Grover Norquist and Smurfing

November 25, 2012

"Smurfing" is the term The Economist (Nov 24 2012) identifies as the label given smuggling of cigarettes wthin the United States.  According to The Economist, the cigarette tax in Virginia is $.30 cents per pack, whereas in New York State, the tax is $4.35 per pack. Predictably, there is a huge trade of smuggling cigarettes up I95 from Virginia to New York.

The question is to Grover Norquist and those of the far right who want to dismantle all Federal Government (except, of course, the military, which they want to expand): How does it make any sense for the 52 states of the Union to have different cigarette taxes? This differential results in 3 major problems: (1) we encourage smuggling; (2) states with high taxes lose a major part of the revenue they had hoped for--e.g., The Economist says New Jersey, with a tax of $2.70 estimates that 40% of the cigarettes sold in their state are smuggled in; and (3) we then have to devote a huge police expense to trying to catch smugglers.

Grover and friends, wouldn't it be better for everyone if the 52 states got together (that's what a federal government does) and voted on one cigarette tax, with the proceeds of that tax to be distributed to each of the states in which it is collected?

Of course, this would be likely to result in less aggregate expense than the 52 states currently spend on all this, would eliminate the smuggling and the smugglers, and it would not take much federal government staff of expense to arrange this new arrangement.

I will be waiting for a good explanation of why this would not be a good idea, and just one (small) example of a reason for a federal government (as opposed to returning all powers to the states--or, would that be to the cities and/or the communities--how are do you wish to go)?

An American in England

November 11, 2012

Watching the two scandals that have emerged regarding BBC journalism across the last two months has been troubling in terms of our capitalist system.

On the one hand, we do need to hold leaders of businesses such as this more accountable for performance of their businesses, but there is a significant counter tendency to throw out the leaders regardless of who's responsible for what went wrong.

There can be two mistakes that are made in the way this kind of thing comes down: The first is when the wrong evaluation of responsibility takes place. Examples abound. Often, this is when the economy takes a left turn and the business suffers. Sometimes, often, there is no executive who could rightly be judged to have anticipated this and to have had a plan in mind to avoid it. Nevertheless, we throw out the CEO and others sometimes, and we go out to find another executive. All of this adds up to "whitewashing" the situation and forcing a "scapegoat" to be held responsible for the problems, plus a huge loss of effectiveness while a new team is installed and comes up to speed. This is done by Boards, often, to preserve their own positions--it's more risky for them to stick with the present executives through a crisis, although that might well result in better long term value for the enterprise. It looks better for them to be "decisive" and throw the team out.  Presumably, everyone can go away feeling satisfied that this kind of thing could never happen again--but it inevitably does.

The second way is when someone like George Entwistle is forced to resign, when his time in office is so short--54 days in his case--that it is normally extremely unrealistic to expect he would have been able to uncover journalistic flaws and holes such as to prevent these two scandals developing. And, best as this American in London can see, he has not tried to cover anything up, was busy setting about to get to the bottom of it and fix the system.

British broadcasters even criticized him for his not reading the Herald Tribune on the morning of the revelation that the 2nd scandal was clarified--the accused of sexual abuse did not do it, he later learned. Entwistle had been off early to make a speech that morning and hadn't time to read the paper. Broadcasters interviewing him criticized him for bad priorities--which seems ridiculous on the surface--if he had known such information was to be revealed, he surely would have read the paper, but no one knew that!

We don't know this executive. Perhaps he's not the best who could be found. Nevertheless, England, you're moving too quickly to judge someone who hasn't had the opportunity to try to make a better BBC for you. And, how is that most of the press has been so complimentary to the oversight trust and its executive?  Didn't they choose Entwistle, and what support did they give him to get started? All of the people and processes that resulted in these problems are the creation of his predecessors, and some of the subordinates, some of whom he would surely have properly disciplined, given time to make sure his findings were fair.

In a case like this, why is there no-one who is willing to stand up and defend the long and proven journalistic record of the BBC and also to defend the right for this man to have a chance to make it better? Why does everyone seem to want to take the position of being the most "moral?" What if he had been there 43 days? 33? There are often two sides to morality around an issue, and we believe you erred in this one by leaping to what is seen to be the side that will gain most popularity with the vast public. Where is the leader who is willing to stand up for what she thinks is truly fair and best?

This kind of thing happens in the US too, but in this case, England, shame on you!

Immigration

November 8, 2012

We are hoping that the 48th President of the US will make immigration reform a major agenda item.

As Michael Teitelbaum of the Sloan Foundation so clearly outlined--here are some of the diametrically opposed underlying assumptions: Immigrants are seen...

• as either major contributors to national prosperity... or as serious drains on national income. 
• as ambitious and hardworking strivers who seek to better their lives by immigrating... or as 
  freebooters seeking the benefits of publicly-­‐financed health, welfare and education benefits 
• as committed to and demonstrating real success in integrating into US society... or as perpetuating social divisions and poverty by choosing to reside in immigrant enclaves 
• as enthusiastic supporters of US society, indeed adoptive patriots with a high propensity to national service in the US military ... or as residents-­‐of-­‐convenience, of questionable loyalty, who seek only economic advantage and contribute to political divisiveness, extremism and even terrorism 
• as the world’s “best and brightest”, talented scientists and engineers whose high skills contribute to US competitiveness ... or as poorly-­‐educated and low-­‐skilled workers whose US 

There are several basic issues, all arguing in favor of restructuring and liberalizing our immigration policy: The first issue is our heritage. We are a nation of immigrants, which is now threatening to close the door on immigration. Don't we give any credit to the benefits of immigration that across less than 250 years, raised the US from a few disgruntled European immigrants, to the status of the strongest nation in the world? There has to be some credit given the drive, energy, hope, determination, and persistence that immigrants of all kinds brought to our shores. This is one of our unique distinctions in the world--that we are a nation that can tolerate and accept people of other cultures, religions, languages, and we can find the way to integrate and yet respect the differences of peoples from everywhere. Let's not forget our heritage!

Now, 250 years later, we have a very tangible, indisputable reason--we are a nation which is aging, with a birth rate inadequate to generate youth to work and pay into the social security system to provide care for a population which will live much longer than we expected, thanks to many things, including the advancements of the science of medicine during our lifetimes. If we cannot produce the youth, we need to invite them to our shores--they are waiting! We take in about 6.5 million annually now, but that's inadequate to meet the needs of our aging population.

Then, there is the contradiction of our driving the world to embrace globalism, free trade, and all of that, launched by the Reagan administration and supported by every administration since then. We have dominated the international governmental organizations' leadership staffing and their agenda and policies, all of which leads to the developing world being pressured to open their borders to foreign trade. There has been much good to attribute to this drive. We can take partial credit for helping to enable China and India to free 500 million people of poverty since 1980, as an example. However, this drive led by the US has also meant that there are many countries where the opportunity of globalization could not be captured, at least not in the methods demanded of them by the World Bank and the IMF, populated by Washington ideas and policies.

Many of these countries had no benefit and some had increased unemployment, deeper poverty,as they found their limited (usually agricultural) based industries suddenly forced to cope with cheap imports, in some cases resulting from subsidies from wealthy governments seeking to protect their own wealth interests. Examples are the US subsidizing of cotton farmers in the US, such that cotton farmers in sub-Saharan Africa cannot compete, or the EU imposing tariffs on banana imports from countries other than their former colonies.

And, while we promote this openness of trade (to our benefit, far and away more than that of any other country), we deny the disadvantaged of those countries to come to the US and find a job, pay taxes, and have a chance at a life that is better than where they are. How can these two policies co-exist?

Then there is the moral issue: We were born in the US. We need to imagine, just for a moment, how we would feel if we were born in sub-Saharan Africa or in a poor town just south of our Mexican border. Do we really imagine that, seeking the best opportunity for ourselves and our families, we would not try almost any way possible to have a chance at the opportunity in the US? I know I would swim the river for the opportunity!

That leads to what Conservatives may find to be the lynchpin of their anit-immigration argument. I find it so ineffective to hear that a conservative ran into a legal immigrant taxi drive who is frustrated with illegal immigration. That is probably true of most who suffered through our extraordinarily difficult process, but it doesn't man anything in terms of the answers to the big questions.

It seems that for conservatives, everything hinges on the reportedly 12 million illegal immigrants, mostly from Mexico, that live in our country. It almost seems that if they can win the argument to deport all the illegals, then that's the whole issue resolved--just keep the system we have, build higher fences, etc.

