Archive for the ‘do well while doing good’ Category

Ben Bernanke finds difficulty in dismounting the bull

June 19, 2013

Ben Bernanke eagerly mounted the market bull in the wake of the 2008 financial crisis. Using monetary expansion as a device for refueling the market economy, Bernanke and his colleagues at the Federal Reserve have massively increased the magnitude of base money. By purchasing long-term Treasuries and mortgage securities, the Fed has driven long-term interest rates well below their underlying market equilibrium, imposing significant costs on seniors relying on fixed interest receipts to fund their golden years.

Mounting that bull was easy, cheered on as Bernanke was by almost everyone who had suffered capital losses during the financial meltdown. There is, however, no such thing as a free lunch. Sooner or later, those who mount and ride the bull must figure a way how to dismount without imposing a significant setback to a sluggish economy.Bernanke now confronts exactly that quandary in determining when and how to taper the current QE4 monetary expansion.

The eternal problems confronting the bull dismount are timing and political will. The timing to some extent is under his control. The political will lies elsewhere at higher levels in the political system. Bernanke is already learning the import of the second factor. Earlier this week, President Obama strongly hinted that 2014 is the end of the line for this would-be rodeo star. Wall Street has it that Janet Yellen will be Obama’s chosen successor. And she will ride the bull into hyper-inflation if that is what it takes to keep all the bubbles from bursting.

If Bernanke wishes to dismount the bull before he is ejected by the Big Man, he has little wiggle-room available. After all, he has all but promised near-zero rates into mid-2015 and he oversees a Fed balance sheet that has all but quadrupled in five and a half years to some $3.4 trillion.

Interest groups in Washington and on Wall Street are already urging him that it is too soon to dismount, and dangerous to signal any reduction in Fed bond buying in the near to less-near term. The housing recovery may be on its way, they say, but it is fragile indeed. The jobless rate may be falling, but at the pace of a snail. Deflation, they say hovers on the immediate horizon, and would make its dangerous presence felt should QE4 taper out.

My advice to Ben Bernanke is simple. Dismount now, while you still have some control over the bull. Recovery has been fragile over four years of monetary expansion. Much harm has been done to the economy by the manipulation of interest rates and the socialization of risk. Move monetary policy back to neutral and allow the real economy to breathe and adjust to market forces. I know that this asks a lot for a hard-bitten Keynesian such as you. But surely, by now, you understand that we do not live in a Keynesian world.

Hat Tip: ‘Bernanke Rides the Bull’, The Wall Street Journal, June 19, 2013

Tyranny by minorities

June 12, 2013

As the age of democracy truly dawned, during the eighteenth century in Britain and the United States, political philosophers feared tyranny over minorities by majority coalitions. Edmund Burke noted that ‘the majority of the citizens is capable of exercising the most cruel oppressions upon the minority.’ America’s founding fathers- men such as Thomas Jefferson and James Madison – expressed similar concerns. The naive ambitions of the French revolutionaries quickly degenerated into mob rule, the Terror, and Madame Guillotine. Alexis de Tocqueville, evaluating democracy in the fledgling American republic, actually coined the phrase ‘the tyranny of the majority.’

Yet the term ‘tyranny of the minority’ seems a better description of 21st century democracy.Because most voters demonstrate little time or energy for politics, small groups with a strong commercial, personal or ideological motivation exert disproportionate influence. Politicians respond positively to policies that offer concentrated benefits to a few while dispersing the associated costs across a wider public. They do so because money and votes pour into their pockets while the rationally ignorant wider public are unaware of what has happened.

John Kay (Financial Times June 12, 2013) cites a powerful instance of such a minority-based tyranny. On election night in 2001, a promising political career came to an abrupt end. The British member of parliament for Wyre Forest in England’s Midlands was overwhelmingly defeated by a retired doctor, campaigning on the single issue of the closure of facilities at Kidderminster hospital. The lesson is engraved on the hearts of every British politician. When any similar proposal is made for rationalization of the National Health Service, the local member of parliament is always and everywhere at the head of the protest demonstration.

