Tag Archives: economics

MICHAEL WALKER of the Fraser Institute

DEBORAH JONES
November 12, 2005

Michael Walker’s desk in his new office at the Fraser Institute is crammed between the door, a window and a ceiling so low that red tags flutter from overhead sprinklers, warning him not to bash his head. Yet he has taken some space to prop up a large portrait on the floor just inches from his chair. It’s a stodgy youngster with bright red hair, a pug nose and a smoke in his hand.

“It’s a joke,” laughs Mr. Walker, who bought the Jennifer Bell painting, a spoof on Thomas Gainsborough’s famous Blue Boy, on impulse. “He’s an impudent little bugger. . . . I was impudent, feisty with teachers, always questioning, and I started smoking when I was 9.”

Critics and fans of Mr. Walker would agree that he’s still impudent, feisty and questioning. (He has quit smoking.) As a founder and the executive director of the Fraser Institute think-tank for more than three decades, he looms over Canadian public policy as a larger-than-life symbol of neo-conservatism.

Mr. Walker has helped to spearhead Canadian policy trends such as balanced government budgets, curtailed public spending, privatized crown corporations and ongoing attempts to privatize health care. He is also gaining an international reputation for starting, with U.S. free-market economics guru Milton Friedman, annual global reports that rate countries’ degrees of “economic freedom.”

His positions, and the Fraser Institute’s, are contentious, to say the least: If climate change exists, it will help Canada; the risk of second-hand smoke is overblown; there should be almost no government intervention in the economy; and marijuana should be legalized and taxed.

He is even a contrarian on democracy, claiming peace is more closely linked with free markets. Shuffling piles of paper and books to let his visitor rest a coffee cup on his desk, he refers to studies showing that “democracy produces more interstate disputes.”

His critics are incensed by his supreme confidence in his views. The Roman Empire, he declares in an interview, collapsed simply because “they didn’t discover [economic]freedom.” In short, the free market cures all ills.

Few Canadians incite such extremes of rage or admiration. He’s being bombarded with laurels and darts as he eases into retirement at the age of 60, beginning with his change of offices in September, and next a Nov. 15 roast featuring national luminaries of the right.

Preston Manning will publicly laud Mr. Walker at the $175-per-plate gala, along with admirers such as Financial Post editor Terence Corcoran, former Ontario premier Mike Harris, Western Standard editor Ezra Levant, health-care privatization advocate Brian Day and the emcees, columnist Gordon Gibson and broadcaster Danielle Smith.

“Michael is just a living testament to the power of ideas and perseverance,” says Mr. Manning, founder of the Reform Party, which evolved into today’s Conservative Party. “It’s almost impossible to estimate how much influence he’s had on public policy in Canada.”

But Seth Klein retorts that he’s “a hard-core ideologue.” Mr. Klein, the brother of activist icon Naomi Klein, is the B.C. director of the left-wing Canadian Centre for Policy Alternatives.

Mr. Walker is also unoriginal, economist Jim Stanford of the Canadian Autoworkers union says dismissively. “He was very clever in finding ways to get his message across, but there was nothing unique in his theories.”

And yet nobody condemns Mr. Walker personally. “I don’t want to sound too negative — he’s a very nice person,” Mr. Stanford says. “His arguments are wrong and his approach is simplistic, but I’ve always found him an honourable debating opponent.”

Even former British Columbia premier Dave Barrett, whose NDP government the Fraser Institute helped to defeat in the 1970s, tempers his ire. “Their propaganda is disguised as a think-tank — and is, in the lexicon of many, the ‘stink-tank.’ But other than that, he’s a nice fellow.”

“He’s a shit disturber, that’s what Michael is,” says Dalhousie University economist James McNiven. Prof. McNiven was head of the Atlantic Provinces Economic Council in the 1970s when he first met Mr. Walker, who was bringing radical libertarian ideas to conferences. “In a democracy, it’s a good thing. . . . Those people keep other people on their toes and, in their own ways, change how the world works.”

And that is exactly what Mr. Walker lays out as his life’s goal: “My mission has been . . . to change the world, to change the climate of opinion about the role and power of markets in making lives of people better. To realize: How does our wealth get generated, and how are our cultural opportunities made available to us, and what are the things we take for granted?”

Mr. Walker learned to fight early on. He was born in 1945 into a Catholic family in Corner Brook to a stay-at-home mother (who was trained as a teacher) and a father who worked at the local paper mill. The town was divvied up into religious sections, with children fiercely defending their fiefdoms. “We had to pass through the ‘Orange’ part of town, and fought our way to school and back every day. . . . Sometimes I remember being afraid, but it was just part of growing up in Newfoundland.”

The family was not well-off, but there was always food on the table. Their late father was a union leader who set up a co-operative coal outlet as well as a credit union to help the community. (Mr. Walker has set up a union scholarship in his name.)

All three Walker siblings excelled in school: His sister was briefly a nun before becoming a physician, while his brother recently retired as an Ontario school administrator. They remain close.

Mr. Walker went to St. Francis Xavier University in Nova Scotia, intending to study history. “I had to take an economics course, and it was love at first sight.” He remembered how his father’s enterprises (left-wing though they were) helped the community, pondered why so many of his schoolmates had no socks or lunch, and fitted such issues into Newfoundland’s troubled economy. “All these things gelled, and I said, ‘Oh my gosh, that’s how it works.’ “

But it still would be a while before Mr. Walker became convinced that Adam Smith’s “invisible hand” would solve such woes.

He won a Woodrow Wilson scholarship and was offered several Ivy League placements, but chose to attend the University of Western Ontario, where he could finish in one year. Then, with a master’s degree (and the basis of his PhD) in hand, he was hired by the Bank of Canada as an econometrician, believing he would help fine-tune the Canadian economy.

“I went to the bank thinking I could fiddle dials, change tax rates, figure out the optimum way to eliminate higher unemployment and get higher growth,” he recalls, shaking his head. “I was very idealistic, and I really didn’t know anything about the philosophical implications.”

He didn’t last long in Ottawa. One day, he asked a colleague who wanted to increase taxes on large automobiles, “Why should we be screwing around with peoples lives?” The response was, “If you don’t believe in screwing around with people’s lives, what are you doing in Ottawa?”

It prompted an epiphany. Mr. Walker rethought his views on econometrics, began reading more widely and soon, at 28, moved to Vancouver, where in 1974 he was hired to help found the business-financed Fraser Institute and counter what he saw as the trend toward socialism.

At the time, Prof. McNiven recalls, Canada was so tightly regulated that the government decreed what size of sandwiches airlines fed passengers. “There was the whole problem of stagflation, with high unemployment . . . and there were wage and price controls. It was not exactly a time to write home about.”

Mr. Walker promoted free-market perspectives long before they were popularized by politicians such as Margaret Thatcher and Ronald Reagan. “The world has changed course,” Prof. McNiven says. “It’s now accepted there are limits to what, financially, the state can do.”

At the same time, Mr. Walker discovered he had a gift for communication. “He takes facts and figures, lines them up, presents them to the public in way they can understand, and holds officials accountable,” Prof. McNiven says. “If there’s another group that doesn’t like the way he adds up the numbers, they should add them up differently and have a debate.”

(In fact, his opponents have learned to do so. The Council for Policy Alternatives produces an alternative budget, while Mr. Stanford has created a counter to Mr. Walker’s freedom index, called “Economic Freedom for the Rest of Us,” which instead of markets measures freedom from poverty, coercion, unemployment and discrimination.)

Mr. Manning credits Mr. Walker with many of the assumptions Canadians take for granted today, such as the benefits of balancing a government budget. “He established the fact that idea-based research is relevant to public policy, and the notion that ideas have to be backed by sound research and measurement.”

To change public opinion, Mr. Walker has tread ground most others avoid. Alone among voices of the right, he agreed to be interviewed for The Corporation, a provocative documentary attacking the impact of multinational corporations on society. “If people saw the world as I do . . . they’d arrest the people who did [the movie]for criminal negligence causing death, because of the power of corporations to solve the problems of the world,” he says now.

Such provocative Walkerisms won’t entirely vanish when he retires. As senior research fellow and president of the Fraser Foundation, he will globetrot promoting the economic-freedom index. Meanwhile, he hopes that by leaving gradually and staying nearby, he will ease the transition for his replacement, Mark Mullins, a former chief economist, columnist and Conservative Party policy adviser.

Mr. Walker also hopes to spend more time with his wife — a professor of nursing at the University of British Columbia — his son in Calgary and his daughter in Seattle, her husband and their two young children, whose pictures are displayed proudly on Mr. Walker’s computer desktop.

He says he might play tennis more than his current daily 6 a.m. game near his West Vancouver home, wants to perfect his wind-surfing techniques, and has a stack of reading to get through, including Collapse, an apocalyptic environmental study of how societies fail, by Jared Diamond.

“I’m not retiring. I am seizing an opportunity,” Mr. Walker says. And should the Fraser Institute need him to return, he says he’s good for another “vigorous” five years.

Copyright Deborah Jones 2005

This story was originally published in the Toronto Globe and Mail.

Walker’s greatest hits:

Michael Walker’s motto is, “If it matters, measure it.” He and the Fraser Institute have influenced public policy by promoting:

Calculations of “tax freedom day” throughout Canada.

