The Other I

February 1, 2017

The Times – They are a-changing

Filed under: Growing Old,The Economy: a Neophyte's View — theotheri @ 5:14 pm

Image result for birthday cakeI have the feeling that the changes that are taking place in my own life keep galloping ahead in the same way that the world is changing.  On the one hand, I feel such a small part of our globalized world, and at the same time as I listen to the world news, it feels like a mirror of my own life these days.

As I’m studying political and economic events, I’ve realized that the world has gone through fundamental changes like this before.  And it’s not going to stop.  It isn’t just the industrial revolution that was so revolutionary.  There are events like this as far back as we can see.  The Black Death killed somewhere between 30 and 50% of the population.  By the time it had subsided, people had lost their faith in the promises of religious leaders and the political power of the Roman Church had been profoundly undermined, eventually reduced to a small country we now call “The Vatican.”  And because workers were now at a premium, serfs were freed from their economic slavery, able instead to offer their services to whomever paid them the most.  That might have meant freedom, but it was also a loss of security that people had relied on for centuries.  Then the confirmation that earth could be circumnavigated changed trade, and introduced a new kind of serfdom, slavery in which people were shipped like bags of coal dumped into the bowels of ships.

Today we are entering into mega-changes brought about by two forces.  The first is not, as Trump thinks, the destructiveness of global trade.  The movement of multi-national countries returning to their home bases began some years ago.  Companies are discovering that with new technological developments, companies that are selling what they produce in their countries of residence are more productive.  The force that is going to change things so drastically around the world is technological creativity, not international trade.

Widespread electricity isn’t a century old, neither is the car, but most of us take these changes as old hat.  Even the internet feels utterly familiar to millions of people.  But the changes that technological developments are going to continue to bring about in the work place and even in our home lives are going to continue to race ahead.  The unemployed factory workers of today aren’t going to get their jobs back.  But even people who are employed today are going to find that if they don’t keep learning all their lives, they are also going to be in the same unemployable position before they are ready to retire..  Work is changing and it is going to continue to do so at increasing pace.

The second force that is going to change our lives for the foreseeable future is climate change.  It won’t go away just because Trump says he doesn’t believe in it.  Droughts, floods, temperature changes, rising sea levels, storms are going to bring about changes in the kinds and places where we can produce our food, in the kind of houses we can live in, in our water sources, even where human habitation is possible.

None of us is going to live long enough to see these forces through to their finish.

My own hope is that somehow our creativity will outstrip our ignorance, and that our love for our fellow man will outstrip our impulse to pick up our toys and go home and slam the door.




January 17, 2017

The world’s 8 richest men

Oxfam has just published figures suggesting that the world’s 8 richest men own between them as much as the poorest half of the entire world.  Whether these figures are exactly right is questionable, but the evidence is pretty strong that the world’s richest people have so much more wealth as the poorest as to be shocking.

In outrage, the article is suggesting that these rich men are unethical grabbing tax cheats.  They did not refer to the possibility that any of these super-rich people may have made a valuable contribution to our ways of life in the modern world.  Instead, they simply argue that governments world-wide should agree to close tax loop holes and safe havens where these fortunes are stashed away.  Taxes should be given to governments to spend on the poor and starving.

If only the solution were  so simple.   It’s not for me

Yes, the tax systems too often favour the rich and I strongly support changes.  I would especially support (as does Bill Gates, by the way) a limitation on tax-free inheritance.   But that isn’t going to come close to addressing the essence of the challenge of poverty.

Bill Gates and Warren Buffet, for instance, are two of the three of the world’s richest men.  They also spend billions (yes, billions) of dollars a year on charitable organizations dealing with, among other things, global health.  Do you think it would be better spent in the hands of government?  I’d much prefer this wealth is in the hands of Gates and Buffet than in the hands of most of the governments where the poorest people live in Africa and other of the world’s poorest countries.  The chances are too great of taxes collected by governments in these countries for “the poor” ending up in overseas bank accounts of government officials.

Image result for money tree

Yes, corruption exists in the developed world.  But research suggests that the biggest cause of economic well-being is not natural resources, population density, or even educational levels, but a commitment to the rule of law and strong institutions.

Jeremy Corbyn, the current head of the Labour government here in the UK is suggesting that along with increasing taxes on the rich, the government should cap how much any individual can earn.  I agree that what he calls the “telephone number earnings” of many CEO’s is mind-boggling, particularly when they sit atop companies with workers barely earning a living wage.  There might be a place to find ways to support the increasing pressure coming from shareholders to address this exorbitant inequality.

But I would be loathe to put a cap on the earnings of some of society’s most creative, innovative, intelligent, hard working individuals who are meeting needs and creating opportunities that in profound ways are making the world a better place.  And many of whom are contributing significantly with their earning to improving our environment, educational systems, health, and working conditions.  Gates & Buffet are not the only ones doing so.

We need to resist the  temptation, I think, to believe that the answers to all our problems lie in changing the system without the constant ingenuity, dedication, and drive of the individuals who comprise it.  That’s all of us.

Even the little people like me.


October 22, 2016

Why I still like capitalism

Filed under: Just Stuff,The Economy: a Neophyte's View — theotheri @ 4:45 pm

Before I say my few words about liking capitalism, let me begin by saying that I am fully aware that sometimes it is not perfect.  In fact, sometimes it is simply awful.  It is a system that can run awry, motivated by unbridled selfishness and destructive greed.  It can, and has, been a system which can trap people in terrible poverty and suffering.  Capitalism is a system that cannot be let to run free of any social discipline and government controls.  It is one that sometimes fails people and where safety nets by social services are sometimes needed to provide the basic necessities of life, including food, shelter, medical care, and education.

Capitalism is a system that always has risks, because it allows people to try out new ideas.  And those ideas might fail.  So capitalism needs constant surveillance to guide or even reign in ideas, businesses, banks, or any organization that become too destructive, too domineering, too controlling.

Image result

Having said that, I still think capitalism is the best system we have devised so far for the welfare of humanity.

When I was young and still ignorant enough to think I had all the answers, I thought that it was possible to set up a system where the risks of capitalism were eliminated.  In other words, I thought Utopia was possible.  I flirted with communism, and various versions of dogmatic socialism that remain popular today.

I abandoned communism and most forms of rigid socialism because they did not permit people to think for themselves, and because by the time I was in my 30’s, it was clear that it did not work any better at eliminating poverty than capitalism.  In fact, capitalist countries with democratic governments were providing a higher quality of life than communist-led countries.

I was also influenced by my nine years living in an order of nuns committed to helping others.  It was a rule-oriented life, highly disciplined and organized.  It wasn’t too different from living within the military, except that our goals were to serve the poor.  But room for creativity, for spontaneous acts of kindness – telephone calls, conversations, letters, even had to be made within certain guidelines – were severely limited.  (In the order of nuns I was in, that has changed very substantially, but Rome doesn’t like it, and would like to put all nuns back in their full religious habits and kept within bounds.)  But one of the things that convent life taught me was that all the answers can’t be found by confining people within rules, no matter how well-intended.

And today I read two blog posts that made me want to ring the bells for capitalism.  They gave examples of ingenious kindness that I think are far more possible within capitalism than within strict systems, even if those systems are deliberately designed for the good of all.  One post is from Help Scout, 10 inspirational stories of customer service, the other is about customer service that simply incorporates thoughtfulness.

There are thousands of examples like these, of course, but I read each of them and danced.  I’d love to hear if you do too.

Thank you to Raghu, author of About This and That, one of my favourite reads who sent me to the posts above.


August 12, 2016

I don’t believe that

Filed under: The Economy: a Neophyte's View — theotheri @ 3:26 pm

The more we understand about human intelligence the more we realize how much room for doubt there is in our conclusions.  But it seems to me that whether it be in relation to religion or science or politics, I’ve been hearing “I don’t believe that” more often these days than I used to.  Why?

There is always room for legitimate doubt in whatever field we look.  Science is based on observable evidence, and as our observations expand, so do our interpretations.  Which means that what we think of as “facts” change, and science is constantly re-assessing the validity of earlier conclusions.  Today, quantum physics and the Standard Theory, both theories about the very nature of matter and the universe are not even in agreement with each other, and both are being questioned by recent findings.

But the areas of scientific dispute are almost without end.  Is drinking alcohol in moderation good for health?  What about fats?  or more than 3 eggs a week?  or various grains?  or super-aerobic exercise like jogging every day?

Religion, of course, is a completely different matter.  Religious beliefs, by definition, cannot be verified.  They are accepted on “faith” without proof.  Believers think that their beliefs are divinely revealed and  are the true ones, but since so many religions believe so many contradictory things, somebody must be wrong.

So how do we decide what it is that we believe, or not believe?  And what determines how certain we are that the beliefs we hold are right?

I don’t know the answer to this.  When I was young, I thought it was a question of intelligence and education, but that obviously isn’t so.  It’s partly culture, both secular and religious.  I was reared as a Roman Catholic, which argues even today that it is the one and only true Church.  As a young person, I thought, therefore, that I had all the right answers to all the fundamentally important questions.  Today, I see the Church’s position as limiting.  (I would even use the words arrogant, destructive, and ignorant, if I might not be misunderstood to be saying that all Roman Catholics are arrogant and stupid, which obviously they are not.)

Of course on a daily level we cannot go around questioning every aspect of reality.  If we did we’d never get anything done.  But we are engaged in mass killings of our fellow human brothers and sisters simply because they disagree with our religious or political beliefs.   Why are we so varied in our ability to tolerate uncertainty on such a profound level?

In part, I wonder if it’s economic.  In societies where men, particularly, cannot get employment, religious and political fanaticism seems to proliferate.

If that’s so, then understanding economics and creating systems where swathes of the population are not disenfranchised is critically important to human survival.  It’s what America thought capitalism was about, but research shows that it is not as automatic as we thought for so long.  Without government intervention, the wealth of that 2% may be entrenched.  Creating equality is what Communism set out to do as well, but it also has not succeeded.  The temptation of various forms of contemporary socialism is to take from the rich, variously defined as anything from the top 2% to anybody who has more than anybody else.  And I’m dead wrong if Trump has the answers to “make America great again.”

In the long-term, we have not yet found a system that sustains development and opportunity across the board.  But in my old age, I find myself tending to study the problem from the point of view of economics rather than from theological or psychological perspectives.





June 29, 2016

Still learning

When I was a university lecturer, I found that I learned a lot by giving lectures, because in the process I inevitably kept thinking, not only from the questions my students asked but from the additional questions the process of interaction stimulated.  I doubt many students knew it, but I was paradoxically learning as much as they were.

I am not an economist – to my frustration sometimes as I try to understand this world – but have been experiencing a similar learning process as I did as a lecturer as I am writing now about Brexit and its global implications.

I said in an earlier post that the issues underlying Trump’s “make America great again” were radically different from the sovereignty issues raised by membership in the European Union.  Yes, on one level it is.

But digging a little deeper, Trump and Brexit are responding to similar economic and political issues exacerbated by the globalization of capitalism.  Specifically, the working class has been disenfranchised either by an influx of immigrants from poorer countries taking the jobs of locals because they are willing to work for less pay under less salubrious conditions.  Or factory work and increasingly services have been outsourced to countries where workers are paid less, and their products shipped back to Britain or the U.S.  This has not protected the working conditions of those who are actually doing the work either overseas or as immigrants, and it has put thousands of non-immigrants out of work or reduced their pay and working conditions dramatically.

At the same time, management and those at the top of international corporations are reaping the profits.  Since the early 1980’s, incomes of those at the top of the ladder have increased dramatically while those further down have not kept up with the cost of living.  So today the gap between the upper and lower classes is greater than it has been for close to a century, and the middle classes are being gutted.

So prejudice and bigotry and the increase of hate crimes particularly among the working classes against those labelled as outsiders is understandable.  But something has gone terribly wrong with the system.  Unfortunately, neither the Brexit or Trump campaigns to slam the door shut against immigrants is  a solution and will not return prosperity to either America or Britain.  But far left-wing socialist systems tried and still being tried throughout the world have not been the solution either.  Somehow, they too produce an elite while too many workers had little freedom of choice and few opportunities.

thomas-piketty.jpgToday, Thomas Piketty, a leading left-wing economist, resigned as an adviser to the Labour Party for its failure to effectively fight against Brexit in the referendum debate.  He’s got some interesting ideas and I’m looking forward to reading his thoughts over the coming months.

Now I’m going to try to restore a little sanity, and watch Wimbledon tennis.


June 25, 2016

All the King’s horses

Humpty Dumpty sat on a wall

Humpty Dumpty had a great fall


Some of the implications of Thursday’s referendum in which Britain voted to withdraw from the European Union are beginning to emerge with some frightening possibilities.  The Brexit leaders are now saying that two of the most convincing arguments for withdrawal are false and the claims should never have been made.  They say that immigration from other EU countries is unlikely to be reduced significantly, and the weekly additional £375 million promised to the National Health Service was “a mistake,” and will not occur.

People living in Cornwall, a region in southwest England which voted for Brexit and which receives significant money from the EU are only now realizing that these funds will no longer be paid.  They say they expect London to pick up the tab.  Airlines  will no longer be permitted to fly between the UK  EU countries without authorization as “foreign planes.”  Tour companies are already raising their prices, there will no longer be automatic health insurance coverage for UK citizens travelling or living in the EU, UK driver’s licences will not be valid on the continent, and of course, UK passports will no longer include automatic admittance into or out of EU countries.  Moody’s has downgraded the UK’s credit rating and Standard & Poors says they are considering a similar downgrade.

Some people are already regretting their Brexit vote, thinking it was a protest vote that would never pass.  More than a million people have signed a petition asking for another referendum.  Even Boris Johnson, the leader of the Brexiteers and probably the next prime minister, is saying that there’s no hurry to extradite ourselves from the EU.  Personally, I tend to give credence to those who suggest that he never expected to win, but was merely positioning himself to run as leader of the Tory party and prime minister in 2020.

Nothing would please me more than to be dead wrong.  But I fear what has been done cannot be undone and that Britain has inflicted a great wound upon itself.

And all the King’s Men

And all the King’s Horses

Couldn’t put Humpty Dumpty together again

June 24, 2016

Brexit the morning after

I was up an hour earlier than usual this morning, and was stunned almost speechless to see the Brexit result.  My thoughts are now tumbling on so fast that I don’t know where to start.

As I made clear in my last post, I was committed to the Remain-in-the-EU side because, although I deeply appreciated the limits of the EU, I thought Britain would be in a better position to influence change – for itself, for the EU, and for the world – in rather than out of the EU.

But probably the most appalling thing I heard today was from Donald Trump who claims that it was his influence that swung the British to the Brexit vote, and that he now wants to instigate the same thing in the USA as president.

Why is that so appalling?  First, because I assure you Trump did not swing that vote.  Hundreds of thousands of British people signed a petition asking that he be barred from ever coming to this country.  And because the issues over Britain’s position in the EU are in no way the issues facing the US.

The essential problem for Britain in relation to the EU is a democratic deficit that the US would never tolerate.  The US would not tolerate another country telling it that it MUST accept any migrants from 26 other countries who wish to live there.  It would not tolerate a ruling that convicted criminals – rapists, murderers, gangsters – may not be deported back to their own countries after they have served their sentences if it would “violate their human rights.”  In one case, the human right being violated was that the ex-convict would be separated from his pet cats.  (I kid you not.)  The US would not tolerate thousands of dictates a year from an un-elected bureaucracy in another country which they are bound to implement.  Everything from how much cargo must be carried on trains to the size of pans one may use in their kitchens.  The US would not tolerate a Supreme Court making the final decisions about whether its laws are legitimate.

Nor was this vote primarily motivated by bigotry or racism or religious intolerance.  It was a vote about sovereignty.  As one person said to me yesterday at the check-out counter of our local farm shop:  “It’s about making our own rules for ourselves.”

In any case, the decision has now been made, and the implications are huge, if not yet clear.  Both the Tory and Labour parties here are already feeling the repercussions.  So have the pound sterling and the stock markets.  How it will eventually affect the economy here is unclear.  Will it eventually break up the United Kingdom?  Scotland says another independence referendum is now on the cards, Northern Ireland shares an open unmanned border with Ireland which is member of the EU, a problem which must be addressed.  Hundreds of issues in relation to trade with the EU and with non-EU countries around the world will need to be negotiated.  And the EU itself, deeply shaken by this unexpected vote, must decide how to relate to an independent Britain and its effect on countries already within the EU that also want big changes in relation to the authority in Brussels.  The EU itself may not survive.

Enough blathering for now.  I am now off to have a Friday gin & tonic, followed by some very English fish & chips.

June 21, 2016

BR-Exit or BR-In?

Flag of Europe.svg        or       Union flag 1606 (Kings Colors).svg

The day after tomorrow is the referendum in which Britons decide whether to stay or leave the EU.  I decided years ago not to make this blog into a political commentary since I would inevitably be repeating what those closer to the source would be writing.  But this week I have received a month’s worth of communications asking me what I think – should Britain stay or leave?  So for what it’s worth, here’s what I think.

Today someone sent me John Oliver’s thoughts on the question.

I wouldn’t put it quite that way, but he pretty much expresses both my own views on the subject as well as my feelings.  At the heart of the EU is a democratic deficit replaced by a bureaucratic minefield of infuriating finger-wagging.  I even have reservations about the European Court of Justice.

If I concentrate on what drives me crazy, the overwhelming temptation is to join Brexit, pick up one’s ball and say we don’t want to play anymore.
But that won’t make things better.  That’s not the solution.  It’s infuriating, but Britain is crazy to think it will be better off without Europe.  Besides, during the last century, Britain has done a great deal to make Europe far far better – politically and economically.  And if we paid a little more attention to whom we are electing when we send representative to the European Parliament, we might be able to make a dent in that gaping hole of democratic deficiency.  As it is, most British citizens have no idea who their EU representatives are and don’t care.
I do agree with those who say that this is quite possibly the most important vote every eligible voter in the UK today will make in their life time.   We must stay in and continue to fight – for our sakes, for Europe’s sake, and for the sake of the entire global economic and political world.
Don’t know what it’s going to be like when we wake up on Friday morning…
But at least there’s Andy Murray.

January 19, 2015

Enough is enough

I have long been suspicious of politicians who talk about equality.  With increasing irritability, I find myself inevitably asking what kind of equality they are talking about.  As I become increasingly aware of my own gifts and limitations, it is obvious that I need other people with different gifts and limitations in order to so much as survive.  And our need for diversity applies to all living organisms.

On a slightly more limited level, I am highly suspicious of political and economic policies that seem to suggest that we should all have more or less equal wealth and opportunities.  We don’t all have the same hopes, the same things don’t make us happy, our abilities benefit from different kinds of opportunities and challenges.  We don’t want a society in which everybody is the same, and we can’t create a “fair society” in which nobody has a need to strive or struggle or compete.  Nor can we create a society where corruption or greed or self-serving laziness are eliminated.

But today I hit the limit  of my inequality tolerance.

Oxfam has just released figures preceding the annual meeting of the world’s financial leaders in Davos, Switzerland that even I find unconscionable.  In 2014, 48% of the world’s wealth was help by a mere 1% of the world’s population.  By 2016, it is set to exceed more than 50%.

Not only is it unconscionable.  This huge disparity is extremely dangerous.  Perhaps even more dangerous to the survival of humanity than extreme climate change.

Why?  Because it is this kind of inequality that leads to the kind of vicious, often religiously based, intolerance we see sweeping across the world’s continents today.  It isn’t being poor that makes people angry.  It’s being trapped.  It’s having no way out of seeing one’s children die of starvation, of living in hovels surrounded by sewage ditch streets, of having no access to education, or facing job opportunities that consist of scrounging through garbage dumps or working the streets through prostitution.

Today the hot spots of Islamic militants are where the poverty is.  In countries where the wealth disparity is not so immovable, Islamism tends to be far more tolerant.  Even in America, the land of opportunity, the land where the boy born in a log cabin can become president, the dream is beginning to lose its potential.  It’s beginning to look as if hard work does not necessarily dig oneself and one’s children out of poverty.  The top 1% are taking all the cream, even protected from higher taxes, while the working man and woman remain stuck in a rut that hard work, ambition, and even talent often cannot conquer.  And we see the lines of intolerance hardening.  Immigrants are no longer welcome by many, even those qualified to be of great benefit to America.  The tax system is based on a “top-down” system that says the rich should be allowed to keep the money they earn because it will “trickle down” to the masses.  Except it doesn’t.

What is the solution?

One’s first impulse, as even Pope Francis illustrated, is to punch back, not merely with a punch in the face but with economic sanctions, as well as drones, guns and bombs.  I can’t claim to be a complete pacifist – I suspect that some physical force is often called for.  But if the underlying economic strangle holds are not addressed, military might will eventually fail.

There are changes that can – must – be made in the economic systems which govern.  Obviously, fairer tax systems world-wide, less corruption, more job opportunities and education.  There are changes that must occur in some religious teachings, and cultural values as well.  But no system is fool-proof.  We will always have people who game the system.  There are others who manage to make disproportionate amounts of money through creativity and good luck even when that has not been their original motivation.  We don’t want to revert to those systems that pursue a fairer system at the cost of repressing creativity and originality.

In our global and rapidly changing world, our economic and social systems need constant adjustments.

I think it is only a sense of justice and community, that basic altruism and love of neighbor that can ultimately insure an economic and social system in which all of us can thrive and benefit from our mutual gifts.


January 17, 2015

Updating the worry list


Should we be unable to generate a list of our own, one of Britain’s major newspapers has just helpfully published a list of the most important things we humans might worry about for the next ten years.

Climate change:  The world has made literally no progress on reducing greenhouse gas emissions since the first Kyoto agreement, and scientists are warning us of increasing deadly droughts, floods, water and food shortages, acidic oceans, air pollution, uncontrolled fires, and mega extinctions of up to 25% of all mammal species possibly within the next 50 years.  Oh, and 2014 has been the hottest year on record.

The global spread of a viral epidemic like SARS or Ebola:  The Black Plague swept over the world, reducing populations by 50 -75% of the population when it struck.  It is not inconceivable that a virus could jump on the back of our global communications systems today and outpace the ability of scientists to develop a cure or immunization to outwit it.

