the Middle-East-focused Centcom. The Chinese divide up the world the Pentagon’s way; so, too, should our own State Department.

Third, deploy the marchmen. Europe is boosting its common diplomatic corps, while China is deploying retired civil servants, prison laborers and Chinese teachers — all are what the historian Arnold Toynbee called marchmen, the foot-soldiers of empire spreading values and winning loyalty. There are currently more musicians in U.S. military marching bands than there are Foreign Service officers, a fact not helped by Congress’s decision to effectively freeze growth in diplomatic postings. In this context, Condoleezza Rice’s “transformational diplomacy” is a myth: we don’t have enough diplomats for core assignments, let alone solo hardship missions. We need a Peace Corps 10 times its present size, plus student exchanges, English-teaching programs and hands-on job training overseas — with corporate sponsorship.

That’s right. In true American fashion, we must build a diplomatic-industrial complex. Europe and China all but personify business-government collusion, so let State raise money from Wall Street as it puts together regional aid and investment packages. American foreign policy must be substantially more than what the U.S. government directs. After all, the E.U. is already the world’s largest aid donor, and China is rising in the aid arena as well. Plus, each has a larger population than the U.S., meaning deeper benches of recruits, and are not political targets in the present political atmosphere the way Americans abroad are. The secret weapon must be the American citizenry itself. American foundations and charities, not least the Gates and Ford Foundations, dwarf European counterparts in their humanitarian giving; if such private groups independently send more and more American volunteers armed with cash, good will and local knowledge to perform “diplomacy of the deed,” then the public diplomacy will take care of itself.

Fourth, make the global economy work for us. By resurrecting European economies, the Marshall Plan was a down payment on even greater returns in terms of purchasing American goods. For now, however, as the dollar falls, our manufacturing base declines and Americans lose control of assets to wealthier foreign funds, our scientific education, broadband access, health-care, safety and a host of other standards are all slipping down the global rankings. Given our deficits and political gridlock, the only solution is to channel global, particularly Asian, liquidity into our own public infrastructure, creating jobs and technology platforms that can keep American innovation ahead of the pack. Globalization apologizes to no one; we must stay on top of it or become its victim.

Fifth, convene a G-3 of the Big Three. But don’t set the agenda; suggest it. These are the key issues among which to make compromises and trade-offs: climate change, energy security, weapons proliferation and rogue states. Offer more Western clean technology to China in exchange for fewer weapons and lifelines for the Sudanese tyrants and the Burmese junta. And make a joint effort with the Europeans to offer massive, irresistible packages to the people of Iran, Uzbekistan and Venezuela — incentives for eventual regime change rather than fruitless sanctions. A Western change of tone could make China sweat. Superpowers have to learn to behave, too.

Taken together, all these moves could renew American competitiveness in the geopolitical marketplace — and maybe even prove our exceptionalism. We need pragmatic incremental steps like the above to deliver tangible gains to people beyond our shores, repair our reputation, maintain harmony among the Big Three, keep the second world stable and neutral and protect our common planet. Let’s hope whoever is sworn in as the next American president understands this.

Additional material: "Global trends," a McKinsey paper by Ivo J. H. Bozon, Warren J. Campbell, and Mats Lindstrand

Revival of US based manufacturing/assembly plants?

2007-10-24T12:37:00.000-07:00

Not that I am suspecting the US government to lead a de-facto low dollar policy to encourage US-based manufacturing, but sooner or later "Made in USA" or "Assembled in USA with foreign and domestic parts" may become again/more financially sound. Moreover, a Democratic Party electoral victory in 2008 will likely bring protectionism front and center, while war-related fiscal liabilities will be part of our national balance sheet for many an electoral cycle.

For more, check out this link with LinkedIn Q&A.

Wall Street: How good of an approximation it makes?

2007-10-24T10:07:00.000-07:00

... for market-based capitalism?

Hence, how sound is it to rely on Wall Street to sort out most society decision-making needs--from pensions to child-care, from environment to efficient allocation of resources, from war to peace?