Privatization of nationalized assets (CN, Petro-Canada).

Privatization of the delivery of government services.

Reduction of the overall role of government in the economy.

Reduction of “red tape”.

Measurement of provincial education performance with “report cards”.

Measurement of hospital waiting lists.

Measurement of government “interference” to rank “economic freedom” in 127 countries.

Contact: djones AT factsandopinions.com (including for republishing.)

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German economist challenges orthodoxy, inequality

“There is a feeling that we are superstars, that we are doing everything right and that no one should criticise us. I see this as a problem.”

 

By Noah Barkin 
March, 2016

Marcel Fratzscher, chairman of the German Institute for Economic Research, speaks during an interview with Reuters in his office in Berlin, Germany REUTERS/Fabrizio Bensch

Marcel Fratzscher, chairman of the German Institute for Economic Research, speaks during an interview with Reuters in his office in Berlin, Germany REUTERS/Fabrizio Bensch

BERLIN (Reuters) – Marcel Fratzscher is not your typical German economist.

Educated at Oxford and Harvard, he often writes the first drafts of his papers in English. When asked whose work inspired him, he names Amartya Sen, a Nobel Prize-winning Indian economist and philosopher.

And in contrast to many of his domestic counterparts, Fratzscher does not believe the German economy and the special brand of rules-based governance – Ordnungspolitik – that has shaped it since World War Two is a model that others should emulate.

In fact, the 45-year-old president of the German Institute for Economic Research (DIW) in Berlin, has made a name for himself in recent years by exposing flaws in the German economy and daring policymakers to fix them.

In his 2014 book “Die Deutschland Illusion”, he argued that what was being hailed by politicians and the media as a second German economic miracle was little more than a mirage that masked deep-seated problems, including a massive investment shortage that had left German roads and bridges crumbling.

The ensuing debate prompted reluctant Finance Minister Wolfgang Schaeuble to earmark funds for infrastructure.

On Monday March 14, Fratzscher releases a new book, called “Verteilungskampf” (The Distribution Battle), which tackles what he says is another fantasy: the notion that Germany is a nirvana of economic and social equality – more caring Scandinavia than callous United States.

In the book he calls Germany a country of “enormous inequality” in which income, wealth and opportunities are distributed “more unequally than in almost any other industrialised country”.

“We live in denial in Germany,” Fratzscher said in an interview in his Berlin office near the Gendarmenmarkt square.

Some economists may challenge his argument. Germans earn more per capita than virtually all of their European counterparts, have one of the highest savings rates in the bloc and are enjoying record-high employment levels.

A report by the Paris-based Organisation for Economic Cooperation and Development (OECD) last year showed Germany scored better than average on most measures of inequality.

But Fratzscher clearly hopes the book will encourage politicians to tackle reforms of the German education and tax systems, which he says have fuelled inequality.

It seems sure to make waves at a time when many Germans are worried that an influx of refugees could erode their living standards. On Saturday, Der Spiegel magazine did a cover story linked to the book with the title: “Divided Nation”.

“Germany in 2016: the rich are getting richer and the poor remain poor,” Spiegel said.

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Marcel Fratzscher, president of the German Institute for Economic Research (DIW), introduces his new book "The Distribution Battle - Why Inequality in Germany is Rising" as he speaks during an interview with Reuters in his office in Berlin, Germany, March 7, 2016. REUTERS/Fabrizio Bensch

Marcel Fratzscher, president of the German Institute for Economic Research (DIW), introduces his new book “The Distribution Battle – Why Inequality in Germany is Rising” as he speaks during an interview with Reuters in his office in Berlin, Germany, March 7, 2016. REUTERS/Fabrizio Bensch

ANTI-SINN

“Verteilungskampf” also establishes Fratzscher, who ran the international policy analysis division at the European Central Bank (ECB) before joining the DIW in 2013, as one of the most influential economists in Germany – a successor of sorts to Hans-Werner Sinn, the president of the Munich-based Ifo institute, who is due to retire at the end of March.

Sinn, with his signature chin strap beard, has been a staunch defender of German orthodoxy. He opposed bailouts for Greece and other struggling euro members during the bloc’s financial crisis and condemned steps by the ECB to stem the turmoil, sometimes finding support from politicians like Schaeuble.

Fratzscher is the anti-Sinn. He broke with the mainstream in lauding the economic benefits of the euro at the height of the crisis and now talks about how an influx of hundreds of thousands of refugees will be good for German growth.

His stances have drawn criticism from conservative voices such as the Frankfurter Allgemeine Zeitung newspaper. In the world of German economists, some view him as an apostate.

“He’s one of the few economists in Germany who is challenging the traditional conservative view represented by people like Sinn,” said Henrik Enderlein, a professor of political economy at the Hertie School of Governance.

Fratzscher jokingly refers to himself as a “bad German” because he studied abroad.

“If there is a common thread to my books it’s the message that Germany has been somewhat arrogant, that it has been deluding itself,” Fratzscher said.

“There is a feeling that we are superstars, that we are doing everything right and that no one should criticise us. I see this as a problem.”

Copyright Reuters 2016

(Editing by Louise Ireland)

You might be interested in:

Class war returns, this time as a global issue — JONATHAN MANTHORPE: International Affairs, January 8, 2016

Now for Another Debt Crisis —  JIM MCNIVEN, April, 2015

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Known Unknowns in Global Economics

JIM MCNIVEN: THOUGHTLINES
November, 2015

A decade ago, U.S. Defense Secretary Donald Rumsfeld ruminated about the uncertainties of life and how little we know about our wider environment. His comments were not original with him, but they did popularize the categories of what we think we know, what we are aware of but are ignorant of its outline and details, and what we don’t even suspect that is lying out there: 1) the knowns, 2) the known unknowns and 3) the unknown unknowns.

A lot of people made fun of Rumsfeld and his categories, but they have entered the popular lexicon and he even used a variation as the title of his memoirs. I had run across the same classification system many years before and it has proven useful to me. I am pretty sure the ancient Babylonians and Greeks used it.

We are a global society slowly beginning to explore a couple of ‘known unknowns’ that need to be managed right as we start to experience their effects.* These are population decline and price deflation. By and large, the development of modern economies over the past 500 years has come with a continual increase in population and our general economic thinking has been predicated on an assumption that the population of a society and therefore demand for goods and services will be potentially larger tomorrow than today. What if that assumption is beginning to be incorrect?

Second, at least since the Great Depression, there has been a presumption that one of the major challenges to economic management has been the need to control inflation. In the early 1980s, when inflationary pressures began to recede under the installation of high interest rates, many commentators wished for the halcyon days that would come when price stability (read: zero inflation) was achieved. Well, here we are, at least in some societies, and close to it in many more.

If you look at reliable projections of population for the major societies in the world, say, the US, the EU, Japan, China and India, with the exception of the last in this list, populations will start to decline from now (Japan) until 2050 and will keep doing so thereafter. These projections are inexorable without very heavy immigration from other countries with ‘better’ demographics or intolerable governance.

We do not know how to deal with this phenomenon, but we are learning a bit from Japan about it. Japan’s population has begun to decline recently after a couple of decades of stagnation. Its labor force has remained steady in size only because of poor pensions, which force many retirees back into the labor market. The labor force could grow if there weren’t cultural constraints against greater female participation and against immigration. The present government has said it wants to change the first of these, but it is doubtful that exhortation will accomplish a lot before the size of the decline in Japan’s labor force overtakes these wishes.

Further, all of the experiments in places like Russia and Canada and Sweden and elsewhere to provide incentives for citizens to have more children have proven, at best, to lead to minor changes in birthrates, but nothing near a rate that would lead to population stability. Note that the decision to have children in the more developed countries is normally one made by both prospective parents. Policymakers have not got their heads around this yet.

The ‘known unknown’ in this situation is how does a society maintain any kind of economic growth when one of the two main drivers, population/labor force and productivity, does not exist? So far, the Japanese have shown us that they haven’t a clue, but are vigorously pushing all the available policy buttons. Their economy has been more or less flat for two decades and more. Maybe that is success …

The second problem is tied to the first, but has its own dynamic. As noted above, coping with inflation has been a concern for decades now. Too much money chasing too few ‘goods’. Run government surpluses in good times and deficits in bad. Keep the value of the currency stable. The stress was always on achieving and maintaining stability in the face of upward pressures on prices and wages.

Yet, today, if we return to Japan for a moment, it has been practicing a massive QE, or quantitative expansion of its money supply, for a number of years, really without much effect on the price levels in the country. QE ought to be inflationary, since it pumps a lot more money into the economy.

Let’s pretend that it is inflationary. Then we have to look at why the US, which did much the same thing after 2008, did not have a lot of inflation. In this case, it appears that a lot of the excess cash produced by the Federal Reserve found its way out of the country and into loans or purchases by foreigners. This has not been the case in Japan, where the excess cash has led to a decline of the yen relative to most countries, something that also ought to be inflationary. But not much happened in Japan price-wise either. The implication is that the Japanese QE has only succeeded in keeping deflation at bay. Maybe that is success as well….