Parenthetically, we don't know, but can imagine that a good many of those illegals in the US may well have tried to immigrate legally--and if you haven't immigrated legally, or tried to, you may not know how extraordinarily complex and difficult it is to do so, depending on your country or origin, to some extent. So, many of the illegals may have tried to be legal, but were denied, and perhaps many were denied for what the State Department calls "discretionary" reasons, which means that while I found nothing wrong with your record, I just have a bad feeling about you--and there is no recourse available if I am the agent handling your case.  We have skilled lawyers available in the US for those who can afford it, and they tell me they know which one of our immigration offices and which officer is most amenable to people of certain types of backgrounds, and which are not. What kind of system is this?

As to those who are here illegally, no one can dispute that they should have come legally, but the burden of that is on both them and on us, for the difficulties we imposed on their coming. But, they're here. And, for those who are paying taxes or are willing to do so, and do not have a criminal record, let's give them a chance and let go of the irritation and all the associated unresolved issues as to who is responsible--us or them, and let them stay. For the others, we need a broader set of criteria to break them down into groups and evaluate, assist, etc. For those involved in crime, etc., deportation may be appropriate, but even here, we need to examine the issues involved.

We need to liberalize and streamline our rules and procedures. And, it's not right to just admit the wealthy who can buy homes or start businesses and hire people--yes to them, right away, but we also need to be open to people like those who came across on the Mayflower--most of them were not engineers or business investors.

Lastly, there can be little doubt that the world is careening toward one world--just take a look down your main street and notice the dramatic change in enthnicity of people who share space with you. We can go about this worldwide integration reluctantly, with resistance, even force and violence, or we can go about it willingly, thoughtfully, and with belief we can find the good in it--as we have so many ways across our 250 years. But, either way, it is inevitable--the world is becoming one world. Let's be leaders in the integration.

Fixing the Banks

November 6, 2012

Having devoted two posts to defending the personal integrity of most bankers, who have been excoriated not only by Joseph Stiglitz, but by America's common man as well (with rhetoric from left wingers and anyone who can hope to gain from such blame assignment, and this is a rather all-inclusive group), we now turn to what's wrong and what to do about it.

Stiglitz is right that the bonus and stock option system of bank management is wrong. It tends to reward for short periods of performance, like one year. What's needed is a longer period of evaluation, minimum of 5 years, long enough to let the performance of their decisions play out.  And, any amounts paid out in the early years should be minimal percentages, with clawback provisions in case loans, derivatives, or other assets created or decisions taken, turn out to have negative consequences.

Now, let's point out that the same is good across all of industry. It's not only bankers who use the short term incentive plans and have no significant penalties for failure across a longer term. If we want this to be the model in our particular form of capitalism, we could actually require that by a simple set of laws.

Another benefit would be to take Dodd Frank to a stronger level and take out all trading in derivatives, except to the extent it is at customer request to hedge interest rate exposure. We got partially there with Dodd Frank, but not all the way. Such types of activities and investments which are not clearly for customer business transaction support should be put into a separate entity by those who want to engage in it, with separate shareholders and separate management--e.g., the Wells Fargo Bank for Derivatives and Other High Risk Activities. Such entities would instantly be held to a much higher standard by their clients, considering that they are no longer protected by the strength of the bank and it's huge base of customers. Capital demands on these institutions would be much higher, and those who want to play in this casino can do so without affecting the public.

This would, of course, leave bankers who want to write mortgage loans to their personal clients, to have the right to sell those loans. So, they could structure packages of such loans, dividing them into segments for investors of varying risk/reward appetites, and sell those structured products. Products of that sort are sometimes called credit derivatives or mortgage derivatives.  They wouldn't be allowed to trade in those loans for their own account, but they would be allowed to buy them for their wealth management clients.

We should have minimum net worth and risk acceptance policies for wealth management investors who  accept products such as derivatives and hedge funds in their portfolio's.

Next would be a limit on size. There is simply no way around banks being too big to fail except that. We try and try to come up with regulations that will prevent excessive risk taking, but for institutions (of any kind) which are leveraged 10:1 or thereabouts, there simply will always be a risk of failure. More on regulation momentarily.  So, we should define what is the maximum size to allow a bank to grow to, best defined in share of market. 5% would be a decent limit for consideration. Right now, we're around 50% of the market when combining the four largest banks in the US. That's too large.

The problem with regulation: We need regulations, but if they are too complex and if they require too much transaction analysis, the regulation is not effective. The reasons are that banks pay a great deal more for their decision making employees, such as lenders, and if the Federal Reserve's hires, who generally know far less about loan analysis, try to 2nd guess the bankers, it just doesn't work. They are directed to find problems, so they find some--but what they find are usually not the pockets of greatest risk, and an enormous amount of time and money is wasted on the part of the Fed and also the bankers. Better would be simple rules which end up forcing the unconventional loans to a different group of uninsured institutions.  Of course, this means some market controlled inefficiency ala Adam Smith, but the tradeoff is worth it.  Here's an example of a simple regulation: Minimum 15% down payment on any real estate loan, no matter the credit strength of the borrower--and the 15% cannot be borrowed from any other party--must come from liquid resources of the borrower. This is easy to monitor, and those who need to borrow (and can justify) with less down, can do so at non-bank, non-insured institutions. Of course loans with 15% down can still default, but at least there would be a lot less--and the regulators can't figure out which of the below 15% loans are risky, anyway. Many of those borrowers pay on time, but the down payment minimum would eliminate a significant segment of risk.

Here is another sure fire way to reduce risk for loans made by banks: limited liability. Banks should be prohibited from making loans with the borrowers exculpated from liability. There should be a minimum of liability that is required when borrowing from a bank, whether the borrower is consumer or commercial. 10% would be a good start. Competitive pressures have pushed banks to yield this valuable provision, and if it were universally required, bankers would welcome it.

And when commercial banks syndicate (sell to others) portions of the loans they create, they should be required to hold until full repayment, a portion of the loans made--again, 10% would be a good start. That way, they can't persuade themselves that it's a good loan for others.

Political campaign limitations should be voted in by the America people, since the Supreme Court is unwilling to do see it this way. We should not have massive amounts of money funding millions of advertising campaigns to enable election of people friendly to the wealth of the nation. This includes friends of bankers, but by no means limited to that industry.

And, those who work in government should sign a pledge not to work in any industry with which they had any association while in government, and we should not permit those in private industry to take on government oversight jobs involving the industry from which they came. A waiting period of 5 years should be sufficient. Similarly for lobbyists--5 year waiting period going in either direction.

This is just a start--but it would get us off to a good beginning to lesser risk, fewer failures, and less downside to the American public.

Bankers and Their Problems/Mistakes

November 2, 2012

In our previous post, we defended the integrity of the employees of banks, who in our opinion, are little different from those in the technology industry or elsewhere, in terms of their adherence to law and regulation, desire to do the right thing, or, on the other hand, in terms of the (small) percentage who are intentionally attempting to cheat in order to gain advantage.

We asked the question: "Is there a moral obligation that goes beyond the law and regulation?" E.g., if one is abiding by the law and regulation, in any industry, then is it fair, or is it reasonable, for us to expect behavior to adjust to an even higher "moral standard?"

Neoclassical economists (and most Republicans) would seem to answer that we have too much government (law) and regulation, in the first place, and self interest will provide the best results in the marketplace, assuming minimal government intervention. We don't know of any prominent right wing writings that call for a higher moral standard than already exists as defined in the current law and regulation, which they regard as excessive.

We argued that Stiglitz unfairly vilifies bankers for behavior that was in the vast preponderance of cases, well within the law and regulation--otherwise, our system is well designed to punish, and, as he complains, there was relatively little malfeasance and punishment found and delivered. And, while none of the administrations across the last 30 years in the US or the UK has significantly increased regulation, it still is true that our two countries are two of the most regulated in the world, with the most stringent laws.

Should we say, then, that the biggest banks (investment banks included), with the greatest talent, should not create new innovative instruments, such as credit derivative products? These are products which are admittedly extremely complex, extremely hard to explain to unsophisticated investors. But these products, when successful, efficiently deliver great benefits to the market. Those who want to invest in high risk can buy a tranche of the high yield and high risk portions. Those who want little risk can buy the lower yield portions.  The combination of all this creates highly marketable instruments which deliver a lower overall yield in the market, and lower mortgage costs to the homebuyer. What's wrong with that?

