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Thursday, June 12, 2003

The Speed of Information

Anand is back from Hyderbad, while I have been posting the blogs, information revolution doubters take note:

Lessons to be learnt ( INDIAN CONTEXT) more on it .........what i think:

Now that china has become a memeberof WTO , a closed guarded economy is open to world trade ....... let me draw a parallel here ...it's like a kingdom going to war in olden times ..the fort is protected and closed to external influneces ..the soldiers inside the fort practises , build stategies to get ready for the war ....and when they are ready ... the gate is open to fight the war ........

I think thats what CHINA did .They had an inward protectionist policy all the decades and they prepared to take on the world ....made policies that lead to that vison , developed their industry ,infrastructue and all other macroenomic variables ....and now the stage is open to them ..........BUT THE MILLION DOLLAR QUESTION WHAT DID THEY DO INSIDE THE FORT ( thats my presentation ) ........Now they don't fear much as to what harm free trade can do to their economy......

As I sometimes say: economics is simply the pursuit of politics by other means. Now Anands second mail:

You talked about India moving towards services .Its happening in India .Lots of software firms have already made their mark and some have then have really turned the tables for the west. One in mention is I-Flex solutions …but can India truly be a services economy disrespecting the agricultural dependence that we have and manufacturing potential that exists here . It needs to be probed and a lot of research is going on this .. Day in and Day out a group of friends break out in a heated discussion in my class.

Macro economic decision variables for difernet countries happen todifferent ..and its tough to decide what decision to take and more so in a politically unstable and unfocuused approached that our political leaders had in 70’s and 80’s . Its now that Indian thinkers have harmonized theirs with global thinking and of late after 90 when we have opened our thinking to more bigger ideas But there's still lot to go and lessons learnt form Asian crisis and China’s Growth will surely be helping a better INdia and i am probing on those . Let me see how far I can go with my research . I am eagerly waiting to hear from you .Its turning out to be more than interesting and fruitful and a great learning experience

No Anand, we are eagerly waiting, we want to know how far you can go with your research!

China the Superpower?

Another in my Beta 1.0 release series. Anand from Hyderbad is preparing a presentation on the rise of China as a superpower. I put together these notes for him which are probably a hint towards a work in progress.

The importance of demography, and the demographic transition. This is a question in China of an enormous surplus rural population which feeds the rapid growth. The important point is the 'window of opportunity' between having too much population and the 'low birth rate economies' of the western world. I have attached an important article on this point from the Harvard economic historian Jeffrey Williamson.

All three superpowers UK, US, and China have used excess population to obtain growth (India naturally can do the same). The UK used free trade and empire to support an extra population in comparison with its main European rivals - the comparison between the UK case, and it's 'hero model' classical Athens is indeed striking, even down to the importance of naval power. The US was built on the systematic introduction of Europe's surplus population, now China is moving from the interior to the coast. The effect is always and everywhere the same, you change the slope of the labour supply curve and, at the same time, move it outwards, this is profoundly favourable to growth. Then you also have a growing internal market to provide positive feedback. This is the weakness of the 'Asian model', there is insufficient internal demand. Is this rejection of consumerism cultural?

Then you need capital. Again the most important factor in the UK and then the US was the development of capital markets - to 'feed the machine'. Initially this is not possible simply on accumulated internal saving, so you need international capital markets, or empire. The important change in China comes in the last ten years, and this is above all associated with an introduction of foreign investment. So the opening of China to international capital markets is, and will continue to be important.

In order to obtain this capital you need institutions domestically which inspire confidence, hence you need political reform. A great deal of silly nonsense is spoken these days about reform. Reform in the ageing European societies is extremely complicated, and some of the benefits are not always obvious. In young, vibrant societies like China and India reform is essential to break the inbuilt influence of the traditional groups and to let the new ideas take hold.

All in all, in the time period you have suggested, I would place most emphasis on the 1990's to date. I would stress that China is going to be the world's manufacturing hub. That this is not just low end shoes, toys, and clothes, but will reach to the very heart of the general purpose technology revolution. It will also involve 'mass engineering' in the product design area. I would stress that this is both good and bad. It is good because it will shake up the existing world order in a fundamental way. But it will also present problems for many developing countries in Africa and Latin America.

For India, the lesson is clear. China will be the manufacturing hub, and India can be the services one. One last word of advice. Check out some of the material about India and China before 1800. It is important to emphasise that a gap which opened over only 200 years can now be closed in only 20 or 30.

Just Another Beat of the Heart

Frans has been in touch, he is threatening to send me more material, I can't wait. Meantime he also tells me one of the visitors to my site has complained that I refer to the Netherlands as Holland:

My mentioning of my position as the ambassador of Bonoboland on my Dutch weblog at least took one visitor to your site. Rightly he commented that he does not live in Holland but in the Netherlands. Holland consists of just two of our twelve provinces!