Deflation comes from a lack of demand, with prices dropping until the market is cleared of whatever is on offer. If you have a society where there is an increasing number of pensioners, who outstrip the number of new, young entrants into the workforce, then you will get a decrease in demand. This is because retirement for most people brings with it a decrease in income that can equal, say for instance, a 50% drop. Part of this leads to lower spending and part may be made up by savings. We can include public and private pensions in the 50% that was maintained. Savings rates in the country would drop and demand would decline as well, which is what we have seen in Japan.

There is a second effect when we get to population decline, but first let’s explore the difference between labor force decline and that of population. In places like Canada and Japan, people normally retire in their early 60s, say 62, and they normally die around 80. Therefore, they spend 18 years living on reduced incomes and reduced demand.

Labour force decline puts a cap on how much a society can produce, unless non-participants are encouraged into working or there is adequate immigration. Otherwise, the job of increasing output has to rely on productivity increases. In both instances, people and productivity, there are a number of cultural constraints that work against this neat, logical solution.

Population decline puts a constraint on demand as well as investment. First, less people means a smaller market. Second, it means that investment calculations are upset, in that adding capacity to a shrinking market is an illogical act unless the investor assumes this new investment will drive somebody else completely out of the market. A growing market might be able to absorb new capacity; a shrinking market is a nasty exercise. At any given time there is more capacity than needed, there is no hope that a rising number of consumers will buy their way into a national recovery from recession, there is no prospect for gains on savings and there is no government, save possibly Japan, that has gone thorough the process of the initial denial of this reality towards a policy set that allows us to manage such a condition.

That being said, there are some possibilities for successful management, once we get used to this coming new reality. It will become an increasingly widespread condition and this will encourage innovation in economic management, but right now the economic effects of population decline and deflation are terra incognita. We know it is there, but like the old mapmakers, we don’t know much about it.

Let’s speculate on what might contribute to a more optimistic future. Like the old mapmakers, perhaps we can populate the known unknown ‘lands’ of the future with the odd fair maiden, dragon and golden mountain or two …  in another column.

 Copyright Jim McNiven 2015

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Jim McNiven’s latest book is The Yankee Road: Tracing the Journey of the New England Tribe that Created Modern Americawww.theyankeeroad.com

Jim McNiven

James McNiven has a PhD from the University of Michigan. He has written widely on public policy and economic development issues and is the co-author of three books. His most recent research has been about the relationship of demographic changes to Canadian regional economic development. He also has an interest in American business history and continues to teach at Dalhousie on a part-time basis.

 

 

 

 

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Jeremy Corbyn and the economics of the real world

By Richard Murphy, City University London 
September, 2015

The new leader of Britain's opposition Labour Party Jeremy Corbyn makes his inaugural speech at the Queen Elizabeth Centre in central London, September 12, 2015. REUTERS/Stefan Wermuth

The new leader of Britain’s opposition Labour Party Jeremy Corbyn makes his inaugural speech at the Queen Elizabeth Centre in central London, September 12, 2015. REUTERS/Stefan Wermuth

As the creator of what has come to be known as Corbynomics, my ideas on what is now known as People’s Quantitative Easing, progressive taxation, tackling the tax gap and other matters caused quite a stir in the Labour leadership race.

They are all policies that, in my opinion, are at the core of tackling the austerity narrative that has dominated the UK political debate. They are designed to put the country back to work on a fair and level playing field.

It is with this in mind that I am about to start teaching a course entitled Economics of the Real World at City University. I think there is a considerable overlap between the ideas I hope to explore with my students and the reason for Jeremy Corbyn adopting some of my thinking this summer.

I consider myself a political economist. We could argue for some time about where the boundaries between the two disciplines might be, but most can spot it with ease. It is, in my opinion, a sad fact of life that too many macroeconomists now consider research to be focused almost entirely on correcting theoretical aberrations in models of general equilibrium that bear little or no relationship to the real world. As an exercise in theoretical mathematical modelling this process creates academic curiosity, but I have my doubts about what it contributes to the real world.

In the real world of political economy that I wish to explore with my students in due course, there are three big themes.

  1. What economists choose to measure and how useful it is to measure these things.
  2. The way those measures are constructed and what they are intended to communicate.
  3. The role of economists in this process: what is their background or ideology that may influence their behaviour, and what might they have chosen to omit from consideration as a result?

It is my belief that there is no form of measurement, whether economic or (as importantly) in accounting, that is value-free. The choice of what we measure frames the debates we have. And the tools we use and the options they accept or reject are entirely subjective.

For example, to highlight one of my long-running areas of concern, the fact that companies deliberately use complex financial structures to hide 60% or more of their global trade from view in their financial statements (and enjoy tax breaks as a result) is not by chance. It is instead a deliberate decision to present a particular – and so inherently biased – view of globalisation that has had enormous significance for the structure of both trade and finance. To ask why those choices were made is therefore vital if the reason for seeking an alternative perspective, with all the policy implications that follow, is to be properly appraised.

My point is that it is clear that the economist is not an objective observer. His or her decisions necessarily affect the real world: the very act of measurement itself has an impact.

So how does this relate to Jeremy Corbyn? As a newly appointed academic I am all too well aware of the importance of the “impact” of my forthcoming work. What astonishes me, in that case, is how little work by so many UK academics in the fields of economics, accounting and tax has any chance of achieving that impact. It is not, it seems, ever designed to reach out to those who might have the chance to effect change by making use of it.

It is my hope that this is an issue that a new Labour leader might address. If the Labour leadership campaign has proved anything it is that there is need for a change in economic thinking if those policies to be offered in 2020 by all parties – but most especially those on the left – are to resonate with people anxious for change.

What also seems very obvious, is that politics is not, at present, either the source or repository for that thinking. In that case, the chance for meaningful dialogue between academia and Labour does at this moment appear to be high, and with it the prospect of real, impactful, engagement.

That is why I hope a new Labour leader will reach out to academia and positively invite new ideas, research, thinking, dialogue and so policy formulation. Now is the time for this. The politicians and academics involved all have until 2020 to achieve a result. There is a desperate need for an economics of the real world that is quite deliberately intended to change not just measurement, but reality.

Creative Commons

The ConversationRelated on F&O:

JEREMY CORBYN: British Labour’s New Leader, by William James and Michael Holden

Richard Murphy is a Professor of Practice in International Political Economy, City University London.  This article was originally published on The Conversation. Read the original article.

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Explainer: tumult in China’s casino stock market

By Michele Geraci, University of Nottingham 
July, 2015

Renminbi_banknotesThe Chinese stock markets have experienced significant turmoil in recent weeks, with the Shanghai Composite Index – the country’s major reference – falling by 32% since June 12. But this fall was preceded by an equally sharp rise of 150% over the previous nine months. In the 20 years since I have been working in finance, I’ve never seen anything like this. So what is going on with the Chinese stock market?

There are several reasons for this unusual behaviour: firstly, when I teach stock market investment to my Chinese students, I always remind them that the Shanghai stock exchange should be thought of more as a casino, rather than as a proper stock market. In normal stock markets, share prices are – or, at least, should be – linked to the economic performance of the underlying companies. Not so in China, where the popularity of the stock market directly correlated with the fall in casino popularity.

In China, given the low credibility of the financial statements published by listed companies, investors need to rely on other tools to predict share price performance. These tools include a heavy reliance on technical analysis and charts – a method that tends to predict future share price based purely on the company’s past performance, with no regards to its fundamentals. Even the name of the company is often neglected; all that matters is the historic price performance.

While this technique is also used in Western markets, my experience in China is that it is the predominant method for investment. Hence the disconnect between a share’s price movements and economic fundamentals.

There has been, however, a strong correlation between the stock market’s performance and the revenues of the casinos in Macau. While gambling revenues were growing at a fast pace in Macau, people largely ignored the stock market – whose performance was, largely, uninteresting for a number of years. But since China’s president, Xi Jinping, launched a campaign against corruption, gambling activity has started to decline. This was when the stock market started to move up. Coincidence?

The other reason why the stock market experienced a sharp increase between September 2014 and June 2015 relates to the Chinese real estate market. In recent years, investment in real estate has been the only way for ordinary citizens to get returns higher than the paltry 3% offered by bank deposits (yes, 3% is paltry in an economy that grows at more than 10% a year in nominal terms). But high capital requirements and growing regulations on the purchase of real estate has meant that benefiting from this growing market has been increasingly difficult for ordinary citizens.

Commercial banks therefore – in an effort to mimic real-estate returns – started to offer so-called “wealth management products”, which are basically funds that invest in the real estate market. These funds were then repackaged and resold in the retail market. Chinese individuals would take their savings out of current accounts and placed them into these wealth management products and achieve returns similar to those available to buyers of real estate.

This was the modus operandi until the beginning of 2014, at which point the economy and the real estate markets started to show signs of weakness. The once-easy money coming from the property market started to disappear and people with wealth management products started to get into financial trouble and some of them even defaulted on their payments (the government bailed them out, so no individual was at a loss).

From November 2014 the Chinese central bank, worried about the slowing economy, decided to institute an aggressive monetary policy to rapidly lower interest rates with the aim of stimulating the economy, which also caused current account rates to decline. This created a perverse scenario where individuals who were already seeking returns higher than those offered by current accounts were then denied the opportunity to get them through real estate because of the falling market. As a result, deposit rates were cut further and the return on current accounts became even more dissatisfying. Commercial banks found themselves in a quandary.