An implosion of failed states and states being taken over by religious fanatics.  Theoretically religion is supposed to make us better, more loving, more caring.  Again and again, though, it is the reason for torture and killing.  Western countries today look with horror at the terror being visited on peoples in Africa, Europe, America, and Asia by Islamists.  But Christians have more than a thousand-year history of doing exactly the same thing.  In fact, ethnic cleansing and rampant racism in our own back grounds suggest that we are even now not immune to persecuting those who are different from us.

Economic collapse:  An economic collapse similar to the one that shook the world in 2008, only bigger and longer and more universal worries some economists the way climate change worries climatologists.  Governments are still facing the problem of what to do about banks and other financial institutions that are too big to fail, and big corporations spent vast amounts of money lobbying state officials to make sure that legislation will not damage them.  Meanwhile, the gap between the richest and poorest is growing, not closing, and recently economists have produced research suggesting that this might be an endemic tendency of many modern capitalist societies, including America.  Historically, situations like these fester and simmer, until one day blowing up into outright rebellion and warfare.  Endings are not necessarily happy ones.

I think these are worries worthy of concern.  Great concern that singly or together they could even lead to the extinction of the Homo sapiens.  My problem with worries, though, especially when the worries are big and serious and global as these, is that they tend to turn people off.  We look at them and quite realistically realize that not one of us as a single person can solve any of them.  So we either deny they are happening at all, sink into despair or anger, or hope that God will do something about it rather than leaving it to us.

But the whole point of democracy, of community, or responsibility is not to say a single voice doesn’t count.  It says that lots of single voices is what change the world.  To give into the temptation of helplessness is the very thing that will contribute to our worst worries coming true.

What can I do?  Lots of little things that will change the world if a lot of us do them.  In relation to the environment, I can use my vote to make sure that I don’t help elect a climate-change denier or someone so indebted to big business that they won’t support reductions of fossil fuels and support renewables;  I can sign petitions supporting policies that I think will support work toward a creating economies that don’t destroy the environment;  I can do my best not to waste energy, turn off lights I’m not using, install solar panels, buy an energy-efficient car.  Ride a bicycle.


We can’t solve any of these problems by ourselves.  Just as we couldn’t create any of them by ourselves.  We are just single human beings.  But for better or worse, what each of us does adds up.

January 10, 2015

Banks not to bank on

Filed under: Just Stuff,The Economy: a Neophyte's View — theotheri @ 4:09 pm

I was dumbfounded to learn earlier today that the  U.S budget bill passed by the U.S. Congress several weeks ago managed to sneak in a provision that would once again bail out banks that are “too-big-to-fail” if they get into trouble.  But this time, if Citi or Chase or any of the other big investment banks face insolvency, they will be permitted to take their depositors’ cash in savings accounts and CDs and replace with them a bank stock certificate — which may, of course, be of dubious value.  This applies even to deposits that are FDIC insured.

That’s bad enough.  But I also learned that banks may once again be on the edge of the same kind of disaster that floored them in 2008.

Deutsche Bank thinks that the falling oil price could trigger a huge wave of defaults because banks have lent so much money – more than a trillion dollars – to fracking companies which are now in deep water way over their heads.  To make a profit, shale gas and oil needs oil to sell on the world market for a minimum of $85/barrel.

It is now selling for under $50.

It’s nice to be able to fill one’s car with gas for so much less than it cost six months ago, or keep the house warm this winter.  And one can’t help but feel that Putin deserves to be in as much trouble as he is.  And it may encourage Iran to reach a compromise concerning its nuclear capacities.

But I wouldn’t leave any substantial savings with a big U.S. investment bank.  For the record, the ten biggest are Goldman Sachs, Morgan Stanley,  JPMorgan Chase, Bank of America Merrill Lynch, HSBC, Deutsche Bank, Citigroup, Credit Suisse, and Barclays.

December 29, 2014

Scandalous, no?

I have never thought of myself as wealthy.  I’m comfortable but I have never been able to spend money without regard for the bottom line.  Still, although I’ve often been careful, I’ve never had to choose between eating and heating, which is sort of my short-hand definition of poverty.  And I have been given the almost priceless gift of an extremely good education.

I am not a die-hard socialist, but I have a deep concern about the kind of poverty people cannot escape, no matter how hard they work, how careful and disciplined or clever they may be.  Systems in which there are extremes of extraordinary wealth and inescapable poverty seem to me to be one of the greatest moral outrages our economic systems can sustain.

And so I have been rather piously outraged when I read statistics that in 2013:

  • 8.4% of the people in the world own 83.4% of all household wealth – that is, property and financial assets like stocks and bank accounts
  • while at the same time, 67% of the world’s population have a net worth of less than $10,000
  • which includes 64% – that’s 3.2 billion people – who have no net worth at all: no property, no bank accounts, nothing.

Then I found where I belong.  Sort of slipped into the statistics is the information that only 393 million people in the world have a net worth of $100,000 or more – including property and financial assets.  That’s in the global top 10%.  10% of us own 86% of all the wealth in the world.

I’ve always known that life isn’t fair.  And I’ve always known that I’ve been given more than my equal share of good fortune.

I don’t feel guilty that I’ve been so lucky.  And although I think there is obviously a place for charitable giving, living on state or charitable hand outs simply because one doesn’t like work is as immoral as outright theft.  We need to pay our way, we need to be needed, we need to make a contribution.

But how to create systems which support human dignity and opportunities for work for everyone with our huge diversity of abilities and preferences has challenged far greater minds than mine.  The answers are not simple, however morally outraged I and many others might feel about the existence of so much profound poverty in the world.

I do think that it’s one of those problems – like the problem of human-created environmental destruction – that is worth struggling with though.

The statistics for the United States in a way are more disturbing than the global statistics although possibly more hopeful if we want to do something about it.  But enough for today.  I will tackle the subject of inequality in my own country in the next post.





November 21, 2014

Don’t think about it that way

Daniel Kahneman won a Nobel Prize for his work on human decision-making.  Now he has just published a book, Don’t Even Think About It, exploring the psychology of climate change deniers compared to those who believe that climate change caused by human behavior could be lethal.  His basic conclusion is that all of us have pretty much already made up our minds and that we aren’t likely to be persuaded by evidence or experience.  What matters, he says, is the ideological group with which we identify.  Tea Party members, for instance, tend to have an ideology that automatically takes a position in opposition to environmentalists.  And vice versa.  For this reason, Kahneman is quite pessimistic about the likelihood of our avoiding what might be the worst Great Extinction ever to hit our planet.

The potential catastrophe is terrifying.  (Obviously, I am not a convinced Tea Party member.)  Several reports in the last six months have been published by leading scientists who in the past thought we had as long as a century to avoid drastic climate change.  That has now changed.  A very large number of scientists now think that we have as little as ten years to drastically reduce our greenhouse gas emissions and at most twenty years.  If we do not act within that time frame, within sixty years, we may have an 8 degree Fahrenheit increase in temperatures.  That is a temperature not seen on Earth for the last 5 million years.  40% of plant and animal life cannot live in these conditions.  1/3 of the Asian rain forests would be at risk, and most of the Amazon rain forest would probably be destroyed by fire.  Crops would collapse in Africa by a third, in the US, crops like corn and soy, would fall by more than 3/4th.  2/3rds of the world’s major cities – like New York and London – would be underwater.  That’s in 60 years from now!  And that does not even factor in the conflicts and deaths in increased warfare created by starvation and disease.

Why aren’t we doing something about this!?  

Because scare stories don’t work, however realistic or scientifically-founded they may be.

Because when we read about the importance of reducing greenhouse gases, even if we take it seriously, there seems to be little we as individuals can do.  Will it matter in the great scheme of things if I walk or use a bike instead of drive?  if I turn down my heating so that all I do is prevent pipes from freezing, even if I myself am shivering?  if I change all the lights in my house to low-energy LED bulbs?  if I don’t turn on the lights at all?  if I don’t use the wash machine or dishwasher or microwave or oven?  The personal inconvenience could be huge, in some cases life-threatening, and it wouldn’t make a stick of difference unless there is mass cooperation in such a project.

I think we have got to think about this problem in a completely different way if we are to have any hope of cooperating sufficiently to solve it.

In September, 4 former presidents or prime ministers, 2 Nobel economic laureates, and financial experts from the World Bank, IMF and the Asian Development Bank published a detailed study entitled “Better Growth, Better Climate.”  They offer a list of costed changes that would both improve economic growth and at the same time reduce greenhouse gas emissions.

It would require governments world-wide to act on structural reforms of urban infra-structure, farmland, forests, and energy markets.  And it would not be a total solution to the climate change problem.  But it would be a huge start.  And it might make it possible for people of vastly different ideologies to cooperate.

Even the Democrats and Republicans in the U.S. Congress might agree.


May 28, 2014

Look who said it!

Filed under: The Economy: a Neophyte's View — theotheri @ 4:36 pm

It might not be all that surprising to hear bankers castigated for greed one more time.  But when the head of the Bank of England says it, I’m surprised.

Mark Carney is the Canadian brought in last year as the best possible head to direct the Bank of England.  So far he’s been doing a good job in a position that takes economic as well as political skill.  But I never expected to hear him say that modern capitalism will fail if banks continue to be too big to fail, if they are not run ethically as a service to their clients rather than as a way to make huge personal fortunes.

He also said that the huge discrepancies that exist globally between the small minority of the very rich and the huge numbers of very poor is destabilizing.  I would not have been surprised to hear Pope Francis say something like that, or even a socialist leader, but not the head of the Bank of England.

If you are interested in reading or hearing more, take your pick:

It gives me hope.

April 30, 2014

What makes us equal?

Equality is one of those soft fuzzy words, like love, that almost everybody says is a good idea.  Politicians, philosophers, theologians, and most people in everyday life think it’s a great idea, even an important principle.

Pope Francis in recent weeks has said that building equality is quite possibly the biggest challenge of the modern world.  Thomas Piketty, an economist at the Paris School of Economics has just published a book on capitalism in the 21st century, presenting powerful data that the growing disparities between the rich and the poor in countries from America and Britain to emerging economies risks fueling significant social unrest, democratic deficits and even revolution.

But if we look beneath the surface, what different people mean by equality is so different that they sometimes seem to be completely opposite concepts masquerading behind the same word.  Is it based, as the U.S. Constitution suggests, on “life, liberty, and the pursuit of happiness”?   or the Golden Rule in which everyone deserves to be treated as we ourselves would wish to be treated?  or the religious exhortation to “love one another”?  These are principles which many of us support.  But our universal agreement about what they mean breaks down almost immediately after we try to apply them.

The difficulty, as I see it, is that equality tends to become reduced solely to economic issues, which in turn become inextricably mixed with our human diversity.  It would be great if we could just give everybody the same amount of money, period.  But apart from the fact that nobody would put up with it, at the end of the day, some people would still  manage to have more money at the end of the week than others.  So the essence of our equality cannot be economic.

Just as important as equality to our happiness and survival is our diversity, our vastly different abilities and talents.  We are all different.  And we need to be different.  We need others who are different from us to be complete ourselves.  We can’t each grow our own food, make our own clothes, build our own shelter.  We can’t even have offspring without the cooperation of a member of our opposite sex.  Our great diversity is one of the greatest attributes of the human species, and why we have been able to accomplish so much.  Some people are great athletes, some are skilled mathematicians, others musicians.  Some people have great social sensitivity and a capacity for insight and kindness, others are unusually creative, have exceptional language abilities, or engineering or spatial abilities.  Some people have a dogged determination that keeps them going in the face of great adversity, others  have acute sensory abilities.  There are great leaders, great facilitators, great doctors, great financial analysts, great teachers.  The list is endless, and we each can benefit from almost every one of them.

The problem is that diversity gets confused with equality.  In thousands of very important ways we are not equal, and instead of rejoicing in our combined strengths and gifts, we often are resentful.  Diversity in relation to religious beliefs and cultural practices and in relation to material wealth seem to me to be the areas where we have the most trouble accepting diversity.  If you are “one of us,” it might be more tolerable for you to have more than I do.

But if you speak a different language, practice a different religion, or have a different colour skin, resentments often swell to a determination to stamp out your gift.  Besides war, there are many social practices and laws which work quietly to eliminate diversity on the grounds that it’s “not fair.”  Or that acknowledging one kind of gift will make others feel inferior.  We ignore or even denigrate many great contributions in place of superficial accomplishments like “celebrity.”

Clearly we can’t reduce equality to economics.  And yet there is a bottom line.  There are basic things which every individual in any society needs to flourish, and we can’t assure that basic equality with monetary handouts.  I’ve been thinking a lot lately about what those basic needs are.  And also asking to what extent society has an obligation to do everything possible to give every individual a chance to fulfill their potential.

I’m not so naive as to think I can come up with the definitive answers.  I’d be competing with Socrates, Buddha, Jesus, Marx, and the founding fathers of more than one country, and too many others to name.  But it’s what I’m thinking about these days, so it’s what I plan to blog about for the next couple of posts.




April 25, 2014

“Made in the USA”

A friend has just sent me a You-tube arguing that Americans should stop buying imported goods and instead “Buy American.”  It presents what initially might sound like a rather convincing argument:  if we stopped paying foreigners for making things for us, and instead put our workers back into our own factories, America would completely eliminate unemployment.

It sounds well-informed with all sorts of statistics to back up its argument.  But I think it is economically and perhaps even morally quite naive.  Inward investment – ie:  investments from companies setting up businesses in poorer countries – has been the single most effective means of reducing poverty in the emerging economies in the last 20 years.  So now America brings all those jobs back “home”?  What happens to the families of those workers who have been working to support their own families in other countries?  young women who are supporting their families are driven back onto the streets, children no longer have any chance of an education, medical help is harder to get, starvation increases.

And trade is reduced not only for the emerging economies but for America.  America sells our cars, our computers, our food, etc. to the people in other countries who can now afford them.  That’s why free trade, when it is done well, is a win-win situation.  Each country sells to the other what they can best produce or grow, and buys from the other those things that are better done in that country.
Under the influence of Gandhi, India tried the Totally Self-Sufficient policy — we will make our own clothes, grow our own food, build our own trains & cars, etc.  It was in response to a one-sided trade arrangement that Britain had set up which had been great for the British — they imported Indian cotton, brought it back to the UK, turned it into cloth and clothes and sold it back to the Indians.  So it was understandable that India thought they could do it for themselves.  But it is only in recent decades when they opened the country up to international trade that they seriously began to reduce grinding poverty in the country. China tried it too, closing its doors to foreigners, and as a result, the West went galloping ahead.
No, Buy American is, in my opinion, an ignorant and destructive economic policy.
Yes, what we call “free trade” can be lopsided and destructive, and in some cases needs serious rebalancing.  But my own concern is not fundamentally with free trade.  Actually, many jobs are now coming back to the U.S., as transportation is getting cheaper, and workers in developing countries are demanding better pay.  So the issue is not essentially that foreigners are taking all our jobs, but rather that so few at the top of American society are taking such a great proportion of the profit.  For at least 30 years, the middle classes in the U.S. have been getting less and less of the profits while the CEO’s and those in the top 5% are making mind-boggling profits which are not filtering down to the workers.  And if you want to add another problem, it is technology.  A lot of jobs are simply disappearing, and being replaced by automation and robots.  
So we might very well find ourselves back to the question Henry Ford asked a century ago about his cars:  how can I make them affordable enough for people to buy them?  The whole entire global economic system is changing, and solutions like “buy American” aren’t going to work.  I think ultimately it could make things worse.

Because we are all in this together  It’s a global society now, and we can’t solve our own problems without worrying about everybody else.  This isn’t Christian charity.  It’s hard economic fact.  The bottom line is that I have to worry about you for my own self-interest.

December 17, 2013

Equality is a dangerous word

Equality has a fuzzy comfortable feeling, especially if you’re an American like me.  We have a constitution that says we are all entitled to life, liberty, and the pursuit of happiness, and even though it took a century and a half and a civil war to recognize even in law that WE did not mean only white men, and even though racism still rears its nasty head, we nonetheless all cross our hearts to the concept of equality.

But what does it mean?  What does equal mean?  In hundreds of important ways we are obviously not equal.  We differ in sensory sensitivity, in physical strength and coordination, in talent, in looks, in mathematical, musical, spatial, verbal, and social abilities to name just a few.  And we can only be grateful that this is true.  We would all be indescribably poorer if we were all the same.

And that’s the problem with the word “equality.”  Equal does not mean identical.  It does not mean we all have the same needs, the same abilities, or the same desires or opportunities.

And so, with all due respect for Pope Francis who in so many ways is a breath of fresh air, I think to talk about the injustice of economic inequality is asking for trouble.  Of course it is absurd for Limbaugh to say Francis is advocating Marxism.  If nothing else, it shows how little Limbaugh knows about Marxism.

And yes, there are some aspects of economic inequality which are hugely unjust and which we must try to reduce.   When people do not have the basic needs of food and clothing and shelter, when they are denied education for which they have the ability, when they are sick and denied medical support, when they cannot live even with basic dignity, how can we justify this if we can prevent it?

And that is part of the problem.  How can we prevent the kind of inequality which denies whole groups of society the basic necessities of life, or the right to education? The last century is littered with systems that have tried and failed.  The sources of injustice in society are not simple to eliminate.  India is dealing with the effects of a caste system, Britain a class system, ethnic and tribal differences in Latin America and Africa are both overlaid by waves of colonialism.  American today is dealing with the 2%, whose influence is destroying the hopes of the middle classes that if they work hard enough, they can build a better life and become more prosperous.

But achieving justice does not lie in economic equality.   Nor will it bring happiness or fulfillment.  To preach that it does is to walk down the road of envy and resentment.  Having as much money as everybody else is not the road to happiness.

I think we need two things which are often confused with economic equality.  The first is opportunity.  Not every job should pay equally.  But every adult should be able to do work which enables him or her to survive with dignity and to support those who depend on them.  This might sound like a simple principle, but it demands an educational system that enables young people to gain those skills which will benefit society.  And it demands a functioning economy which provides jobs for society’s workers.  Figuring out how to achieve this is not obvious.  In fact, as the political disagreements demonstrate, we really don’t know for sure how to do it.  My own sense is that we are in desperate need of gifted economists as much as politicians.

Yes, let us offer a helping hand to those in need.  Let us worry about the poor.  But in some sense giving is much easier than receiving.  When  our needs are greatest, it is often humiliating to receive.  But it can be gratifying to give, one can feel quite superior as a giver in a way we can’t at the receiving end.  So let us worry about giving people the opportunity to work, and not languish on benefits or unemployment insurance, or even to starve and live in degrading  penury.

The second thing we need beside opportunity is an appreciation of the vast richness for human society of our diversity.  Let us be grateful that people can achieve things we cannot, that others have talents and abilities we do not have.    We are all in this together.  We need each other.  We need those special gifts of others in order for our own lives to be enriched.  We need to learn to delight in our differences, not resent them, or try to insist that our own differences somehow make us superior.

The great injustices of life are not inequality across the board.  We need inequality.

But we all need love and respect and dignity.  That is how we are equal.

We all need to give and we need to receive.  We do not need to be all the same.

July 31, 2013

Poverty really isn’t good for us

There’s a column in The Economist this week reviewing a paper by an economics professor at Georgetown University on our changing attitudes toward poverty during the last four hundred years or so.

The thinking that dominated European thought between the 16th and 18th century was that poor people were an economic necessity f a society didn’t have slaves.  Who else would be the workers in the factories and fields if we wanted to keep things ticking over?

Given that they were economically necessary, there was not much appetite for improving their lot.  Even the Poor Laws designed in the 18th century were not really designed to help people get out of poverty, but just to help them survive shocks like failed harvests or unexpected illness.

I suppose it’s not surprising that the poor, by and large, were blamed for their own plight.  The comforting rationalization gradually emerged that people were poor because of their own flaws like laziness, alcoholism, and lack of discipline.  The clergyman Thomas Malthus popularized this view, which led to an adjustment of the Poor Laws making the workhouse the only option on the grounds that people shouldn’t be given money or food or even shelter if they wouldn’t work.

There are people alive today whose parents and relatives know what the workhouse was like, or who survived under exploitative factory regimes.  But in the 20th century these attitudes toward the poor began to change.  Researchers began to show that poverty really isn’t good for the economy at large.  Henry Ford exemplified this thinking, insisting that if his workers were paid enough to buy the cars they were helping to manufacture it would be beneficial for everybody.  And Karl Marx began to develop a theory whereby the workers themselves would take over ownership of the economies which depended on them – although in practice it didn’t work out that way.

For the West, the real game-changer was the Great Depression of the 1930’s.  People couldn’t get work no matter how hard they tried, and platitudes blaming the poor themselves stopped working.  In addition, it became increasingly apparent that high levels of poverty were a drain, not an engine, for economic growth.

Fascinatingly, though, it was not until the 1990’s that economists began to develop alternative models to Communism by which the poor could be helped to break out of poverty.  Researchers began to demonstrate that low levels of education, health, and nutrition rather than laziness and drunkenness often kept people in poverty.   As a result, countries now are changing their policies.  Brazil, for instance, gives poor people money as long as they send their children to school, or protect their health by having them vaccinated.

For me, reading this article was like opening up a huge window to let in the fresh air.  I found the analysis of poverty as an economic challenge much more liberating than the traditional schizophrenic view of Christianity in which the hierarchy live in palaces and dress up in gold and jewels to carry out religious ceremonies and in which the poor are kept in their place with charity and assurances that they are blessed.

Poverty, real poverty, is not a virtue.  That is not to say that avaricious materialism is not destructive.  I think it is.  But its alternative isn’t poverty.

I’ve always had doubts about giving money to charitable causes for anything but short-term help in emergencies.  I’d rather give to the Malala Fund or some other fund that provides education for those who otherwise could not get it.

July 20, 2013

Health care: two alternatives

In his exploration of democratic alternatives to some of our American institutions which seem to have gone array, Gar Alperovitz discusses health care.  In the United States, we have mostly either paid for health insurance or  pay up front when we need treatment.  Up to a point, Medicare and Medicaid helps those who have paid social security, but hundreds of thousands of Americans are deprived of medical treatments they need because they cannot afford it.  Obama Care was meant to plug this gigantic hole, making it possible for all Americans who need medical care to get it, whatever their financial state.  It has run into fierce opposition, been rejected outright by some states, and even taken to the Supreme Court on the grounds that it is unconstitutional.