Yes, this was another LinkedIn question, and the argument went as following:

The Great Depression also resulted in a series of regulations and institutions that have been held responsible for many an ensuing development--ranging from the WWII to a progressive and modern society/state. After the Cold War, especially during Clinton's/Rubin's time, many of the post-Depression era regulations had come undone. The new idea in town has been "self regulation" of the private actors. In the light of the several bailouts, critics of "self regulation" say that in fact we only socialized loss and privatized gain. In the light of the ever renewed debate, triggered by the sub-prime events, loss of pension and health-care benefits through bankruptcy, and the '08 elections' messages, an evaluation of all previous assumptions and statements is as timely as ever. So, what do you think, is self-regulation the way to go, assuming that market capitalism is here to stay?

For other perspectives, follow this link.

What has happened to Drucker's "knowledge worker?"

2007-10-24T09:47:00.000-07:00

A while back, in the Q&A section at LinkedIn, I asked: Had Drucker gotten it wrong?

I have a great deal of respect for Drucker's multi-dimensional approach to problem-solving. I also think of the days when access to the largest dynamos of economical power in the US was as open as the one enjoyed by the late Drucker. Moreover, Drucker's (and Toffler's) heralding of the knowledge worker has made for many a hopeful among the sons and daughters of the industrial (cog-)man. However, in this day and age, more are coming to question what happened to the knowledge worker as described by Drucker.

Is there something missing in:

Drucker's view;
Today's workers' knowledge; or
In today's economic system as re-defined by globalization?

Please note that Drucker had maintained his belief in the knowledge worker up until he passed away in 2005. So, he got to see how internet and globalization were re-shaping the organization--in fact, he had us aware of the new type of customer, as enabled by internet, and even recommended a new type of organization (collaborative rather than competitive).

For a discussion on the above, you may follow this link to LinkedIn.

The potion of today's money managersli·quid-i·ty?

2007-08-15T01:46:00.000-07:00

A hedge fund manager has recently asked the LinkedIn community the following: Do you have faith in Mr. Bernanke regarding the fate of the markets? I for one sure miss Mr. Greenspan. To which I replied:

Greenspan had developed an instinct for the markets that, together with his language and our cult for him, made him look larger than life. In fact, one could point to several directions he took the fiscal policy that were politically motivated. From his earlier time, recall the decision not to lower rates for Bush 41^st. He paid back to the Bushies though, when he offset the .com bubble with the housing bubble.

Bernake will either give us another bubble or will have to manage our paying the price for Greenspan's exuberance.

At a different level, considering the world of the investment professionals, it's obvious why Greenspan is that much better. However, in the face of the laws of economics, Greenspan failed big time. Bernake still has the chance of his professional life ahead of him as the subprime story unfolds.

P.S. Worth remembering is also the fact that a great deal of the economic rationale in communist/totalitarian regimes was to abolish the economic cycle...

The no more private in Private Equity

2007-07-26T06:28:00.000-07:00

Should you have some ties in your typical US public corporation, the type whose stock value has traded sideways and below some high point, you also know how one of the hopes espoused by the staff whose stock-option plan is underwater is that the white knight would come embodied by a hedge/private-equity fund.

That a large number of the hedge-funds or private equity groups are mere conduits into funny deal-making, which may already be the effect of too much regulation meant to outlaw stupidity, will be verified sooner rather than later. Give or take a mishap in the money supply and there we have the proof.

That a great number of your typical CEO in public companies has neither had business-compass nor found one puts some of the folks in private equity in real demand. Indeed, they have connections, are not hindered by much business-correctness, have IQs and cash above the standards, enjoy all the benefits associated with the cachet of exclusivity, and appear to be able to make things happen.

All the above being considered, not all funds are created equal. Those that enjoy the most their positions have come to a point where they offer (parts of) themselves to the publicly traded markets. Some view this as the ultimate sign of the liquidity bubble, for others it is an opportunity to invest--see China goes to BX. I, for one, raised the following question:

BX, FIG, LAZ--hedges against a downturn, or vehicles to chase a dream?

+: track record, talent, access, connections, speed, cash...
-: change in tax regime in the US, increased protectionism/oversight @ national levels, public perceptions, founders cashing out, crowded space, excess...

For some great answers from the LinkedIn community of professionals, click here.

Other similar topics (I) covered at LinkedIn are:

Any idea(s) about how the world will look like in the aftermath of the current private equity frenzy
BX to buy HLT--WHY?
What will be the ultimate effect of leverage within the financial services market?--I only answered to this one;
Hedge fund regulation -- what's next?--I only answered to this one.