And, sometimes, in the ups and downs which are now characteristic of our financial markets since Reagan/Thatcher unleashed neoliberal economics, there will be market crashes, in which the best educated of the analysts were simply wrong--they underestimated the downside risk of the market collapse in their models. They didn't do this intentionally--they simply tried to use a "reasonable range" from best to worst outcomes. If one uses the worst worst imaginable outcome in modeling any future scenario, one would never make any investment--isn't that right? We assume examples are not needed--it's so self evident to all when we think about it.

Is this any different, really, from what we might see, and defend as the nature of our wonderful "capitalism" in any other industry? Don't we find that there is a continuous stream of failures in all industries as competitors fight for opportunities? Most of the startups fail, and we hope that the few which succeed will provided returns to more than make up for the losers. Blackberry devices may be failing, while iPhones may be succeeding. Investors in Research in Motion are losing money. Investors in Apple are making money. If Apple had used the worst possible scenario for various technology failures, their device would cost so much that no one would buy it. As it is, it's the most expensive.

So, if the creators of credit derivatives, or many of them, with this new product, failed, why do we impose a different standard on them than we impose on Research in Motion? We certainly could argue that the management of that mobile device company misled us with promises of its overwhelming virtues. But, we don't. Why?

Did the bankers make mistakes? Yes! Did the bankers benefit from largess of government? Yes, in at least three ways--regulation (and the process of poorly administering regulations) and law that was less than effective; and, by reason of the Federal Reserve's providing such low cost money as to subsidize the banks through "rents," as it is known in economics; and, by "bailing out" the big banks when their excesses brought them to near disaster. It's also true that top management of the banks did not suffer enough in terms of their salaries/bonuses/jobs, but in our opinion, that's more a characterization of our entire economy--all our public companies--not just banks. Auto companies were bailed out, too.

And, again, none of this was "illegal" or in violation of regulation. It was government (if we include the Fed, not free of government influence) that decided to do these things. So, why doesn't Stiglitz focus more on the mistakes of improper governance, rather than piling criticism on the banks? Is it perhaps because he too falls into the camp of believing in small government and thus cannot stomach the thought of better regulation and stronger laws?  Admittedly, he does address the rent seeking of the banks through the Federal Reserve, so we gather he would like to change that. The bailouts were not the decision of the banks, well received by some troubled banks and resisted by stronger ones (JP Morgan and Wells Fargo, for example). That was the government. Should we criticize the bankers for that?

So, we can criticize the banks for making mistakes. We can criticize them for sending their lobbyists and their campaign contributions. We can criticize them for failing to predict the disastrous drop in the economy in 2007/8, and for aggressive risk taking which they undertook in the heyday of 2004-7, before the drop, underwritten, so to speak, the cheap money policy of the Fed (government). We can criticize them for straying away from their primary purpose of taking deposits and lending to the public. We can say their management profited too much. But, we can't say they were generally operating outside law and regulation--that's not proven and that's not true. Arranging "robo-signing" of mortgage documents was not an attempt to deceive anyone--it was just a poorly executed attempt to deal with the overwhelming volume of requests for mortgages (resulting from the Fed driving down interest rates in its attempt to prioritize its focus on inflation over its responsibility for full employment). It was just another mistake, like any other in the capitalist economy.

Before concluding, let's return to the question of morality--is Stiglitz making a plea for bankers to rise to a higher level of conduct than is required by law or regulation? Is he saying the credit derivative products are immoral--perhaps because they are too complex for many to understand, or because the risks of such instruments at times of cyclical crisis are high? We are arguing that the basic criticism should be in the absence of appropriate government (and Federal Reserve) action, which was driven by the growing influence of vested wealth interests in every segment of our society.  But, let's agree on one final observation on human nature--given the nature of our capitalism, it is not likely that any call for a higher moral standard is really going to result in significant change, unless such calls are directed more critically toward changes in government and regulation.  Any other view of such a plea could only be interpreted as a call for something other than capitalism. This will be the subject of later posts.

Milankovic's excellent book of 2011 (The Haves and the Have-Nots: A Brief and Idiosyncratic History of Global Inequality) puts it well: “The root cause of the crisis is not to be found in hedge funds and bankers who simply behaved with the greed to which they are accustomed (and for which economists used to praise them). The real cause of the crisis lies in huge inequalities in income distribution that generated much larger investable funds than could be profitably employed. The political problem of insufficient economic growth of the middle class was then “solved” by opening the floodgates of cheap credit.” P196

Most all of the failures of banking should be seen as failures of our brand of financial capitalism, and if we want to change it, that's not going to happen by simply criticizing the banks. It has to happen at the level of how the government manages the economy--we are in need of an overhaul there!

Introduction to Globalization

November, 2012

Before signing up the SOAS course, I naively thought that globalization was about the movement of people. I thought it was most significant in what we see here in San Francisco, or even in my home town of High Point, North Carolina, a much smaller town. In every place we visit in the US and in the world, we find a wide array of languages, ethnicities, customs, dress, behaviors, that were not prevalent when I was growing up. I though globalization was a social issue--dealing with how do we all best "get along" with each other, accept each other, and cooperate in making our communities meet our needs.

It is about that, of course, but it turns out to be much more, as defined by many scholars and authorities. It's also about trade (and trade tariffs, embargoes, restrictions, etc.). It's also about economics. This is a very big part of the study and understanding of globalization, as our jobs, wealth, and many of the benefits of our lives are defined in terms of economics. It's also about how governments collaborate or fail to do so, and about the rules of the road in terms of how we best maintain the quality of the planet and share the burden or maintenance in a fair and rational way. It's about culture and faith and whether we are drawn more to homogenity or whether we can protect the valuable elements of our individual beliefs and cultures. It's about all of this and more. And, it's not new--we have been trading and moving around this planet for thousands of years. But, it does seem to many that the pace of globalization is accelerating rapidly and bringing with that heightened pace, a whole new set of opportunities and challenges.

One last thought for today: In starting the reading the half dozen books I am into now, I began with the presumption that the invisible hand of the market would be the best way to deal with the issues of globalization. As an example, I started with feeling exasperated that some Americans blame China for "stealing" their jobs," while failing to acknowledge they they shop at Walmart and save significant amounts of spending money by buying quality products made extraordinarily cheaply in China.

I still feel that way, but I do now see that there is much more to consider. There is another side to all of this. The interests of corporations are rightfully in their own betterment, and so are those of countries, and if we don't find better ways to resolve some of them, we'll have huge problems in our world. One example--our agricultural subsidies in the US are enormous, and those (as well as a variety of trade restrictions, tariffs, etc.) make it impossible for some poor nations to supply us with food at prices which would be (a) well below our cost for domestic production; and (b) lifesaving sources of income for certain poor countries which only have agriculture to offer to the world.

In Defense of Bankers

October 29, 2012

We are reading Joe Stiglitz' book The Price of Inequality. There is much to commend about this book. Indeed, the growing inequality of the US should be a concern, even to those in the 1% who have benefitted most from the growing inequality resulting from the neoliberal growth of globalization across the period since 1980, especially.

In later posts, we will talk about more of Stiglitz' findings and the value they play in helping us think through how we got into this precarious position and, more importantly, what we can do about it.

Here, we want to take issue with one tendency which recurs throughout the book: The tendency to severely criticize the bankers and the leaders of industry in regard to practices that led to difficulties. Perhaps the first and one of the most stringent vilifications is that of bankers. We think it is fair to say that Stiglitz feels a great many more of them should be in jail now, and the reason is that they sold financial products to people knowing the buyers would not be able to meet their obligations in regard to those products, or that the products were of such a risk that selling them amounted to foisting "junk" off on the unaware, examples being sub-prime mortgages and credit derivative products. It is perhaps even suggested that Goldman Sachs may have structured investments to fail and sold them to unwitting buyers as investments which were represented to be sound. Such allegations are generally not true, in our opinion.

This commentary is not intending to provide any more proof of its opinion than Stiglitz provided of his.

But here is our opinion:  Certainly there may have been some who behaved that way. After all, the financial services industry now employs millions of people, and in a large universe of employees in any industry in any country and in any society--capitalist or socialist--there will be a small percentage of people who misbehave. One cannot deny that.

However, it is our opinion that to waste our time suggesting such broad  malfeasance on the part of any significant segment of the financial services industry is missing where the focus should be and is unfair to people who worked in that sector.