Well, you may think, far-sighted politicians should be willing to withstand such minority pressures in the interest of the nation that they represent. Such indeed was the judgment of Edmund Burke when he publicly outlined the requirements of a genuinely functional democracy in an address to his electorate in Bristol:

“Your representative owes you, not his industry only, but his judgment, and he betrays instead of serving you, if he sacrifices it for your opinion.”

“Burke asserted that parliament was not a congress of advocates of competing interests, but a deliberative assembly seeking to identify a common interest. Vulnerable to the exigencies of campaign funding, besieged by lobby groups and obsessed with news headlines, the modern politician has drifted a long way from that ideal.” John Kay, ‘A tyranny of the minority in an age of single-issue obsessives,Financial Times, June 12, 2013

Xi Jinping confronts Barack Obama in a high noon showdown

June 9, 2013

On June 7 and June 8, 2013 Xi Jinping met with Barack Obama at Sunnylands for a high noon confrontation. The outcome of this face-off is of crucial importance for war and peace in Asia and the South Pacific and for the future economic performance of the world economy. The stakes could scarcely be higher.

If the talks fail, it is likely that Sparta (the United States) will end up in a state of war with Athens (The People’s Republic of China), not because either party desires war, but because, as the Greek historian, Thucydides noted, the Spartans feared the growing influence of Athens.

President Xi Jinping brought some heavy artillery to the showdown, while Barack Obama nervously fingered the six-shooter at his hip. Xi arrived in California via Mexico, Costa Rica and Trinidad and Tobago. If Barack Obama claims now that the United States is an Asian regional power, Xi demonstrates that he is setting up outposts in America’s traditional backyard. As America’s banker, China is now in a powerful position to squeeze the U.S. economy by offloading U.S. Treasuries on a significant scale, if the U.S. does not conform to his China dream. Creditors typically hold the better cards when dealing with their profligate debtors on the international stage. That holstered pistol at Obama’s hip looks increasingly futile at this crossroads meeting. Even if Obama proves to be the faster on the draw, Xi has a million men under arms, whereas the United States sadly has only a few increasingly ragged, under-provisioned divisions.

So negotiations will have been somewhat one-sided at the crossroads. Obama will have requested an end to China’s hacking of intellectual propertry. Fat chance of that when such hacking is a major source of China’s growing economic presence on the world stage. Obama will have pled for China to prevent North Korea from placing nuclear tips on its inter-continental ballistic missiles. Fat chance of that given that China still views North Korea as an important piece on its weiqi-board. Obama will have asked China to retreat from its territorial threat to Japan’s island specks. Such a retreat would not go down well with the People’s Liberation Army, a special interest that Xi Jinping would ignore at his peril.

In retreat, Obama will have offered to facilitate China’s economic incursion into North America, allowing such successful Chinese companies as Huawei and CNOOC further to penetrate the American market-place. He will have offered to scale back American use of the World Trade Organization to curb China’s market dominance in key markets. He will have been wise to retreat in this way. For such retreats enabled China’s ancient dynasties to survive repeated incursions from the West at a time when the West had the guns and the divisions and the Middle Kingdom did not.

“the lesson of history is that everybody loses if the world allows legitimate worries to get out of hand. More than 2,000 years ago Greece was torn apart by Sparta’s failure to manage the rise of Athens. A hundred years ago Europe was torn apart bu its failure to manage the rise of Germany. If the 21st century is to be more peaceful than the 20th, America and China must learn to co-operate better.” ‘The summit’, The Economist, June 8, 2013

Top US universities respond to decline in humanities’ applications

June 6, 2013

It has taken young Americans a very long time, but finally they are waking up to the failure of top American universities to respond to changing market forces. In turn, this re-awakening is panicking cloistered humanities faculty into revisiting their curricula in an attempt to avoid significant decline.

The humanities division at Harvard University – for centuries a standard-bearer of American letters – is attracting fewer undergraduate applications amid concerns about the value of such a degree in a rapidly changing job market. A Harvard University report, released today, suggests that the division must aggressively market a broader inter-disciplinary framework to retain student numbers, and that it must build an effective internship network to re-establish the value of the degree in the American workplace.

Harvard is far from alone in facing this quandary. Universities’ humanities divisions and liberal-arts colleges across the nation confront similar challenges in the wake of intensified global economic competition that disproportionately rewards graduates in the hard sciences.