Alperovitz recommends setting up a health system run not by private insurance companies and hospitals but a system by and for the people.  The National Health Service (or NHS for short) here in Britain is closer to the kind of system he describes.  The NHS was set up after World War II in a country rejecting the injustices of a system which allowed thousands of working class people to die for their country, but which did not provide health care even for families of those who had died for democracy if they could not afford it – as many many could not.   Today, it is a system at which treatment is free at the point of need to anyone.  It is paid for out of general taxes.

I have seen the NHS, for better and worse, close up for more than 20 years.  I have received, I believe, some of the best treatment available in the world here, and I have seen dedicated medical treatment go far beyond their defined duties to care for the sick.  I have also seen first hand examples of prejudice, particularly against the elderly, that are terrifying.  I saw a 90-year-old man dying of cancer in a wheel chair left outside a hospital door in the middle of winter.  I have seen arrogance and indifference on the part of medical staff, and now a major report has  identified 14 hospitals in the UK where the death rate is far higher than average, and in part almost certainly due to medical errors, carelessness, and sheer lack of concern even for the dignity, let alone suffering, of patients.

These latter are the kind of stories that turn many Americans away from “socialized medicine.”

But should we be so ready to dismiss the British system or other similar systems in Europe?

I’m not so sure we should.  First of all, the British are immensely proud of the NHS.

I have seen enough in America to know that injustices and disregard for patients occur in our medical system that are as grave as anything that has been uncovered here.  The difference is that here in Britain, failure to protect  the health care system can bring governments down just as surely as a failure to protect the economy.  The outrage at the state of some of the UK hospitals is huge, and the government as well as opposition parties are putting unprecedented effort into improving the system.  There is little doubt in my mind that some of the gravest deficiencies here will be effectively addressed.

Cost, too, is a major factor.  Americans’ life expectancy is lower than it is here and throughout most of Europe, although our medical expenditures are about twice as high.  That is in large part because the US system is private and run as a business to make money.

It seems clear to me that no system, as a system, is going to eliminate prejudice or disregard supported by the culture at large.  But when they are exposed in a socialized system of health care, there is apt to be outrage.

In America, too often I fear the response is the one we are seeing to Obama Care — that it is people’s own fault if they do not have the insurance required to pay for the medical care they need, and that the rest of us should not have to pay our taxes to take care of them.  To the extent that is true, I suspect socialized medicine would not work in America.  When scandals are uncovered, too many of us may very well respond by saying that it’s not the system, but the fault of the patient who should have been paying for his or her own treatment in the first place instead of relying on the state.

So which system, given the choice, would I prefer to live with?  If money is no object, one can get some of the best care in the world in the United States.  As long as I can afford adequate health insurance, the American system can meet my needs.  But what if I can no longer afford to keep paying insurance?

And what about those who, often through no fault of their own, do not have adequate insurance, or who cannot get insurance at all because companies label them as not potentially cost-effective?  I don’t really feel comfortable reaching the conclusion that “I’m okay, jack.  I’m sorry I can’t  help you as well. But that’s life.  It’s tough, and we get what we pay for.  You’ll just have to take care of yourself.  ”

For all its limitations, I think the British system is better.

July 9, 2013

What does a college education cost?

Filed under: The Economy: a Neophyte's View — theotheri @ 2:58 pm

A comment following my post yesterday said “I always ask when this subject is raised is how much is the monthly repayment of the loan over the working life of the graduate? How does that equate to the monthly expenditure on a bottle of wine/gallon of gas or weekend break in Blackpool?”

The figures are different in Britain and the US, but it seemed to me such a relevant question that I did some calculations.

  • The average cost of tuition per year at a US college or university is $7,000 (about £4700 at today’s exchange rates).  A loan at 6.8%, to cover the cost of the 4 years it usually takes to earn a BA, would currently result in monthly payments during a thirty-year working life time of $123 or £82.
  • The most expensive US universities charge $28,000 (£18666) annually, which results in monthly payments of $737 (£490) for thirty years.

These figures do not take into account the cost of food, accommodation or books which for a full-time student averages an additional $15,500 (£10,000) annually.  Nor do they take into account, on the one hand, the cost of lost income during those extra educational years, or on the other, the increased income most college students do eventually earn as a result of acquiring a college degree.

I am, of course, reflecting my own experience.  But I think an education to those who are qualified and eager to work for it is one of the most rewarding investments we can make in our citizens, and for our country.

July 8, 2013

Banking on it

I have a tendency to think something is a good idea for about 24 hours, and then I begin  to think it might not be quite as unassailably brilliant as I first thought.

But 24 hours ago I learned that Senator Elizabeth Warren is submitting a bill to Congress which would make student college loans available for the same rate that the Federal Reserve lends money to banks.  That would reduce the rate students are charged from 6.8% to under 1%.

Every single day through the Federal Reserve, the US government invests in our banks – largest financial institutions in this country.  As the senator says,  “We should be willing to make that same kind of investment in our kids who are trying to get an education.”

This sounds like a brilliant idea to me.  It’s an investment in the nation ‘s future.  It’s not a hand-out or free-bee.  It says “if you have the ability and are willing to work hard, the government is willing to make an investment in your future.”

The only safe guard against potential abuse that I can see would be required would be that colleges and universities do not lower standards in order simply to be a four-year break between graduating from high school and entering the work world.

What do you think?   Read more here.


July 2, 2013

What can we do about the banks?

Filed under: The Economy: a Neophyte's View — theotheri @ 4:00 pm

Since reading What Then Must We Do? (see previous post), I’ve been thinking about banks and how they might be re-structured to be of greater service and less risk to our economies.

During the Great Depression, Congress passed the Glass-Steagall Act which separated commercial banks from securities firms.  This meant that banks could not gamble on the stock market or with derivatives using the money of their depositors.  Depositors’ funds were used instead to provide credit for mortgages and local businesses which the bank thought were good credit risks.  A share of the profits went to the depositors, the bank took a cut as the middle-man, and the borrowers also benefited hopefully through a successful business or eventual property ownership.

The banks, then, were not on a pedestal of moral high ground, but by and large they were seen as providing a valuable service to the communities in which they operated.

Gradually this quietly changed, and in 1999 the Glass-Steagall Act, which to a large extent banks had already circumvented, was officially repealed, and investment banking firms were free to gamble openly with the depositors’ money held in commercial banks.  With the help of computers and traders with mathematical gifts, banks began to make hundreds of millions of dollars.  Big banks became places where huge fortunes could be made, not places that were essentially there to service the diverse needs of the community, or even of the country.

Unfortunately, the risks still lay principally with the depositors, not with the banks themselves, and when the crash came in 2008, most top-level bankers were not bankrupted.  Many even continued to receive mind-boggling bonuses on the grounds that they were the only ones who understood the entire system well enough to keep the entire global economy from catastrophic collapse.

And that in many ways, as I understand it, is where we still are.  Big banks are still too big to fail.  In fact, some of the biggest banks are now even bigger than they were in 2008, and are effectively still insured by the government who could not let them fail.

What then can be done?

Gar Alperovitz in What Then Must We Do? gives many examples of banks still functioning today principally for the benefit of its depositors and borrowers.  There are many more than I had realized – thousands of credit unions, cooperative banks, and small and medium-sized public banks providing millions of dollars to finance small businesses, renewable energy, housing, and infrastructure.  He thinks we can not only survive, but actually thrive, with banks like these.

Alperovitz doesn’t say what he thinks specifically should be done about mega-banks like Citicorp, Goldman Sachs, JKPMorgan Chase, Bank of America, and Wells Fargo.  But I think the implication is that they should be cut loose altogether from government support and that its investors should be made solely responsible for gains and losses they incur.

This sounds simple, but I can’t see that it is.  If their size is not regulated, their very existence is going to have vast economic repercussions, for better or worse.

But can their size be controlled?  Do mega-banks already have so much clout, so much money, so much political influence, that they cannot be cut down to size?

I don’t know.  But if it is possible, it seems to me it’s going to come from a ground swell of public demands as we realize two things.  The first is that we as individuals and as communities are not dependent on the big banks, that our credit unions and cooperatives and local banks are meeting our banking needs without the same level of risk related to the operations of the voracious mega-banks.  And secondly, we need to see that mega-banks themselves are too risky.  It is like living next to a volcano which we cannot predict with any precision, but which is certainly going to erupt again and again, pouring its destructive lava on all of us living in its path.



June 25, 2013

What’s the matter, honey?

Filed under: The Economy: a Neophyte's View — theotheri @ 9:17 pm

I said in my last post that I was going to try to summarize the main points in What Then Must We Do?, a book I have now read twice.  My initial enthusiasm for some of the solutions proposed by the author is not quite as unquestioning as it was after the first round, but it remains a provocative book.

It is provocative first of all because of the questions it asks and the depth of some of the problems that our American system of “Democratic Capitalism” seems to have developed.  There are four areas I find particularly worrisome.

The first problem, as I mentioned before, is the huge unequal distribution of wealth which has developed in the States during the last thirty years.  It is not only that a mere 400 at the top own more wealth than 180 million people at the bottom.  It is that this trend continues to accelerate.  This tiny group at the top are continuing to amass more and more wealth, and more and more power while the purchasing power of the middle and lower classes has almost stagnated completely for three decades.

Can we still call this a land of opportunity then?

This leads to my second concern:  unemployment.  The benefits of global trade are huge, and  it has done more to reduce poverty in under-developed countries than any other single factor.  But the benefits are not universal and companies often abandon workers in the States with little concern for their subsequent welfare.  Many of the dismissed workers remain unemployed despite their best efforts for the rest of their lives.  The devastation spreads from individuals to families to entire communities.

Should corporations have responsibility only to their shareholders and little or none to their workers?

Banks are my third concern.  One does not need to come to this blog to know that in 2008, banks brought the economies of the developed world to their knees, and it will be generations before they recover to pre-2008 levels.  The $2.6 trillion dollars lost to the American GDP alone, the $19.2 trillion loss in household net worth, and the loss of 9 million jobs is bad.  But the real worry is that almost every economist I have read, from far right to far left, are agreed that it has happened before and that it is going to happen again, probably in less than ten years time.

Yet today, banks are still the most powerful lobby with the most highly paid lobbyists in Washington DC.  With the Supreme Court’s recent ruling that corporations have the same rights as private individuals to spend as much money as they wish to influence the vote, banks and corporations are terrifyingly powerful in determining our laws.

And what about Health Care?  America spends 18% of our GDP on health care, close to twice as much as other developed countries.  1/3 of all federal expenditures goes to health care, and 1/2 of all federal revenues.  But our health care is far worse.  Infant mortality rates are 31st of the 34 countries with developed economies.  Our life expectancy is less than 79, 27th of the 34 developed countries, below life expectancies in countries as diverse as Australia, Hong Kong, Switzerland, Singapore, Andorra all of whose residents can expect to live well into their 80’s.  We rank a shocking 34 out of 34 in terms of obesity.

What could it do for the quality of life if the American health system could get the same results as many other countries do for half the cost?  What if the savings could be spent instead on roads and bridges, on schools and education, on our energy grids?

No system is perfect, even good systems, like the one in the U.S. that has produced the biggest economy in the world and improved the lives of hundreds of millions of people.  But to hold onto the gains we have, we need to find a few new ways to achieve our goals.

In my next post I will talk about some of the solutions the author Gar Alperovitz suggests.

June 20, 2013

Thinking about it out loud

I’ve just finished reading What Then Must We Do? by Gar Alperovitz, a political economist with extensive political experience in Washington, and now a professor at the University of Maryland.

Fundamentally the book addresses the question:  if you think capitalism as it has evolved is not the answer to the needs of the majority, but if you are equally not enamored with the various versions of socialism which have been tried, what are our options?

Despite its drawbacks, I have long thought that capitalism operating within the context of a democracy was the least worst option.  But I am no longer convinced that this is still the case.  Today in America, 400 people at the top of the income scale possess more wealth than the bottom 180 million people put together.  It doesn’t bother me in principle that some people have a great deal more money than others.  But what does bother me is that these numbers suggest that a very small number — that famous 1% — have a great deal more political power than millions of people each with our famous “one vote.”  Just as worrisome, fewer and fewer people are able, in practice, to improve their standard of living by working hard, by creativity, ingenuity and saving.

I think that fundamentally this gigantic income, power, and opportunity gap is undermining democracy.

But most versions of socialism with which I am acquainted make me just as concerned.  Socialism might in theory mean power to the people, but in practice it seems has too often meant power to the politically elites in government.  At the same time, unearned benefits paid to the poor  too often risk creating people who expect a free ride, who do not feel they owe anything to anybody, that they don’t have any obligation to pay anything back.  This isn’t good for the economy, it isn’t fair to the taxpayer, and above all it is an unfulfilling, even destructive, way to live.  Because we all need to be needed.  We all need to make a contribution to the community.

What Then Must We Do? offers a fascinating series of analyses and suggestions, which over the next few weeks I hope to summarize.   I’m not trying to convince anybody.   It’s my way of  clarifying what I think myself.  It’s a kind of thinking out loud, which often provides me with the same return that preparing a class lecture used to do.

March 19, 2013

Worrying out loud

Filed under: The Economy: a Neophyte's View,Worries — theotheri @ 9:41 pm
Tags: ,

Cyprus is on the edge of total bankruptcy.  The European Union has offered them a bail out but Cyprus has to come up with a contribution of their own in order to get the bailout, which the EU and the IMF have suggested come from a 10% tax on the savings deposited in the Cypriot banks.  The Cypriot parliament, in the face of mass demonstrations on the street, have just refused to authorize such a tax.  Right now the situation is in stale-mate.  The banks have been closed for the holiday, and now seem to be in lock down.  Once the cash in the cash machines runs out, people will be running out of money.

I see the Cyprus situation as quite grave – not just for Cyprus, not just for Europe, but for the world economy, with all the implications for war and strife that entails.  I cannot see a solution, but what is more worrying, no economists of almost any persuasion is offering one either.  They all do agree that the collapse of the euro could be close to catastrophic, and I’ve read a lot of analyses about what went wrong, but how to fix it feels like asking how to get somebody out who is fast sinking into quick sand.
The European Union began as a free trade union to bind Europe’s nations together so that something like WWII would never happen again.  But the currency union which came later was cobbled together by politicians against the advice of economists who said that it could not work unless participating nations were more fiscally united.  As it is, each country still runs its own budgets.  The Mediterranean countries like Italy, Spain, Greece, even France, continue to run up deficits that they used to deal with by devaluing their currencies, but which is not possible when they are tied to the euro.  Meanwhile, Germany has greatly increased its productivity, and benefited greatly from a euro that is undervalued relative to the strength of their economy.  Even with the re-integration of eastern Germany, they are now by far the strongest economy in Europe.  
The Germans do not want to see the euro destroyed — they have benefited from it too much, and will also be badly burned if it goes down. But they are not willing to bail out other countries who they see as having failed to grasp the nettle.  Meanwhile, countries that suffered under Germany during WWII are arguing that this is WWIII fought on the economic front, and Cyprus said in words of one syllable today that they would choose bankruptcy and bring Germany down with them rather than let Germany dictate a 10% tax on all their savings.
On the other hand, Cyprus is awash with billions of euros of corrupt money of Russians storing their ill-gotten gains in Cypriot banks.  They would be hit by the tax, which is why Putin called it unfair but might also be why Brussels as well as the IMF would be happy with it.  Unfortunately the Cypriot banks themselves are not being asked to pay the price;  their savers are.
There is a lot of blame – both in Brussels, and among individual national governments who have lied both about the size of the deficits they have run up and to the people who elected them. The people least responsible for the debacle, the working people, are the ones being asked to pay the highest price.
The problem, though, is that I don’t see a way to protect the average worker.  Period.
In some ways it’s just like Syria – hundreds of thousands of people have been killed, and millions of people are now refugees.  But I have little hope that Muslim Brotherhood, or the Sunnis who are among the rebels, will be any better than Assad who is an Alawaite, a third Muslim group exiled to the mountains for years by the ruling Sunnis until Assad’s father got control.  The Sunnis and the Shias have been at each other’s throats since Mohammed died, and whether it’s Iraq, Iran, Syria, Lebanon, Egypt, Saudi Arabia, etc., they view each other as heretics whom they have a God-given mission to wipe from the face of the earth.  It makes Northern Ireland look like a child’s sandbox.
Frankly, I’m glad I’m not running the world.
But I wish I thought the people who are were better at it than I would be.


February 13, 2013

Chin up, it’s going to get worse

A British journalist yesterday was reporting on the economy.

The bad news, he said, is that this year is going to be worse than last year.

But the good news is that this year is going to be better than next year.

And he probably thinks he’s an optimist, as well.


February 6, 2013

Worry as an on-going process

Filed under: The Economy: a Neophyte's View — theotheri @ 5:33 pm

In American, in the last thirty years or so, the purchasing power of the middle class has not increased;  it has not actually even kept up with inflation.  At the same time, the gap between the wealthiest in our society – the famous 1% – and everybody else has widened considerably.

I read an article today by the economist Paul Krugman that makes me fear that we have not begun to see the worst.  He points out that today jobs are returning to developed countries like the United States from the under-developed countries where they had migrated.  This is because wages in Asian countries have increased substantially, greatly reducing the cost savings, especially when you add in the difficulties of transportation, government regulations, and likelihood of lower energy costs in the homeland.

But there’s another big reason.  It is that  jobs done by workers are increasingly going to be done by robots.

That might not sound like a bad idea – it will reduce production costs even more, and might eliminate a lot of boring jobs.

But it’s going to eliminate a lot of jobs period.  By the hundreds of thousands.  Even a college education isn’t going to be that helpful.

Krugman points out that the implications of this development for the entire capitalist system are profound.  The people who will make money are the people who already have assets to develop in factories and their robots.  The “work hard and save for a better life” opportunities will continue to decrease for the vast majority.

Krugman doesn’t elaborate on the implications of these changes beyond pointing out that they could fundamentally change the way capitalism works, making the few even richer, and the many even poorer.

But as Henry Ford realized, if nobody can afford to buy the cars he was making, he wasn’t going to make a lot of money producing them.

Isn’t that what will happen if we continue to disenfranchise the middle class in our society?

Or will we have to develop a whole new economic system going beyond feudalism, beyond slavery, beyond Marxism, beyond capitalism?

I guess worry is an ongoing process.

But then, so is problem-solving.

I doubt I will be around to see the future, but it sure is going to be interesting.  Assuming, of course, that Homo sapiens survives at all.

November 12, 2012

The Problem vs the Solution

Filed under: The Economy: a Neophyte's View — theotheri @ 4:51 pm

After my last post on capitalism, comments made to me privately have made me think that when some progressive Americans say they are against capitalism, what they really mean is that they are against capitalism as it is practiced in America.

The influence of moneyed interests is a recurring problem, whether it be through the military-industrial complex and its influence in Congress, the recent Supreme Court ruling giving corporations the right to make unlimited donations to political figures or that super-wealthy 1% given prominence by the Occupy Wall Street movement.

At the same time, there is the stagnation of social mobility — it is lower in the United States now than in Britain — and many workers are becoming quite rightly cynical about the American dream.  They no longer believe if they are willing to work hard, that they can improve the standard of living for themselves and their families.  Many cannot even get a job.  Up until now, Americans generally did not have a problem with huge disparities of wealth.  We believed we all had a chance if we were willing to work for it.  Now it is simply looking more and more unfair.

Meanwhile, America is slamming the door on immigrants, traditionally one of the most creative and hard-working sources of America’s economic superiority for so long.   Businesses, especially small and medium-sized businesses are often cramped by stifling bureaucratic regulations that big business can handle but are serious burdens for smaller businesses.  And we are among the most prolific environmental polluters on earth, and can’t agree that we are even doing it.

My problem, though, is that because I can see the problems with so little difficulty, I am tempted to think I obviously know the solutions.  But I don’t.  Understanding economic systems in a world as complex as ours is not easy.  In fact, to some extent it is impossible.  Human behavior is too unpredictable, the systems are too intertwined, various cultures too different from each other.  In some ways, – and I say this with some seriousness – quantum mechanics is simpler than economics, a system laced through with human ingenuity, human greed, the basic need for survival, human ignorance, human generosity, human idealism.  It is fundamentally by nature not predictable the way a chemical reaction is predictable.  It’s easier to figure out how to get to Mars.

In addition, every culture, every country, each economic system is a little different.  Versions of capitalism that might work quite well in Scandinavia cannot be applied in identical ways in the United States or Latin American  or African or Asian countries.

We need to know an awful lot to find solutions that might work.  Even then, we could, with all the good will and study we can muster, still make things worse rather than better.  We have a lot of examples of having done just that.

So should we just wring our hands in helpless despair and give up?

No.  I think we’ve got to try, each of us needs to utilize whatever talents we have, however small they may be, to tackle these problems.

So yesterday I asked my nephew who has his Ph.D in economics to recommend a good introduction to economics for me to read.  I know smatterings and spikes of economic theory and research.  But it’s just enough to know that it’s not nearly enough.

I do promise not to turn this blog into my study guide in economics.  Unless, of course, I discover that the Law of Supply and Demand really is a fascinating and life-changing concept.

But I doubt it.


November 10, 2012

My problem with capitalism

Filed under: The Economy: a Neophyte's View — theotheri @ 3:30 pm

I grew up after the second world war in an America obsessed with the evils of Communism, and I was in my late twenties before I began to ask about the virtues and otherwise of capitalism.  I thought about it pretty seriously when, along with most of my generation, we were protesting about civil rights, the Vietnam War, and the possibilities offered by Vatican II for opening up Roman Catholicism.  I eventually concluded that I couldn’t think of any system that was better than capitalism, and moved on to thinking about other Great Issues.

I have liberal friends, many of whom have spent their lives working in Africa & Latin America, and seem convinced that it is perfectly obvious to any moral person that capitalism fosters greed, inequality, injustice, exploitation, and environmental destruction.  I can list the limitations of capitalism along with the best, but I have two difficulties with this left-wing perspective.  

The first is that it seems to me that capitalism comes in many shapes and forms – rather like religion – and that a blanket condemnation is based on an incoherent definition of capitalism. Are we talking about the capitalism of Romney and the Tea Party in which pretty much it’s every man for himself? the capitalism of Scandinavian countries where there is a strong safety net and high social mobility? or one of the many practices of capitalism in between?