Here is the problem: There is a tendency among many pundits to cast personal blame. After all, there was a crisis involved with finance, seemingly initiated by finance, bankers were in the center of it. Instruments they sold ended up worth less than their face value, some worthless, and some borrowers claimed they did not understand, even that they had been deceived in regard to loans they took out.

Better put, the federal reserve embarked on a program of easy money, stoking a home market with steadily rising values, leading citizens to conclude that there was no end to it all. Many highly respected expert forecasters supported such views. Then, the packages of loans that were made were commoditized into tranches of varying rate and risk, were examined closely and rated by respected rating agencies and then were sold, mostly to highly sophisticated wealthy investors in the market.  When the bubble burst, home prices fell, unemployment rose, and there was much anguish and a search for those responsible. Incidentally, interest rates did not go up on those variable mortgages sold. They went down, but, nevertheless, due to the drop in home prices and the rise in unemployment, many found they could not meet their mortgage obligations. The fact that few have been jailed is not a poor reflection of our justice system, as Stiglitz implies, because there was quite a search, and few existed who actually engaged in criminal activity.

One might pause to ask, why wasn't more criticism given to or taken by those borrowers and investors? After all, the borrowers borrowed the money--by and large, few were sought out in their homes and persuaded by bankers to borrow, and most of the derivatives were bought by people who had the capacity to understand or to know they couldn't possibly understand (and thus avoid).

And, if there was little criminal activity, as we suggest, should we then seek to vilify those who acted within the law and regulation and ended up making mistakes? Mistakes are common in capitalism--in fact, in some respects, that's what capitalism is all about--the law of the jungle, let the strongest win, so long as no laws are broken. People make mistakes all the time in capitalism. And as capitalism moves faster and faster, we experience more and more crises, in which finance is increasingly central. This is the system we all signed up for--increasingly liberal capitalism--that means increasingly frequent boom and bust.  Why are we always looking for someone to punish? Are we asking that some greater rule of morality exist, superceding the actual law and regulation of the state? The laws and regulations are already sufficient to yield punishment to anyone who knowingly deceives another in regard to the description of a product for the seller's gain.

The problem resulted from our capitalist system (#1) and from the financialization of capital (#2), from the lack of sufficient and effective government management and law and regulation of such (#3), and from incentives that were created within those financial firms which motivated a search for more and more sales of products. But, such search for sales was genuinely accompanied by a widespread belief that what was being sold was valid, good, and beneficial. E.g., it was good to help a low income renter be able to buy a home on a variable interest rate that was so low as to enable him to start to build some equity. There was no clever conspiracy among either management or employees in the financial system that this was a cycle and that it would come to a crashing end, thus sell as much of this "junk" as you can before the crash. That was not the belief.  If that were the belief, it would not be hard to confirm--just look at the assets of the employees of the financial institutions who were selling the products--it's likely their assets before the crash would look like those of their customers--new homes, new mortgages, and aggressive investment in the stock market with anything left over--the opposite of what any of us would have owned if we thought there would be another crash.  And, after the crash, we imagine their balance sheets would look similar to those of their customers--a big loss! They lost millions too, when what they believed in crashed.

Incidentally, we find it somewhat perplexing, after decades of observing the boom and bust cycles our brand of financial capitalism has brought us, to see that after the bust in each cycle we search so hard for the perpetrators. Shouldn't we look first to see who gained from the bust? And, if there was immediate gain (as in selling the economy short with one of the many instruments now available in our complex liquid market), the next thing to do would be to see if those were the people who were directing the financial service industry--i.e., key management--and did the financial institution gain as well, because only in those two "successes" would there be instant verification of motive and illegal behavior. Not hard to research, not hard to find.  The truth is that in the troughs of our regular busts, there are VERY FEW who were prescient enough to have called it--to have forecasted it and prepared for it. And, those few don't end up being the leaders of the financial services industry. They appear to be wealthy cynics who are playing the casino of financial capitalism, either hedging or so pessimistic that they will always (eventually) be right. And, again, there are VERY FEW of them.

Do we wish to make a different argument to support blame? That argument might go something like this--OK, Goldman also lost money when the market crashed in 2008. But, they made money across the recovery period because they were smart enough and liquid enough to be able to buy distressed assets at bargain basement prices. In that way, they gained from the bust. So, in time they gained. And so did other wealthy investors who kept cash on hand, because they understand that we are now in a perpetual boom/bust pattern and great opportunities exist if you can be ready to buy. In our opinion, one cannot blame them for that, and one cannot really believe they forecasted and helped to orchestrate the bust in order to profit from it. But, let's note that there are certainly extreme behaviors and outcomes in financial capitalism wherein one can legally garner a position such as to powerfully influence a market in his own favor--such as the legal right to buy up positions in certain commodities so as to raise the price. If not prohibited by government (which capitalists disparage), then that can happen.

The financial services market is now arguably the most regulated market we have, far beyond that governing commodities trading. And, unfortunately, additional regulation is not likely to prevent future boom/bust cycles. It's more likely that a change in the role of government/Federal Reserve will have greater preventive value.

The bankers are not the source of the problem. Point to capitalism if you wish. Point to neoliberalism. Point to the Washington Consensus. Point to Paul Volcker. Point to Ronald Reagan (and here in the UK to Margaret Thatcher).  We want to excuse Joe Stiglitz for this error in his work--he's a marvelously accomplished economist. He just never worked in private industry and those who have not, too often fail to fully understand how hard those people work to abide by the law and try to do the right thing--while trying to serve the profit motive of capitalism, which is the system into which they were born, not of their choice.

US and Globalization--Protectionism

October 16, 2012

There is a long established history among students and scholars associated with Globalization, wherein the US is indisputably shown to take great advantage of the benefits of globalization, while finding a variety of excuses not to allow that same process to proceed wherever certain US centers of wealth have protested that they will potentially suffer.

The most recent example is the US Government's "House Intelligence Committee" proclaiming that allowing Huawei and ZTE to do business in the US would "undermine US national security interests."

It seems counterintuitive to us that the US, the most technologically advanced nation in the world and leading promoter of global neoliberal free trade on a worldwide basis, could take such a position.

There are likely few who would fail to see through this decision. How could we essentially say that we are unable, with all our technological brainpower, to examine the equipment and software from these suppliers, such as to verify they are not carrying or transmitting so as to endanger us? There is a 99% chance, in our opinion, that this is just another example of the US protecting its own huge and profitable suppliers, at the expense of Chinese suppliers.

If our reason is suspicion of internet espionage by China, does anyone really believe we are not conducting our own internet espionage of China on a continuous basis? If there is to be a set of rules about the allowed and dis-allowed types internet espionage, then let's set about to negotiate that set of rules, and then we will have a basis for protest when China violates those, but to our knowledge there is no such agreement now and internet espionage is indeed indisputably common and conducted by most all advanced governments. We have to because they do, or they do because we do.

Is the iPhone banned in China? No. What would our reaction be if it were, on the basis of endangering national security for China? We all know what that reaction would be.

Here is the kind of free trade leader we really are, behind all our rhetoric to the contrary: We pay out $10 Billion annually to subsidize US farmers, who cannot really be seen as in any great economic danger, especially when compared to the farmers of Brazil, Africa, and Bangladesh. At the same time, we are increasing tariffs on solar equipment which we import from China, to protect an industry here--an industry which may be best located there, considering labor costs, etc.

We are of the opinion that the US would do well to closely examine its real intent as it relates to free trade, from which we happen to be the greatest beneficiary, by far, worldwide, no matter how the $ value is calculated. If we are for it, let's be for it. If we want to be protectionist, then let's be honest about that, as well, and tailor our policies accordingly, without all the rhetoric coming from lobbyists, which only weakens the voice of government in the eyes of the American public.

We are in favor of the US altering its rhetoric and its policy in regard to free trade, accept that some elements of it are going to work against US interests, but most are going to work strongly in our favor. If we are to protect certain interests, then we should strive for "fairness" in allowing others to have equal protections to their favored. This is not our behavior. We clearly seek to verbally promote free trade, but look for every possible way to protect ourselves when free trade might hurt our established interests, with no serious regard for those who are desperately poor. Their improvement in income and standard of living will benefit not only them, but also us--in the long run. Let's take a long run and world-wide point of view.

We shouldn't be shocked at how we are seen in the world, if we don't try harder to be better world citizens.  The rhetoric may seem comforting to those who mouth it, but the behavior is what is souring our image in the world.