Among recent college graduates who majored in English, the unemployment rate is 9.8 per cent. For those graduating in history,philosophy and religious studies, the unemployment rate is 9.5 per cent. These numbers are worryingly close to those for high school graduates who have not assumed the debt levels of college graduates. By comparison, recent chemistry graduates confront an unemployment rate of 5.8 per cent, while elementary-education graduates experience only a 5 per cent rate of unemployment.

A number of state governors are responding vigorously to these market signals. ‘If you want to take gender studies, that’s fine, go to private school’, remarked North Carolina Governor, Patrick McCrory, recently. ‘But I don’t want to subsidize that if it’s not going to get someone a job.’

Most especially, humanities divisions populated by left-leaning faculty who alienate their students from participating in the capitalist system, are going to have to change their tune. With government employment in decline both at the federal and the state levels, those hopeful youngsters who do keep their faith in humanities are going to need supportive mentoring if they are to find their ways into fulfilling employment in the private market-place. They are also going to need some quantitative training, not least in computer languages and statistical data analysis, if they are to satisfy employers’ hiring demands in the wake of the IT revolution.

Maybe the time has come for some of the tired, old-left, humanities faculty to take early retirement and thus open up positions for better technically-qualified faculty, more attuned to the 21st century job-market, and more appreciative of the private market-place.

Hat Tip: Jennifer Levitz and Douglas Belkin, ‘Humanities Fall From Favor’, The Wall Street Journal, June 6, 2013

Turkey: one Sharia step away from a secular military coup

June 4, 2013

I met the Turkish Prime Minister, Recep Erdogan in January 2004 in Istanbul. He and his entire cabinet attended a conference on Conservatism and Democracy largely funded by the Islamist Justice and Development Party (AKP) which he had led to a minority electoral victory in 2002.

Aware that earlier Islamist governments had been overturned by a military dedicated to Ataturk’s vision of a secular polity, Prime Minister Erdogan committed his government to conservative principles. I was invited as one of three plenary speakers to address these issues before a major conference. Although I lean more to classical liberalism than to conservatism, the latter is a broad tent. So I read up on Edmund Burke, Milton Friedman and Friedrich von Hayek and laid out a program compatible with the Muslim leanings of 98 per cent of the population. As the world knows, Islam is also a broad tent, so I focused attention on the philosophy of one of the greatest Islamic philosophers,Ibn Khaldoun, a thinker whose ideas on conservatism and democracy, even though enunciated many centuries ago, were close enough to my own. Recep Erdogan publicly expressed his support for my recommendations*, and to his credit, he pursued the key reforms assiduously until fairly recently, securing increasing electoral support, while winning three elections since 2002.

So it is with great sadness today that I must acknowledge once again the truth in Lord Acton’s statement that ‘all power corrupts and that absolute power corrupts absolutely’. The Recep Erdogan that I met in 2004 no longer exists. A decade of increasing power has corrupted the man and has turned him away from common-sense towards extreme Islamic religious fervor. The man has become a monster, imposing Sharia law on an increasingly rebellious public, enriching himself and his cronies through corruption, introducing near-Prohibition in a country that is accustomed to alcohol consumption, and turning tear gas and water cannon onto unarmed gatherings in Istanbul, Ankara and other Turkish cities.

The road that Recep Erdogan now follows is the road to a military coup d’etat. Undoubtedly, the Prime Minister has tamed, even humiliated, the military as power has gone to his head. But the military has the weapons. And the military, for almost a century has the proud heritage of preserving Mehmet Ataturk’s secular governance for Turkey. Step back, Recep Erdogan, before it is too late to do so! You have achieved a great deal of good for your Islamic country. Do not throw everything away on a dictator’s whim to move from moderate to fanatical Islamic philosophy.

* Rowley, C.K. ‘Conservatism and economics: a sweet Turkish delight’, Public Choice, Volume 119, Nos. 1-2, April 2004, 1-12.

Extreme poverty declines worldwide

June 2, 2013

The international definition of extreme poverty is less than $1.25 per person per day. Of the 7 billion individuals alive on the planet, 1.1 billion subsist below that line. No individual in the developed world comes remotely close to that line. The poverty line in the United States, for example, is $63 per day for a family of four. In the richer parts of the emerging world, $4 per day is the the poverty barrier.