My second question is what replacements for capitalism might be better.  We’ve just finished a century of the most destructive alternatives – the Khmer Rouge in Cambodia, the Shining Path in Peru, Apartheid in South Africa, Communism in Russia and eastern Europe.  Millions of people have died for a vision of a better, more equal world.  But people still aren’t equal, they are still often desperately poor, do not live under an effective rule of law, and have limited access to justice administered by an impartial court.

Personally, I rather like capitalism – capitalism-light if you will.  Capitalism with a safety net, with educational opportunities, with a rule of law that applies to all, capitalism that permits the maximum social mobility.  So not capitalism totally unregulated, but capitalism with the most room for individual initiative that we can manage.  I’m not much in favor of what here in Britain is called “left-wing social engineering,” and I am extremely wary of over-regulation ostensibly for health and safety, or to protect “ordinary people” from risks of which they may not be aware.

So my problem with capitalism is that I don’t know a better alternative.  History demonstrates the danger of giving capitalism a free hand but it demonstrates just as clearly the problem of giving absolute power to the government.  I’d much prefer to try to make capitalism work better than to throw it out altogether.

But some of the anti-capitalists with whom I am acquainted are educated, experienced, caring, and thoughtful individuals for whom I have great respect.  So I am looking for someone to explain to me what alternative to capitalism they believe so passionately would be better.  I don’t promise I will agree, but I do promise I will listen intently with respect and with a real desire to understand.  

I obviously have a blind spot.  Blanket anti-capitalism simply makes no sense to me.  And yet there are sensible people out there for whom it does.  I am serious.  If you can explain, I really really would be extremely grateful if you would.



October 6, 2012

Ground Control: We got a problem

I have just read a review of Better Capitalism by Ropbert Litan and Carl Schramm and am downloading the book to read.  Many of the ideas are scary, because America might be on a downhill slide that we are too stubborn to stop.  On the other, there are sensible, do-able things we can decide to implement that could put America once again on the top of the world.  Not with guns but with a commitment to freedom and creativity – and yes, to capitalism in its best form.

For example, between 1980 and the financial crisis in 2008,  small, high-growth companies less than five years old provided almost all  – all! – of the 40 million new jobs in America during that time.  Since then, the emergence of these companies has plummeted by 65%.  If these companies are the engines of economic growth, then unemployment is going to continue to be an endemic problem.  Why is it happening?

The authors  suggest that one of the reasons is that America’s previous business-friendly immigration policy isn’t business-friendly anymore.   This is much more important than I realized.

Because 40% of the Fortune 500 companies in America in 2010 were founded either by immigrants or by their children.  That includes such American names as Google, AT&T, DuPont, eBay, Kraft, Heinz and Proctor & Gamble.  Until 9/11, America was a magnet for immigrants with brains, skills, and a dream.  Today foreign-born entrepreneurs have to negotiate an obstacle course to get into the States, while Canada, China, and India are flinging open their doors to them.  Last year I sat next to an educated and skilled immigrant on a flight to the U.S.  But he was only stopping off there;  he was on his way to Canada.  There are tens of thousands of others like him.

America has long had a schizophrenic attitude toward immigration.  Immigrants have made our country what it is.  And yet there is the impulse to slam the door shut against newcomers.  There is that impulse to say we don’t need them, that they aren’t as smart as we are, that they don’t speak the language, that their attitudes aren’t “American,” that they don’t value democracy.  And above all, the accusation is that they are taking jobs from Americans.

But the numbers just don’t substantiate this.  Right now there are about 12 million unemployed people in America who would like to work and can’t find a suitable job. What would unemployment be like without half our Fortune 500 companies?  or without all those small new companies started by immigrants with an idea and a faith in America?

When times are tough, irrational  prejudices often become vote-getters.  But it’s a self-destructive vote-getter.  America needs immigrants to be the best of what we are.   And on our good days, we know that.  On our bad days, we build walls and detention centers, we try to kick them out if we haven’t managed to keep them out in the first place.

But we don’t have to be afraid of immigrants.  We really don’t.  It’s our fear that we need to be afraid of.


October 4, 2012

Blessed are the poor?

I think sometimes that modern Christianity has a slightly schizophrenic attitude toward the poor.

On the one hand, religious men and women often take vows of poverty, and even though this rarely entails real deep poverty, it is a statement that poverty is a desirable condition that aids in achieving sanctity.

And we often castigate the rich for the very fact that they are rich.  After all, as Jesus said, it is easier for a camel to get through the eye of a needle than for the rich man to enter heaven.

So Christians often feel a duty to try to help the poor and to reduce poverty.  They rail at inequality and the injustice they think this reflects.  They set up charities, send food and clothes, run schools and hospitals, and will even dedicate their entire lives to reduce poverty.

Poverty, though, is also offered as the explanation for levels of crime in poor areas that occur with less frequency in more affluent areas.  So although maybe it’s not all their fault, poor people should not be judged in the same way for their offenses as those who aren’t poor.  Apparently poverty might corrupt, but the poor aren’t as guilty as those who do the same thing when they aren’t poor.

I think the assumption that poor people commit more crimes than people who aren’t poor is not substantiated by the facts, and in any case is an insult to the poor.  But many people think they are being charitable by saying that it is poverty makes us more likely to steal, to commit violent crimes, etc.

I’m certainly in favor of eliminating destitute poverty and starvation in the world.  In fact, I wish many religious leaders were a little less concerned with short-term charity and more informed about economics and with building systems in which people have gainful and meaningful work throughout their lives.  Being unable to find work when one can work impresses me as terrible as grave illness.  Getting short-term help in an emergency is tremendously valuable.  But it’s not a long-term solution.

I think that it is better not to turn poverty into a virtue or lack of it into selfishness.

This post also offer a little admiration for economists.  They are not all out there to make millions of dollars for themselves in short-term bonuses.  Many economists really are struggling with understanding how to provide food and clothing, education, and opportunity for everyone.

I think Bill Clinton was right.  “It’s the economy, stupid.”

July 16, 2012

How do we get rich? Part I of $

Filed under: The Economy: a Neophyte's View — theotheri @ 2:58 pm

Burundi is the world’s poorest country with an average per capital income of $170.  Norway is the richest country in the world with an average per capital income of $84,290, almost 500 times bigger than the average Burundi income.

Why?  Based on what you know at the moment, what factors would you look for?  Before reading some of the research on the question, my list of hypotheses would have included

  • natural resources
  • colonialism, past and present that effectively removes wealth from the country itself
  • government corruption
  • educational opportunities
  • level of health care available
  • cultural and religious factors, including role of women, work ethic

I have just read Jared Diamond’s review of Why Nations Fail:  The Origins of Power, Prosperity, and Poverty by Acemoglu and Robinson and am embarrassed at how on the one hand I could feel the injustice of so much inequality in the world and on the other understand so little about the systems that make such a difference.

I don’t know what your list of hypotheses might look like, but I have substantially reordered and amplified mine .

The first thing I would look at now are the economic institutions of government:  do they motivate people to bother to improve their lot by protecting private property rights, lead them to believe that contracts will be enforced, can they invest their money,  can they assume that its value will not be inflated away or degraded by currency regulations or effectively stolen by other means?

But Diamond points out that geographical factors are quite possibly as important as good government.

More than anything else, this blog is my way of thinking out loud, of teaching myself.  So my next two posts – IE lessons-to-myself – will be on these two factors.   I know it might sound boring.  But it really isn’t.  I can’t just go around clucking about the injustices of extreme poverty without understanding the systems both within and without that have either created it in the first place, or that continue to support it.  And that can make it better as well.

As the Chinese proverb says – Give a man a fish and he eats for a day;  teach a man to fish and he can feed himself for life.

That means we have to know how to fish in the first place.  And whether there are fish in the water.  Even if there’s am adequate supply of water.  Because we can’t just want to do the right thing.  We have to understand how to do it as well.


June 5, 2012

The end of an era?

One may have thought that the Diamond Jubilee weekend ended with the concert outside Buckingham Palace last night but this is a grand celebration stretching over a double holiday in to today.  This morning was a ceremony of Thanksgiving at St. Paul’s cathedral followed by a great parade of horses and carriages back to the palace, a fly past, and the Queen’s appearance on the balcony in front of tens of thousands of well wishers.

It’s all very celebratory, and yet…

Last night we were watching the concert with Tom Jones belting out “Why, why, why Delilah?” joined by the vast crowd, including the Archbishop of Canterbury waving his Union Jack as he cried out with everyone else “Why, why why…?!”

At which point Peter said “they aren’t just saying congratulations.  And thank you.  They are saying farewell.  It’s an end of an era.”

And I knew what he meant as I sat there with a vague premonition of something similar.  First of all, the Queen’s husband, the Duke of  Edinburgh was unable to join her because Sunday evening he was taken to hospital where they are keeping him “under supervision” with a bladder infection for at least 3-4 days.  So the Queen is making all her subsequent public appearances without him.  She kept smiling and waving.  But I could not help but remember the stoic bravery that she and so many others showed during the bombings of World War II.  The Queen has been married for 65 years;  her husband is 91, and in April he was absent from all the Easter celebrations because he’d been rushed to hospital with a heart condition.  I cannot imagine what she must be feeling during these last two days.  I know if my husband were in hospital, I would be just want to cancel everything.  At best I’d be walking through celebrations like these like a zombie.  But the Queen keeps smiling and saving.  She is a very strong, committed woman.

And all of this against the backdrop of the euro crisis.  The European Union was first formed after WWII to make sure that the nations of Europe would never go to war with each other again.  But the monetary union is in grave danger.  The United States is aware of the danger.  Britain (which is part of the European Union but not part of the euro) is profoundly aware of the danger.  China is aware of the danger.  But it looks as if the European politicians are fiddling while Rome burns.  Germany, which has benefited hugely from the euro, is adamant that the countries in trouble must simply cut their budgets.

But it’s not going to work.  Yes, budgets must eventually be brought into line, but not yet.  Right now the economies of these countries are shrinking faster than they are cutting costs.  And people are going to the wall.  By which I mean, they are living without electricity, without basic, medical supplies often needed simply to stay alive, often without sufficient food.  And millions are unable to get jobs to replace the ones that have been cut.

I know I don’t know what is going to happen.  But I do know this is a seriously dangerous time for the world.  And especially for Europe.

Perhaps it really is the end of an era.

November 13, 2011

Is it terminal?

Filed under: The Economy: a Neophyte's View — theotheri @ 3:54 pm

I don’t have the feeling that most of the people who read this blog have a wild interest in the fate of the euro.  I am also aware that more informed minds than mine are writing about it every day.  So my own thoughts are hardly a font of wisdom.

But I’m mesmerized.  And I’m far from indifferent.  Watching the gyrations of the euro’s fortunes is like watching a patient with a long-term and very serious illness.  The doctors keep coming up with one more treatment that everybody thinks might work, or might at least give him a little more time.  He – that is, the euro –  has good days and bad days, but all the time looms the terrifying possibility that it might be terminal.

It’s like reading a Russian novel by Dostoevsky.  Or it reminds me of the accounts I have read of nobility dancing and drinking together in 1914 days before World War I exploded.

People – even here in England, though fewer perhaps than in America – think “what does Greece have to do with us?  let them default and get on with it.”  Italy may bring about just a little more concern, but it’s still pretty remote:  “they’ve always overspent..”   “Those southern European countries are all like that…”

But it does matter.  It matters terribly.  But over here just as in the States, the politicians seem incapable to grasping the nettle.

The issues are the same, too.

There are those who say the solution lies in cutting  government programs we can no longer afford.  On the other hand, there are those who say they are not the ones who caused this mess and that their benefits, their pensions, their salaries should not be cut for the sake of the mythical 1% who caused this problem but escaped with their fortunes in tact.

There are those who say that taxes should be cut to stimulate the economy, and those who say they should be increased, preferably on that wealthy 1%, to pay down the deficit.

The only country that has the economic power save the euro, even short term, is Germany.   But Germany is not eager to bail out spendthrift countries like Greece and Italy and Spain and Portugal.

Yet if Germany will not guarantee their debts, those countries will default, the Germany currency (whether it is still called the euro or returns to the deutschmark) will become so strong that it could ultimately cripple the Germany economy which is dependent on its exports.

Even worse, the defaults of so many sovereign countries in the European Union could make the global banking collapse following the fall of Lehman Brothers in 2008 look like child’s play.  Even American banks are unlikely to be ring-fenced.

It is not fanciful to consider that the global economy might plunge into another Great Depression that we cannot dig ourselves out of.

The terrifying thought is that it was the huge government spending stimulated by World War II that ended the last Great Depression.

So can I do anything about it?  Absolutely not a thing.

I’m beginning to understand why Nero was fiddling like Rome burned, and the nobility were dancing in 1914.

November 3, 2011

Magnifying the effect

Filed under: The Economy: a Neophyte's View — theotheri @ 9:10 pm
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If any one reading this is vaguely interested in the economy, you already know about the shenanigans that the Greek Prime Minister has tried in the last 24 hours.

What is amazing is that a country the size of Greece with a population of less than 11 million people — that’s .0015 of the world’s population — has the power to drag the entire global economy into another major recession.

I know that America is quite used to saying that we will do as we please and the rest of the world will just have to lump it or like it.

But America is not used to being at the mercy of small country that doesn’t collect its taxes, has been overspending for years and lied about it to the international community.

But the G20 summit of major economic countries meeting in Cannes, France today was practically paralyzed by a country that has no nuclear weapons, no space program, and is effectively bankrupt.  Angela Merkel and Nicholas Sarkozy were both incandescent over the unexpected announcement (since rescinded) that Greece would hold a referendum asking the Greek people to vote on the (very stringent) bailout conditions.  They responded by saying that if Greece did not accept the conditions of the bailout they would have to withdraw from the euro zone and from the European Union.

Up until now, the iron-clad rule was that once in the euro, it was impossible to withdraw.  That is why Greece was able to over-borrow at such favourable rates for years and therefore run up unsustainable debts.

The question now is whether making it clear that countries can withdraw – or be pushed out – from the euro zone, France and Germany have started an unstoppable attack by the markets on Italy and Spain.  If markets believe their high debts won’t be supported by the euro-zone countries, their interest rates will also rise to unsustainable heights.  They will default on their sovereign debts, and once again, not only Europe, but the world will be standing on the edge of the cliff.

If the world survives this crisis, then we can turn our attention to the Super Committee in Washington which has to reach a conclusion about America’s budget deficit by the end of December.

We have never – never – lived in times like this.  Even the Great Depression was not as grave as the potential global downturn we could face.

And the problem is that we don’t know how to get out of depressions.  We know what to do in relation to inflation.  But how to start a dead engine for economic growth is a much more difficult question

October 29, 2011

Looking for happiness

True Happiness David ChernoffHappiness these days seems to be a popular research topic.  What makes us happy?  what kind of people are happy?  is it genetic?  how much does it depend on our circumstances?  does enough money make us happy?   does more money make us happier?  Do the same things make people happy or cause them unhappiness?

If I were still an active academic, I think I would write a summary of this fascinating research in progress.  Happiness is a lot more complicated than I would have believed.

Many things influence happiness.  Generally speaking, the employed are happier than the unemployed, the young and old tend to be happier than the middle-aged, extroverts are happier than introverts, confident people are happier than their less confident contemporaries.  There are people who believe  we can teach ourselves to be happier, or that we need sunshine to be happy.

One study about a “happiness gene” has particularly intrigued me.  Researchers have known for some time that the capacity for happiness is partly genetically controlled, and have identified the gene that seems to be principally responsible for these differences.

A recent study found that Asian Americans tend to have fewer “happiness genes” than  White Americans and  Black Americans have more than White Americans.

There is a need for much broader study before reaching too-far reaching conclusions, but studies suggests that these serotonin-transporter or happiness genes tend to concentrate in ethnic groups, and so may reflect fundamentally genetic differences in societies, even in countries.

Furthermore, in societies such as China and Japan which have lower levels of effective mood elevating genes, people seem to prefer political systems that emphasize harmony and provide relatively high levels of security.  Entire countries with different levels of happiness genes may prefer greater levels of individual independence even at the cost of greater risk.

So the happiness question isn’t just of interest to psychologists anymore.  Politicians and economists are equally interested for reasons of their own.

In any case, it seems clear that one size does not fit all.  There isn’t going to be a system out there that will make everybody happy.





October 27, 2011

Arithmetic: Failed

Filed under: The Economy: a Neophyte's View — theotheri @ 8:13 pm

A book review in the Economist last week starts with a report of a chilling error.  In 1998, Long Term Capital Management (a hedge fund run by very big wigs) developed one of those sophisticated risk models which concluded that there was

a 1% chance the fund could lose more than $45 million a day.  

9 months later it was regularly

losing between $100 and $200 million a day.

What kind of arithmetic teachers did these over-paid investment analysts have before they were allowed to play with this much of our money?

October 25, 2011

Would fixing the causes fix the problem?

Filed under: The Economy: a Neophyte's View — theotheri @ 8:41 pm

The Occupy Wall Street sit-ins have spread to over 900 cities and 80 countries.  It is not a unified movement.  In fact, it is both quite varied and vague, but the protesters are well-disciplined and are tapping into some deep, if unclear, dismay in the wider public.

It is impossible to get a coherent view of what the protesters want because they want quite different and sometimes even contradictory things.

But it is possible to look at the research of events which have been associated with these kinds of protests in the last fifty years.  Two variables stand out:  austerity and inequality.

Austerity, whether it is in the form of government cut-backs, increased taxes, or high levels of employment triggers protests.  Joblessness causes unrest, and it is particularly toxic if the unemployment falls disproportionately on the young.

Inequality is the second process connected with unrest.  Between 1960 and 1985, social unrest was highest in countries with the highest inequality.

It is inequality that might provide some unifying variable to many of the protests, especially in America:  58% of real economic growth in America in the last 30 years was earned by a mere 1% of the population.  That’s what the OWS sign “we are the 99%” means.

Even worse, the greatest losses of income have been felt most broadly by the middle class.  It is the middle class wages which have been decimated, creating a hollowing out between the richest and the poorest in America that looks more like what we used to think of as a Latin American country.   We Americans didn’t have that:  America was the land of opportunity.

I strongly suspect that if we can’t fix the profound problem of joblessness among the American youth, and if we can’t do something to rebuild the middle class, anger – even rage – against bankers and politicians, even against the entire capitalist system will continue to swell.

Anger is blinding, and destruction often becomes an end in itself.  If we get mad enough, anything, even nothing, seems better than the system that is seen as corrupt, unfair, and greedy.

PS:  On the other hand, a helicopter flying over the tents in the London version of Occupy Wall Street last night found using thermal imaging that 90% of them were unoccupied.  Apparently many of the protesters are going home for a warm night’s sleep in bed and returning every morning to continue the crusade.

October 23, 2011

My problem with the tents on Wall Street

Filed under: The Economy: a Neophyte's View — theotheri @ 3:05 pm

One of the reasons I entered a convent with the expectation that I would be working with the world’s poor was I thought that there was a system which would guarantee equality and justice to everyone in the world.  I even think I assumed that I could be a major influence in establishing this utopia.  I left the convent after nine years and joined the generation of the 1960’s and 70’s fighting for racial equality and against the Vietnam War.  I thought again that we had the answers.

If I had reflected on history just a little more, my naiveté may have been somewhat moderated.  I am now absolutely convinced that there is no system – political, religious, or economic – that can impose justice from above despite the limitations, expectations, and desires of the individuals involved.

It’s been tried before.  It was not just the Hippies, or the Communists who thought they knew how to make the world more just.  The Islamists believe they can do it, and Roman Catholicism is based on the beliefs that it cannot be done without following their principles.  Protestants and Buddhists, pagans and Taoists have all tried.  At great cost, the Shining Path in Peru, Castro in Cuba, and the Khmer Rouge in Cambodia have tried.  Not all have failed miserably.  But none have succeeded with such sterling effectiveness as to be convincing.

Yes, some systems are better than others and I believe we have an obligation to study them.  I think democracy in the modern world is usually better than dictatorship.  And unregulated capitalism has no better record than dogmatic socialism.  But there isn’t a ready-made system out there that will eliminate greed and inequality or poverty if we would just  stop being so self-centered and selfish.

The distressing truth is that we just aren’t that smart.   We really don’t know how to do it on a global level.  Yes, we can share our loaf of bread and our i-pads with our neighbor.  Yes, we can make charitable donations and participate in marches.  None of this is to be disparaged.  But it won’t solve our problems all by itself.

And that’s what makes me worried about the Occupy Wall Street sit-ins which have now spread to London.  I understand and fully agree with the anger over the bankers who brought the global economy to the brink of  disaster (a danger which has not yet been fully conquered).  Having done this, they were paid obscene salaries for achieving such historic failures, and then paid even more to walk away from the wreckage they engineered.  It is infuriating that it is the taxpayers who are being forced to pick up the shards, the innocent citizens who are losing their jobs and their homes.

Yes, banks and insurance companies and any institution where these almost inconceivable amounts of money are gained and lost must be made to be more transparent and regulated so that they cannot do this again.

But this naive simplicity that assumes that we can destroy capitalism and force every one to live in equality would create, in my opinion, a suffocating hell on earth.  It would destroy individuality and a great deal of creativity.  And it would not reduce global poverty.

I understand that globalization has destroyed the livelihoods of thousands of workers.  I think governments have failed, sometimes catastrophically, to care for those who are destroyed by the free trade treaties into which they have entered.

But let us remember that globalization has done more than any other process – including foreign aid – to reduce global poverty in the last forty years.  The number of people in India, China, Brazil, and Russia alone who have been lifted out of poverty during this time reaches into the millions.

Pope Benedict is publishing an encyclical tomorrow in which he is arguing that our economic systems must be changed to insure greater equality.  Fine.

But pulling the world out of poverty and injustice takes more than sharing your last loaf of bread with your neighbour.   How to achieve this is a far more difficult and complex task than he seems to acknowledge.

September 16, 2011

Badder than I thought

When Lehman Brothers collapsed in 2008, instigating the collapse of huge banks in the U.S. and all over Europe, the very survival of our functioning economy was at grave risk.  I had to swallow hard like almost everybody else, but I thought then, and still think, that governments were right to rescue them with taxpayers’ money.