Why No Support for Freedom of Speech?

September 17, 2012

Why?

There seems to be wide agreement that the vast majority of citizens of the countries in which anti-US protests are occurring at this time, objecting to the film (“Innocence of Muslims”), are of the strong opinion that such protests should stop, and most certainly that there is no justification whatsoever for violence being imposed on US and Western governmental and business entities.

Here's the harder question to find answers to: If this is true, then why do the leaders of those countries not speak out in opposition to such behavior and perhaps also defend the right of free speech which is core to the dilemma? Some, including the new President of Egypt have done the opposite—calling for the creator of the video to be prosecuted. He is smart enough to know that we cannot do that under our constitution and our rule of law. Nor would England or Germany, which are to some extent, also being targeted.

Can this be explained by simple reasoning? Is it that the leaders do not have a good feeling for the power (in numbers or politically or economically) of the fundamentalist minority? That doesn't seem likely.

Or, is it that they see only the noise of this minority, and hear nothing from the vast majority? After all, the vast majority does not take to the streets to preach moderation. This kind of influence can be seen in America, can it not? Let’s take the National Rifle Association. Reportedly, they only have 4.3 million members, and even if we multiply by 2 to guestimate their supporters or sympathizers, it’s still not a strong block, in numbers, in a country of more than 300 million. There must be many multiples of that number of citizens like me, who feel we should much more to limit the weapons permitted to citizens of the US. Yet, we do not take to the streets. We do not protest. We do not hire lobbyists. We are not organized. They are. And the capitalist entities which supply their weapons pay millions to lobbyists to protect their interests. Thus, we see even our President defer to this group in an election year. And, there is the fear that alienating a block which might represent even as little as 2% could swing the upcoming election.

On top of all that, if no other charismatic political leaders of any of the countries we are discussing, including Libya, Iraq, Lebanon, Yemen, Iran, Egypt, Afghanistan, and others, if there is no leader in any of those countries who is calling publicly for reason, for understanding, for calm, no one to defend free speech, then what is the downside for a leader like Mohammed Morsi of Egypt, in calling for the prosecution of the creator of the video? Similarly, there is no one in US leadership of political importance at this time, who is calling for reduced availability of firearms.

And, the case we have cited here, the NRA, is by far the strongest of US lobbying interests, according to Congress. We know that far smaller fractions of special interest groups are also able to wield similar power, resulting in our leadership being unwilling to criticize. Why should we expect it to be different in a Muslim country?

There appears to be a dearth of leadership, worldwide, leaders who are willing to say the right thing and do the right thing. As we speak, Morsi is modifying his stance, perhaps largely due to pressure from the US (and Obama directly by phone to him). Is this the only weapon we have to influence the right behavior? Is the world so lost in the complex influence of politics that we cannot even mount leaders who will stand up for what they truly believe?

Let's hope not!

Libya and a Controversial Video

September 13, 2012

Someone, somewhere, sometimes described as an Israeli-American real estate developer from California (allegedly a "Sam Bacile"), makes a foolish decision, makes and releases a video that is insulting to members of the Muslim faith. The truth about who was behind the video has yet to be discovered. Motives are unknown, but one can only guess that whoever the producer is, he is a member of one of the many splinter groups around the world who do not wish to embrace the globalization of the world on a positive basis, seeking how we can understand and accept each other. Rather, such groups look for opportunities to exploit in the hope that they can hurt people of different faiths or can achieve some other end, or extract revenge, whether or not their target is indeed deserving of punishment.

Most Muslims will undoubtably shrug the video off as coming from someone foolish. Most will know that insensitive actions emanate from people of all faiths and nationalities, and that many of the citizens of the US no longer even regard their own country to be only Christian, but see it as also Muslim, Jewish, Catholic, Buddhist, and more. {That's not to imply, of course, that good Christians would wish to insult the Prophet Mohammad. They would not.} Most Muslims will know that this has nothing to do with the US Government or widely held attitudes.

Somehow, allegedly, the video went viral a year after it was produced, and an uprising at the American Embassy in Benghazi, Libya, on the 11th anniversary of 911, resulted in the death of our Ambassador Chris Stevens and several others. A tragic event, especially since Stevens, a career foreign service officer, is not known to have any negative views regarding the Islamic faith or its Prophet. An innocent victim. And, anyone who knows, understands that the broad mainstream of America does not support such things as this video, do not wish to insult the Muslim faith, and that most of us want to understand that great faith better and to respect its basic beliefs.

Questions swirl: Was the uprising and the attack an angry mob's excess, only that? Or, was it some other terrorist force (possibly allies of the late Qhaddafi), attempting to extract revenge against the US, although our intervention in Libya last year was completely a collaborative NATO initiative and was supported by countries of predominately Muslim faith?

What is the message for globalization in all this? Was globalization involved?

Globalization was involved. If not the rapidly growing interconnectedness of the world, we would not have had a consortium such as NATO to decide to overthrow Qhaddafi. If not for globalization, we might not know so much about Libya or care so much. If not for globalization, a fundamentalist preacher in Florida regarded to be supporting the film, might have turned his attention rather to the numerous atrocities inside the US, more local to his parish, such as gay marriage, inter-marriage, gambling, drinking, or whatever (too numerous to enumerate), rather than choosing to clamor over how the Islamic faith is endangering the world.

What is the message?

-Globalization will not always result in only good things, and most certainly not quickly.

- As Ed Husain (Center for Foreign Relations) explains, it's natural for people who have lived under dictatorship for decades to hold the feeling that governments control and are responsible for the actions of their citizens, when, in fact, this is not the nature of true democracy. Husain argues that heresy and blasphemy, as offensive as they are, are an allowed part of democratic societies.

-There will always be forces which seek to use any development to justify or incite, and with the benefits of enhanced globalization, they will have more opportunity to do so. Communication, technology, and transportation advances, all part of globalization, increase the opportunities for such harmful behaviors by a wide variety of splinter groups. One thing they do seem to have in common is a desire to turn back the clock to times when some of the forces of globalization were not bringing influences which they regard to be threatening to their beliefs.

-However, let us not underestimate the potentially beneficial impact of the backlash of reactions to such acts around the world. Millions of Muslims and Christians alike are already reacting to the killing of Stevens and colleagues with denunciation of such behavior. I think this serves to some extent to galvanize the "moderates" of the world in further isolating the extremists and their behavior. That's exactly the opposite of what the perpetrators hope for in such acts. It takes a lot to move the moderates of the world to take action. Terrorism is the weapon of extremists who represent small numbers of our world population and can only resort to such actions, being largely without resources. Little do they calculate that such actions are less likely to gain followers than to gain strength of opposition.

-Our Secretary of State described the video as essentially reprehensible, but also made clear that the US will never act to inhibit freedom of speech and expression.

Right and Wrong in Pakistan

September 4, 2012

Globalization certainly raises the question of whether there is indeed a universal "right and wrong?" When the world was more national, less global, there was less interference by one nation in the internal affairs of another nation. Now, we find that reasons for intruding, for caring to influence change in the internal affairs of another distant country can be for a variety of reasons: concerns that those internal affairs could somehow affect the business interests (e.g., energy supply) of our distant country; concerns that those affairs could result in war which might spillover to affect many other countries; and, concerns that the internal behaviors are simply "immoral" or wrong, in the opinion of us outsiders. This is seen to mean that we have a moral obligation to stop those behaviors, even if we have no authority to do so, and even if they do not appear in any way to threaten our way of life in our distant country.

If there is universal right, and if we know what those right principles are, universally, for all, then we certainly will wish to impose those upon people who are behaving otherwise. It stands to reason, that is a good thing for all, provided we do our best to impose those in the most humane way.

On the one hand, most educated liberals of the world would say there are certain universal truths--in fact, most of the world's major religions (Christianity, Islam, Judaism, as examples) would agree on many of them. The golden rule is one of them.

Is tolerance one of them? Is acceptance of the rights and freedom of others one of them?

Is the process of globalization going to force the beliefs of the powerful upon the less powerful? Will the less powerful have any ultimate alternatives other than to develop nuclear weapons or conduct terrorism, if, indeed, they believe their most sacred beliefs are not respected--and if they have been taught to believe that failure to believe as they do and adhere precisely to their beliefs is blasphemy against their God, as they know Him?