Frans is of course right. But is this not symptomatic of our whole European problem? The Cathedral and the Bazaar man somewhere has a piece about the Lockean theory of property. Who gets the land first and ring-fences it, gets to keep it. (Terra Lycos and AOL-Time Warner tried this ploy in the virtual world, and mercifully they failed). We are all soooooooooo proud of our nations and our national identities. But what are they, a random hotch potch. Thereis no nation state in western Europe which does not have a national minority which does not want to be there. What we have in Europe is cultural private property. Even in Frans neighbouring country - Belgium - there is a state which is about to fall apart, because the two cultures cannot live together. And then we have the Euro-realpolitic where the big states (see earlier post about the Doha round and agricultural reform) get to have all the say. What do the citizens of the Netherlands have to say about the decision to 'loosen up' the growth and stability pact.?

Yesterday I had a mail from an anthropoligist in Valencia about the Bulgarians down there:

Durant anys he estat treballant en el que ha estat el
tema de la meva tesi: identitats i fronteres territorials i culturals, i concretament en el cas de les identificacions i categoritzacions nacionals. El tema té a veure amb la qüestió de la immigració, però hi està un xic allunyat. Aquest proper estiu (de juliol a octubre) el passaré a la Queen's University of Belfast, a on aprofundiré precisament en el tema que m'ha ocupat principalment. Això fa que tota col·laboració sigui complexa, a curt termini.

Now the majority of you will understand nothing of this. This is precisely my point. This boy comes from Valencia which is considered in Barcelona to be part of Catalan Territory (together with the Balearic Islands). He has spent half his life studying identity and territorial and cultural frontiers. I have every sympathy with him. He feels Catalan in a society where the big power real-politik says he should feel Spanish (Valencia is essentially a 'colonised' region of Spain, with the medieval-original Jewish-Arabic population having been expelled and almost everyone there now being a 'settler': the important difference being that our European system of national identities has not allowed for any 'solution' of this problem. This boy's answer, to try to understand himself: three months in Belfast. May god help him!!).

Anyway, the bottom line is: let the debate commence. Is this the best we can do? David Miller in his clasic work On Nationality suggests that there are two types of people in the world: those for whom the question of their identity is paramount, their roots, their culture, their homeland the most important things there are, and those for whom the world is one gigantic supermarket of cultures, wher on can go shopping and change clothes with complete ease and liberty. I belong unrepentantly to the latter group, but I understand and respect the former. My only question is: what price are they prepared to pay for the things they hold dear? Now Frans:

When I wrote to contemplate on contributing to a regime change in the US I did not imply of course that I did not want regime change in Europe. But with “Iraq” Bush and Blair have made clear that the ideology of no interference in internal affairs has ended. They have good arguments for that too: the UN-declaration of the human rights ASKS for interference. We live in a new situation now. There should be much more (preferrably peaceful!) interference in “internal affairs”

I was a little bit amazed by the reaction of Maynard (does he blog?) and Margy on my contribution on “Fortuyn”; amazed by the similarity of developments and perceptions on these items in so different parts of the world. I think it all refers to the “place” of the state. What can governments achieve (in the end) and what part of the population look upon the government as representing the common interests; as something ou can really rely on to some extend.

I really hope that your “Crossing the Gate of Deflationland” can really contribute to some (european) actionplan.

A tip from another visitor of my blog: “Africa's Scar Gets Angrier” of Georg Monbiot. Not fit for readers that tend to depression.

No to the Rinban Revaluation Drive

Andy Xie with some good reasoning as to why pressure for a Rinban revaluation should be resisted. Apart from the sound sense, what is the point in trying to throw the only global economy which has serious momentum off its dynamic path?

As the SARS crisis unwinds, markets are once again speculating on the renminbi peg to the dollar. The euro’s sharp appreciation against the dollar appears to have stalled. The theory is that, if the renminbi appreciates against the dollar, it would allow other currencies to appreciate further against the US currency. China’s high growth and rapid accumulation of foreign exchange reserves are cited as grounds for renminbi appreciation. However, I believe that neither stands up to scrutiny with justifiable grounds. China should not re-peg or float its currency until its financial system has been revamped, in my view.

First, the state of China’s trade balance does not drive its foreign exchange reserves. There has been no correlation between the country’s trade balance and its foreign exchange reserves. Indeed, China’s foreign exchange reserves have tended to rise faster when its trade balance is not favorable.

Combining China with Hong Kong gives us a similar and, in my view, more accurate picture. Between 1993 and 2002, their combined trade balance totalled US$96 billion, while their foreign exchange reserves rose by US$334 billion.Indeed, China could be running persistent trade deficit in the future. We believe its large trade surplus from 1997 to 2002 was probably an anomaly due to its SOE restructuring and its related deflation.The large bilateral surplus against the US should not be considered separately from China’s overall trade balance. Saudi Arabia runs a large trade surplus against the US. Should its currency appreciate against the dollar?