What I didn’t realize then was that this kind of rescue has been going on for years, and that banks had begun to behave as if they were insured by their governments.  They took risks they never would have taken had they not been assured that they were too important to be allowed to fail.

In his recently published book Age of Greed:  The Triumph of Finance and the Decline of America, 1970 to the Present, Jeff Madrick lists the bank busts that show that the credit crunch of 2008 is just the latest of increasingly bigger busts for the last forty years.

After the Great Depression, Congress passed the Glass Steagall act forbidding banks to use customers’ deposits to fund what is given the respectable name of “investment banking.”   This kept banking rather staid and stable, a service institution that greatly facilitated the processes in an economy requiring the exchange of money.

But then economic theory began to develop the idea that Greed is Good.  Greed itself might be selfish, the argument went, but the multiplication of money driven by greed, helped create a dynamic and expanding economy from which everyone, rich and poor alike, could benefit.   Alan Greenspan, hailed at the time as one of the most successful directors of the Federal Reserve in US history, bought into this doctrine.

The greedy, so the theory went, might be selfish, but they were not stupid.  And so they would not destroy the very systems, the goose, that was laying so many golden eggs.

And so it seemed.  More and more sophisticated computer-based and mathematically complex methods were instituted around the world to make billions of dollars.  Traders were given annual bonuses of millions of dollars.  They went out to $40,000 lunches.  They bought houses and cars and stocks in an ever-expanding stock market.  Economies around the world boomed, and the standard of living for millions of people rose.

Basically, banks were using customers’ deposits to engage in informed gambling with huge sums.  Were they aware of the risks?  Some undoubtedly were.

But they knew there was a safety net, one for which they weren’t even paying:  if all else failed, the governments would bail them out.

The rot began to set in about 1970.  Milton Friedman and Ronald Reagan between them convinced the public that big government is the cause of our ills.  People began to trust themselves and private institutions – including banks – more than they trusted Big Government.  Many of the Far Right in America are still adamant that Big Government is our biggest problem, which is why they don’t want universal health care, why they want social security to be privatized, why they are against raising taxes, and most government regulation.

By 1970’s, banks were pushing for the repeal of Glass Steagall that kept them on the straight and narrow.  They won and deregulation of the financial world set them free to do whatever they wished with depositors’ money.

But although banks were against the federal bailouts of companies like Chrysler in 1978,  Citi Bank needed help – and took it – when loans to Latin American governments failed in the 1980s.  Then there was the savings and loan banks, which were bailed out by Washington.  And then there was the big bust in 2008, and at this very moment, EU governments are meeting to find a way out of the euro-crisis.

Effectively this is not to save Greece or Italy or Ireland from defaulting on their debts.  It is to save the banks which are holding Greek and Italian and Irish and other threatened euro-country bonds.  Billions of dollars have already been poured into this enterprise, and conservatively, another 17 billion (yes, 17 billion) dollars is required just to stabilize a situation that might develop into a global disaster.

Banks took and will continue to take huge government subsidies to stay afloat.  And yet they continue to argue that they know best.  That government interference and nannying is the real problem that needs to be reigned in.  They are resisting with every conceivable strategy and all the funds they can find governments’ suggestion that investment banking should once again be separated from commercial banking.

Big government isn’t the problem.  Even people who took out sub-prime mortgages and credit card debts they could not sustain are not the problem.  Banks were giving out mortgages to people without ever even checking their employment status, convincing them that they too would be on the band-wagon of big money.

Actually, many banks are at it again already, leveraging customers’ deposits to gamble with.

And could they go bust again?

What do you think?


September 15, 2011

War as the last resort

Filed under: Just Stuff,The Economy: a Neophyte's View,Worries — theotheri @ 4:29 pm

Someone has just pointed out to me that there is a strong argument to be made that war was really the stimulus that finally ended the Great Depression.

The implications are worrisome to say the least.

  • When a country is being attacked, nobody worries about the size of the deficit when a country is at war.  They even buy bonds to finance government spending.
  • Nobody worries about the sacrifices they are making, or goes out on strike because their pensions might not be big enough in 20 or 30 years.
  • And the chances that a country will go to war are much greater when people are threatened, when they are jobless, without hope, and unable to get enough to food, water, or shelter.
  •  Opposing political parties in Congress or Parliaments unite in a wild patriotic frenzy to support the war effort.

50 million people died during World War II.  But it did end the Great Depression, and usher in a period of unprecedented prosperity in many parts of the world, not least in the United States.

I hope we can find a better way out of the world’s economic morass this time.



September 7, 2011

A closer look at the American disaster

Whether one listens to the anguish from the Left or the anger from the Right, it seems that the American dream is over.  I’m only hearing it from across the pond, but the sounds of despair that reach these shores, the pronouncements of utter gloom and impending and permanent disaster are sometimes so palpable that I am tempted to enter a cloister and stay there with the door permanently closed to any outside distraction.

Okay, I can see that this is a very bad patch.  9/11, our dubious wars in Iraq and Afghanistan, the credit crunch, the size of our public and private debts, and the spluttering economy cannot be dismissed as mere neurotic overblown anxieties.
But in the long-term, things might not be nearly as bad as the doomsayers predict.  The economist Irwin Seltzer writing in the London Times on Sunday suggests six significant reasons for optimism:

  • the American economy still produces more goods and services than the next three largest economies – Japan, China, and Germany – combined.  This pre-eminence is likely to last a long time.  Japan is still struggling with a decade of stagnation, China now has emerging problems which are getting bigger not smaller, and Germany is burdened by the fact that it is the only economy that might conceivably lever Europe out of the euro zone crisis now engulfing it.  And it still might fail.
  • America’s GDP per capital exceeds that of its supposed biggest rivals China by 10 times, and India by 50 times.
  • American’s demographic outlook is hugely optimistic.  The population is growing, which means that there is going to be an expanding internal market.  Even more significant, there will be a supply of new workers, new ideas.
  • That also means that a much larger work force will be less burdened by the needs of an aging population.  By 2050, 1 in 3 people in most developed countries in Europe and east Asia will be older than 65.  In America, only 1 in 5 will be over 65.   On average, the population will be  younger and more dynamic.  To some extent this dynamism already shows in the 2.3 million patents awarded to Americans in 2010.  Germany was in second place with 286,000 new patents.
  • America has its problems with corruption, with the influence of corporate money in Washington, with torture and the violation of human rights.  But it is still a far safer place for investors’ money and innovative skills than Brazil, Russia, India, or China.
  • And finally, America still has an abundance of natural resources.
Yes, it is a dark time for America with many of the problems of our own making.  For those who cannot get work because of the recession, it must feel like a pitch black darkness in a void without walls.
But I suspect that things are not necessarily nearly as terrible as many on the Left or the Right cry out that it is.
If we grasp the nettle, America is still a very very fortunate nation.  It can still be one of the best places on the planet to live.

August 23, 2011

On earthquakes

MapThe news here in England tonight is dominated by the rebels victory over Gaddafi’s compound in the heart of Tripoli.  But there was room to fit in the news that a 5.9 earthquake has led to the evacuation of the White House and the Pentagon.  People as far north as New York City saw skyscrapers shaking like a quivering string.

5.9 is pretty strong but it sounds as if the damage this quake causes will be minimal.

I’m not so sure about a more figurative earthquake if the Joint Select Committee on Deficit Reduction appointed to recommend a federal budget by November fails to agree.  The issues are pretty divisive:

  • The Democrats want to tax the “rich.”  The Republicans are dead set against it.  But by “the rich,” the Democrats don’t mean just millionaires and billionaires.  90% of the “rich” under this definition aren’t millionaires.  Many are the small-business entrepreneurs whom the country needs to create millions of jobs.  Taxing them might release some of the outrage against greedy bankers but it could potentially hurt the economy a lot more than help it.
  • Unfortunately, what the Republicans means by “no new taxes” is absolutely that.  Never ever again should tax rates be raised.  The size of government should be permanently cut down to size.  The problem with this position is that without some tax increases, entitlement programs like social security and medicare and many public services like policing and teaching will have to be drastically cut.
  • Besides cutting government spending too much too fast could derail the economy which is teetering on a second recession as we speak.
  • But, Republicans argue, if we don’t cut spending, interest rates will rise, increasing our deficit and creating a downward spiral by a different route.  This argument, though, seems – thankfully – to be questionable.  U.S. borrowing costs (ie, interest rates) have not risen following the S&P downgrade of American debt from AAA to AA standard.
  • In fact, evidence from this side of the Atlantic from countries like Greece and Spain suggest that government spending should not be cut in the short-term but that a credible plan for serious deficit reduction should be worked out now and begin to bite in two years or so.  But first, create jobs now by encouraging private enterprise and by government programs to improve our crumbling infrastructures – our road and transportations, electricity, water and sewage systems.

Will the government be willing to do it?  Or will Congress drag a Trojan Horse into the center of Washington and watch the economy be destroyed by premature cuts in government spending and a “don’t-distract-me-with-facts, I’ve-already-made-up-my-mind” puritanism from the Tea Party?

By November we may have some idea of our fate.

August 22, 2011

Other People’s Money

Filed under: The Economy: a Neophyte's View,Worries — theotheri @ 3:52 pm

OPM – other people’s money – is at the heart of working capitalism.  That’s why we need banks.  And that is why governments moved heaven and earth in 2008 to keep them from collapsing throughout the western world.

Many of us have benefited from using other people’s money by taking out a mortgage.  Some of us have been able to build businesses with the help of bank loans or other people’s money.

What very few of us have appreciated though is exactly how much business throughout the world has expanded and runs on OPM.  Because the thing about OPM is that it can be used – and even in some sense legally owned – at the same time by 2 or 3 or 4 or 5 different sources.

I take out a mortgage, for instance, with a great deal of other people’s money to buy my house.  I now possess all the rights of a legal owner – I can sell it, I can renovate it, rent it, live in it – as long as I repay a small amount of the mortgage each month.   This is true even though the money that the bank gave me is money depositors have placed for safe keeping with the bank, and which those depositors may, at any given time, legally take back out of the bank.  Meanwhile, the seller of the house, perhaps a builder, to whom the money lent to me by the bank was given, has quite possibly used it as a partial payment to take out a business loan in order to build another house.  And on yet a further development, banks now often package the mortgages and other loans they have made which they sell to investors who then receive part of the interest paid by the people repaying the loans on a monthly basis.  And so on.

In just this small example, the same money is being used simultaneously by at least four different sources.  So well-run, secure banks expand the amount of working capital available to build businesses, to build roads and houses and schools, to fund everything from care homes to wars and space exploration.

Banks all over the world operate on the assumption that not all its depositors will want all their money back at the same time.  If they do, there is a run on the bank and they eventually collapse.   Economies can withstand the isolated collapse of even a very big international bank.  But the widespread collapse of banks will destroy functioning capitalism.

Because although we each individually – if we are lucky –  may still have our jobs, the major multiplier of money will have become defunct.   And actually, many of us may not even be able to hold onto our jobs.  Look at how many jobs have been lost to the building industry, for instance, because it is so much harder for people to get a mortgage than it was five years ago.  And then job losses cascade like rows of falling dominoes.

That’s why, however much one may hate the greediness of the bankers and wish them no good at all, we cannot let those banks go to the wall.

That is part of the explanation for the answer given by Nouriel Roubini, the  economist who was one of the few to predict the banking collapse three years ago, when he was asked if capitalism was doomed.  “Possibly,”  he said.

August 4, 2011

Useless politicians

According to most economists – and unfortunately according to the stock market that dropped dramatically in New York today –  the chances of a double-dip recession in America have risen sharply following grim economic figures and the risible debt deal.  The euro crisis in Europe unfortunately is compounding the problem.

Assessing the deficit reduction agreement reached by Congress two days ago, the Economist says “there was a simple bargain to be struck:  keep up spending in the short-term in exchange for a big medium-term reduction in the deficit. Congress did precisely the opposite.”

Congress both refused to support the alarmingly weak economy now or to agree enough cuts over the next decade to reduce the deficit.

“America has the world’s most innovative businesspeople, but its useless politicians could yet turn an inevitable period of hardship into longer-term stagnation. ”  That’s what I’m afraid of.

Let’s hope the economists and the stock market are both wrong.

I’d even be willing to live with the Tea Party putting Sarah Palin into the White House and having to listen to her  “I told you so’s.”

But I’m not counting on it.  The clouds on the horizon look very dark to me. I’m thinking of a back-up plan for living with what they will call a recession but that I would call depression.

Oh yes, I do hope I’m wrong.  I am sometimes.

That’s a consolation then.

August 3, 2011

The universe is unfolding as it should

The excerpt from Erdman’s poem, Desiderata, that I posted yesterday, reflects the essence of my faith these days.  Interestingly, I re-read it most often on days when it seems to me the universe emphatically is NOT unfolding as it should.

Then I remember some years ago realizing that I could not imagine a heaven where I would be perfectly happy if it didn’t include some challenges, something that could be done to improve things, something, in other words, for me to contribute, to be engaged in.

And so now when I’m tempted to think that the world, if not the entire universe, is certainly going to hell in the proverbial handbasket, I ask myself just what this world would be like if I’d been running it for the last 1000 years or so.

So that’s when I concede that perhaps the universe is unfolding as it should.

Even if that doesn’t include the Tea Party.

Commenting on the U.S. deficit and the bill that finally made it through the Senate last night, the conservative paper here, the Daily Telegraph, believes the crisis “may signal the end of the American century, not only economically but also militarily and diplomatically”.

I think it might.  Not because of the bill itself, but because the Western world has been living on more and more credit for more than a decade.  Instead of facing mini-recessions that would have ironed out various imbalances, the Fed has kept lowering interest rates which have fueled more and more bubbles.  Now all that money has evaporated.

I’m generally an optimist.  But I fear we are not going to recover from this for decades.

Maybe that has an upside.

  • Maybe it will reduce our use of fossil fuels and slow down our destruction of the environment.
  • Maybe it will make us less willing to go to war.
  • Maybe it will help us realize that we really can be just as happy with lots of less.

Maybe the universe really is unfolding as it should.

August 1, 2011

U.S. deficit deal agreed

Filed under: The Economy: a Neophyte's View,Uncategorized — theotheri @ 8:09 am





Patriotism is the conviction that your country is superior to all others because you were born in it.

George Bernard Shaw

July 31, 2011

Armageddon delayed?

The news at the moment is that it looks as if a compromise has been reached on raising the US debt ceiling which will get through both Houses of Congress.  As of this writing, there should be a vote in about three hours.

Even assuming that this is not yet another compromise that falls through this doesn’t solve the problem.

But it may give us  a chance to look at the very hard choices we have to make and to discuss the issues rationally.

As I see it, the first question we need to address is whether now is the time to implement drastic cuts to government spending or whether we should concentrate on stimulating the economy sufficiently to get the economy rolling again before we start paying off what is, admittedly, an unsustainable debt in the long-term.

I think this is the easy question to answer.  The U.S. economy has slowed down much more than anyone realized and history suggests that cutting right now could slow the entire horse and cart even further.  If we can wait a year or two to implement cuts, there should be more tax revenues coming in to support them.

But we do need a credible mid-term plan to start cutting.  Already the markets are suggesting that the U.S. is going to lose is triple-A rating without one.  And there is no reason why we shouldn’t be working on it today.

And that is where we come to the hard part.  The Republicans want less government, less regulation, and less taxation to free the private sector to increase productivity and innovation.  I strongly suggest they have a point.  Over-regulation by a nanny government that knows best is unbelievably suffocating.  Communist Russia is a prime example, but unfortunately over-regulation and government intervention has not been defeated with the fall of the Soviet Union.  It is alive and well throughout the world.

So as I see it, the Republicans are not just corporate fat cats or Tea Party fanatics and bigots who can’t be bothered to learn anything about economics before imposing their views on the entire nation.

On the other hand, the Democrats believe the role of government needs to be increased.  Our population is ageing, we cannot remain competitive in the world without improving our educational systems, our road and utility infrastructures need upgrading badly, we are damaging the environment possibly catastrophically,  health care costs are running riotously out of control.  They want to increase taxes and government spending to tackle these problems.

And we the American electorate?  what do we want?

Unfortunately right now we want everything.  We want tax increases limited to the irritatingly rich who can afford it anyway, employment increased, and our benefits untouched.

We can’t have it all.  With the next election, we are going to have to decide.

By then the lay of the land may have changed.  The euro, which probably reflects an even bigger crisis than America’s, may have imploded with implications that are beyond even the experts to predict.  China’s economy may have slowed down.  The price of food and oil may have sky-rocketed.   Or another war may be devastating the lives of tens of millions of people.  Who knows what state the American economy will be in by the election at the end of 2012.

But maybe – with our backs to the wall – the human species will come up with a disruptive technology that replaces oil.  Or that can grow food with a third of the water currently required by most crops and animals.  Or maybe we will rally behind a political leader who can convince us that his or her plan is worth fighting for.  A country isn’t given a lot of leaders like that.  I hope if there is, that we’ll recognize it.

Okay, I’ll stop venting.  It’s not, I know, that I have a lot of light to cast onto the problem.  Really, what I’m trying to work out is how to deal with all this in my own life.  Not in terms of personal finances – though that could become a concern if things got bad enough.  But to try to live with some equilibrium, some peace and joy and gratitude, in the face of this kind of confusion and real injustice.

I finally do understand how it was that people were dancing even as war was breaking out.  It always seemed so self-indulgent to me in the past.

Now I see it as a determination to grab life with both hands and to live it to the full.

Whatever is in the cup.

July 29, 2011

Looking for the sunny side

Figures have just been released today showing the U.S. economy has been in far worse shape since 2007 that anybody had realized.  And a substantial part of the problem has been created by government cuts in spending.

Obviously, this is not the time to cut that spending further.  Yes, we need a credible plan to reduce our budget deficit in the mid- and long-term.  But to begin it on August 1st is sheer lunacy.

Unfortunately, along with the figures showing that the hole we are in is much deeper than we thought, the news also reported that the Tea Party representatives in Congress scuppered even Boehner’s plan to cut spending because it doesn’t cut enough.  (Not that Boehner’s plan wasn’t diabolical;  but he wanted to get it past the House of Representatives in order to force the Democrats in the Senate to veto it, and so take the blame for a default.)

The Tea Party may not understand economics, which may be forgivable.  But it is not forgivable that they do not understand democracy.  To refuse to compromise, to insist on their minority opinion and to bring the country and the global economy to the brink of the catastrophe on which we are now standing is unconscionable bigotry.

The Tea Party is refusing to fund programs which have already been passed by Congress and on which millions of people depend. Anyone receiving social security due at the beginning of the month cannot feel secure that their check won’t bounce next week.

Black And White Cats  Fearing that America really might default on Tuesday, I have been trying to find a sunny side.  Okay, so we are plunged into a Japanese style recession in which economic growth stalls for more than a decade.  We know what happened in the 1930’s.  It took a war to get the global economy moving again.

No no no, this is not the sunny side.

I have to think about this some more.  I definitely am still on the wrong side of the sunny street.

July 20, 2011

It’s the Economy, Stupid: The alternatives

I’m writing yet another post on the economy not because I think I see more clearly than most experts.  I’m writing it because I think it is a terribly important issue for me personally and for practically every other individual in the world whose net worth does not exceed one of those astronomical amounts the press tells us every year that some people are worth.

We have a world-wide dilemma facing us, and certain knowledge about how to deal with it is obvious only to those who don’t understand how complex it is.  Unfortunately, talking about fairness, and saying that only those who are responsible should have to pay isn’t going to solve the problem either.  Pointing to all the innocent victims – and there are hundreds of thousands, maybe millions – and trying to devise an economic solution which will protect them from the consequences, is, in my view, a formula for useless outrage.  It won’t help.

We are – innocent or guilty, informed or uninformed, rich or poor – all in this together.  We have to solve it together.

Let’s begin with the debt crisis.  It’s not the same in every country, but the list of countries whose debt is greater than their economies can maintain over the long-term is long and familiar.  Three of the world’s richest economies – the United States, Japan, and Britain – are on the list.  Since the bubble burst in 2008, the band has stopped playing.

What are the options for these countries?

  One option is austerity.  It’s what the tea-party and the Republicans are arguing for.  Austerity is what Britain is trying.  So is the EU and the IMF which has been trying fruitlessly to force it on Greece, Ireland, and Portugal.   It’s working better here in Britain than it is in Greece because Britain is not part of the euro.  The pound sterling has been devalued against other currencies, which has helped improve the export market and reduced imports.

It’s not working in the countries that are members of the euro group because the strength of the euro is tied to the German economy which did not begin in the first place with the kind of debts the government of peripheral European countries have run up.  Initially, these countries could borrow at rates appropriate for the German economy.  Now rates for these debt-ridden countries are ballooning, making it impossible for them to pay down their debts even with increasing spending cuts.  What is happening instead is that their economies are simply running out of gas altogether.   Taxes are decreasing and the call for government benefits is increasing.

So austerity might work for countries which can devalue at the same time.  Euro countries can’t devalue, unless the euro imploded.

Could it be made to work for the U.S.  the way it is more (or less) working for Britain?  Only up to a point.  The U.S.  is constrained from devaluing by the size of our debt being held and still being bought by China.  If the U.S. dollar devalues too far, China will simply stop buying our debt, and our interest rates will soar.  And that will stop our economic recovery – sickly as it already is – dead.  Depression will loom.

The principle alternative to austerity is default.  In other words, declare national bankruptcy, say to all those who hold a country’s bonds that they aren’t going to get all their money back.  Even sovereign countries have been known to default and have lived to see another day.  Argentina did it in 1999.  But the price is huge.

For the U.S., for instance, to tell U.S. bond holders throughout the world that U.S. treasures are no longer backed by the strength and good faith of the U.S. government and that they will simply have to accept the loss, will mean that interest rates the U.S. is charged will immediately increase, making economic recovery, as in Greece and Ireland, less likely, if not impossible.  The dollar will no longer be seen as a safe haven for investors throughout the world.  The loss to our economy will be huge.  So will the loss is our position of leadership in the world.