There are those of us who would say, tolerance is a universal truth, a universal right. That would mean that if someone wanted to burn the pages of my Bible in front of my Presbyterian church, because that person was an atheist and felt that there is no God, certainly no my God as Presbyterians see him, is not a good God or does not even exist. It would mean that unless he was creating a disturbance which inconvenienced others, I should walk right by on my way in, and on my way out, and never seek to disturb his rights. I wouldn't like it, but he has his right to his beliefs.

It seems tolerance is not yet universally agreed as one of the great truths of mankind. There is too much fear for loss of the seemingly sacred nature of "my" personal rituals.

We are not yet ready, as a world, to believe that all our "Gods" are ultimately the same God. That it is only our rituals which differ, and these can well serve our needs for history and tradition and individuality. These rituals need not be the same. In fact, we can study, respect, and appreciate the rituals of others.

Another day, let's talk about the rituals of certain religions--can they be allowed to retain all of them, even if they do not choose to threaten believers in other religions....? E.g., is my religion to be tolerated to punish those who do not obey its prime commandments in harsh ways, just as I see fit?

Religious Issues in Globalization

September 2, 2012

Perhaps 30 years ago, the case of a 14 year old learning handicapped Christian girl being accused of burning the Koran in Pakistan would not make it to the papers in the US or London. If it did, perhaps most people would not feel we have any right to judge or to interfere.

But we have this thing called globalisation, which has instantaneously delivered this news to every major city in the world. Along with the news comes a plethora of observations by foreign notables. This is a dramatic example of issues exacerbated by globalisation.

The young girl is in jail, awaiting trial, the penalty for conviction potentially being death. And, even if she is released, local press report that her life will be in danger in Pakistan, notwithstanding that there are strong allegations that a Muslim cleric, arrested today, was seen planting burned pages of the Koran into her belongings.

These comments are not intended to address the right and wrong of this situation. It's clear that most all of us Christians and many of other religions in the West are of the opinion that this young woman should not be arrested. While it is not morally OK in the west to burn our religious books, it is not illegal. There might be a few extremists who would endanger one who did so, but such threats or endangerment would not be tolerated in most Western societies.

However, in Pakistan, it seems there is a very vocal and significant group of citizens who feel strongly that destroying the Koran is a sin so very grievous that anyone doing so should face death. Have we ever had such types of beliefs in Western societies? Yes, of course, we have, probably some such sensitivities and/or laws dating back only 2-300 years. Would it have occurred to those conducting the Salem witch trials in 1693 that people of a different mind on this from other countries should have a right to opine or to interfere? Of course not.

It is clear that today, 2012, we have instant knowledge transfer of news like this, and we have strong feelings in countries very foreign to Pakistan, with no clear authority or rights to influence human rights (or religious freedom, as some of those extremely dedicated Muslims might call it--those who see the burning of their religious book as a mortal sin), feelings that say "No!" "This is wrong." "Stop, release this young woman, and by the way, change your laws to give people the same freedoms of religion (choices, practices, all of it) that we have in the West!"

I admit to being of this opinion. Most everyone I know would probably agree. Nevertheless, herein we see a vivid example of the process of globalization. What right do the people of my nation state have in judging and trying to control the attitudes, religious preferences, and laws of another distant nation state? There is no IGO with overriding rules covering this aspect of human behavior. There are no rules, no authorities, nothing other than publicity and moral suasion available to the objectors to enable them to force the will of the majority of developed Western nations upon those of a different persuasion!

We will soon know the outcome of this particular extraordinarily sensitive matter.

As to globalisation, one thing we can say is that it's unstoppable, permeating into all aspects of life, worldwide. Notwithstanding the absence of authorities, rules or agreements, whatever weapons that can be found will be used to influence. It doesn't mean that the opinions of developed countries will always prevail, but it does mean that the time of quiet enjoyment of your own local traditions is gone, likely never to return!

London Approaching

July 22, 2012

We are now within weeks of departing San Francisco for London, where I will enter the Masters program at the School of Oriental and African Studies in the subject: Globalisation and Development. In anticipation of the program, I have read a number of the better recommended books on the subject of globalisation. These readings and reflections have changed my preconceived views on the subject--already--and I haven't even begun the course yet.

I suppose the overview is that I have been moved to a more complex understanding and a realization that the free market alone (unmanaged globalisation) will not best benefit the world. Of course, if we had only one choice--globalisation or no globalisation, then we should definitely be in favor of continued globalisation. It has brought hundreds of millions out of poverty in China, India, and elsewhere in the world, not to mention all the benefits to those not impoverished. And, we certainly do not have the choice of not having globalization anyway, because it is a powerful force driven by wealth creation opportunities of a massive nature.

Yes, we'd be far worse off without it.

Fortunately, we don't have this choice to make. We don't have the opportunity to choose not to have globalisation, although there are certainly many movements toward protectionism all over the developed world. For the most these are disparate and fragmented initiatives on behalf of industry groups in various developed nations, pursued by well funded lobbyists and presented to sympathetic members of government who are sensitive to the influence (monetary and political) of the industries and companies funding lobbying for those benefits. They usually manage to eventually end up persuading trade conference representatives of their countries to support manufactured and distorted selfish arguments to serve only their best interests, with no eye toward the better good of all on a worldwide basis. And, if fact, these efforts often do not even benefit the greater good of the country making such arguments, as in the case of US agricultural subsidies to cotton producers, resulting in higher than average incomes for those 25,000 cotton farmers in the US, and higher costs of cotton to US consumers, higher taxes to US taxpayers, and continued poverty for Sub Saharan Africans who could produce cotton well below our costs in the US. There are thousands of other such narrow and selfish legal and trade advantages throughout this country and the rest of the developed world.

But, these are not going to prevent the continuation of the grand worldwide expansion of globalisation, because there is a lot of money to be made from globalisation and therefore a lot of momentum behind it.

So, we need to understand that our opportunity is to try to make it work for more people, not just for the wealthy 1% of the world and not just for the developed nations. It needs to work for the underprivileged of the world as well, and especially for the impoverished of the world.

Why, some might argue, should we concern ourselves about those people--the ones in countries so far from us that we have no connection with them, no understanding of them, and we can't be certain they're not of some persuasion that is in fact, determined to do us in, if only they get the chance? And, don't we have enough problems just concerning ourselves with our country, and defending only our citizens against any losses to citizens of other countries?

There are three main reasons we need to concern ourselves with those who are not benefitting from globalization: (1) we have a moral obligation; (2) if we don't, we may thereby contribute to the unrest of the world, and to the hatred of the haves, and this could well engender a degree of terrorism and war risk that is dangerous to us; (3) the greatest long term wealth and lifestyle benefits of globalisation are going to be realized through helping the rest of the developing world rise to a level of income, such as to enable them to buy our products and makes us wealthier too. It's not a zero sum game--improved opportunity, income, and wealth for the underprivileged does not result in less for the advantaged. In the long term, it means more for all.

Partisan Interpretation of Facts and Reality

June 10, 2012

Just now, June 10, 2012, I am watching C Span, which is broadcasting the House Budget Committee, chaired by Paul Ryan. Douglas Elemendorf, who is Director of the Congressional Budget Office, is giving testimony. I missed his opening remarks and caught the Q&A. I was struck by, and very irritated to see, in action, what we all feel has become the nature of our Congress--partisan politics. I will pick on Bill Flores, R-TX, who was so very clearly attempting to force Elemendorf to admit that the stimulus program did not work, and thus any further stimulus would not work. Elemendorf was very clear--it did work, but the weakness of the underlying economy during this period of unusual crisis, such as the US has not experienced since the Great Depression, has caused the impact of the stimulus to be less than we had hoped. Flores is so clearly "partisan" in his attitude and his questions (really statements of his opinion). James Lankford, R-OK, spoke with far less in the way of bias to his party's position. But the preponderance of speakers were clearly biased--not open to better understanding Elemendorf''s analysis, but rather, trying to disprove his conclusions and embarrass him

Partisanship was so clearly evident and must be so easy to see if one watches such hearings on C Span. Why don't we Americans watch and why don't we rise up and denounce and throw out the representatives who so very clearly display resistance to accept facts and realistic analysis, such as that supplied (in my opinion) by such as Elemendorf and his staff?

If we just watch, we can each so easily see how we are being failed by the clearly visible positioning of our elected representatives, how they become more and more entrenched in their positions.