With the casino route closed and real estate off the table, what was left? The Shanghai and Shenzhen stock markets: the two main stock markets that had remained dormant for years.

Banks then turned the old real estate wealth management products into investment vehicles to purchase shares directly on the stock markets. A large portion of customer deposits were then directly invested in the stock market, which then surged on the back of that demand.

Meanwhile, however, nothing happened to the earnings forecasts of the underlying companies. In fact, if anything, they should have been revised down because of the deteriorating macroeconomic condition of the Chinese domestic economy. But of course, as we said before, no one really looks at earnings and price ratios.

Due to the desire to maximise returns, many individuals then used leverage so that the inflow of money in the stock market was even higher. For example, if someone wishes to purchase shares for a total value of 100RMB, but only has available cash in his deposit account of, say, 60RMB, he could borrow the remaining 40RMB from the brokerage house. By doing this, the original source of 60RMB was turned into an upward push of the stock price equivalent to the full 100RMB. This drove strong share price growth between September 2014 and June 12 2015.

What happened on June 12 2015? Nothing. Just some smarter investors (generally large institutional investors, which represent 20% of all market volumes) started to sell and the rest of the market followed suit. Fear got hold of small investors (who represent 80% of the market) and selling accelerated, with margin calls making those selling do so even faster, and here we are today – a 32% drop and counting since the peak of mid-June.

In the past few days, the Chinese government has adopted a number of measures to try to mitigate this crash. The market finally reacted positively to a relaxation of restrictions on margin requirements. But this measure simply transfers the risks from investors to brokerage houses – it does not change the fact that the market has increased by 70% over the last year. The bubble, if it is a bubble, still has a long way to go.

Creative CommonsThe Conversation

Michele Geraci is Head of China Economic Policy Programme, Assistant Professor in Finance at University of Nottingham. This article was originally published on The Conversation. Read the original article.

Related on F&O: International Affairs analysis by Jonathan Manthorpe (Day pass or subscription required):

Money flight impoverishes the poorest countries

It’s not just China’s “Red Nobility” and Russian oligarchs who are robbing their countries by illicitly exporting their wealth to compliant and complicit countries like Canada. There is an epidemic of money flight from developing countries, according to a new report from the Washington-based anti-money laundering organization Global Financial Integrity.

Vancouver: not mind-numbingly boring, but vacuously vain 

The flood of vast wealth from China into Canada has not only contorted and distorted the Vancouver housing market beyond redemption, it has changed the sort of community the western Canadian metropolis is going to be for generations to come. In a bizarre piece of absence of mind and lack of attention, it has also hitched the future of Vancouver to the fate of the Chinese Communist Party. Vancouver’s low self-confidence and its destructive vanity have both played a part in these failures.

Labour unrest surges as China’s economy slows

As China’s economy slows to a crawl, the Communist Party is facing one of its worst nightmares: a militant labour movement. The Hong Kong-based China Labour Bulletin, which collects data on strikes and lockouts in China as well as promoting workers’ rights, says there has been a dramatic upturn in labour unrest across the country. As the country’s economy slowed to its lowest growth level since 1990, strikes and protests in the last three months of 2014 were three times those of the same period the year before. “The dramatic upturn can be partially explained by the increased use of cheap smartphones and social media as tools by workers to get news of their protest action to a wider audience,” says the latest report by the group. “But at the same time there is clearly an increase in labour activism in response primarily to the economic slowdown in China over the last year or so.” 

China’s Xi launches his own Cultural Revolution. August 13, 2014 

Xi Jinping is not content with being the most powerful leader of China since Mao Zedong. He also wants to play God. Xi’s ruling Communist Party announced last week it will write its own version of “Chinese Christian theology” to ensure adherents abide by the country’s party-imposed political culture. The attempt to take control of religion in China is part of a broad campaign by Xi to establish “cultural security.” The aim is to outlaw and control all foreign influences that might undermine the communists’ one-party rule.

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The perils of the last human: flaws in modern economics

Are we really in charge of our destiny? Photo by Michael Shane via Flickr, Creative Commons

Are we really in charge of our destiny? Photo by Michael Shane via Flickr, Creative Commons

WARWICK SMITH, University of Melbourne 
December, 2014

Nietzsche’s much quoted line “God is dead” was not, as it is often presented, a statement of triumphant atheism but was a warning and a call to action. We had killed God with rationalism and science. With God had gone our moral compass and our sense of purpose and we had nothing to replace them with but science and logic.

This is an existential problem because, as David Hume famously proved, you can’t argue from “is” to “should”. We may be able to use science to help us get what we want but we cannot use science to tell us what to want nor to tell others what they should want.

This is where the field of economics has stepped in. Human well-being, according to mainstream neoclassical economics, is fundamentally about the expression of individual preferences. The more money we have the more preferences we can express and, therefore, the freer and happier we are. Boom, Nietzsche’s existential problem solved.

Jeremy Bentham, in An Introduction to the Principles of Morals and Legislation said, “Nature has placed mankind under the governance of two sovereign masters, pain and pleasure. It is for them alone to point out what we ought to do, as well as to determine what we shall do.”

The utilitarianism that underpins neoclassical economics simply equates money with choice and choice with the freedom to pursue pleasure and avoid pain. The freedom to buy.

Economists tell us that economic growth is, therefore, the key to progress. Growing the economic pie gives more people more options and that is the goal of society. It’s a technocratic system where we believe any problem can be solved by better application of theory.

This technocratic focus on economic growth has brought unprecedented material prosperity to the western world. As a result, major political parties around the world have ceded authority to the technocrats. The utilitarian calculus that sits beneath our economic system is never questioned. Instead, political debate centres on how to balance the trade-offs and whether to compensate the losers in the race to gain wealth and consume.

I’m very fond of boats myself. I like the way they’re contained. You don’t have to worry about which way to go, or whether to go at all – the question doesn’t arise, because you’re on a boat aren’t you?” — Tom Stoppard, Rosencrantz and Guildenstern are dead.

What’s missing, of course, is any basis on which to evaluate the direction that society, or indeed humanity as a whole, is taking. We’re on a giant cruise ship and we are completely free to explore and enjoy. However, there is nobody identifiable at the helm.

The issue of climate change is a perfect illustration. Our headlong rush for economic growth and consumer items is altering the very climate of the planet and we appear powerless to change course. Despite dire predictions from the world’s scientists very little action has been taken. The very notion of human induced climate change and the actions required to arrest it clash so fundamentally with the modern mantra of “gain wealth, forgetting all but self” that many simply refuse to believe it.

The economic constraints on freedom are extremely powerful. Risking economic security for the sake of the future climate borders on inconceivable in a society dominated by individualistic social hierarchies of wealth and the cult of celebrity.

Financial institutions lend ever more and more money to investors who pay more and more for real estate based on the assumption that others will pay more still. The result is that the average citizen has to spend their whole life in debt peonage to banks just to have a house to live in. They are no freer to challenge the financial system than feudal peasants were to challenge their lords.

Our farmers are similarly trapped by debt into fossil fuel based farming. Most can’t afford to take risks experimenting with more sustainable farming practices when they owe a million dollars to the banks for farm machinery.

Even those who do make climate action a priority in their lives find that there’s nowhere meaningful to take their petitions and nobody to read their letters. There’s nobody at the helm. Lines of accountability and power are so scrambled that even those in the highest political offices in the world appear powerless. The cruise ship sails relentlessly on.

In Thus Spoke Zarathustra: A Book for All and None, the work that Nietzsche considered to be his most important, he warns us about the perils of the last human being, a possible future for humanity in which we are mindlessly naïve, happy and healthy but lack all spirit, vitality and creativity; that is, we lack life itself. Nietzsche would be horrified by the modern cult of happiness seekers, seeing the pursuit of happiness and the avoidance of pain and suffering as being equivalent to the avoidance of life itself. Embracing life necessarily means embracing the painful and the difficult elements of life as well as the enjoyable and easy parts.

Instead of avoiding life by weaving a path that avoids discomfort, Nietzsche says we should master ourselves by embracing our inherently conflicting natures. He reaches back to ancient Greece, to the opposing but complementary elements of humanity represented by Dionysus and Apollo. Our modern capitalist society has subordinated the disciplined, considered and directed Apollo into the service of the hedonistic goals of Dionysus. If we can heed Nietzsche’s advice and value personal balance and self-mastery we can orient our lives towards an intentional vision for the future. For Nietzsche this was not about having a goal for the future but instead having an orientation for right now. The difference is subtle but extremely significant.

Our economic system funnels our will into the pursuit of material prosperity and comfort. This is the very opposite of freedom. It stifles creativity and forces our life energy inwards instead of outwards, turning us into what Nietzsche describes as “the sick animal”. Despite our material prosperity we suffer from “affluenza” and write self-help books to each other in an attempt to diagnose and treat the panoply of mental and physical afflictions caused by our wealth.

The fact that our economic system is a social construct means that we have made a choice, even if an unconscious one, and that we can remake that choice.