A third alternative is Quantitative Easing  – the fancy word for printing money.  The Fed has already done this twice in the last three years, and may do it again.  This has the effect of  simply printing money to pay off some of the debts, but it also results in lowering the value of the dollar. This makes the cost of imports greater but makes exporting easier (although exporting is not nearly as a powerful engine of the U.S. economy as it is for Germany, for instance, or China, or even Britain).

A devalued dollar could help, in the long run, to rebalance the global economy.  But printing money and devaluing the dollar too drastically and too rapidly will have the same effect as austerity if other countries – especially China – decide as a result to stop buying dollars and thus stop supporting U.S. debt.

The 4th alternative is for governments to continue to increase both taxes and the debt ceiling in order to stimulate the economy with borrowed money.  This tends to be the Democrat position.  The Republicans are fundamentally arguing for spending cuts rather than spending increases, and would rather see the country default than increase taxes which they believe will choke off the economy every bit as much as increased interest rates.

The difficulty with the Democrats’ position is first that of getting it through Congress.  But assuming they could do so, the danger is that, even for a country as rich as the U.S., the debt can spiral out of control.  If interest rates go up as a result of the global market losing confidence in the strength of the dollar, the economy could be choked before it got going again.  And then things would be worse than ever.

So what’s the answer?  Clearly the only sensible – and only possible – solution lies in a mix of the various options.  But what kind of mix?  That’s the conundrum.

In terms of spending cuts, the U.S. is already cutting its space program. What about defense?  how essential is our presence in Afghanistan and Iraq to our national security?  What about public services?  I, personally, have been somewhat appalled by the salary and pension rights of some of the public services in the U.S.  Could they sustain a small trim?  In relation to social security, should be increase the normal retirement age?  or size of the pension increases once payments begin?

What about taxes?  personally, I cannot see that the economy would falter if the highest paid had to pay a little more.  On the other hand, most people over-estimate just how much rescinding the Bush tax cuts would bring into the U.S. treasury.  It would hardly solve all our problems.  Though it might make some people feel a little better on the grounds that the tax cuts were unjustified in the first place.

Okay, that’s the end of Part I of my Economic Examination.

It’s hard to believe.  But that’s only half the story as I understand it.

I hate to end on such a pessimistic note, but I really think things might get even worse.

To be continued.  There are some very big decisions which will be made on both sides of the Atlantic within the next two weeks.  The consequences, for better or for worse, will be huge.

Well, whatever else, you can’t say human life isn’t interesting, can you?







July 17, 2011

The problem might be one of intelligence

Filed under: The Economy: a Neophyte's View — theotheri @ 1:56 pm

I was a little surprised to receive four private responses to my post yesterday wondering if events are conspiring to produce the perfect economic storm.  The recurring theme has been anger on the one hand, and the underlying conviction that it is greed, arrogance, and a thirst for power that is responsible for the mess we are in and for the difficulty we are having getting out of it.

I found myself wishing that I agreed.  But as I trawled through the Sunday paper and this week’s Economist, I’m not convinced.

Yes, of course, greed and self-interest are variables in creating this situation.
But I think the problem is deeper than that.  What is really scary is that sincere, educated, informed people disagree about what we should do.  Nobel-prize winning economists, highly successful international business people, and political leaders not only don’t agree.  They really don’t know.

Really.  The difficulty of predicting how economies will respond to various stimulus or cut-backs makes predicting the weather look like child’s play.

It’s easy, for instance, to say that a refusal to tax the rich is self-interest protected by a well-financed media.  But there is an argument that taxing the rich is simply putting the money into the hands of government to spend, which may or may not make that money work more efficiently.  European countries, with their high public spending have for half a century had lower growth rates than America.  Taxing the rich, among other things, is an argument for small government against large government.

On the other hand, research shows that GDP growth rarely improves during times of austerity.  So demands that the federal government should cut back dramatically to save on pensions and medicare and other social services seems counter-productive.

Some economists are arguing vigorously for more stimulus to get the economy going, which will then begin to pay off the debt, while others are arguing that this is merely digging the hole deeper and that we should cut back now before our national debt exceeds our annual national GDP.

Similarly, it seem obvious that we need banks to lend more to small and medium-size businesses.  We need banks to provide more mortgages to get the housing market out of the hole it is in as well, and to get the construction industry back on its feet.  We also need banks to capitalize more, so that they are less vulnerable to a crisis like the collapse of Lehman Brothers or potentially of the euro.

These seem like opposing demands to me.  It doesn’t seem to me banks can both lend and save more at the same time.  Which should they do first?

What I’m saying is that I fear we as a human species are not smart enough right now to know really how to solve this complex and vast problem.  We are making informed guesses.  Yes, some of them are self-interested.  Some of them are bigoted and arrogant.

But I’m afraid that handling global economies is like dealing with cancer or Aids or climate change.  We really don’t have all the answers.  The best we can do is our best, which will be good enough if we are lucky.  But may also be disastrous.

I do think, though, that those who are absolutely certain they know what we should do are part of the problem.  Not part of the solution.

July 16, 2011

Need to know

Filed under: The Economy: a Neophyte's View,Worries — theotheri @ 3:55 pm

I’m afraid there is a difference between needing to know and wanting to know.  Right now the subject on the top of my Need List does not appear on my Want List.  Except that I have this ghastly feeling that it’s terribly important.

I’d like to say the issue is Rupert Murdoch and the International News Corporation.  But it’s not.  As President Clinton so famously said – “it’s the economy, stupid.”

Yes, stupid I do indeed feel.  But there are three things happening on the economic front right now that in my simple way I fear might be revving up to create the perfect economic storm.

  The first question surrounds the charade going on in the U.S. Congress about raising the debt limit.  It’s a game of chicken par excellance in which the Republican are refusing to raise the U.S. debt limit unless the Democrats agree to cut spending but not increase taxes on the rich.  If they don’t blink, the U.S. will be in technical default in less than two weeks.

I have not always understood just how valuable it is to the U.S. economy that the American dollar is the world’s reserve currency.  But living in a foreign country for 25 years has given me a lot of practical insight into just how much it contributes to our welfare.  If the U.S. defaults, even technically, I fear that a good many more people than the millions of people already suffering from the recession are going to gain the same kind of practical insight.

The second problem, which rivals a potential U.S. default in gravity, is the euro.  First it was Greece, then Ireland, then Portugal.  Now it’s Italy, the size of whose economy dwarfs Greece, Ireland, and Portugal combined, and Spain is also under severe threat.   Each of these countries has a sovereign debt which they simply cannot handle.  It is an acknowledged fact that Greece cannot and never will be able to repay the money it has borrowed.  The country is going to default.  The only question is just what name it is going to be given.

The much more critical question is whether the euro is going to survive the year.  If it doesn’t, the fall-out will be world-wide.  Obviously it will hurt all the countries in the European Union.  It will hurt the U.S. because so much trade is done with Europe.  The repercussions will be global because the European market is even bigger than the U.S. market.

And third, there is the question of the banks.  One might think after the catastrophe of 2008 that the banks would now at least be stable after the giant bail outs they received.  Unfortunately, the results of the stress test of European banks released two days ago suggest that fully 8 European banks would fail in the event of another earthquake – like the break-down of the euro, for instance – and another 16 would be in serious danger of doing so.

I understand enough to know that the world is in an extremely precarious economic position.  Could we plunge into another depression?

If we did, would our globalized world mean that the domino effects would be even worse than the 1930’s depression?

I don’t know enough to know the answers.  I’m not sure anybody knows the answer in this complex world today.

But even knowing the answer isn’t enough.

The really big question is whether we can solve the problem.

June 21, 2011

The sublime and the frivolous

Filed under: Just Stuff,The Economy: a Neophyte's View — theotheri @ 8:44 pm

The news for the last couple of days has been about the serious possibility – even the probability – that Greece is going to default on its sovereign debt.  I doubt most Americans think this has much to do with them, but I fear it does.  If Greece defaults, it will have a major impact on banks.  The impact on the global banking section would not be unsustainable.  Unless —

Unless a Greek default triggers defaults in Ireland and/or Portugal, and possibly even Spain.  Over here analysts are saying that credit default swaps are spread throughout the global banking system, and it is impossible to estimate just how big and widespread the rot could be.

A contagious Greek default would also destroy the euro as a world currency.  That will have profound economic consequences not just for Europe but for the rest of the economies in the western world.  And that includes America.

So what happens in Greece does matter to Americans.

In the meantime,Peter and I have kept ourselves entertained with another question of intent.  A workman was backing his van into our drive today and he kept shuffling in and out in order not to brush against a large evergreen tree at the side of the drive.

I thought he kept shuffling around because he didn’t want to damage the tree.  Peter thought it was because he didn’t want to scratch the side of his new van.

I think Peter was probably right.  I hadn’t even noticed it was a new van.

I hope I’m wrong about Greece too.  But I’m afraid I think they are going to default sooner rather than later.

May 1, 2011

Big Bang or Big Bust

Product Details

The last book I’ve published was The Big Bang to Now:  A Time Line.  It is available new on Amazon for $16.99.

Okay, so much for the ad.  What absolutely astonished me was the discovery that this treasure is available, if you prefer, “used – like new” for a mere $62.85 plus $3.99 shipping.

Are people mad?  Why would any one pay almost $67 for a used (presumably unsigned) copy of a book one can get for about $17 brand new?

I’d even be willing to sign it for anyone who wanted it.

March 9, 2011

3-D printing

Filed under: Just Stuff,The Economy: a Neophyte's View — theotheri @ 8:14 pm

Dimension 1200es Series 3D Printers It might not quite be quantum physics, but I find it amazing.  Stratasy, a company headquartered in Minneapolis, is making printers that produce three-dimensional plastic objects which are designed on the desktop.  It works just like a printer, except that what you design and then “print” isn’t a manuscript.  It’s an object.

There a defense company in Europe that’s doing the same thing for metal airplane parts.

This isn’t a pipe dream.  It’s actually already on the ground working.

It’s going to make it a lot easier for individuals to design things and to produce a proto-type to test.  It’s already being used by educators to give students design experience, engineers, and architects.

For the DIY inventor who already has everything else,  consider a 3-D printer.  You can get one for under $20,000 (well, I did say it was for someone who already had everything else).

It is certainly going to revolutionize manufacturing and the factories that make everything from toys to cars.  The advantage that countries have gained by providing cheap labour to produce things to be shipped to developed countries will be greatly reduced.  On the other hand, all the factory jobs that are lost won’t flow back into the developed world.  They will simply disappear.

February 17, 2011

Food or freedom?

Following the successful overthrow of governments in Tunisia and Egypt the western media continue to report demonstrations and unrest throughout much of the Middle East.  The commentators and politicians often suggest that the primary demand is for freedom and democracy, but my own hunch is that these demonstrations are also being driven for  something just as essential – food.

In country after country, the ruling elite have amassed fortunes, while the quality of life for millions has not improved.  Now they are dangerously at the edge.  Food prices and unemployment are ballooning for not only the poorest but for the educated middle classes.

I’m not sure that the internet and social networks alone can bring about a revolution.  I’m not sure revolutions cannot still be stopped if the military is determined to attack its own people.  And I’m not sure that a desire for freedom alone will sustain a revolution for long enough and among large enough numbers to succeed.

None of us, after all, have absolute freedom.  It’s not just the constraints of physical existence that limit us.  It is often the laws and customs and constraints of society.  Only we don’t most of the time tend to think of these constraints as impinging on our basic freedoms as human beings.  We agree with many of these customs and constraints and are outraged when criminals and psychopaths violate them.  And if we get angry enough, we can toss out one government after several years, and if we don’t like the next one, we can vote it out too.  But mostly we have enough to eat.

I think the fight for freedom that is going on in the streets and squares of the Middle East today is real and significant.  And I agree that we don’t live by bread alone.

But we don’t live without bread either.  As the American revolutionaries knew during the War of Independence against the British, even taxing tea so that the common man cannot afford it is more than the human spirit will bear.

Which is why I think today’s demonstrations are motivated by the need for both food and freedom.

It may also point to a reason why the global environmental change we are experiencing might be more destructive than most people expect.

December 16, 2010

A giant full circle?

Several billion years ago – that is when Earth was about half as old as it is now – algae was one of the most common visible forms of life on the planet.  This kind of pond life was a key player in generating the oxygen that made it possible for life to leave its ocean home and set up a permanent home on land.  Algae remains an essential part of our eco-system, providing food for many sea animals and contributing significantly to the oxygen supply for those of us who breathe on land.

Algae may now be posed to make another significant contribution.    The US Navy has taken delivery of 20 thousand galls on jet fuel produced by – yes, algae.

If it works, and if algae-based jet fuel can be scaled up so that it can be produced cheaply and in sufficient quantity,  it can transform life once again.

As an alternative to fossil fuel, the contribution of algae-based fuel to the environment could be immense.  The political implications could be equally monumental.  Countries whose economies rely on oil exports as well as those relying on its import to meet their energy needs could find that they are dealing with completely revolutionized variables.

Will it happen?  It would require a lot of water under cultivation.  An area the size of South Carolina would be required to meet America’s transport needs alone.  Algae farms covering a country the size of Portugal would be need to service the transport needs of Europe.

The farms would not, of course, have to all be located in a single vast pond.  But if they are divided up into many small puddles, the algae would then have to be transferred to central refineries for processing.  And that, of course, would add to the fuel.

I am not benignly confident, but I am hopeful.

The human species, along with a number of arguably less admirable qualities, is marvellously inventive.

September 23, 2010

A self-defeating vengeance

Filed under: The Economy: a Neophyte's View — theotheri @ 8:43 pm

China-bashing is more or less on the in among US congressmen.  The reasoning is that China is artificially keeping its currency too low in order to keep its imports to the United States cheap enough to undercut the same products made in America.  The result, the reasoning goes, is that jobs that should stay in America are being stolen by Chinese workers in China.

It is true that the Chinese currency, the yuan, is being kept artificially low relative to the value of the US dollar.  And it is true that means many of the same products cost less if they are bought from China than if they are made in the US.

But oh – would that the solution being proposed by so many irate and bombastic congressmen would work.  Would that legislating high import tariffs on Chinese goods would solve the problem.  But it won’t.  In fact, it might do a great deal of damage to the US.


First, because China holds a huge amount of America’s government debt that was run up  during the Bush years.  If they sell it, the strength of the US dollar could plummet, making all imports from all over the world for all Americans much more expensive.  Because it will take more dollars to buy goods that are originally priced in any foreign currency.

This might reduce  China’s imports as well as the value of the dollars they still held, and they wouldn’t like either.  But it would have several very desirable compensations.  The US would have less money, its economy would not only not recover but might even dip into another recession, jobs and taxes would continue to decline, while unemployment would rise even further.  Interest rates might go up despite the slow down just to service the huge current US deficit.

That means America would eventually have to begin to cut back on its military spending.  It would have to stop throwing its weight around in relation to Taiwan, and would stop competing with China’s growing appetite for natural resources like oil, grains, and metals which they are getting from the same places that America gets them – Latin America, Africa, the mid-East.

Revenge, they say, is a dish best eaten cold.  Vengeance, too, is best sought with icy calculation.

Or we risk wielding the sword against ourselves.

May 7, 2010

Resigning from running the world

Well, the election here in Britain has resulted in a humdinger of a hung parliament.  Britain has had hung parliaments before, but never before in the face of such a huge budget deficit and fiscal crisis.  The markets are wobbling, but if the Tories (Conservatives) can’t reach an agreement with the Liberal Democrats before markets open on Monday, pandamonium could break out.

Meanwhile, TruthOut, which I read with a due sense of outraged seriousness, continues to send me their daily updates about the dire state of everything.  Today their leads concerned the control of America’s mass media by the right wing, Arizona’s racist immigration law, the Time Square bomb, regulatory failure of the big banks, the Gulf oil spill, and the prediction that oil production will peak in 2014.

It’s a good thing I no longer feel responsible for the world.

Because even in the midst of everything that seems to me so wrong, so out of kilter, so cruel or stupid or unjust, I find an amazing joy, a great fulfilment, in just being here.

I wouldn’t have thought understanding something so simple would have taken me so long to learn.

But now I am going back to see what I can make of this jumble that seems to have resulted from the election here last night.

May 5, 2010

Just another ordinary chaotic day in the world

Sitting here in my little corner of England, I have tried not to make this blog a commentary on international affairs.  But right now three very big events are unfolding simultaneously that I think might have momentous results.

The closest to home is the British election tomorrow.  Four weeks ago the result looked like a foregone conclusion, but tonight the polls are suggesting that it will be a three-way nobody-wins outright outcome leading to a hung parliament.  The bond and currency markets are staying open all night on Thursday, because nobody knows how the markets will react.  Some analysts are predicting that if there’s no clear government identified by Friday afternoon, the value of the British currency will plummet and bond rates will inflate, quite possibly rocketing Britain with an unsustainable deficit, dashing the economy, and creating rampant inflation.

(I personally agree with analysts who think it will take a little longer than 24 hours for a crash like this to happen, but if there’s still no sign of a stable government grappling with the deficit within a week or ten days, the bottom will almost certainly begin to fall out.)

Which gets us to Greece.  The rioting on the streets again today in Greece, including the torching of a bank that killed three people trapped inside, is not a local matter.  Portugal, Spain, Italy, and possibly Britain, could find themselves in a similar situation, and it could tear Europe apart.  In the worst case scenario, riots and serious civil unrest could spread across the continent, the euro (Europe’s single currency used by 15 European countries) could implode, and Europe fall into a deep economic depression.

This would have grave effects way beyond Europe, including making it much harder for America to continue to pull out of recession and pay down our deficit.

The third event with potentially world-wide effects is the oil leak in the Gulf.  It’s already obvious that the environmental damage is going to be huge.  We just don’t know how huge.

But since most of the world’s oil is now being accessed through underwater wells, this accident is going to increase the cost of oil, and reduce its availability.  The one good effect of this catastrophe might be that green technology gets a bigger boost than all the warnings of global warming could produce.

Whatever else, I can’t see how anyone finds life boring.  Scary, maybe.  Infuriating often.  But not boring.

April 28, 2010

How bad would it have to get?

A friend who is facing serious eye surgery about which her surgeon has some doubts told me that if she goes blind, she will end her life – that it would not be worth living if she had to be taken care of in such a total way.

I was a bit shocked.  I admit one of the recent traumas of my life was related to how I would cope if my cataract surgery failed on the single eye with which I can read.  I wondered where I would gather the strength of character to live with such a profound deprivation, but the thought of suicide didn’t even occur to me.

Yet I began to wonder just how bad it would have to be for me to prefer to be dead than alive.  Intense pain as the result of a terminal condition has always seemed sufficient cause to me.  Or to attempt suicide, as a doctor I know imprisoned in Hungary during the revolution, did in order to prevent authorities from torturing his wife and children in the attempt to extract information from him.  Being completely bedridden in itself would not be sufficient, but if it also involved an inability to speak, hear, or read, it might be more than I could take.  But then I probably would not be able to commit suicide under those conditions.

All of this, believe it or not, actually began as a reverie, despite everything that can and does go wrong, how wonderful it is to be alive.

Meanwhile, back on the ranch, Gordon Brown, the current Prime Minister who is running for re-election, was caught on a live microphone today expressing disgust about a voter with whom he had just had an apparently successful conversation and with whom he had parted with a warm farewell and an arm around her shoulder.

The press are having a field day.  The woman herself was profoundly shocked at being called a bigot, and is now being pursued by the media to tell her story.  Gordon Brown, meanwhile, is driving up and down the country in an attempt to apologize.  Some people believe him.

Greece is probably going bankrupt and the only people in a position to bail them out are the Germans who are reluctant to bail out a country which has not only been profligate and irresponsible, but lied about the country’s finances until last fall.

The Greeks are rioting on the streets at threatened cuts.  The markets are worried that the debt problem could bring down Spain, Portugal, Ireland, Italy, and even Britain.

I worry about the United States’ deficit if this triggers a world-wide depression.

As I was saying, it’s wonderful to be alive.

March 20, 2010

Getting crunchier

Filed under: The Economy: a Neophyte's View — theotheri @ 9:34 pm

Just a little over two years ago, the credit crunch threatened to derail the global banking system.  That catastrophe seems to have receded, at least for the time being.  The stock market is even standing on its feet again after its gut-wrenching drop.

But further down the line, things seem to be getting a lot crunchier.  State budgets are under severe threat – California might even have to declare itself bankrupt –  and services and jobs are being cut to the quick.

I thought that the big jolt of the credit crunch would be to people’s investments.  But now my friends and family one by one seem to be running up against an economy that is in super-slow mode.  My sister has been running a programme for thirty years for which funding has been cut.  A former student of mine in an untenured position has also lost his funding, and is now reduced to trying to support his family as a poorly paid adjunct.  Another friend has lost her house.

It’s still a long way back.

Although back, of course, isn’t where we are going.  We didn’t go “back” after the depression, or after the war.  When we come out of this, it will be to a different place too.

March 9, 2010

Other People’s Money

Filed under: The Economy: a Neophyte's View — theotheri @ 4:21 pm

I was in my early thirties when Peter and I decided to start saving to buy a house.  That was when I thought it might be a good idea to learn at least the basics about investing.  I didn’t learn a lot, but I did learn a couple of basic principles:  1) to diversify so that risk is spread and all ones eggs are not in one basket, and 2) to use OPM to amplify the power of ones own.  OPM is credit, or to put it more bluntly, Other People’s Money.

But it wasn’t until the credit crunch happened two years ago, that I began to understand just how important OPM is the smooth running of the whole economic system.  OPM is essential not only to improve our already comfortable life styles, but to reducing the most grinding poverty.    OPM multiplies the purchasing power of money.

For instance, when I take out a mortgage, the bank effectively lends me somebody else’s money, which I then give to the person who is selling me the house.  So the seller now has that money to spend.  But the person who put his money on deposit in the bank which bankrolled the mortgage still has his savings to spend as well.  So now there are people who can spend more or less the same money.  If the original owner of my new house then takes the money he made on the sale as a down payment on another house on which he also takes a mortgage, that money goes to yet a third person.  Meanwhile, the bank may take a bundle of mortgage loans it has made and sell the bundle to another bank or investment institution.   So at this point, the same money is being used by 5 or 6 different people.

And that is why so many people became so much more prosperous in the late 90’s and early years of this century.  The effective amount of money individuals and  businesses had to spend was being multiplied and then multiplied again.  It wasn’t just bankers and financiers who became rich.  Millions of people were lifted out of poverty;  the standard of living in many underdeveloped countries improved too.