And, for another set of views, have a look here: Behind the Buyouts: First Data It's interesting and necessary to learn the views of the labor unions as well. Since Hilton has a unionized workforce and Blackstone got the approval of the involved unions for its taking HLT private, what does this indicate?

Nota Bene: All the links provided here take you to LinkedIn, a professional network where access is based on a free membership. Should you have a problem with this yet still want to read through, just let me know. fCh

Sources of global instability

2007-06-17T20:29:00.000-07:00

The Q&A section of LinkedIn is a clever way to make professionals invest some of their most expensive time on activities with no immediate or clear return. One of the more recent questions was:

"From your perspective, what do YOU see as THE major source of global instability facing us? How would you overcome these instabilities?"

To which I replied:

According to Donald Rumsfeld's taxonomy,

1) As we know,
There are known knowns.
There are things we know we know.

There are only few universal sources of instability we can all agree on--e.g. death. Usually, one's source of instability leaves another indifferent and makes other prosper. For example, a gal in Africa may think AIDS is IT, while a British pal frets about global warming. Not to mention how one may think of globalization in the US or France vs. Chindia. Usually, these situations present arbitrage opportunities.

2) We also know
There are known unknowns.
That is to say
We know there are some things
We do not know.

We all know that everything comes to pass--even the supremacy of the US, or of the Chinese Communist Party. What we don't know is for how long the US can maintain its supremacy and what price is everyone party to the world order willing to negotiate. Accepting Chindia in the power structures (e.g. G8) could be a palliative.

3) But there are also unknown unknowns,
The ones we don't know
We don't know.

Here's where anyone's imagination goes wild. In addition to the usual suspects (a large asteroid will hit the planet, the oil reserves are depleted before we find alternative sources, global warming, etc.) I would add the unforeseen externalities of R&D, such as nano-X, stem-Y and younameit-Z. And here's where some science fiction writers (include today's prophets just as well) make their money.

In conclusion, absent of the crisis, there is no single source of global instability, but a myriad of them that keep testing out optimism.

I would add that it's interesting finding out that most people's opinions, on broad themes like the one above, tend to be skeptical in nature and embrace major views already circulating in mass-media. In other words, is it that media become somehow source for instability, or instability cannot become a problem unless acknowledged by media?

A pair of similar puzzles

2007-06-03T19:11:00.000-07:00

LinkedIn Question:

Without getting into idealogical battles, can you suggest models under which the "threat" can be effectively managed?

1. Terrorism is (largely) the act of stateless individuals/groups committing acts of violence against other individuals, groups and/or states. Given the completely amorphous nature of this form of activism - how does one effectively deal with the threat while preserving the very standards that the threat seeks to eliminate?

2. Open source software is the product of a stateless non-affiliated (corporately) group of individuals who self assemble on an ad hoc and as needed basis to produce an exceptional product that is distributed freely. The advantage over a corporate production environment is the ability for the open source "movement" to assemble huge groups of highly talented and passionate experts at the drop of a hat to solve problems or add features; whereas a corporation must manage operating expenses, adjust teams much more slowly (HR process), and is not as agile in terms of being able to accept or reject work at the drop of a hat. How does a corporation like Microsoft compete against a non-entity like open source without taking the battle to the point where the goal is to destroy the community that is the open source movement?

For comparison's sake - note the similarity in MSFT taking the war on OSS to the door of those entities that formed to make OSS more viable commercially (Red Hat, etc.) and the US Gov. taking the war on terror to the doors of those countries the (may have) supported terrorism. As I see it, in both wars - the true target is almost impossible to attack - so we find/fabricate a proxy and fight them instead.

Reply:

[...] with all due respect, I think your questions belong to a framework too anchored into the PRESENT. If the answers were to come from within the same framework, the actors might be advised to do more of the same. However, as the history teaches us, solutions exist always outside/transcend the present framework--the one that create(d) the very conditions of conflict in the first place. And, for the incumbents impervious to learning, seeking solutions outside status qvo is too much already.

Follow-up question:

Having stated that my problem is too PRESENT-focussed, can you provide an alternative model that isn't present focussed and that encompasses the issues at hand? Please clarify.