Instead of being bound to self-centred and self-destructive consumption by an economic system embedded with values we had no choice in, let us take Nietzsche’s advice and orient ourselves towards an intentional vision of the future. If we each bring our vision to bear on our political engagement we could lift the political and economic discussion out of its Dionysian opium den and develop a system that reflects what we truly value.

Creative Commons

Warwick Smith, Research economist at University of Melbourne, does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.

An shorter version of this piece won the New Philosopher writer’s award III. This article was originally published on The Conversation. Read the original article.

 

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Part 2: The nasties and pleasantries of the decline in oil prices

A consequential task appropriately imagined, this image of one of the vertical-axis wind turbines installed outside London’s Olympic Stadium is a figurative illustration of the monumentality of the international pursuit of alternatives to fossil-fuel energy.  CREATIVE COMMONS/WIKIMEDIA

An image of a vertical-axis wind turbine installed outside London’s Olympic Stadium, a figurative illustration of the monumentality of the international pursuit of alternatives to fossil-fuel energy.
CREATIVE COMMONS/WIKIMEDIA

JIM MCNIVEN  
November 21, 2014  

Attempts have been made since 1859 to control the price of oil — or, rather, the price of its refined product, be that kerosene for lighting or, later, gasoline for autos. The first one to try was John D Rockefeller with his development of the Standard Oil Trust in the 1860s and beyond. OPEC, or the Organization of Petroleum Exporting Countries, is the latest attempt, dating back to the 1960s, and is based on the export of oil by the global low-cost producers, in particular Saudi Arabia. In effect the Saudis, as price leaders, try to keep the price stable by varying their own production and pricing, so as to discourage its partners from overproduction or short-term greed. Generally, when prices are high their cheating is rampant, and when prices are low their cheating is rampant.

Well, here we go again. The price of oil is going down, dragging with it all kinds of nasties and pleasantries. (This was eminently predictable: only the timing was mysterious.) Let’s look at some of them.

First we have the prophets of ‘peak oil,’ who keep predicting the imminent decline of supply and the rocketing upwards of price as an oil-dependent world fights over who will drive and who will walk. The reality is that the real, or non-inflationary, price of every natural resource commodity you can think of, including oil, has declined over the past 200 years and seems to keep declining. Yes, there are price bubbles, but they pop sooner or later. If the price gets too high, then it pays someone to go out and find the next most expensive ore bed or oil pocket and exploit it. The price bubble lasts about as long as it takes for a lot of new supply to come on stream. The bubble pops, the price goes down, and the marginal suppliers shut down until needed. Then the cycle repeats itself.

If you want to see this in action, go to the United States Energy Information Administration site1, and set the tab on ‘imported oil’ to see real prices since the 1970s. If you want to go back further for real prices, say, to the 1860s, take a look at Chartsbin.com.2 

Oil prices today are also starting to be affected by the oversupply of conventionally-produced electricity due to price declines for solar and wind power. A combination of government-mandated or subsidized shifts from coal and oil-powered generation, plus greater price efficiencies in alternatives, are cutting into the oil market. Auto efficiencies, such as mandated greater average mileage per unit of fuel and gasoline-electric hybrids, are also having an effect. These do not constitute a big cut, but every time world oil prices shift upwards,  alternatives take a bigger nibble out of the oil market.  

One of the big nasties from any price drop has to do with places that derive most or all of their public revenues from the sale of oil. The budgets of countries like Venezuela or Iran are almost completely dependent on oil sales for their government revenues. Further, the price bubble since 2009 has left them dependent on a high price to cover rising public expenditures used to buy off political dissent.3  Saudi Arabia can tap into savings, or borrow, but consider the problems faced by higher-cost producers like Venezuela, racked by internal dissent, or Iran or Russia, subject to all sorts of financial restrictions. 

When the price drops, such countries can do a number of things: they can borrow, if their credit is good, or they can cut expenditures, though many of these countries subsidize consumer energy expenditures, cutting thus being a sure formula for unrest, or they can produce more, cheat on OPEC and keep the game going in the short run. Of course, this last option can’t work forever and it will just drive the price of oil lower overall. Generally, countries with domestic unrest will either concentrate on keeping the lid on through repression or they will go off on some international adventure to mask the problem with some nationalist fervor. Take your choice. 

Other losers in a low-price oil market are the environmentally-friendly alternatives. The instability in oil prices over the past 30 years has meant that companies providing alternative energy have difficulty acquiring long-term financing for research and for product sales, precisely because the time horizons between price peaks or slumps is too short for potential investors’ comfort.

In countries where there is little or no oil production, some pleasantries do happen. The price of fuel goes down and this acts as a pay raise for their people, rich and poor. A lower oil price has effects throughout the consumer economy as producers and final consumers  save money. In a large country like Canada this can have differential effects. Revenues in oil-producing Alberta will drop, while Ontario’s manufacturing economy will get a boost. Exploration and development may slow in the West and offshore. Further, the Canadian dollar drops as the value of Canada’s oil exports drop, helping other, perhaps manufacturing-based, exports. The drop in the dollar acts as a kind of a relative pay cut for workers and a price rise for anyone who consumes imports.

In the U.S., Texas’ economy may be hit while New York’s may get a boost — but the balance is complicated by the recent massive production of oil from American shale which means that America is expected, for the first time in about a century, to become oil self-sufficient, or even a net exporter. That would result in a continual boost in the value of the American dollar, so the benefit to states without oil would be offset by the stronger dollar. China and other overseas manufacturers may find this a blessing.

It’s probably that an oil price below $80 per barrel will last for years, and change the nature of international politics.  

Copyright © 2014 James D. McNiven

Contact: j.mcniven AT dal.ca

Notes:

1. United States Energy Information Administration: http://www.eia.gov/forecasts/steo/realprices/
This column is largely adapted from a chapter in a forthcoming book.

2. Chartsbin.com: http://chartsbin.com/view/oau

 3. There are many estimates of what different oil countries need to break even, and here is one at Zerohedge.com: When this was produced the oil price was $80, and expected to fall: http://www.zerohedge.com/news/2014-10-10/why-oil-plunging-other-part-secret-deal-between-us-and-saudi-arabia

 

Jim McNiven

Jim McNiven

James D. McNiven, author of the Thoughtlines column, is Professor Emeritus at Dalhousie University in Halifax, Canada, and Senior Policy Research Advisor with Canmac Economics Ltd. He was the Fulbright Research Professor at Michigan State University’s Canadian Studies Center in 2010-11.

Dr. McNiven has a PhD from the University of Michigan. He has written widely on public policy and economic development issues and is the co-author of three books. His most recent research has been about the relationship of demographic changes to Canadian regional economic development. He also has an interest in American business history and continues to teach at Dalhousie on a part-time basis. 

 

 

 

 

 

 

 

 

 

Facts and Opinions is an online journal of select and first-rate reporting and analysis, in words and images: a boutique of slow journalism, without borders. Independent, non-partisan and employee-owned, F&O performs journalism for citizens, funded entirely by readers. We do not carry advertising or solicit donations from foundations or causes. We appreciate your support: a day pass is $1 and subscriptions start at $2.95 per month.

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Chris Wood on Canada’s Old Testament Economics

An illustration from Bible Pictures and What They Teach Us by Charles Foster. Public domain.

Chris Wood writes that the religious faith of Canada’s prime minister is properly his business. His shepherding of the economy according to Old Testament economics, however, is everyone’s concern. An illustration from Bible Pictures and What They Teach Us by Charles Foster. Public domain.

Outside Canada, writes Natural Security columnist Chris Wood,  dangerous magical thinking — what he calls Old Testament Economics — “is increasingly being called out for its error by economists more based in reality … a Reformation is sweeping the ecclesiastical strongholds of market idolatry.” Within Canada, the reality accepted by a growing body of economists is dismissed by Prime Minister Stephen Harper and his “secular congregation” — and that should concern everyone, writes Wood. An excerpt of his new column, Kool-Aid Economics (subscription):

Canadians have been aware for some time that their Prime Minister subscribes to an arcane fundamentalist strain of Christianity. Being the polite and generally go-along types we are, we have quite properly left his faith between the man and his God. However, it is now evident that Canada’s P.M. is a credulous disciple of another not-so-fringe and much more dangerous faith, about which we have every right to be deeply concerned.

That cultic faith is Old Testament economics.

Stephen Harper is an acolyte of an especially purist strain of neo-liberalism, a pseudo-scientific theology replete with parables, miracles and catechisms of faith. It is to reliable modeling of reality roughly what witches and alchemists were to modern science. (Then again, Harper might welcome the parallel; he has spent most of his majority term metaphorically stoning Canada’s public scientists and burning their labs.)

Nonetheless, among this faith’s central tenets is the idea that to make a profitable omelette, some eggs just gotta break. Or, as Harper himself has intoned, justifying his refusal to defend his country’s environment or the global climate: “No country is going to take actions that are going to deliberately destroy jobs and growth in their country.”

It’s the black and white thinking of dogma, like good and evil, believer or heretic. Choose one: a paycheque or, you know, air. We have a tragic history of this illusion in my country, where the rotten-egg stench of a pulp mill — often a town’s only reason for being — was colloquially described as ‘the smell of money’ … log in (subscription required*) to read Kool-Aid Economics.  

Click here for Chris Wood’s Natural Security column page,  or here to subscribe or purchase a $1 site day pass.