Partisanship was not limited to Republican representatives. Democrats also displayed the full range, one to another, of reasonableness and extreme entrenchment in liberal ideology. However, there has been considerable bi-partisan scholarly recognition that the right wing Republican camp (most of the party now) has been by far the greater offender. I wonder how many Americans know the name Grover Norquist? Do we Americans recognize that somehow he managed to persuade almost all Republican members of Congress to sign a pledge that essentially removes all elements of revenue increase (via taxes), only leaving the still debated principle of using tax reductions to stimulate growth. Either that, or somehow stimulating growth by reducing entitlements via the avenue of reducing debt and following that logic to some connection to growth. This is a pledge not to listen, not to be open minded, a pledge to be resolutely partisan and refuse any possible compromise.

The essence of this debate is around spending vs. taxing; whether there is any way to reduce the budget deficit and the debt burden without making painful cuts in entitlements; whether there is any magic to be found in tax code restructuring such as to stimulate growth.

How have we ended up in this stalemate, which can only make the situation worse, and which we tolerate continuing month to month and year to year in taking no action?

I imagine most thoughtful Democrats recognize that entitlements must be reduced. And, our military budget exceeds the total of the defense budgets of at least the next 14 countries combined (Fareed Zakaria). All of this will need to be reduced. And, there is value to the arguments that tax cuts can potentially increase growth and thus reduce employment--but just right now, there should be little disagreement that careful spending choices on such as infrastructure and education will help to grow us out of the hole we are in.

Why can't we compromise and move forward?

Sweatshops and Activists

June 3, 2012

Sweatshops and the Issues

It seems likely that any thoughtful and studied person, examining the logic and the reality of experience, would conclude that, in general, globalization is good for the poor of the world. There are significant nooks and crannies of exception, but in a broad and general sense, it is well understood that more than a billion of the world’s population has risen from poverty across the last two decades, largely as a result of the growth of their respective national economies and that growth is largely the result of enhanced and accelerated globalization.

So, that being so undeniably true, why do the activists continue to rail against globalization and why do many look for ways to stop it?

One might ask a few questions to better understand this continuing and growing phenomenon: Do they deny that the above is true? Do they feel that while it is true, it is still appropriate to protest—they want more? If they want more, then who is best to protest against?

Let's use an example: If Walmart and Apple are perhaps paying above local custom and local law in their foreign manufacturing and satisfied that is the case in regard to the vendors they buy from in foreign countries, and if they are not engaging in employment behaviors which are abusive or contrary to local law or custom, then who is to be protested against? What do the protesters want?

It appears that the protesters want to see the employment in the foreign country adopt a set of compensation and management practices which are “foreign” to the foreign country. They have some kind of ideal employment situation in mind. Maybe it’s the best of the US employment situations, or it’s some modified version. It's usually not clear exactly what standard they are "exporting" to the foreign country.

Suppose it is common in China for employees to make 100 RMB per day. That’s only about $16 at today’s exchange rates, while here in San Francisco, minimum wage exceeds $10 per hour. Suppose it is common for factory workers in China to work 6 days per week, 10 hours per day (60 hours per week), whereas in the US it is common to work only 40 hours per week.

Further, let’s suppose the factory offers housing and food to its employees in China, many or whom elect to take this offer, because it is cheaper for them to take the factory housing and food than to rent and pay for food on the outside. Suppose the housing and food cost 50% of the gross pay, and thus the net available to the employee is then only 50 RMB ($8 per day).

Many of the factory workers in China are migrants from the countryside, having moved to the city just to work in the factory. Let's assume they have access to competitive information, a variety of factory jobs for which they could apply, and that they are capable of basic analysis. They can calculate what the factory job will mean in net income, vs. what they could earn in agriculture in the countryside. They have friends or relatives already working there. So, they anticipate that the $8/day is better than what they could earn in agricultural work in the countryside. They think they can send most of $48/ week back to their families in the countryside.

What is wrong with this picture? The migrant factory worker has improved his/her income and life style as a result of the employment offered, and that is as a result of growth and globalization. What is there to protest about? The workers have bettered themselves. They had choices and they chose this job. No one forced them to take these jobs. No one is locking the factory premises and forcing them to stay if they want to leave.

Still, it appears there are numerous protesters who do not accept this reality. Maybe to them, $48/week is horrendously unfair. Maybe they have in mind some far higher wage, closer to US wages. They think working 10 hours per day, 6 days a week, is a “sweatshop,” and they do not choose to acknowledge that if it is, then the work in the countryside, which might be 12 hours per day for 7 days per week, for less money, with far worse housing and food—that’s NOT a sweatshop…?

Let’s skip the process of protesting and who can be effectively protested against to change this seemingly beneficial and fair reality, for a moment, and assume the protesting is successful. Foir whatever reasons Apple moves its production and Walmart drops those vendors. Then, no one can dispute that those same factory jobs might well move to Bangladesh or Angola, and the protestors can start all over again. And, regardless of whether they move or not, the cost of goods to buyers throughout the world increases. When prices increase, as economists attest, there is reduced demand (price/demand elasticity affects most factory produced products). Thus, there is need for fewer factory jobs and fewer poverty stricken migrants from the countryside are able to start the process of climbing out of poverty.

No one disputes that the improved condition of these migrant workers are still difficult. They do not have enough money to hire child care workers back home. They must rely on relatives to care for their children. They do not themselves have access to the best schools where they work, because of China’s “houkou” laws which discriminate between locals and migrants in terms of many benefits. They can’t afford vacations, best health care, much entertainment, and things we all take for granted. So, by US standards, they would be considered in the bottom 20%, not far from homeless. No one disputes that.

Nevertheless, using our assumptions, they have choice, have made their choice, have improved their standard of living and are being compensated and treated in accordance with local custom in their country and in compliance with all local law. In fact, most multinationals are thought to pay wages that are 10-40% above local standards and thus, they are pulling wages up in the country—for two reasons: They pay more and their added demand for labor contributes to pressures that increase wages in the country.

No one disputes that there are situations which do not fit these assumptions, where muti-nationals are violating local laws or dealing with employees in abusive ways. These deserve protest and change, but it would be wonderful if we could reach agreement on how to deal with those which do fit these assumptions, because I think these are the majority and it seems a very significant amount of disagreement and energy is invested in trying to “fix” these, also.

So, back to the question of protesting. Notwithstanding the arguments above, protesting continues. Against whom? Is it right that the activists should protest Walmart and Apple? They are entirely in compliance with local law and custom (our assumption), even where some locals are not, simply because local law is not very well enforced. This is happening. Is it right that they protest the World Bank and the IMF when the multi-nationals are in compliance with the agreements of these organizations? It would seem not, unless the protest is aimed at changing those agreements. Why shouldn’t the protests be against the local country, where the minimum wage laws are determined, the length of the allowable work week, etc?

Why? Apparently because it is extraordinarily difficult for protesters in wealthy nations to effectively protest the Chinese (or any foreign) government. It’s so much easier to try to protest world organizations and the multinational. Mounting publicity which highlights the dramatized difficult lives of the migrant factory workers is not hard, and is so poignant when properly displayed in the wealthy developed country, especially when there exists a host of varied motivations to attach to any potentially significant effort to slow globalization, punish the Chinese, or effect a wealth transfer.

Finally, how many of the protesters would vote for increased tax in the country in which they live, which could be distributed to those workers who are underpaid—something coming from their individual paychecks? Doubtful many would. Who do they want to pay for the improved conditions of the migrant factory worker? Bill Gates? The US Government? If the US, who will pay that bill in the end? They want the "wealthy" multi-national corporation to pay the bill, thus reducing its profits, reducing the taxes it pays, reducing its competitiveness against other muti-nationals from Japan or elsewhere? In the end, doesn't someone pay for this wealth transfer? Shouldn't we address who that should be at first, and make sure it is fair on a global basis?

Meaning of Globalization--May 27, 2012

May 27, 2012

Before signing up for the SOAS Masters program, I naively thought that globalization was about the movement of people. I thought it was most significant in what we see here in San Francisco, or even in my home town of High Point, North Carolina, a much smaller town. In every place we visit in the US and in the world, we find a wide array of languages, ethnicities, customs, dress, behaviors, that were not prevalent when I was growing up. I though globalization was a social issue--dealing with how do we all best "get along" with each other, accept each other, and cooperate in making our communities meet our needs.