Follow-up reply:

MSFT and the US reached unprecedented peaks sometime in the last decade of the 20th century. Since, the question has been whether or not their success models run their courses. And, especially from the inside, it is very difficult to come to the conclusion that change is still necessary once you reach the top.

Open source and terrorism could be viewed as manifestations of the world's reactions to the status qvo (i.e. the current world order). The rise of Google and of the idea of 'multi-polarity' in world affairs, for example, could be two more, respectively.

Consequently, my professional and cultural biases notwithstanding, I would rephrase the questions you raised along the following line:

Is this entity well prepared to face challenge X? What's at stake?
If the entity is not prepared, what does it take and how can things turn for better or worse?

From the history, MSFT could learn from IBM, while the US from France in Algeria or UK in N. Ireland. This would be in addition to better listening to their organizations. Indeed, MSFT owes the success of X-Box in part to the fact that it was built outside its OS. Moreover, the US-Lybia opening owed also to communication between Ghadafi and the Brits.

As a side note, the funny problem introduced by your questions is that one person in the US may agree or not with MSFT, but most probably won't take the side of the terrorists. So, there is either a paradox, or an illustration of the saying "one's terrorist is another's freedom fighter." Needless to say, I enjoyed taking the time to think about, and reply to them.

Buffett on gold

2007-05-07T16:35:00.000-07:00

There is a lot of talk about investing in gold at this time. Thus, a late '90s remark by Buffett re-sounds as true as ever:

"[Gold] It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head."

Loss of Hard Core expertise in North America

2007-05-07T15:15:00.000-07:00

LinkedIn Question:

Loss of Hard Core expertise in North America

It is becoming clear that North American Technology Graduates are moving to Marketing and sales Job or otherwise not interested in Technical assignments.

What does this mean for Business and Economy for North American Software Business.

Reply:

1) I would have to say that the situation captured by your observation has to do with the reinforcing effect of the US' being #1--at least at a common perception level. Indeed, it's hard to change course, towards sustainability, while you can do no wrong.

2) It is not only that we are not doing as much science as we used to, but except for finance, entertainment, sports, and few other areas, what else do we do to the extent (of quantity and quality) we used to? Since not all professions are created equal, another reason for so being is what one may call social mobility fueled by professional change. Look around and chances are that smart kids go for law, medicine and finance. Not exactly the type of professions that reward double-e degrees.

3) How many talented physicists and electrical engineering graduates have been absorbed by Wall Street since the coming of, let's say, options and derivatives?

4) Electrical engineering is damn difficult to get into when primary education has been left wanting for so long.

5) Globalization will only accentuate what has already started (points 2, 3 and 4).

The value of paraphrase imagery

2007-03-22T12:26:00.000-07:00

Images supplanting ideas have been around for as long as we can remember. Here's the latest installment, coming from Phil de Vellis, concerning the Clinton-Obama growing rivalry:

This episode is exemplary for the new level of civic thought and action enabled by the internet. As well, it shows what YouTube, of which I wrote here, can be when it will have paid off the $1.7Bn Google bought it for. By the time of this posting, this clip has been viewed 2,075,594 times. Now, that's a novel model.

Before going into civic debates, have a look at the Apple Macintosh 1984 clip and see how little it took Mr. de Vellis to make his mark:

Whereas up until now such things were the domain of the 'pros,' now we have another level of democratization of the medium.

Hedging Options

2007-03-17T15:35:00.000-07:00

Just google "Buffett on derivatives" to see the latest on the subject from the Sage of Omaha. In theory, derivatives are financial means to manage risk by syndicalizing it. In practice, nobody knows how well they work when large scale panic selling and/or contagion hit the financial markets.

The recent worries about subprime lending in the house market, preceded by the Chinese sell off, has one ponder as whether or not these might be the signs for financial trouble that not only Buffett, but also Greenspan as of late, has been talking about.

If one considers the slowing of the house market together with the drop in durable goods orders (i.e. what goes with/into a new house), one may get a picture that's so much uglier than what one is normally told through the 'official' channels. To get an idea as how far and wide the subprime lending has gotten, consider the range of companies whose executives are called to testify in front of the US Congress: HSBCPlc (HSBA.L), New Century Mortgage Corporation (NEWC.PK), Countrywide Financial Corp. (CFC.N), General Electric Co's (GE.N) WMC Mortgage unit and First Franklin Mortgage (FFHS.O). Subprime lending has made for many a record high bonus on the Wall Street of the 2006's end.