*Facts and Opinions is a boutique for select journalism, without borders. Independent, non-partisan and employee-owned, F&O is sustained entirely by readers: we do not carry advertising or solicit donations from foundations or causes.  Why? We appreciate your interest and support:  for $2.95 (the price of a cheap brew) you can subscribe to F&O for a month. If that breaks your budget, a one-day pass is $1. A subscription is required for most F&O original work. Subscribe for free to Frontlines by entering your address in theform on the right (we won’t share your address), or follow us on Facebook or Twitter.

 

 

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F&O Weekend

This F&O weekend ranges widely: bringing wolves back from the dead to the role of 3D printers in killing industries;  greenwashing to Europe’s role in Ukraine’s mayhem; a eulogy for a Canadian swan to a macabre American hospital mystery.

No Going Back. Column, By Jim McNiven (Subscription)

When we read about the Great Recession of 2007-11, there seems to be an assumption on the part of commentators that as soon as the economy ‘turned around,’ we could get back to normal. That’s not how it is turning out — and that should not be surprising. There is no going back.

Wild Bees Catch Infections. Science dispatch, By Deborah Jones (Subscription)

Disappearing Honey Bees

© Greg Locke 2013

Agricultural crops from almonds to zucchini are necessarily pollinated by bees, both managed and wild — but colonies of all bees have been collapsing, for reasons that are likely complex and but dimly understood. That’s why it matters, and not least to human food security, that researchers have now found that two infections common in domestic bees can spread to wild bees. Global trade may be worsening infection rates, suggests the study published in the February 20 edition of the science journal Nature.

Roads paved with good intentions Column, By Chris Wood (Subscription)

Ronald Reagan, in a lucid moment, famously characterized his approach to nuclear negotiations with the Soviet Union as: “Trust — and verify.” Much the same, it turns out, might be said for the green boasts of business. If we’re honest about it, most of what threatens our natural security is the result of our own appetites. Boreal forests are turned into tar pits to push our comfort pods from driveway to the mall. Mountains are crushed to expose the copper and rarer metals that ignite the digital fire in our smartphones. Rivers are emptied to grow our out-of-season salad. But what if we could have our smart-phones and February salads and cars without any of that destruction?

Europe carries blame for the Ukrainian violence. Column, By Jonathan Manthorpe (Subscription)

European leaders should not congratulate themselves too heartily for mediating the compromise agreement that, with luck, will end the demonstrations and appalling violence on the streets of Ukraine’s capital Kiev and other major cities. It is, after all, sins of commission and omission by Brussels that have played a large part in stirring up the political chaos in Ukraine as its people try to decide if their future should be with the European Union (EU) or their old political overlord in the Soviet Union, Russia.

China’s role in North Korean atrocities complex. Column, by Jonathan Manthorpe. (Subscription)

By emphasizing China’s complicity in the unparalleled atrocities by the North Korean regime of its people, United Nations investigators have doubtless ensured Beijing will use its Security Council veto to block further action. Beijing has reacted angrily to the commission’s findings and recommendations, which are highly critical of China’s treatment of North Korean refugees who have fled across the border.

Winter Swan Essay in words and photos, By E. Kaye Fulton (Public access)

Swan

© E. Kaye Fulton

This has been a hard, hard winter for wildlife  – the worst, locals say, in 70 years. For a month or more, the mute swans of Wellington, Ontario, have been buffeted by howling winds and driving snow. Unable to forage the frozen shorelines and bottom of Lake Ontario for food, they fend off starvation by curling themselves into snowy white mounds, immobile and defenceless on the impenetrable surface. Two nights ago, in search of easy prey, coyotes crept across the ice to claim two sleeping swans huddled at the end of the line formed by their 26-member flock.

Wolves as Ecosystems Engineers. Column, By Deborah Jones (Subscription)

gray wolfRed Riding Hood and the Three Little Pigs have a lot to answer for: thanks partly to fairy tales, wolves have a ghastly and global reputation as big and bad, terrorists of young girls and small pigs, good for nothing but their pelts. But science offers redemption — and one fair wolf tale can be found in Yellowstone National Park in the western United States. Alas, it’s a tale without an end. Free Range column by Deborah Jones

Hidden in a Heart. Justice dispatch, By Marshall Allen, ProPublica (Public access)

Linda Carswell thought her quest to recover her husband’s heart had come to an end. Finally, after almost a decade, she would be able bury it with his other remains. She could have peace of mind. Instead, the saga has taken a macabre twist that she calls, “beyond belief.”

Findings: social media matters By staff (free blog)

The big picture matters. A heart-wrenching photo on Twitter spread wildly this week. It appeared to show a little boy separatedfrom his family as they fled Syria’s violence: “UN staff found 4 year-old Marwan crossing desert alone after being separated from family…”   But the photo showed only a tiny portion of a crowd, which included the boy’s family. And therein lies the sting.

Miscellany:

  • ProPublica, the not-for-profit American investigative journalism news organization, was awarded a 2014 MacArthur Award for Creative and Effective Institutions, which recognizes creativity and impact. The $1 million U.S. is very nice – ProPublica said it will add the money to its reserve, “laying the groundwork for an expansion of its investigative newsroom.” Equally important is the recognition from the globally-prestigious John D. and Catherine T. MacArthur Foundation. ProPublica is one of just seven non-profits around the world to win the  one-time grant. The others are the Campaign Legal Center, the National Housing Trust, NatureServe, and the University of Chicago Crime Lab —  all in the United States, and the Citizen Lab in Canada and the Women’s Rights Advancement and Protection Alternative in Nigeria.
  • Mavis Gallant died this week. Her last name was graced with serendipity: she was a woman with the guts to quit a perfectly good journalism job, move to Paris on a wing and a prayer, and write fiction. And, boy, did she Write. “I have lived in writing, like a spoonful of water in a river,” she penned in Selected Stories, highlighted in an interview with The Guardian. The New Yorker offers a selection of stories  published by that magazine. F&O’s Frontlines blog about Gallant, here, includes a link to the excellent CBC radio documentary portrait of her, and selected readings including her own short stories in the New Yorker.
  • Recommended: Below the city of New York lies heaven … if you’re a geologist. The New York Times reports on the city’s latest wave of excavations, and the bonanza they provide for scientists.
  • Recommended: The Disintegration of Kiev, a photo gallery in Europe’s Der Spiegel
  • Recommended: This Old Man, Life in the nineties, a glorious treatise on aging and love by American baseball writer Roger Angell, in his natural habitat of the New Yorker.

Last but not least:

The woman flying in the Twitter photograph below is Husna Sari, a Turkish journalist. Poynter interviewed her about her encounter with security forces who used firehoses to quell demonstrators and the country’s journalists. Sari told Poynter: “Turkey is now a country of censors but in that demonstration people didn’t protest the internet censorship. It was a demonstration set up to stop the unfair imprisonment of scientists, soldiers and journalists.” In his last F&O column on Turkey (subscription required) analyst Jonathan Manthorpe wrote of Prime Minister Tayyip Erdogan’s desperate efforts to stay in power and the contentious roles of the military and Islamists in Turkey.

 

Have a good weekend.

 

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JIM MCNIVEN – THOUGHTLINES

Why Celebrate July Fourth, or First?

July 4 celebration in Washington, 2012. Photo by Architect of the Capitol, US government, public domain.Every American knows, or should know, that the 4th of July marks the birthday of the United States. But the reality is different, as it is in many or most countries, and the actual beginning of the country is more complex and confused.

Down and Dirty in the Trade Game

Nationalize Google.ca? Put a special tariff on US software purchases? The international trading system is the way it is because the US thought a rule-of-law system was in its best economic interest. Going back to the law of the jungle may not be in the works, but just in case, we Canadians had better dust off Sir John A’s National Policy.

Nothing’s Happening

Giant popcorn box. Photo by Chris via Flickr, Creative Commonshttps://www.flickr.com/photos/techsavi/

There’s an old saying around the stock market: ‘Sell in May and go away’. Basically, it means that usually nothing much financial happens in the summer. This year, that might also be the slogan for a lot of other parts of society.

America’s Republican Quandary

There is a classic John Cleese TV comedy performance, in which as “Basil,” owner/manager of a small British hotel called ‘Fawlty Towers,’ suffers a concussion then mocks German guests by goose-stepping around them, decades after World War II ended. The episode brings to mind today’s Washington, DC.

The System Comes First

There is much made of the survival of the American system of government for 230 years under its present Constitution It has done so through many perilous situations. Today, the US has a President who comes from the personalist tradition, not that of systems.

By Julian Vannerson - Library of Congress, Public Domain, https://commons.wikimedia.org/w/index.php?curid=44993463

Andrew Johnson

America: Andrew Johnson Rides Again  

Mark Twain liked to say that ‘History doesn’t repeat itself, but it often does rhyme’. Every hundred and fifty years, I suppose, history has to start to rhyme in the United States. In 1865, a popular President was succeeded by a President who had no clear mandate, who was blustery and not a part of the then Establishment.

A Tale of Two Crashes, and Their Aftermaths

There are a lot of rough parallels between events in history that suggest that what one generation learns is forgotten over time. One of these is between the political/financial events in the United States between 1830-1850 and 2000-2020.