This is also why governments around the world could not let the banks fail two years ago.   It is why it could have plunged the world into a depression the likes of which we have never seen.  Because the money that would have been lost would not have been just the money belonging to banks’ depositors.  It would have been that money multiplied by tens or maybe by hundreds.  The same money was leveraged and borrowed again and again and again in a system that became so complex that nobody, absolutely nobody, could untangle.  Banks literally did not know the sources of the money they assumed they held as security.

The temptation, of course, is to conclude that borrowing money is imprudent and irresponsible.

But it isn’t.  The Bank of England was one of the first governments to realize the power of credit .  In 1699 they issued the first government bonds to build better ships which, among other things, led to a trade bonanza with countries around the world.  The quality of life for almost the entire population improved beyond recognition.  Borrowing money is like fire:  it can do immense good.  And immense harm.

Without quite realizing it, what the banks around the world were almost all doing for the last 15-20 years was putting all their eggs in the same basket.  Their loans were not effectively diversified, and so when the eggs in the basket began to break, the loans that were dependent on the first loan had been multiplied by tens or maybe by hundreds.

Unfortunately, the problem isn’t finished evolving.  A lot of the long-term  mortgages and loans made to homeowners and businesses during the time of the great expansion were long-term, to be paid back over a period of 25-30 years.  The banks, however, lent more than their depositors’ money.  They themselves borrowed much of the money they lent in mortgages from the short-term markets.  The problem now is that the banks need to refinance these loans of 2-5 years.  But the short-term market is no longer there to feed the banks’ voracious appetites.  So if banks  cannot find an alternative place to borrow money, they could be in trouble even if homeowners do not default on their mortgage payments .

Here in Britain, banks say that within the next couple of years there is going to be a £300 billion (about half a billion US dollars) funding gap.  Savers can make up part of that.  But the bulk is going to have to come from the government.  Which ultimately means the taxpayer.

In the meantime, banks are increasingly lending only to the more credit-worthy customers with large cushions of security. So businesses, especially small businesses, are finding it difficult to borrow the money they need to expand, and the housing market is still in slow motion.

I would like to drive the short-sighted, obscenely over-paid, self-interested bankerss to the wall.  But unfortunately, they’re not the ones who would be nailed if banks are allowed to fail.

February 19, 2010

What’s scary about Greece

Up until now, I’ve felt that the world had enough problems without my worrying about the Greek economy.  But I’m afraid that not caring about what happens in Greece is like not caring about Lehman Brothers in 2007.  Only worse.

Why?  Because Greece is a member of the EU and uses the euro as its currency.  So do 22 other countries, including giants like Germany and France.  The euro countries have rules about how they run their economies, but Greece has  been faking the numbers and a budget deficit that was supposed to be a mere 3.7% of GDP in August has now rocketed to 12.7%.  The markets are going crazy and threatening to raise Greece’s borrowing rates to unaffordable heights.

And then Greece might default on its loans, creating a sovereign-debt crisis which is the posh word for an insolvent, bankrupt country.   Well, Greece has a retirement age of about 61, a huge culture of tax evasion in which over half the families in the country pay no tax at all, and a bloated public sector that gets 14 “monthly” pay checks a year.  So they deserve what they get.

Just like Lehman Brothers and all the other banks deserved what they would have got if governments hadn’t bailed them out.  Governments bailed them out not out of charity but because the fall out for the rest of us, had the banks collapsed, would have been even worse than they already are.

A sovereign debt crisis for an EU country would make Lehman Brothers look like play in a sand box.  Portugal, Ireland, Spain and Italy would all be in immediate danger of similar default.  Great Britain could be threatened, and even America would feel the heat.

If that happens, a second Great Depression looms.

And that is why half the world’s economists are arguing that we cannot go on stimulating the economies of the developed world without worrying about beginning to pay down our looming budget deficits.

As I said yesterday, it’s a critical decision, and to get it wrong will be disastrous.  Withdraw the stimulus too soon, and the economy sinks back into recession or even depression.  Borrow too much money and it’s depression anyway.

From what I can tell, Obama’s budget is trying to steer a middle road, making some cuts, but also increasing the stimulus.  As many people are convinced he’s right as are sure he’s taking the country down the road to perdition.

I understand the problem.  I wish I were that unique person who is certain of the solution.

February 18, 2010

An impossible choice that must be made

I’ve learned a lot about financial systems and the world economies since Lehman Brothers went bankrupt in September 2007.  But not enough.

Which would be okay, but I fear that nobody knows enough.  Should countries continue to borrow money to stimulate economies enough to keep them from falling back into recession and avoid the decades of deflation that has cursed Japan who increased taxes and withdrew its stimulus too soon? Or should they start trying to reduce deficits by cutting services in order to avoid having to pay crippling interest rates that could drag down the country for generations?

Getting it wrong will have terrible consequences.  But economists who are far more learned than I are lined up categorically on both sides.  Whichever way one goes, the numbers sound too terrifying to contemplate.  And yet we must decide.

But I bet Sarah Palin knows what to do.

January 22, 2010

Obama and the banks

Filed under: The Economy: a Neophyte's View — theotheri @ 8:42 pm

I wasn’t the only one surprised by the tough stance Obama announced yesterday he was taking to reign in risk-taking by banks.  I’m cautiously pleased.

First, I am glad to see Obama finally coming out with the gloves off.  He has seemed to stand back from becoming directly involved in any conflicts emerging over domestic issues in America and I fear it’s a strategy that isn’t working.  There is a difference between being permanently angry and being willing to fight openly when it is called for.  Whether it is in relation to health care, immigration, or the banks, up until now it looks to me as if Obama has tried to stay above the fray.

The result is that he doesn’t seem to have accomplished anything on the domestic front and is losing massive support.

But I’m cautious because reforming the banks without doing terrible damage to economic growth is tricky.  The temptation is to look at the huge bonuses the banks are giving out once again, and at the risks they have been taking with what is fundamentally taxpayers’ insurance, and to rebel, demanding that we  “let them live like the rest of us.”  Most of us survive on a great deal less in a decade than many bankers seem to earn in a mere bonus.

So at the very least, we want to let banks manage on their own two feet or go under.  That means that they cannot be allowed to get “too big to fail.”  Too big, that is, so that their going under could cause terrible damage to the world’s economies.

But does what Obama propose address this problem?  He wants to separate investment banking (all the fancy stuff that made so much money for banks before the system collapsed) and commercial banking (the ordinary deposit-taking and lending to customers that until now I thought was what most banks did most of the time).

The problem is that some of the biggest and most dangerous failures were not commercial banks, but pure investment banks.  AIG and Lehman Brothers did not lend to “ordinary customers.”  And yet their collapse (Lehman) or near-collapse prevented only by emergency Federal intervention (AIG) were among the most dangerous failures.

And some of the other failures were a result primarily of bad lending to “ordinary customers.”  Washington Mutual, Wachovia, and HBOS are three mega-examples.

And finally, should even commercial banks be prevented from investing in hedge funds?  Hedging, after all, is a way of reducing risk.  It was one of the things that Goldman Sachs did that kept them solvent.

It will be fascinating to watch this bill make its way through Congress.  On the one hand, most voters do not favour going easy with the banks.  But on the other, banks have very deep pockets and experienced lobbyists in Washington.  The Republicans will not want to hand a political triumph to the Democrats, but they won’t want to be seen as the banks’ best friends either.

Getting it right could save the Democrats and the economy.  Getting it wrong could be their road to destruction.

January 16, 2010

The benefits of uncertainty

As the full dimensions of the Haiti disaster unfold, a friend directed me to a website where the tele-evangelist Pat Robertson explains why it happened and why we don’t have to feel sorry for the victims:  several hundred years ago their ancestors sold their souls to the devil in order to get rid of French rule.  Ever since, this bargain has returned to haunt them.  We can help by converting the Haitians to the true faith after which presumably they will take part in the prosperity enjoyed by the other half of their island in the Dominican Republic.

Muslim preachers said something similar after the Christmas tsunami which also killed hundreds of thousands of people:  the tsunami was an act of God wrought against the people who had not repented of their sins.

Okay, this is ignorant bigotry.  But it would be a mistake to smugly blame this on the religious fundamentalism of people too frightened to take responsibility for their own destinies.

First of all, one of the fundamental ways in which intelligence works is to see patterns in what we experience.  If we didn’t, we would be overwhelmed with new stimuli every minute of the day and would never learn.  But we do see patterns – this is an apple like the other apples I have eaten.  This is my mother who was here yesterday and is going to give me something to eat again the way she did yesterday.  We wouldn’t want to change this even if we could.

We also learn that the categories into which we fit something sometimes has to be adjusted or changed.  We learn that milk doesn’t taste the same as a pencil, that this face is to be trusted but another one isn’t.  We do this thousands of times  with thousands of our experiences.

As we get older, the patterns we see and the explanations we give for differences and similarities in our experiences becomes more advanced.  We learn scientific, cultural and religious explanations.  Many of these explanations are all-encompassing and we tend to hold onto them for long periods of time.

And there’s the rub.  If we hold onto those explanations too tenaciously, if our personal identity and/or world view depends on our holding onto them, then we will fit everything we see into the patterns and categories we hold dear.

And so religious fanatics will fit even natural disasters into their view that God personally reaches down from above to reward the good and punish the bad.

But this rigidity, this non-negotiable commitment to my ideas is not limited to religious bigots.  Scientists are just as capable of doing exactly the same thing in our own realm.  Scientific history is littered with scientists whose ideas were rejected by the scientific community because the observation or idea did not fit with the current scientific theories.  Rejections were based on the accusation that the observations must have been careless or flawed, or the theory simply outlandish.

The theory behind the trading that eventually led to the credit crunch and the near total collapse of the world-wide banking system rejected anyone who claimed that something dangerous was happening.  It couldn’t happen, they said:  our theory says it can’t.

Is there any way out of this cleft stick?  Is our intelligence such that we must inevitably misinterpret what is happening because we need to experience some kind of consistency?

I think there is.  I think the way out is to value uncertainty much more than we do.  If we are uncertain, we are more apt to listen, to look around, to learn.  We are less apt to be bigots or feel superior to others who make what we think are mistakes.

Yes, of course we must have some firm values and convictions, and yes, we must be willing to live and die for some  convictions .  But even these convictions hold a level of uncertainty:  perhaps I do not see the whole picture, perhaps I don’t understand or am misinformed.

Goldman Sachs is one of the few major banks that was not brought to the edge of the abyss last year.  Why?  because they were not absolutely certain that they were right.  They traded in sub-prime loans and CDO’s and all the other esoteric devices.  But they also hedged against them.  So when the crash came, they made gains as well as losses.

Uncertainty is scary, but in the end it might not be nearly as scary or dangerous as certainty.

Besides, it’s the way things are.  The future is unpredictable.  I might try to convince myself that my faith, my theory, my intelligence, my money, my social position will protect me.  But it won’t.

So my plan is to continue to live with a niggling doubt about my decisions.  About that, I’m pretty sure I’m right.

November 8, 2009

The impeccable theory is always peccable

In a recent post,  I pointed out that the Dali Lama said when there is a conflict between religious point of view and scientific observation, religion cannot censure scientific observation and we need to change our religious perspective.

I said I agreed.  But I see now that the problem is much broader than religion.  Scientific theories can do the same thing, blinding us to what is obvious.  For years, for example,  psychologists were committed to the view that thought – even human thought – was an epiphenomenon, not real in itself.  Even when human thought was reluctantly let back into the scientific arena, any psychologist claiming that animals actually think was subject to accusations of sentimentality.   The doctrine was that animals worked like machines, not like people.  The fear of being accused of being anthropomorphic still pervades the social sciences.

Now a leading economist has said that the recent economic crisis happened because economic theories blinded economists, politicians and bankers alike to what was actually happening.  They were so sure their theories were right that in the face of the obvious reality, they didn’t see it.

The core of their theories preached first that markets were efficient and rational, and second, that whatever could not be encapsulated within a mathematical equation was, if it actually existed at all, trivial.  Markets, therefore, were efficient and people did not behave irrationally, whatever the uneducated observer might think.  They, after all, were probably not making millions of dollars a year like the those in the heady world of financial services were.

The standard approach of science is supposed to be that theories are tested to see how well they fit reality.  Kaletsky suggests that in this case, and for a period of decades, reality was twisted to fit the theories instead.

I think this is probably an enduring problem of the human condition.  Our theories – religious and secular, formal and informal – are in a constant battle with bits of our experience that just don’t fit.

But as our current crisis illustrates, it often takes a seriously traumatic experience to shake our convictions.  As far as I can see, none of us is immune, and there is no field of thought which is not susceptible.

September 19, 2009

What should we do about the banks?

It was almost a year ago to the day that Lehman Brothers went bust.  It was just days after the anniversary of the 9/11 attacks, and at the time, Lehman Brothers did not feel nearly as catastrophic.

In retrospect, the danger that loomed was far worse.  There was a serious possibility that on Monday morning banks around the world would not open.  That life as we know it literally would have come to a halt.  Fundamentally, capitalism would have been replaced with barter and trust.  Credit cards and checks would be useless.  World trade would have lost the capacity to carry on.

It didn’t happen.  Things are still bad, but nowhere near as bad as they might have been.

But now that the immediate danger is diminished and the shock has been absorbed, it’s time to ask what to do about the banks.

The key question, of course, is how to reduce the chances of this happening again.  Regulators are taking about requiring banks to hold more capital so that when the system starts to crack, they have more to fall back on than they did this time.

That sounds fine to me, but it doesn’t seem to me to go far enough.  The big problem is what to do with banks that are still too big to fail and who know that they are effectively being subsidized and insured by the taxpayer.  But the taxpayer has little — no, correction:  The taxpayer has absolutely no say whatsoever about the way the banks are run.  From what I am reading, they are going back to taking the same leveraged risks and paying themselves bonuses that are simply boggling.

I’m convinced from what I’ve read that the Glass-Steagall act, passed by Congress during the depression and retracted under the Clinton administration, must be re-enacted.  Big investment banks should not be allowed to conflate their investment gambling with the deposits of savers.  So that means that we need to rebuild our small banks who know their customers and serve them responsibly, and we need to require the big banks to build a fire wall between their investment activities and the individual consumer.

From what I have read, the big banks are fighting this option tooth and nail.

Obama says that the old ways cannot, must not, will not continue.  But I wish I saw more to make that happen.  Congress seems to be enthrall to big banks, and Obama has only so much political capital, which he is using to get as much of his health care package through as possible.

It still feels like a scary time to me.

August 11, 2009

Reducing my worry list

Filed under: Political thoughts,The Economy: a Neophyte's View,Worries — theotheri @ 9:01 pm

I can worry about only so many things at a time.  If I let the list get too long, I begin to feel responsible for the world, which is a pretty megalomaniac form of egocentrism.  Clearly none of us were created to make the world a better place single-handedly.  Those who have tried tend to be remembered in history as tyrants.

In these days of global communication, the number of potential items to worry about seems almost limitless.  But since I can’t do everything – in fact, since I can only do very little – I am currently limiting my principal world worries to climate change and to the U.S. getting some sort of universal health coverage passed.

I’ve lived in Britain which has universal health care for ten years, and I have had some of the best medical treatment in the world.  We have the option of private health insurance to increase ourchoices over and above the service provided by the National Health Service.  But no one is reduced to going to Accident and Emergency for routine treatment because they can’t afford to see a doctor.

40 million people  in America, the richest country in the world, though, cannot afford proper health care.  It is, quite obviously to me, a moral scandal.

But in addition, it’s a moral scandal that the United States can no longer afford economically.  We are now competing in a global world.  Companies in almost every other part of the world do not have to provide health insurance as part of their employment package, and this puts American companies at a disadvantage.  It was a significant factor in bringing GM to its knees.

And so I was delighted to hear that on August 19th, liberal-leaning evangelicals, mainline Protestant clergy and Catholic groups are backing Obama’s health care plan.  There will be prayer meets and national television ads, and a call-in program on the Internet in which President Obama will participate.

Apart from contacting my representatives in Congress, I don’t know what else I can do to help to get this bill passed.

But I am hoping madly that it will.

P.S.  I just realized that the credit crunch began two years ago this week.

July 7, 2009

Familiar unrest

Filed under: Political thoughts,The Economy: a Neophyte's View — theotheri @ 8:40 pm

Uighur protests in a remote Chinese province were in the news again tonight.  The Uighurs are worth a Google search.  They are Turkic Muslims rather than ethnic Chinese, and have had a distinct identity since 300 BC.

Tension between the Uighurs and Han Chinese has been evident for years.  But as in so many other places, the world’s economic downturn has probably made it worse.  When people have jobs and security, domestic violence, burglaries, ethnic strife, and demagoguery all drop.  When jobs, enough food and water, or ones community are threatened, they rise.

Since the financial crisis began, twenty million migrant workers have lost their jobs in China, and over 60,000 factories have closed.  The current strife probably began in China’s manufacturing area among the unemployed.  A Uighur was accused of rape – apparently without justification according to the BBC report.  But several Uighurs were lynched.

That’s when the Uighurs began to protest against the Han in the north.

I participated in peace marches against the Vietnam war, and then read news reports about what was supposed to have happened.  Since then I have been sceptical about the accuracy, if not the downright truth, of about 90% of what is reported.

I don’t know whether it was the Uighurs who first attacked the Han or the security forces who first attacked the Uighurs.  The Chinese media say it was the Uighurs who started it.

June 22, 2009

US healthcare: the surprise explosion

Filed under: The Economy: a Neophyte's View — theotheri @ 2:24 pm

Until perhaps an hour ago, I had assumed that the case for setting up a system of universal health insurance in the United States was primarily a moral one:  47 million men, women, and children in America – almost one out of every six people – have no health insurance whatsoever.  This is a scandal.

I have now, however, just read some statistics about health insurance in the US that shocked me, and shaken some assumptions I thought were beyond question.  For instance:

– The US spends $8100 per person each year on health care.  France spends  40% less than this but has significantly higher cancer and cardiac survival rates, and longer average life expectancies.  There are similar figures for Switzerland and Japan.

So, contrary to what I thought, the US does not have the best health care in the world.  It just spends a lot more money.

– Worse still, Medicare and Medicaid, which cover only 30% of the population, are scheduled to lead to deficits of trillions of dollars within a decade. If their course of spending isn’t changed, these deficits will dwarf the 1.8 trillion credit-crunch deficit.  But the credit-crunch is a one-off problem:  the needs for healthcare are endemic and enduring year after year.

– One of the major contributors to bankruptcies of the American motor companie  has been the cost of health insurance American companies provide their employees.  In general, American-made products are often uncompetitive not because of the higher wages paid to their workers but because the healthcare of employees in other countries is covered by government-sponsored insurance, not by the company.

In addition, when health insurance is provided by the employer, it is not only expensive for the company, it limits  employees’ ability to move to new jobs.  This mobility has been one of the great drivers of the US economy almost since we first started to drive our wagons west.

– But the greatest surprise was the discovery that the increased spending power of the American consumer between 1966 and 2008 was consumed entirely by increased health insurance costs.  Entirely!

So the current US system does not provide better health care than a public-private provision like the French system, it is helping to make US companies uncompetitive, and is sapping the resources of consumers.

So it seems to me to be seriously worrisome that the lobbies of doctors, hospitals and health insurance companies might persuade Congress that Obama’s proposed healthcare reforms will destroy America’s world-beating system we have today.  It sounds more like a system beating America.

They say that if  Obama can get universal healthcare legislation passed, his place in history will be assured.   I can see why.  I had no idea how critical to America’s future well-being it is.

June 14, 2009

Worrying about the warranty

Filed under: Political thoughts,The Economy: a Neophyte's View — theotheri @ 8:09 pm

Having reached the conclusion that there’s not much I can do about the credit crunch et al., I’ve been concentrating on trying to get an informed view about global warming.

As I begin to look at the actual numbers – how much energy we use and how we generate it – I’ve begun to understand why some people have reached the conclusion that we have to generate some of our energy through nuclear power stations.

Governments – at least governments over here – are loudly assuring us that multiple safe guards would be put in place to prevent even the sliver of a possibility of a nuclear accident.  (Like the ones in Three Mile Island in Pennsylvania or Chernobyl in Russia, only bigger.)  We’ve learned a lot in the last two decades, we are told, and some of the greatest scientific minds in the world are working on making these systems absolutely fail-safe.

What I find really scary, though, is the fallibility of Really Great Minds.  Even a band of conscientious geniuses with all the best will in the world, with all the backing of a duly-elected democratic government and unlimited supplies of taxpayers’ money, could make a terrible, globally-threatening mistake.

Isn’t that exactly what we’ve just seen happen with the banks?  All those brilliant minds didn’t deliberately come close to destroying the world’s entire financial system.

May 1, 2009

Chrysler and the dancing parrot

Chrysler Auto Company filed for bankruptcy yesterday, and GM might follow by the end of May.  The only American car company getting through on its own is Ford.

The implications of this must be huge.  Tens of thousands of job losses, many companies that support the automakers will also go to the wall, along with those jobs and services which in turn depend on them.   Pension and health plans will be slashed, many skilled workers will be facing the liklihood that they will never be in paid work again. Many families tonight must be in anguish that they may lose their homes, parents that they will not be able to afford to send their children to college, some perhaps not even able to feed and cloth them adequately.  Domestic abuse and crime tend to increase under these circumstances.

I wonder if whether the “creative destruction” for which America has been such a leading advocate will result in new companies, new ideas, creative products that will rise from the ashes of our car industry.

I wonder.  I worry.  I hope.  But apart from that, I don’t think there is anything I can do.

And so I invite you to join me with the dancing parrot in celebration of all that is good, all that is beautiful, all that is surprising in this extraordinary world in which we live.

If the parrot can dance, we can too.

April 18, 2009

Anchors for economic numbers

Filed under: The Economy: a Neophyte's View,Uncategorized — theotheri @ 8:23 pm

I have found, after a fair amount of trial and error, that if I use 7 key anchors as my comparison points, I can make sense out of most of the numbers about the economy, how big a mess it is in, and how much we are spending to try to get out of it.  Mostly, the question I try to answer is “is that really a lot of money or does it just sound like a lot to someone who doesn’t know very much about the world economy?”