The options for the US government are few and limited. It can raise or lower interest rates. If it lowers them, one side effect could be that houses keep appreciating--one source said that all the subprime lending problem would disappear if house prices went up by 10%. The cost of so doing is increased inflation, which has already been at work. Another casualty could be the mighty dollar itself, including its position for some treasury departments in the developing and oil exporting worlds. Raising rates is a an even less likely option for the current thinking goes that it would send the whole economy down, so it would be considered only if inflation was acknowledged as the bigger problem than the risk of recession. A third option would be to raise taxes. If the Democrats were in power, that would have been the way out of this situation. The Republican executive may decide though to creatively tax the US by going into Iran. Not counting the political evidence supporting a war with Iran, the economic rationale is there. The dollar would improve its safe haven status, the oil would keep transacting mostly in dollars, and a lot of the financial troubles that have been accumulating since Greenspan would be shouldered by us all in the form of war debt, or something along the lines of the war budget (deficit) for Iraq.

Consequently, some options for the individual investor become: defense companies, Swiss Francs, and US Treasuries. Before I forget, let's mention Red 22 in Las Vegas.

Global consumer trends

2007-03-07T17:38:00.000-08:00

Following is an excerpt from a McKinsey Quarterly survey about various changes over the next decade. However pertinent and intuitively valid, these projections are silent on two dimensions. Nothing is said about the future of digital products and the middle class from the developed nations, respectively. The digital goods' likely evolution will marked by defiance of intellectual property rights until the developing countries become themselves generators of digital goods. If what goes on in the US consumer market is an indication for the future, the middle class consumer in the developed nations and the consumers in developing nations will likely be increasingly alike. And, considering their prediction, this might have been the working assumption of the McKinsey consultants. However, the European consumer, given the protectionism in the EU market, looks differently.

A changing consumer landscape

Economic growth in the developing world will usher nearly a billion new consumers into the global market-place over the next decade, as household incomes reach the level (around $5,000) associated with discretionary spending. Although these consumers will have less spending power than do their counterparts in the developed world, they will have similar demands as well as access to global brands. Many industries therefore face polarized markets where premium and no-frills offerings are squeezing middle-of-the-road ones.

This polarization will become a fact of life throughout the materials sector as well. Consider the automotive industry, which is largely concentrated around two kinds of vehicles: high-volume, low-cost models and premium luxury ones. Materials providers will benefit if they can offer auto-makers differentiated products—say, for lighter bodies with improved fuel efficiency. Likewise, specialty providers of high-strength steel and aluminum are harnessing technology to create captive markets among luxury carmakers. Similarly, paper manufacturers have profitable niche opportunities to design innovative packaging for makers of consumer products such as ice cream or potato chips.

In fact, premium niches represent important opportunities for producers of aluminum, paper, and steel as they find themselves squeezed by high input prices, the substitution of materials when customers attempt to slash costs, excess capacity, and tough competition. Winners will increasingly need to play the role of productivity-improvement partner to their customers—by offering services, for example, or helping in areas such as product design.

"Global trends" by Ivo J. H. Bozon, Warren J. Campbell, and Mats Lindstrand

Some thoughts before the opening bell

2007-02-28T20:14:00.000-08:00

Nobody knows the extent to which the recent stock-markets "correction," which began with the Chinese bourses, was due to anyone from the so many objective factors, such as Chinese overheating, American economical slowdown, or global excess liquidity.

Of significant relevance I find a subjective potential factor and an anecdote. Just before the Chinese sell-off, Greenspan said via satellite link to a business conference in Hong Kong the following: "When you get this far away from a recession, invariably forces build up for the next recession, and indeed we are beginning to see that sign. For example, in the US, profit margins have begun to stabilize, which is an early sign we are in the later stages of a cycle." The, otherwise widely circulated, anecdote has it that a certain Li Ruichang, a 63-year-old Chinese engineer and speculator, stated the day after the fall of the Chinese bourses that: “Things like that happen. But I’m not worried about a crash. After a five-year-long bear market, the bull market shouldn’t end that fast.” I should add that Mr. Li's statement came a day after the sell-off, as the Asian and European bourses were still falling while some in China regained some of the losses. Before the sell-off, the Chinese major indexes were twice as high as 12 months before. In any case, for some, the strength of the Chinese stock market consists of its number and determination (not to lose) of investors.