Starve the Beast!

During America’s Ronald Reagan presidency, the phrase ‘starve the beast’ was shorthand amongst conservatives for the idea that by simply cutting back on expenditures — either through disciplined spending or by giving money away through tax cuts— people would be forced to accept smaller and less expensive government. It didn’t really work — but the idea persists, on the “left” and the “right.”

Changes in Attitudes: The Best, and Worst of Times

To be Dickensian, it is the best of times and it is the worst of times. There is a lot of speculation that maybe America’s new President won’t really do what he said he would do. I wouldn’t bet on that.

Outgoing Secretary of State Hillary Clinton delivers farewell remarks to State Department employees in January, 2013. State Department photo by Michael Gross‘Yes, Ma’am’

My wife and I like to watch British mystery shows, some of which feature female police officers in senior positions. Invariably, the subordinate officers respond to their advice and orders with the response of, ‘Yes Ma’am’. Maybe we’d better start getting used to this in North America, once Hillary Clinton takes office.

A New (Emissions) Trade Deal Environment

There seems to be a concerted effort worldwide to link all kinds of jurisdictions in Cap and Trade systems, a kind of global trade zone for controlling greenhouse gas emissions. And this kind of trade seems to be on the side of the angels, where buying and selling stuff is not.

‘It Don’t Come Easy’

Dawn breaks behind the Houses of Parliament and the statue of Winston Churchill in Westminster, London, Britain June 24, 2016. REUTERS/Stefan WermuthWe are coming to a crossroads. Either we continue with the globalization project that started with the Marshall Plan and the first GATT tariff reductions, or we don’t.

The Revolt of (some of) the 4.5%

One of the American presumptive presidential candidates has been creating a big nationalist fuss about ‘Making America Great Again’. Somehow, according to this interpretation, the country’s just not given the respect it had in the past, perhaps in the 60s and 70s, when the Boomers were growing up, or maybe even going back to 1945 and the end of the Cold War. Maybe it was in some mythical era when the country was the big boy on the block, 1900 perhaps, or 1920….

The Collapse of the Caliphate

Iraqi security forces and Shi'ite fighters sit in military vehicles near Falluja, Iraq, May 31, 2016. REUTERS/Alaa Al-MarjaniThe Islamic State “Caliphate” has been reduced to three major urban areas, Raqqa, Mosul and Falluja. None of them have dependable resupply routes for either military goods or civilian needs. Short of their opponents falling into disarray and not pressing on, an unlikely hope this close to the end, things for ISIS can unravel simply by waiting. So, what comes after the Caliphate?

Those Healthy Yankees: Graham and Alcott

Sylvester Graham and William Andrus Alcott were men of their disease-ridden times, amongst the first American promoters of “health food,” “phys-ed” and temperate living for health in both the here and now — and the afterlife.

Déjà Vu All Over Again

The lesson from historical events: do not bet against whatever side the United States is on in a long-run Cold War. It is the acknowledged ‘champion’ of Cold Wars and will not give up its place in the face of Wahhabi/ Salafi/ Al Queda/ Taliban/ Islamic State, etc. pressure any time soon.

America’s ‘Arab Spring’

Current political campaigns in the United States reveal how much elections are being disrupted by the same forces that have made a mess out of everything in society, from book and newspaper publishing, to overnight rentals to retail sales.

Yankee Dollars and Florida Development: Henry Flagler and Julia Tuttle

There is a point in each Canadian winter, as the cold sets in following December’s holiday season,  that Canadians start to dream of warmer weather. Soon, the annual ‘snowbird’ migration begins to the American south. This is the story of how their destination came to exist.

Fair Maidens, Dragons and Golden Mountains

The future may contain two ‘dragons:’ the known one of inflation and the one known in theory but unknown in combat, that of deflation.

Known Unknowns in Global Economics

As a global society we are slowly beginning to explore a couple of the ‘known unknowns’ that need to be managed right.

‘There’s Something Happening Here …

Forty-seven years ago in the United States, the Democrats found themselves going into their Presidential nomination process rather at sea. Does this sound familiar? Does it look like a mirror image of today? Today it is the Republicans who are in disarray. And it all has to do with the boomers.

Love Canal: Utopia to Dystopia 

In the late 1880s, a mysterious stranger, said to have come from the West, appeared in Niagara Falls and began to scout the opportunities there. He was taken with the power potential and with the possibilities for land speculation…

Don’t Cry For Me, Ar-gen-tar-i-o

There is another crisis brewing on the debt front. This one has to do with the public debt of entities that are part of wider currency zones: Greece, Puerto Rico amid the United States, and Ontario, in Canada.

Sam McClure, Muckraker

There were reasons why Sam McClure’s low-cost, good quality magazine sold well in the tough economic climate from 1890:: cheaper postal rates and rural delivery; new technology including high-speed presses and halftone photoengraving; and a growing demand for low-cost outlets for advertising. McClure’s also innovated with an in-house staff of writers and editors.

European Scientists and Yankee Managers build ‘The Bomb’

A week short of a year after America’s entry into World War II, on December 5, 1942, an enemy alien set off a nuclear reaction about five miles south of the Loop in Chicago. An Italian scientist, and Nobel Prize winner, Enrico Fermi, directed a team of scientists, casual and construction workers and military personnel in the building and operation of the world’s first attempt to generate a nuclear ‘critical mass’. The makeshift reactor was built in a squash court underneath the Stagg Field stands at the University of Chicago. Fermi had fled fascist Italy when Mussolini began to imitate Hitler’s anti-Jewish laws, as his wife was Jewish. They had not been in the United States long enough to qualify for American citizenship and Italy had been at war with America since mid-December, 1941.

Robert Goddard and The Big Blue Marble 

Robert Goddard was the quintessential Yankee inventor. Born in 1882, he was raised and lived much of his life in Worcester, Massachusetts. Goddard was a sickly boy who fell behind in school and did not graduate until he was twenty-two. Spending lots of time home in bed, he became a voracious reader, and was highly taken with H.G.Wells’s War of the Worlds, which was published when he was sixteen. At seventeen he discovered his life’s work while staring at the sky as he pruned trees around his parents’ house. He would devise a way to escape Earth’s gravity and travel through space.

The Yankee Origins of Baseball

America’s Baseball Hall of Fame in Cooperstown, New York, is a standard tourist trap: an attraction surrounded by a large number of related souvenir shops and restaurants. In the 1930s, the baseball establishment accepted Cooperstown as the place where Abner Doubleday supposedly devised the rules of the game in 1839. The attribution of Doubleday as baseball’s inventor was made on very improbable evidence, however. The Abner Doubleday — and there could have been more than one living in upstate New York at the time — was a noted Civil War general, but in 1839 had been a cadet at West Point and unable to leave its grounds.

Telegraphy, Radio, Utopia and You

In 1887, Edward Bellamy, perhaps one of the last of a long line of Yankee utopians, published a book called Looking Backward. In it, his character, Julian West, falls asleep in a secure basement room in his house in Boston in that same year. West is awakened in the year 2000, to be greeted by Bostonians who are living in a world at peace, with prosperity and full of the benefits of equality. The book became very popular in its time and ‘Bellamy clubs’ sprang up to promote his ideals. Here, we want to look at the technology that is incorporated in some of Bellamy’s social theorizing.

Hanging Out With Paddy’s Crowd

At the age of 18, in 1933, the charming and restless  Patrick Leigh Fermor decided to walk alone from the Hook of Holland to Istanbul. The books that came of that journey, much later, exude feeling for the gradual tightening of the totalitarian state being devised by Hitler, a post-mortem on what was left of the landed aristocracy in Eastern Europe following World War I and the antagonisms between the welter of peoples in the successor states to the Austro-Hungarian and Ottoman empires.

Now for Another Debt Crisis

I don’t know where the next debt crisis is going to come from, but I’ve got some good possibilities. When it does come, the big problem will not be the lenders or taxpayers who will get stiffed, more or less, but whether the crisis can be contained. What I mean is that when some kind of borrower, be it a state or a corporation, defaults on its financial obligations (bonds), other lenders will look around, find similar organizations in the same shape, and try to get their loans paid back immediately. This is not likely to be possible, even for the best of borrowers so, like a row of dominos, they will begin to fall and fail. This is called ‘contagion’ in the business. On a global scale, contagion can lead to an economic mess much more serious than the United States crisis of 2008.

The War of 1812 and The Yankee Roads: a three part series

Part 1: The Incompetent vs The Distracted

Warfare between Great Britain and America came to its legal end 200 years ago, with the ratification of the The Treaty of Ghent on February 16, 1815. Public and official interest in the bicentennial of the War of 1812 in Canada, the United Kingdom and the United States, has been mostly muted, despite an official effort to play up the War in Canada. Yet big things came out of this standoff. One was the eventual creation of Canada as a country separate from America. The second was the destiny of the Yankee exodus westward and the outcome of the Civil War.

Part 2: Yankee Seamen on Fresh Water

America did not need control over the lower Great Lakes to access their communities to the extent that the British did, except for two spots. The first was the Niagara area, where inconclusive battles were fought mostly on the British side. The second was the western end of Lake Erie and its feeder, the Detroit River. British control over Lake Erie meant that American troops and supplies could not be brought far enough north on land from Indiana to allow them to support Detroit and control the Upper Lakes. As well, the British Fort Malden at Amherstburg controlled the shipping channel in the Detroit River.