It is about that, of course, but it turns out to be much more, as defined by many scholars and authorities. It's also about trade (and trade tariffs, embargoes, restrictions, etc.). It's also about economics. This is a very big part of the study and understanding of globalization, as our jobs, wealth, and many of the benefits of our lives are defined in terms of economics. It's also about how governments collaborate or fail to do so, and about the rules of the road in terms of how we best maintain the quality of the planet and share the burden or maintenance in a fair and rational way. It's about culture and faith and whether we are drawn more to homogenity or whether we can protect the valuable elements of our individual beliefs and cultures. It's about all of this and more. And, it's not new--we have been trading and moving around this planet for thousands of years. But, it does seem to many that the pace of globalization is accelerating rapidly and bringing with that heightened pace, a whole new set of opportunities and challenges.

In starting the reading the half dozen books I am into now, I began with the presumption that the invisible hand of the market would be the best way to deal with the issues of globalization. As an example, I started with feeling exasperated that some Americans blame China for "stealing" their jobs, while failing to acknowledge they they shop at Walmart and save significant amounts of spending money by buying quality products made extraordinarily cheaply in China.

I still feel that way, but I do now see that there is much more to consider. There is another side to all of this. The interests of corporations are rightfully in their own betterment, and so are those of countries, and if we don't find better ways to resolve some of them, we'll have huge problems in our world. One example--our agricultural subsidies in the US are enormous, and those (as well as a variety of trade restrictions, tariffs, etc.) make it impossible for some poor nations to supply us with food at prices which would be (a) well below our cost for domestic production; and (b) lifesaving sources of income for certain poor countries which only have agriculture to offer to the world.

May 22, 2012

My perspective is that of a beginning student of the vast subject of globalization. I am currently reading about 10 books on various aspects of this subject. I simply must stop and take the time to recommend this one to any of you who may want to better understand the condition of the world today.

The word "globalization" is not in the title, but globalization is about trade, about movement of people, and about every way in which we interact globally. What could be more relevant to globalization than an outlook on the key issue of world leadership in the next decade or two?

Ian Bremmer has written a captivating book on that subject. He argues clearly that we are likely to be leaderless for a time. The US is neither able nor willing to play the role it has played (not to say that that role was played well or poorly in the past few decades--it was some of both). There is no other country or group of countries or world organization which is properly designed, equipped, and prepared to take on that role.

Some might say that China is prepared to do so, but Bremmer clearly explains the issues that China, in the words of its own Prime Minister only 2 years ago, "still a developing country," must maintain as priority. China has major internal challenges which it is rightly dedicated to managing. We will all benefit greatly is Chinese leadership only does that well for another decade. Neither is Russia, India, or Brazil ready. Clearly the European Union has years of financial struggle ahead before it could consider spreading its wings.

The implications of a world which is spinning rapidly in terms of trade and migration toward more and more globalization, but yet has no leader and no vehicles for agreement on a wide array of critical issues, such as water, technology, the internet, trade, and on and on, are indeed vast.

The book does not seek to frighten us or to mollify us. I am usually distrustful of arguments which take to those extremes.

I highly recommend this book to those who want to understand the risks and opportunities that lie ahead of us in a world that is struggling to find the answers to cooperation in ways that will be of greatest benefit to all of us.

Personal Experience

August 19, 2012

Here's something about globalization--on the surface, pretty mundane, but can be interesting (especially if you're the one faced with it!):

We're newly arrived in London. Both of us have student visas for Masters programs beginning soon. We'll be here for 18-24 months, we expect, maybe longer. We have excellent credit in the US. All we need is a mobile phone and an apartment. A local bank account and a credit card/ATM card in local currency would be nice.

Here's the problem: You can't get a mobile phone without a local bank account. You can't get a local bank account until you have a lease. A hotel address will not do. You can't get a local lease based on any form of international documentation--eg., copies of US bank statements, letters of reference from friends, your bank, landlords, etc. If all of your experience is from outside the UK, it means nothing. If you can find a "UK guarantor" who is sufficiently creditworthy, you can start the process, but we dare say that few of us have such, nor would we wish to impose on such a UK friend for a guarantee if we did have one.

This is the case, apparently, for all who come without a UK employer waiting for them--all who want to rent and have a mobile phone, etc., for the duration of an allowed tourist visa, or as students, immigrants, etc. It seems likely this circumstance applies to thousands of visitors to the UK annually.

So, the only solution that is offered is that the tenant pays 6-12 months rent in advance. With that, the lease can be obtained. With the lease, the bank account can be opened, and with that, the mobile phone can be contracted, and you're in business.

Setting aside the few days or weeks in limbo until you find an acceptable flat, that's OK for those who have that much cash to provide in advance. However, even for those, it feels like an insult that all of one's years of conscientious determination to be creditworthy in an equally advanced country is considered of no value--zero. Also, paying so much in advance clearly reduces the tenant's leverage in event the flat develops problems which the landlord is not compelled to fix--what power does the tenant have if the landlord has been so fully paid in advance?

What's the globalization question here? This is it: Why does this system exist, when we are in the year 2012, and how much longer will it survive? Isn't this "difficulty" all about borders? Wouldn't it be a great opportunity, considering all the tools of the modern age and globalization, for some enterprising property owner or intermediary, to offer to accept (or guarantee in the case of the intermediary) qualified tenants without all this hassle? Or, to provide such guarantee to the mobile phone company? Or, for an enterprising banker to offer to provide accounts to those who can be qualified, even if perhaps with limited exposure arrangements?

How could this be done, if there was a mind to do so? Without question, there are a number of countries in which credit verification systems are equally advanced as those in the UK. We imagine those would include US, Canada, Australia, and a number of European countries. So, step one could be to verify against those systems in the traveler's home country. Without today's internet and fibre-optics lines, this step could take seconds to accomplish.

One might say, however, that there is still a risk--the risk that even with a good US credit history, someone might leave the UK with some remaining obligation unresolved, but all of his/her assets are in the US, making it difficult for the mobile phone company, the bank, or the landlord to collect. Couldn't that be resolved by an arrangement where a certain amount of the traveler's cash in a US bank is put into an escrow and held until some of this is resolved? According to the above set of rules, the mobile company and the bank would release their need for protection when the lease is obtained, and perhaps some aggressive landlords would agree that if they could be guaranteed at least 60 days of rent if the tenant leaves without paying, they would be comfortable to be paid on a monthly basis. So, maybe all the tenant with good credit from certain developed countries would need to do would be to put two months of rent in escrow--very doable for most people who are making such pilgrimages. Such a deposit could even be kept in the UK at an established bank or escrow company, even better for the local landlord.

All of this could be made public. People like us could make the necessary arrangements in advance, and when we arrive our hotel in London, we'd already have access to full mobile services, bank accounts, credit cards, ATM cards, and be ready to negotiate a lease. We'd be happy to pay a fee for that!

Is there any doubt such a system could work? It would be to the benefit of thousands of travelers to the UK, and this set of arrangements would also work as it relates to similar rules/circumstances in other countries. Clearly, we have all the technology to make it happen easily and fast, and if we don't yet have the legal structures to make it foolproof, those could be easily arranged between countries, if there is a will.

And, it seems there is likely sufficient profit for the parties to justify working this out--for the banks, for the mobile companies, and for the landlords.

What are the reasons it hasn't been done?

1. Perhaps the analysis of the opportunity has not been done, although in this world, it seems unlikely anything with profit potential, especially something that causes such inconvenience, has just been overlooked.

2. Perhaps the analysis of the volume of profits to be obtained reveals that the opportunity is not large enough to motivate the parties to try to address the opportunity. Usually it takes only one competitor to decide that a segment of underserved can be served and a significant volume drawn away from competitors. E.g., if a collective of landlords offered a better solution to prospective tenants, they would get a lion's share of the traveler business.

3. Perhaps the legal agreements between countries do not yet make it easy to draw on that escrow abroad. That could be resolved between countries, if there was a mind to do so. And, the escrow could be here, as well, in the UK.

4. And, could it be that the banks, mobile companies, and landlords are all too lazy to address it--yet? Or, simply enjoying the low risk present alternative. After all, it's unlikely this pesky inconvenience is actually deterring anyone from coming to the UK. If we (the landlords, banks, and mobile companies) all just sit quietly, no one rocks the boat, we collectively do not have to take more risk. After all, as landlords, it's awfully nice to get paid 6 months in advance, isn't it? This is true until one party starts to offer an easier solution!

I predicted to our Estate Agent here that this system will fall within 10 years. Globalization will tear it down--just my opinion!

What do you think?