As if encouraged by the second day gains in the Chinese and US stock-markets, officials put out several soothing messages. The Chinese regulators gave up on plans to curb speculation and were ready to consider opening their stock markets to foreign investors--it would be interesting to see if foreign speculators get any special treatment. In the US, Ben Bernake, chairman of the Federal Reserve, said that one could reasonably hope for a stronger economy by mid-year IF housing stabilized, and IF manufacturing improved. So far, his twice-conditional message has been taken as support for the rally.

But then again, what's a stock market if not a conspiracy of hopefuls? One would only have to distinguish among the types and motives of hope, and then check for alignment between their own and the economic realities.

On a final note, it's ironic how globalization has been considered to transcend stock-market rules, just as increased productivity driven by technology had been until (twice in) 2000.

Market failure vs. Regulatory failure

2007-02-13T07:53:00.000-08:00

The long journey of the New York Stock Exchange (NYSE) from demutualization to a reverse-merger IPO, and on to the merger with Euronext, and to the alliance with Tokyo Stock Exchange (TSE), will make for a fascinating subject of many a business history book. Deutsche Börse and London Stock Exchange (LSE) will make for interesting collateral damage and props, respectively. It should be noted that NYSE has had a regulatory role in addition to its being a market for securities.

Equally interesting is the trajectory of the big i-banks relative to NYSE. Exemplar is Goldman Sachs (GS), which has placed its people and made money on ALL sides of the NYSE-related transactions, ALL the time from demutualization until last Friday when one of its analysts, by downgrading NYSE, sent its stock price (NYX) down. To return to the i-banks, they are forming what seems to be an exchange, separate from NYSE, to make sure they get the best service at the lowest cost. Thus, a question arises: Do we face a failure of the market, or a regulatory one?

Indeed, while the banks had been the NYSE patrons, the Exchange could do no wrong. Then the banks got out of NYSE, making lots of money, so that NYSE could do its job better--faster and cheaper trades. However, since the banks want to set up a separate exchange, inscrutable to you and I, is it that they don't trust either the open markets or the regulation that comes with open markets?

21st Century

2007-02-06T09:42:00.000-08:00

Our communication - Wireless
Our dress - Topless
Our telephone - Cordless
Our cooking - Fireless
Our youth - Jobless
Our food - Tasteless
Our labor - Effortless
Our conduct - Worthless
Our relation - Loveless
Our attitude - Careless
Our feelings - Heartless
Our politics - Shameless
Our education - Valueless
Our follies - Countless
Our arguments - Baseless
Our boss - Brainless
Our Job - Thankless
Our Salary - Very less
Our Future - Hopeless!

Have a good day, with LESS problems!

Opportunity Cost of War vs.Military Keynesianism

2007-01-17T20:09:00.000-08:00

Click on the image to expand
Source: What $1.2 Trillion Can Buy (NYTimes)

There has come the time for people to ponder war and its opportunity costs. For a comprehensive view on the cost of another war of sorts, check out this title: The Fifty-Year Wound: How America's Cold War Victory Has Shaped Our World

Change of ownership, change of fortunes

2006-12-08T15:26:00.000-08:00

Who can tell the extent to which private/hedge funds owe their popularity to Sarbanes-Oaxley? Their coming into being could be attributed to urges similar to those that once made Enron popular, while the success of many may well lie with Sarbanes-Oaxley, the very act meant to prevent another Enron. This is to say that private/hedge funds can do what your regular financial institution could not even dream of after Sarbanes-Oaxley. Indeed, who doesn't know that what is not allowed for some becomes source of profit for others?

Signs of the popularity of the funds abound. For one, it is the sheer size of the funds phenomenon, there are about 9000 of them, with total assets of more than $1.2 trillion. Then there are the seasoned managers and deal makers leaving established businesses and financial organizations to join the funds. The investor public is also an increasing part of this, directly or not, knowingly or not, via either direct investments or the very pension funds they send money to every month, respectively. And, as if to take their popularity to the bank, some funds began offering themselves to the largest investor public there is, the public markets of capital.