However, poverty’s scourge is fiercest below $1.25 – the average of the 15 poorest countries’ own poverty lines, measured in 2005 dollars and adjusted for differences in purchasing power. Individuals below that line live lives that are poor, nasty, brutish and short.

Poverty rates started to collapse towards the end of the 20th century largely because developing-country growth accelerated from an average annual rate of 4.3 per cent in 1960-2000 to 6 per cent in 2000-2010. Around two-thirds of poverty reduction within a country emanates from growth. The remainder emanates from international aid – though that is typically expropriated in the worst-performing countries – and from income equalization programs.

China is responsible for three-quarters of the decline in extreme poverty, pulling 680 million individuals out of extreme poverty following the timely death of Mao Zedong, thus reducing its extreme poverty rate from 84 per cent of the population in 1980 to 10 per cent now.

China’s success will not be emulated by India and sub-Saharan Africa over the next 20 years, because of poor governance. However, if current growth rates are maintained, developing countries may cut extreme poverty from 16 per cent of their populations at present to 3 per cent by 2030. That would reduce the absolute numbers by 1 billion individuals, reducing the numbers in extreme poverty to 1.5 per cent of the world’s population.

That is good news in these depressing times.

Hat Tip: ‘Towards the end of poverty’, The Economist, June 1, 2013

The West should allow Syria to self-destruct

May 28, 2013

Syria has long been an irritant to the West. It has worked hard, but ineffectively to destroy Israel and to ferment trouble elsewhere throughout the Middle East. It helped to destabilize Iraq following the removal of saddam Hussein and contributed to many deaths within the coalition of the willing. It has forged a close relationship with Iran, one of the two dangerous enemies of the West (North Korea is the other). It is a significant supporter of al Qaeda.

Syria has no natural resources relevant to the well-being of the West. So the West will lose little or nothing should this artifact of French colonial aspirations self-destruct through an evenly-balanced civil war. If Bashar al-Assad eventually wins, he will rule over a country reduced to desert poverty. If the rebels win and the jihadists seize control, then the West could move to snuff out those who threaten their mainland interests.

Meanwhile, it is immensely in the interest of the West to abstain from all intervention in Syria. Western military concern lies with Iran and North Korea. If the West is to let slip any dogs of war, those are the countries that must be targeted. For those countries – unlike Syria – pose an existential threat to the West.

Hat Tip: Gideon Rachman, ‘Watch what the west does on Syria, not what it says’, Financial Times, May 28, 2013

President Ronald Reagan’s 1981 Memorial Day Proclamation

May 27, 2013

“Over one hundred years ago, Memorial Day was established to commemorate those who died in the defense of our national ideals. Our ideals of freedom, justice, and equal rights for all have been challenged many times since then, and thousands of Americans have given their lives in many parts of the world to secure those same ideals and insure their children a lasting peace. Their sacrifice demands that we, the living, continue to promote the cause of peace and the ideals for which they so valiantly gave of themselves.

Today, the United States stands as a beacon of liberty and democratic strength before the community of nations. We are resolved to stand firm against those who would destroy the freedoms we cherish. We are determined to achieve an enduring peace = a peace with liberty and with honor. This determination, this resolve, is the highest tribute we can pay to the many who have fallen in the service of our Nation.

God bless our veterans and their families.

Peace Through Strength forever.”

Hat Tip: Lou Cordia

Leading US black economist speaks out on behalf of blacks

May 25, 2013

Professor Walter E. Williams of George Mason University arguably is the leading black economist in the United States. He is a man who has made an admirable career out of speaking truth to power. Because truth sometimes requires saying harsh things about the politics of race, Walter Williams tends to shake up the liberal establishment. He does not respond to political questions from the liberal elite in the manner that blacks are supposed to respond to their questions. For many such, Williams is an enigma, or worse, an Uncle Tom.