Part 3: The Aftermath

Both sides ‘won’ the war of 1812. Only the Indians lost. With the loss of the Battle of Lake Erie, the possibility, envisioned by General Isaac Brock, that an Indian buffer state might be created between the United States and Upper Canada disappeared. Then, when Tecumseh was killed at Moraviantown, the only leader that might have made it a reality was lost. The tribes sank into passivity and American settlement in Indiana and Michigan moved forward. Many of these native people moved into Canada, away from American treatment. The southern Indians, put down by Jackson, soon found themselves pushed west along the Trail of Tears or shoved southwards through Florida into the Everglades. With the exception of a decade of Sioux resistance after the Civil War, none of the so-called ‘Indian wars’ after 1815 amounted to much. It was over.

Havana Dreamin’

I knew Cuba in the old days, before Barack Obama unleashed the second American invasion of that Caribbean island. This invasion is not a military one, but one far more complex and fraught with misunderstanding. Cuba is not Puerto Rico, neither for tourists nor for businesspersons.

Let the Good Times Roll

The American and Canadian economies will do well this next year, especially the American. Their consumers, who represent over 70% of that economy’s GDP, should begin to shed their uncertainties and the Federal Reserve won’t raise interest rates. The Canadian economy will go into an election year with the outcome looking close, which means Canadian austerity will relax and its consumers, only representing 50-or so per cent of that economy, will get some breaks. The biggest break for both countries is the collapse of oil prices, which is likely to persist for some years, well after the initial sigh of relief has disappeared from the consumers. It is like a nice, ‘progressive tax cut’ in both countries. Numbers like $750 billion are bandied about in the U.S., a lot more than any Congress could deliver. On top of this, there is a ‘goody’ coming to the travelling well-off, including seniors.

The Global Implications of Oil Renormalization: a three part series

To understand the global oil market, it helps to grasp the history and makeup of the commodity. In North America, from time immemorial, the Indians in the Western Allegheny area had skimmed oil seepage off the surface of the water and used it as a medicine. The settlers called it ‘Seneca oil’ after the local tribe, and used woven cloths or skimming boards to get the seepage off the water’s surface. Some entrepreneurs began to bottle and sell it as a cure-all. According to one version, “se-nay-kah’, as it was pronounced, oil entered the American popular vocabulary as ‘snake’ oil.

Part 2: The nasties and pleasantries of the decline in oil prices

Attempts have been made since 1859 to control the price of oil — or, rather, the price of its refined product, be that kerosene for lighting or, later, gasoline for autos. The first one to try was John D Rockefeller with his development of the Standard Oil Trust in the 1860s and beyond. OPEC, or the Organization of Petroleum Exporting Countries, is the latest attempt, dating back to the 1960s, and is based on the export of oil by the global low-cost producers, in particular Saudi Arabia. In effect the Saudis, as price leaders, try to keep the price stable by varying their own production and pricing, so as to discourage its partners from overproduction or short-term greed. Generally, when prices are high their cheating is rampant, and when prices are low their cheating is rampant. Well, here we go again.

Part 3: The ‘Oil Economy’ Begins to Crumble

It has been 155 years since a commercial quantity of ‘rock oil’ was found. Through much of that time, uses for its refined liquids gradually expanded, from lighting to fuel oil to gasoline and the automobile. Gradually petroleum became the energy source of choice, though coal and natural gas were large competitors. During World War II, the Allies recognized that control over oil reserves was critical to success on the battlefield, but it was not until the 1970s that the world realized that oil supplies and prices were now one of the determinants of prosperity.

Islamic State threat a media creation

The popular media, always looking for the next big thing, has fastened upon the swift victories and social media brutalities of the group calling itself Islamic State. The various media have portrayed the organization as a worldwide threat and a number of governments have organized themselves to deal with it, led by the United States. You have to read between the lines on this one. First, this terrible threatening force is actually weaker than the Taliban force that was over-running Afghanistan in 2002.

The Future of the Global University System, a three-part series (public access)

Part 1: Universities Without the Trappings

You have to look at universities without their trappings of tradition, semi-mystical feeling and notions of honours and awards. See them instead as not-for-profit education institutions in an age where information is rapidly becoming democratized and commoditized (like hogs and logs), or as a single global information business subject to the same forces affecting all global information businesses today, from banks to Twitter. The university model romanticized by many academics — Socrates imparting wisdom to a half-dozen students while sitting under a tree — is a ‘handicraft’ cultural dream. Does this mean the emerging network society will exercise a similar effect, leading to a new model for higher education?

Part 2: Things Fall Apart — and then Reassemble

The global university system cannot continue in its current form. There is a drastic way out:  jettison the research subsidies of universities and divorce research from teaching.

Part 3: Globalizing Access to Higher Education

As with electronic journalism, music, entertainment and books, the challenge to anyone wishing to provide global university education is how to monetize it. Nobody can predict how the global university system will look in the future, but it is not hard to see that one will emerge in the great by-and-by.

 

Aging and Economies

Every developed country except the United States is sliding gently and quietly into a condition that we know almost nothing about. It’s really pretty simple. In order for a society to reproduce itself, each woman must have 2.1 children during her fertile period, which normally lasts from, say 14-42 years of age, more or less. This is called a fertility rate, as opposed to a birthrate. A stable population fertility rate is reached by counting one for mommy’s replacement, one for daddy’s replacement and 0.1 for misfortunes. Today, any growth in most country’s population is due to immigration.

 

The Cold War 2.0

For 40 years, one big contest played out in the world. It was a kind of arm-wrestling match between the Soviets and the Americans. I use the word ‘Soviets’ to distinguish one contestant from its successor of sorts: today’s Russians. Eventually, the Soviets could not keep their end of the game going and walked away from the table, into history. The last decade of the century was one where there was but one superpower — and it wanted to party. The attacks on America on September 11, 2001, brought that party to a halt. It signified a new game was beginning; not one of two superpowers engaged while the rest of the world largely stayed out of the way, but one where arm-wrestling was replaced by a kind of hide-and-seek.

I Stole It Fair and Square

Michael Lewis’ latest book,Flash Boys, is the 21st Century version of the story of those British financiers who lost out to Nathan Rothschild in 1814, and of their attempts to figure out how Rothschild did it. Today, semaphores and carrier pigeons have been replaced with fiber optic cables and microwave towers. There is nothing illegal in getting to the market microseconds ahead of the other guy by using up-to-date technology. And yet, in the aftermath of the trauma of the crash of 2008, the unethical and the illegal easily flow together, especially when the risk is of another crash.

Lunch at Mimi’s Café

Mimi’s is a restaurant chain in the southwestern United States that my wife, Jane, and I like for lunch. It has a good soup and sandwich combo within a kind of French décor. Last week we went there for a bit of a celebration, of my signing of an agreement to publish a book, The Yankee Road.  The reason for mentioning the lunch is to mark my experience with book publishing — and how it has changed and is changing as Moore’s Law and Jeff Bezos keep changing it.

The Most Influential Man of the 20th Century

The application of research and science to human work behaviour is so much a part of our lives that we hardly notice it today. It has led to a system that produces and distributes more goods and services to everyone than has ever been seen before. Without Frederick W. Taylor’s application of experimental research to the problems of production in the late 1800s, Henry Ford could not have created his version of the assembly line, Ray Croc could not have developed McDonald’s systems, Ray Walton could not have developed Wal-Mart’s logistics — and so on.

No Going Back

When we read about the Great Recession of 2007-11, there seems to be an assumption on the part of commentators that as soon as the economy ‘turned around,’ we could get back to normal. That’s not how it is turning out and that should not be surprising. There is no going back.

The Sesquicentennial Rumbles Blues

Quietly, except for a spate of new history books and the odd movie or two, the 150th anniversary of the United States Civil War is sliding past. It was a war that dragged on for four years and cost the lives of 600,000 to 700,000 people. It was the first of the technological total wars that later marked the 20th century …

The Logic of Incorporation

The great French historian, Fernand Braudel, saw capitalism in its basic form as the injection of capital between the actions of buyer and seller. This is both simple and profound. It explains the difference between a farmers’ market and a supermarket. In the former, the producer/seller and the buyer meet face-to-face for the exchange. In the latter, the producer sells to an intermediary, who then may process, transport and resell the good to a supermarket chain that, in turn distributes it and resells it once more to the final buyer. Capital is used to conduct the producer/buyer economic relationship at a distance …

Bill, Shane and Jim: three guys who changed your life

Chances are, you’ve never heard of any of these guys. They changed your life in the past decade and you may never have seen any of it. That’s OK, because almost no one else did either …

A lesson passed on.

My wife and I spent a couple of months in the American Southwest last winter. We stayed out on the edge of the desert near Tucson, Arizona. It is dry, hot and utterly unlike where I live, in Halifax on Canada’s Atlantic coast. Our two married daughters, twins, came down together to visit, bringing one’s 9-year-old son. The three women were keen to explore shops and galleries and a mother-daughters expedition was formed. I was designated as official entertainer of the grandson …

 

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