For this purpose, I find that 7 anchors – 4 in amounts of trillions of dollars, and 3 in billions of dollars – give me the framework I need.  To confess the truth, I wrote them on a note card that I kept on my desk until I’d finally memorized them.  (I now occasionally sound annoyingly like I know what I’m talking about although it took almost a month before I could reel them off in casual conversation.)

Anyway, here are my anchors which are saving me from drowning in a tidal wave of numbers:

Trillions of dollars

  • $8 to $1,000 trillion:  span of estimates of the size of “toxic debt” still held by banks and other financial institutions worldwide.  $1,000 trillion is a quadrillion dollars.       
  • $14.5 trillion:  the approximate size of the current annual US Gross Domestic Product (GDP).   Broadly speaking, this is the size of our economy each year.
  • $11.3 trillion:  the approximate size of the current US National Debt.   This sounds so big as to be close to meaningless.       Most economists say in itself it is meaningless.  What really matters is the ratio between national debt and GDP, but there seems to be significant disagreement about what that ratio can reasonably be.  The highest it’s ever been was about 110% after World War II.  By 1975, it was about 25%.
  • $3.6 trillion:  the size of Obama’s first budget sent to Congress in January.

Billions of dollars

  • $750 billion:  size of Obama’s first stimulus package passed in January 2009;  this was just a little larger than the original package known as TARP passed in November, 08 when Bush was still in office
  • $300 billion:  size of the Citibank bailout
  • $50 billion:  federal money allocated in this year’s federal budget to develop new electricity grids and other mechanisms to improve the environment and reduce global warming


Here’s an example of how I use these anchors to make sense of the barrage of economic numbers that seem to hog the headlines on a regular basis.

  • Q:  The annual US defense budget last year was $800 billion.  Is this a lot?  
  • A:  The annual defense budget last year was a little bigger than both the stimulus package passed by Congress in January, 09 and TARP, passed in November 08.  The US has, by far, the biggest defense budget of any country in the world.  So I think this is seriously  lot.
  • Q:  Is the size of the “toxic debt” held by financial institutions worldwide more than the current US national debt?
  • A:  Nobody – absolutely nobody – knows exactly how much toxic debt is held in various institutions worldwide.  The estimates vary so wildly that it is impossible to know if it’s bigger than the US GDP.  I think it probably is.  If the estimates that total toxic debt equals $100 trillion are right, then it is close of 7 times as big as the US GDP.  That sounds like a lot to me. 
  • Q:  Is the stimulus package larger than the US  annual deficit of $1.2 trillion projected for next year?   
  • No.  The annual deficit next year – the difference between what government will spend and federal tax receipts – will probably be close to twice as big as the stimulus package.  The hope, of course, is that all this government spending will get the economy rolling again, which will then increase tax revenues, which will eventually reduce the government deficit.
  • Q:  Was the bailout package to Citibank larger or smaller than NASA’s budget of $15 billion last year?
  • A:  Much much bigger.  20 times bigger.  The Citibank bailout was also about 5 times bigger than the $61 billion allocated in the federal budget to education.
  • Q:  The US cost of the Iraq and Afghan wars for the last five years is about $1 trillion.  How does this compare the federal budget this year for developing energy efficient mechanisms to reduce global warming?
  • A:  If the $50 billion allocated to energy efficiency in this year’s budget is repeated for the next 20 years, it will equal the $1 trillion spent thus far on these two wars.

Oh yes.  There’s one anchor in the millions:

  • 305 million:  current size of the US population

April 16, 2009

The Wozniak Syndrome

Filed under: Family,Husband,The Economy: a Neophyte's View — theotheri @ 9:23 pm

I have a friend who now lives in upstate New York, but who spent most of her teenage years in a Displaced Persons camp in Europe.  She suggested I might like to read “Wild Place,” by Kathryn Hulme, who was one of the people helping to run a DP campfor displaced Poles after WWII .  I am reading a chapter a day, totally mesmerized.

Last night I read about the week the DPs were told that Polish officers were coming to the camp to register them as Polish nationals, and that they would be required to present some kind of evidence attesting to their identity.  The idea was, they were told, that this would facilitate their return to their homes in Poland from which they had been evicted, chased, or bombed so many years before.

At this point, Polish elections were planned within the next several months, which the DP camp supervisors believed would be free and democratic.  The DPs, however, had already heard via the grapevine that it was not going to be free, that the Communists were going to take over, and that those who were already in Poland were not going to get out.  The DPs had no intention of being sent back into the cage.

At the camp meeting during which they were told what to bring in order the register, the DPs sat silent, and after the meeting, filed out without further comment.

The registrations were due to begin early in the morning, and the Polish officers arrived, dressed in their long coats and black boots and shiny insignia.  Nobody came to register.  Nobody responded to the officials who came to the living quarters to remind them.  But a group of men gathered.  They escorted the Polish officers back into their car, picked it up, and threw it down the hill and out the camp gate.

Several weeks later the Poles held their “free election.”  In the end, the Iron Curtain came down, and they didn’t get out.  Not until the Berlin Wall finally fell in 1989.

I am half Polish.  And when I read that story, I knew I was reading about my relatives.  I recognize that look that says “No.”  It says “No.  I don’t care what your logic is.  I don’t care what your evidence is.  I don’t care what your power is.  I don’t care if you know I am wrong and you are right.  I’m not doing it.”

My Dad used to call it “The Wozniak Syndrome,” after my mother whose maiden name was Wozniak.  I think their marriage survived because most of the time my mother gave into my father.  But when he saw that “Wozniak look,” he learned not even to argue.  He wasn’t going to win.

I’ve developed a sneaking admiration for that Wozniak Syndrome.  I see the Yorkshire version occasionally in the face of my husband, whose family grew up – literally – at the coal face during the War.  I’ve seen it in the face of an Irish friend who may keep smiling when she disagrees but who is not going to change her mind whatever you might offer.

It’s a survival mechanism that goes beyond reason.  Beyond logic.  Beyond the empirical evidence.  

Would to God a few of our bankers had shown a little more of it during the last twenty years.

I looked  “Wild Place” up on Amazon.  There was a paperback copy for $25.  The hard back is on offer for $146.  I’m reading my friend’s copy for free.  But it is, in truth, priceless.

April 10, 2009

What’s wrong with this economic logic?

Filed under: The Economy: a Neophyte's View — theotheri @ 4:44 pm

An economy, in the final analysis, is determined by people, and people have the annoying tendency not to behave the way theory says they should.  

This makes manipulating the economy more like a highly unpredictable art form than a science.

I appreciate that.  But, as  with any art form, somethings work better than others.  It looks to me as if governments – including the United States – are trying two things:  they are bailing out the banks and other financial institutions, and they are trying to stimulate the economy by creating jobs for project like repairing our bridges and highways, building a green energy system, and improving education and our health care.

Okay, here’s my question:  doesn’t it make more sense to create jobs than to bail out the banks?  Banks aren’t going to create jobs or increase tax receipts.  Banks will take the funds to build up their capital reserves, or pay their executives.  Jobs, on the other hand, will improve our infrastructure, will increase governments’ tax revenues and services,will get money into the economy, and could save millions of people from the despair of long-term unemployment.

Obama’s stimulus plan is $787 billion.  The bail outs, from what I can tell, are at least twice that much thus far.

For the life of me, I can’t see what’s wrong with this logic.  It seems to meRobert Reich is right:  we need another stimulus package at least the size of the one we already have.

Is there something I’m not seeing?  Or to put it another way, why isn’t this obvious to everybody in Washington?

April 4, 2009

A Quadrillion?!

Filed under: The Economy: a Neophyte's View — theotheri @ 4:02 pm

I heard an economist say yesterday that nobody knows how big the total toxic loans held by banks around the world is.  One estimate is that it amounts to a quadrillion dollars.  

That is a thousand trillion dollars.  

That is about 10-25 times the size of the world’s entire wealth (depending on how you count wealth).  

That is $150 for every living man, woman, and child alive on the planet.

That is about 150 times bigger than the 700 billion dollar TARP  bail out Congress passed just before Bush left office.

No wonder nobody knows how to solve this problem.  I think I’ll go back to studying Quantum Mechanics.  Learning about Black Holes looks easy by comparison.

April 1, 2009

Obama in Britain

Filed under: Political thoughts,The Economy: a Neophyte's View — theotheri @ 9:08 pm

 Barack & Michelle Obama are here on his first presidential visit to Britain.  He is as charming and gracious as ever, and the media are giving him wall-to-wall coverage.  All the news programs showed him meeting the Queen, etc.   One journalist asked him if there was anything he liked especially about Great Britain, to which he replied “Yes.  The people.”  Gordon Brown, whose popularity has been in negative territory, is basking in some of the star dust.

Obama seems to have reached a significant agreement with the Russians over nuclear arms reduction, but nobody really knows if what the G20 is doing is going to help turn the world economy around. One analyst says that if it works, it should be evident toward the end of 2009 or early 2010, but that if it doesn’t, it could feed on itself for years.  The US, China, Britain, and Japan are focussing on the need for a global  stimulus package, while the French and Germans are pushing for urgent bank reforms on a global basis.

The IMF, in the meantime, is worried about the under-developed countries, and about protectionism destroying the international trade on which their fragile prosperity depends.   Some economists are worried about the still unknown size of the toxic debt – informed estimates are that banks are holding a total of anything from three trillion to a quadrillion dollars worth of this stuff.  They say that credit really won’t start to flow again until these hidden financial “weapons of mass destruction” are found and cauterized.

And anybody at all with a sense of history remembers not only the poverty of the Great Depression, but the political repercussions in the form of facism the Nazis, that ultimately culminated in the second World War.

The world won’t be the same when this crisis is over.  In fact, it’s already changed.  As Obama said today, America cannot spend the global economy out of this recession by itself.

Hopefully, we won’t have to fight a war before the economy turns around this time.  It’s a worry though.

March 25, 2009

The magic of letters

Filed under: Just Stuff,The Economy: a Neophyte's View — theotheri @ 9:58 pm

Several weeks ago I began a search to find some key numbers related to our economic crisis.  I’m looking for a set of numbers in trillions, in billions, and in millions, in order to help myself – and everyone else for whom these amounts simply dissolve into a huge black hole of unimaginable proportions – give these vast amounts some sensible meaning.

Because, of course, differences between trillions, billions, and millions is hugely important.  If the bail out package for AIG had been 163 million dollars instead of the 163 billion dollars which it actually was, the impact would have been trivial.  On the other hand, it was not 163 trillion dollars either, an amount that would have bankrupt the entire global economy several times over.   

I’m having a little trouble with my next collection of numbers, though.  I have collected several suggestions for significant amounts in trillions 
 and for billions posts for March 5th and 8th . But there seem to be so many candidates for significant amounts in the millions that I am overwhelmed.

So I need a little more time to pick and choose the ones that will be most significant as critical anchors around which to hang all the other millions.

In the meantime, here is a story which a dear friend told me today about his response to algebra as an eleven-year-old.  When faced with equations like “a+b+3a=?” or “a-b=c” he was aghast.  

How can you add letters, he asked?  Letters are for making words.  

And although today he understands numbers well enough to handle his own accounts and investments, he still thinks letters are for making words.

And that’s what he does with them.

March 19, 2009

The younger set

Filed under: Family,The Economy: a Neophyte's View — theotheri @ 3:05 pm

Our guests, who represent several generations beyond my own, have departed.  They are raising a young family and many of their challenges are those of parents anywhere anytime who want the best for their children, and worry that they might be getting it wrong.

They are optimistic and energetic and hopeful, but I do not envy anyone raising three children in today’s economic climate.  Although it seems to me that every generation lives with some unprecedented challenge.  For me it was the second world war of the century, then the fear of the atomic bomb (would Russia drop it on us now that their spies had stolen the secrets of how to do it) and Communism.  Latterly it has been AIDS, and global warming, and environmental destruction with the threat of massive worldwide food and water shortages in less than 20 years.

We spent several hours discussing the causes and cures of our current economic crisis.  Academic Nephew suggested that, although the proximate cause was the credit crunch and the dire straits of the banks, the long-term cause began with Ronald Reagan when productivity (ie: the things that were being sold and making money) began to outstrip salaries (ie:  people’s ability to buy them).  The difference was made up by easy credit and increased private and government debt.  Available credit was increased by China’s massive purchases of U.S. treasuries, and by the funny money, of course, that the banks convinced themselves they had found hidden in the impenetrable mathematical formulas they devised but often didn’t understand.

We did, I admit, spend much more time talking about the children.  I don’t suppose you’d like to see some pictures?

March 8, 2009

Interesting numbers in the billions*

Filed under: The Economy: a Neophyte's View — theotheri @ 9:04 pm

Here is the next installment of my list of numbers that I’m compiling to try to increase my understanding of the size and scope of the world’s current economic situation.   The first installment in my post last week listed key numbers in the trillions.  This installment lists key numbers in the billions:

  • 6.8 billion:  size of the world population
  • $25 billion given to US automakers in September 2008 to foster fuel efficiency, plus another $14 billion three months later
  • $56 billion: initial estimate of the size of Madoff’s Ponzi fraud
  • $100 billion:  cost per year of the Iraq and Afghanistan wars between 2001 and 2008
  • $163 billion:  bailout capital and guarantees given so far to AIG;  $100 billion total lost by AIG  in 2008
  • $320 billion:  bailout capital and guarantees given so far to Citibank
  • $455 billion:  size of the US budget deficit in 2008
  • $500 billion: size of first British bank bailout;  more bailouts since then have pushed the number into the trillions column
  • $700 billion:  size of TARP, the initial money urgently asked for by Bush and the then treasury secretary Paulson, and finally provided by Congress  in November, 2008 to save the- world- as- we- know- it.  
  • $750 billion:  size of Obama’s stimulus package
  • $800 billion:  2008 US Defense and Security budget

I’ve included the size of the initial British bank bailout to illustrate that this isn’t a problem confined to the U.S.  

I don’t have any profound thoughts to offer about these numbers.  I’m still just trying to get a grasp of what they mean.  What’s sort of scary is that I think the understanding of many of our politicians is at about the same level as mine.

*In case anyone has forgotten, one billion is equal to a thousand million.  Begins to add up to real money, as they say.

March 5, 2009

Mad about numbers

I have been looking for three numbers in the trillions that can serve as sort of markers to give perspective to the numbers that are are now routinely filling the news.  Here are a few that have made it onto my current Possibilities List:

  • $3.6 trillion:  size of next year’s US budget submitted by Obama to Congress
  • $2 trillion:  more or less the size of the US bail-outs thus far
  • $13.5 trillion:  current GDP in US;  in English, that roughly means the size of the annual economy
  • $78 trillion:  global GDP;  i.e., the size of all the goods and services produced in the world in a year
  • $9 trillion:  total U.S. debt;  about 2/3rds of GDP
  • $2.4 trillion:  annual US tax receipts

My own guess is that this list may still produce a glazed stare rather than enlightenment.  In fact, experience leads me to believe that when it comes to numbers, less is usually more.  So here is a single comparison for thought:

  • approximately $2 trillion has thus far gone into bail-outs of banks and insurance companies
  • Obama has identified $275 billion for a housing stimulus program;  $75 billion of that is to provide foreclosure relief to homeowners.

Or to put it another way:

  • 2,000 billion has been paid to the banks etc thus far;  75 billion is being provided to help homeowners with their mortgages
  • This means that less than 4%  of what has been given to the financial sector is being made available for mortgage relief.

“Trillion” and “billion” sound alarmingly similar.  And 75 billion dollars sounds like a lot.  Until you compare it to 2 trillion.  

I’m beginning to think it’s worth listening a little more carefully than I have in the past.

March 4, 2009

Learning to count

In my last book, The Big Bang to Now (see Amazon if you’re vaguely interested), I tried to make the huge expanse of all of time comprehensible to people whose mortgage is quite often the biggest number with which they are acquainted.

I thought that grasping the 13.77 billion years since the universe began would be sufficiently big for most of us for most of our lives.

That was before our current economic Great Conflagration.  Billions of lost dollars sometimes look like piffling change as economists and politicians argue whether a 750 billion dollar stimulus package is “enough.”   So I’m having to develop a whole new understanding of numbers in order to know what they are talking about.  

One journalist trying to get a grasp on the relationship between a million, a billion, and a trillion, reminded his readers of a few grade school basics:  a million is a thousand times a thousand;  a billion is a thousand million, and a trillion is a thousand million.  

Or to put it another way, one million seconds is 13 days;  one billion seconds is 31 years;  one trillion seconds is 31,000 years.

I don’t know about you, but this doesn’t help me understand much about what’s going on in our world today.  So I’m working on a few numbers to make trillions of dollars meaningful to me.

Right now, frankly, it just sounds like a awful awful lot of money.  Bigger even than the biggest lottery win.  Watch this space.  I will post my meagre lights on the subject – as soon as I find the switch.

February 21, 2009

Cents and nonsense

Filed under: Just Stuff,The Economy: a Neophyte's View — theotheri @ 4:00 pm

As a general rule, I try to avoid posting You-tube videos as a substitute for writing my own posts here.

But this one is priceless.  No wonder we got into the financial mess we’re in.  The entire world seems to have been run by mathematical geniuses —  who didn’t understand that real money doesn’t necessarily obey the laws of complex equations — for the severely mathematically challenged — who can’t get a grip on the difference between dollars and cents.

But then, some people in Really Important Positions of Authority (aka RIPAs) think it’s just a matter of opinion.

February 19, 2009

Trying to figure out what to worry about

The news here today includes a warning by one of England’s central bankers (equivalent to the Fed in the U.S.) that Britain – and presumably most of the world – could be facing a Japan-style recession.  In other words, a downturn that lasts for a decade.

It is almost certain that already most countries will be facing a debt overhang for at least that long.  But that might be the optimistic result.  The really dreadful possibility is that we could be facing mind-boggling debts and still not have economies that are turning over.

The only consensus I can find among the economists, some of whom might actually understand the problem, is that the worst possible thing we can do is to give into protectionism.  “Buy America,” or “Buy British,” or whatever translation fits the language of your country.  It’s what happened after the depression – America started it with the Snoot-Hawley bill – and it made things much much worse.

So one can only hope that somehow we – and especially America – manages to mostly avoid opening this destructive closed door.

But what if the world does enter into a really prolonged recession/depression?  I doubt that it will signal Armageddon.  But it certainly might lead to increased wars – even major wars very close to home.  Along with political unrest, disease, starvation, violation of human rights, and the rise of totalitarian government.

So I’m hoping it doesn’t come to that.  I’m hoping that all those critics of the stimulus package that finally got through the U.S. Congress are wrong, and that it will dig America out of the mess we’re in.

And if America starts moving – this probably sounds chauvinist, but I believe it is true – the rest of the world will be saved from disaster too.

But it’s still not a certain call.

January 26, 2009

Predicting the damage

Filed under: The Economy: a Neophyte's View — theotheri @ 9:18 pm

Several studies have come out recently on recessions during the last century.  They provide causes for concern, with just enough reason for hope to hang on.

  • the 15 recessions in the last century that began with a banking crisis lasted an average of two years, but unemployment rose for a full five years, and housing did not begin to recover for six years
  • the Great Depression lasted for 43 months.  Since then, the longest recession in America has been 16 months.  But the current recession has already last 12 months
  • since the 1930’s, the length of recessions has been getting shorter, and the length of the growth periods has been getting longer
  • it looks increasingly as if no major economy in the world in going to avoid a significant slowdown during this recession.  Some analysts are predicting that global growth next year might be perilously close to zero

Nobody believes we won’t eventually get over it.  But this recession might be pretty bad for a pretty long time before it gets better.

When we do, I don’t think we will be returned to the world as we knew it.  A lot of things are going to have changed forever.

December 3, 2008

More fantasy money in our economic black hole

I thought I broadly understood how the world got into the financial meltdown which has shaved almost 50% off the major indexes in the last year, and ripping through the retirement funds so many people were relying on.  I managed to get my head around collateralized debt obligations, (CDOs),  credit swaps, subprime mortgages, and the Libor.  I thought I understood how the fantasy money was created, and I felt vaguely disdainful of those mega-paid bank CDO’s who really did not understand what was going on.

I apologize for my arrogance.  I have just read a mind-boggling article on the credit crunch recommended by my nephew, who is getting his doctorate in economics at Princeton, and discovered that there was a whole layer beyond CDOs and credit swaps that multiplied fantasy money many times over.

I don’t fully understand yet how they did it, and it doesn’t really matter, I suppose, if I don’t ever get it.  It took me about 30 minutes to read the article on-line and I came away stunned.  No outsider – no average investor who simply followed the traditional rules of investment safety – could possibly have known the depth of hollowness on which the whole global financial edifice has been built for the last 20 years.  Within the trade itself, the ignorance, the greed, and the corruption were impenetrable.  Only very cynical and knowledgeable insiders were able to grasp just how bad it was, and they were few and far between.

If you’re interested, read more.   If you don’t know what collateralized debt and credit swamps are, it’s possible to skip over the parts you don’t understand without missing the main thrust.

The only thing you really need to understand is arrogant stupidity and utterly ravenous, insatiable avarice.

September 28, 2008

For everyone caught in the middle

Well, Congress seems to have agreed some sort of rescue plan, for what it is worth.  The more I read, the more sceptical I am, but since the details of the final package haven’t yet been released, I can only hope it is not as self-serving as I fear.

It is the end of the day here as I write, and as I prepare for another day, I am resolved not to live my life in perpetual mental conflict with the political system for which I increasingly have so little regard.  I am not in a position to influence the outcome, and even if I were, I am not wise enough.  But I can remember that there are many people being crushed by this crisis, not merely squeezed as I am.  As DJC says in yesterday’s comment, if you are neither too big nor too small to qualify for help, one must somehow survive on one’s own.

This is not meant as a consolation prize or an expression of sympathy for those caught in the middle with nothing.  For people in real need, I admit this is a bitter irony, but a hidden benefit of not getting help is that at least one is not corrupted by the system of hand outs.

That’s what worries me about giving $700 billion to the banks.

PS:  The best analysis so far that I’ve read about what to do about the financial crisis is by Joseph Stiglitz, a Nobel-prize winning economist at Columbia University in an article in The Nation.   If you’ve not already had enough, here’s a decent summary.

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