But be sure of one thing. Walter Williams cares more for the well-being of black Americans than any of this self-seeking liberal elite, be they black or be they non-black. Here are a few recent comments from Walter Williams that should serve as a wake-up call across America:

“Experiencing a violent crime rate of 2.137 per 100,000 of the population, Detroit is the nation’s most dangerous city. Rounding out Forbes magazine’s 2012 list of the 10 most dangerous cities are St. Louis; Oakland, California; Memphis, Tennessee; Birmingham, Alabama; Atlanta, Georgia; Baltimore, Maryland; Stockton, California, Cleveland, Ohio; and Buffalo, New York. The most common characteristics of these predominantly black cities is that for decades, all of them have been run by Democratic and presumably liberal administrations…What’s more is that in most of these cities, blacks have been mayors, chiefs ofd police, school superintendents and principals and have dominated city councils.”

“What I am saying is that if one is strategizing on how to improve the lives of the poorest black people, he wants to leave off his to-do list election of Democrats and black politicians. Also to be left off the to-do list is a civil rights agenda. Racial discrimination has little to do with major problems concerning black people.”

“Today 72 per cent of black babies are born out of wedlock. Being born and finding out that your mother is 17 years old and that your grandmother is 35 and that you don’t know who or where your father is is not a good start to life. In fact, it’s a near guarantee for school dropout, poverty and crime, but such a start in life has nothing to do with racial discrimination.”

“Law-abiding poor black people suffer the nation’s highest rates of criminal victimization from assaults and homicide. More than 50 per cent of homicide victims are black. Would anyone claim that this victimization is caused by racist groups preying on the black community?”

“Black education is a disaster, but who runs the violent, disruptive big-city schools, where education is all but impossible? For the most part, it’s not white people. Go to a city such as Detroit and you’ll find that blacks have been superintendents, principals and most of the teachers for years. Most black high-school students in Detroit and other cities can’t read, write and compute as well as sixth-, seventh- and eigth-grade white students, but is it because of racism?”

“Black people could benefit from an honest examination of the bill of goods they’ve been sold. Such an examination would not come from black politicians, civil rights leaders or the black and white liberal elite. Those people have benefited politically and financially from keeping black Americans in a constant state of grievance based on alleged racial discrimination. The long-term solution for the problems that many black Americans face begins only with an absolute rejection of the self-serving agenda of hustlers and poverty pimps”

Now you will understand why left-wing news anchors such as Sam Donaldson, Dan Rather and Tom Brokaw flushed into embarrassed silence when Walter Williams responded to their television questions. You may also understand why President Barack Obama does not speak such truths to the American people. After all, Barack Obama is the very power to which he would be speaking such truth. And that just ain’t going to happen, given the sources of his campaign funding and career success.

Hat Tip: Walter Williams, ‘Honest Examination of Race’, May 23, 2013

Obama ignores nuclear threat from North Korea

May 21, 2013

Since 2006, North Korea has conducted at least three apparently successful nuclear tests. It has also orbited a satellite. Together, these events fulfill the basic technological requirements for an intercontinental ballistic missile that can deliver a nuclear warhead against mainland United States.

Miniaturizing a warhead to fit on a missile is not an overwhelming technical obstacle. North Korea requires only one ICBM capable of delivering a single nuclear warhead in order to pose an existential threat to the United States.The Electromagnetic Pulse Commission, the Congressional Strategic Posture Commission, together with several other U.S. studies have established that detonating a nuclear weapon high above any part of the U.S. mainland would generate a catastrophic electro-magnetic pulse.

Sucn an EMP attack would collapse the electric grid and other infrastructure that depends upon it. 300 million Americans would be placed in immediate and serious life-threatening jeopardy. An EMP attack would plunge the U.S. electricity-powered civilization into a black-out potentially lasting for several years. The U.S. currently has no missile defense assets devoted to stopping a missile coming from the south. All such assets currently are positioned to intercept a missile strike in the middle or late part of its trajectory coming from the north polar region. The Obama administration indeed has cancelled the only two U.S. boost-phase or space-based defensive systems.

Wake up President Obama while sufficiwnt electricity remains for you to smell the coffee.A surgical strike to prevent North Korean development of an ICBM has never been more urgent.

Hat Tip: R.James Woolsey and Peter Vincent fry, ‘How North Korea Could Cripple the U.S.’, The Wall Street Journal, May 21, 2013


Follow

Get every new post delivered to your Inbox.

Join 70 other followers