Despite their popularity, when the amount of assets of the funds is considered in conjunction with leverage, or the absence of oversight, one can only rely on metaphors to describe their risk for anybody ranging from the individual investor to the whole economy. For a very interesting and multi-faceted conversation about funds, have a look at the comments following Hedge Funds Go Public, Culturally and Literally , in the DealBook section of NYTimes.

Market Realist goes as far as drawing an analogy between the conditions surrounding today's hedge funds and those that generated the 1929 crash, chief amongst being leverage. The second comment down, G. Gekko's, is a sensible and insightful analysis, followed by your own' s truly. My point is that by their going public, some of the best performing funds may signal the end of the party.

One can only hope we won't (be in a position to) know the risks associated with hedge funds before some form of oversight becomes the norm.

Due Credit

2006-11-29T19:37:00.000-08:00

Much of the credit for winning the Cold War has gone to the late U.S. president Ronald Reagan. And deservedly so. Too little consideration and credit are accorded anymore to the last Soviet president, Mikhail Gorbachev. Had the world, and Mr. Reagan for that matter, had the misfortune of a leader like Brezhnev at Kremlin, we would have lived in a much less desirable world since 1985 onward. Indeed, our chance was that Mr. Gorbachev was both visionary and skilled politician. Visionary in the sense that he aimed for a better world, and skilled for his maneuvering change at so many levels in USSR, despite having so few allies and many adversaries.

Visionariness and skillfulness are not the notions usually associated with Gorbachev. Instead, most point to his quixotically trying to reform the CPSU from inside the party or to the apparent failure to hold the Soviet Union together. While I don't think he could have survived his adversaries, until august 1991 that is, from outside the CPSU, the dissolution of the USSR was the best outcome for all in final analysis.

Before we can learn more from the historians, it's worth having a look at a recent article from Der Spiegel based on Politburo minutes taken by a Gorbachev aide. The Politburo minutes are revelatory for Gorbachev the visionary and the skilled.

To each according to their dream?

2006-06-19T15:29:00.000-07:00

Upon learning about the French students' violent reactions to the proposed labor reform--whereby employers would have had to option to lay-off the newly hired any time during the first two years of employment--I thought to myself:

How can it be that smart and educated people, who take the brunt of high unemployment, are so reactionary to a proposal addressing their problem and supported by most evidence?

Then I started pondering: How similar are the French youth and their American counterparts? The former appear to embrace the statist model, despite data pointing to its lack of sustainability. In turn, the latter appear to dismiss the inequality-attribute with which the US is associated, and are firm believers in the American Dream, despite indications that fewer and fewer have been achieving it. To return to the question, an answer could be deduced from the success ratios with which the French and American youth fulfill their aspirations. Alas, such answer would say little about the costs of failure or the attributes of those aspirations--e.g. how great or noble they are.

On the one hand, making it in today's France consists of: an undistinguished job for life, with lengthy vacations and no overtime, and mostly undifferentiated access to good education, healthcare and pension. On the other, failing the American Dream will not only make one's net worth so much less than Bill Gates' or a regular partner's in your typical i-bank, but most likely affect one's education, healthcare and pension. Thus one may conclude, once again, that the French are risk-adverse while the Americans are gain-seekers.

Knowing how human loss-aversion is, not only can one see how different the Americans are, but also why the French youth feel entitled to the French Dream; In both instances, at least for as long as the laws of economics permit.

He's got people pondering... again

2006-04-04T20:44:00.000-07:00

Incomplete word has come out about the latest Warren Buffett financial maneuver:

A $14 billion bet on the global stock market. Berkshire sold a form of insurance to buyers who wanted protection from a drop in "four major equity indexes" over the next 15 to 20 years. Instead of buying the individual shares, Buffett is wagering the indexes, three of which are outside the United States, will not fall and force Berkshire to pay a claim. The stock-index contracts - derivatives that function like put options - increase Berkshire's risks from market losses. A 30 percent decline in each of the indexes last year would have led to a $900 million pretax loss for the company, according to the March 7 SEC filing. Berkshire's "maximum exposure" was about $14 billion at the end of last year,
the filing said. (Source: IHT)

I picked up from a NYTimes blog the following two comments:

What can a lowly non-investor (and non-economist) add to the cogent commentary on this ground-breaking event. As one of the planet's wealthiest is embarking on a yet another exotic plan to add zeros to his bottom line, the usual sycophants (the true economic zeroes) are predictably lining up to butter his fanny. The oh-so-small-and-meaningless amongst us seem to feel that by debating the continuing efforts of a classic robber-baron that they are somehow involved in the process. Much as cows feeling empowered by the economic vagaries of the meat-packing adistributionion industry. In a time of incredible usurpation of human rights and the uttdiminutionion of learning, intellectual pursuit and the arts, maybe it is time for the expression of righteous disgust at not just the robber-barons but the worshippers of the golden idols.
Comment by big gee

[...] big gee, while I can't speak for anyone else, there are 2 reasons beyond syncophancy to follow Mr. Buffet: one, he is remarkably prescient and two, he is the Michael Jordan of money. Watching him play the game just leaves us normal people awestruck.
Not that I would want to be him, or that I admire him personally, necessarily. After 120 years, he too will learn the Wisdom of Koheles.
Comment by Steve

Without necessarily aiming at being Solomonic, aren't they both right?

The world of today through the lens of 2020

2006-03-30T22:05:00.000-08:00

Foresight 2020--Economic, Industry and Corporate Trends is a 99-page study, released this month by the Economist Intelligence Unit (EIU). This is the result of EIU's surveying 1,656 executives in 100 countries and in-depth interviews with executives, analysts and policy makers in late 2005. About a third of the subjects were CEO's. The respondents were from: Asia-Pac (30%), Europe (34%) and North America (27%).

According to a press release by Cisco, the sponsor of the study, the key findings of the study include:

Economic growth is expected to remain robust over the next 15 years with the United States, China and India accounting for more than 50 percent of all new growth. Overall, global gross domestic product (GDP) will grow at an annualized rate of 3.5 percent.
The U.S., which will account for 16 percent of the world's economic growth, will continue to outpace other major developed economies between now and 2020. U.S. growth will be driven by its ability to continue to add knowledge workers to its workforce that are strong in skills such as collaboration, communication, decision-making and leadership. In addition, the U.S. will benefit from interaction-based productivity from continued investment and use of information technologies.
By 2020, China's economy measured at purchasing power parity (PPP) exchange rates will be on par with the United States and Asia's overall share of the global economy will rise to 43 percent from 35 percent currently. During this growth period, China is set to have the second largest consumer market and will have the largest tech sector.
471 million net new workers will enter the global workforce, with India accounting for a remarkable 30 percent (142.4 million). China will account for 65 million, with the United States the third-largest contributor with 12.5 million new workers. The EU will experience a growth of 8.4 million workers. The overwhelming majority of new U.S. and EU jobs will be in the service industry.
While price and quality will continue to matter, more than 90 percent of those surveyed believe the importance of the personalization of services will increase dramatically as interactions and customization become vital components of both customer service and worker behavior.
As automation of process becomes more prevalent, companies will increasingly seek competitive advantage by enhancing the productivity and growth of knowledge workers. Among survey respondents, the greatest area for productivity gains is knowledge management. Technology spending will shift to enable knowledge workers to do their jobs better.
The nature of the workforce will continue to change. Two-thirds of executives expect flatter organizations in which independent decision-making and collaborative environments will be the norm. These changes will require a new approach to organizational management and human relations. Customers and suppliers will become more involved in product development, cross-functional and cross border teams will work together more frequently and partnerships with other organizations will proliferate.
While its income per head will lag behind, by 2020 China will be on par with the United States as the leading consumer market. China's share of global consumer spending will nearly triple in the next 15 years. Asia overall will be the largest consumer region. For example, by 2020 Asia is projected to account for 38 percent of all car sales, nearly double current levels.

It is known that people overestimate the speed of change, while underestimating the amount of change, when asked to describe it into the future. From the very perspective of 2020, I would personally be inclined to look at the results of this study more in terms of the chatter occurring during a Freudian session. They may well be the result of too much googlism combined with the effects of delayed diffusion of western fads into the rest of the world. Provided that history flows linearly from here, they look more like buoys for where the minds of the world's economic leaders will be over the next 5 years: collaboration, personalization, organizational flattening, knowledge management, etc. Otherwise, there is little attention given to environment or the negative externalities of doubling the current levels of, say, cars. Oh well, absent surprise, who can say optimism isn't better?