Second, capital flows drive China’s foreign exchange reserves. China has received over US$400 billion in foreign direct investment. In addition, overseas Chinese have been pouring money into China to purchase properties and other assets that have also contributed to the buildup of China’s net foreign asset position. Should China appreciate its currency to spend the capital inflows, as America has done? This is neither a reasonable nor a practical answer, in my view. China has a low level of wealth. No developing country that turns capital inflow into consumption has been successful in economic development. Further, the wealth level of Chinese households is below equilibrium level. Their savings are growing faster than GDP. Appreciating the currency may not increase consumption, but, instead, could just turn into deflation

Third, China is growing faster than other world economies. Should that be a cause for China to appreciate its currency? The answer is again no, in my view. Growth rates per se do not justify currency appreciation, although the difference between growth potential and actual growth rates does have an effect. If China is growing above its potential growth rate, its currency should appreciate. On the other hand, if China does not appreciate its currency under such a scenario, it would experience inflation, which would force real currency appreciation.There is no evidence to suggest that China is growing above its potential. On the contrary, there is plenty of evidence to suggest that the economy is growing substantially below its potential. Unemployment is serious and the situation may deteriorate. Starting salaries for college graduates are declining, and overcapacity is widespread. China’s potential growth rate is substantially above 10%, in my view, and the country has not achieved such growth for five years. As a result, we are observing trends in the factor and goods market that are associated with insufficient growth.
Source: Morgan Stanley Global Economic Forum

Whither the Future of Agricultural Reform

This has some of the 'feel' of the particularly British vision of things European. But, that having been said, if there is any reality behind the story this is going to make the Doha round even harder. It also smacks of the horse trading which too often characterises how things get done in the EU. And the small nations get left out in the cold.

Radical reform of the European Union's common agricultural policy and long-awaited plans for an EU takeover code face derailment by an informal deal reached between France and Germany.

The agreement is believed to have been discussed by Jacques Chirac, the French president, and Gerhard Schröder, the German chancellor, at a dinner in Berlin.Under the deal, Germany would back French efforts to water down plans to overhaul the EU's €43bn a year of agricultural subsidies. France in turn would support German proposals that could scupper the latest plan for an EU takeover code - a measure that has divided EU governments for 14 years. Such a Franco-German tie-up on two crucial but unrelated, issues is a blow for Tony Blair, the prime minister, who has been striving to secure alliances with other large EU members.
Source: Financial Times

Small Movements in Big China

Looked at from a western perspective, this must seem like pretty small beer, and a long way short of democracy as we know it. But China is moving, however tentatively, in the right direction, This may well be an indication of much bigger things yet to come.

China has set up a secret top-level body to draft sweeping changes to its constitution, foreshadowing landmark economic and political reforms that could change the ideological complexion of the communist state. The move highlights the increasing authority of Hu Jintao, president, who only took office three months ago but is now beginning to set the political agenda - according to one official - like a silkworm eating through a leaf.

The new body's most concrete task is to draft a constitutional amendment that would give the property of private enterprises the same level of legal protection as state-owned enterprises, official sources said. This would be one of the most significant constitutional changes since the 1949 revolution that brought the Communist party to power.In its current form, clause 12 in the constitution provides explicit protection for "socialist public property" but omits any mention of the property of private enterprises, the most dynamic part of the domestic economy.The amendment, which may be adopted by the National People's Congress as early as next March, could provide a considerable boost to the fortunes of private enterprises, which find it difficult to secure bank credit and can suffer from official discrimination. The establishment of the new body highlights how Mr Hu is beginning to emerge from the shadow of his predecessor Jiang Zemin, whose allies still dominate the ruling politburo.
Source: Financial Times

Wednesday, June 11, 2003

Fearful of.......a radical change, however economically justified

While I find the Economist to be very soft and 'wishy-washy' on many of the important economic topics of the times, there is one controvesial problem on which they have more or less consistently held up the flag of decency and economic common sense: immigration. It is also very interesting to note that the Greek government is proposing to challenge the current 'obsessions'. Actually this does not surprise me, since the Mediterranean countries (with the apparent exception of Italy) seem to be being extremely 'flexible' on the question of undocumented migration. Basically I feel that they are saying the thing they think will go down well in Brussels, and doing another. Undocumented immigration is pouring in like a river right now here in Barcelona, and no-one official seems particularly preoccupied. What concerns me are the inevitable human and social problems that are caused by 'organising' immigration in this way. It is also worth pointing out that undocumented labour cannot be unemployed, since it is: no work, no food, so putting down the problem to fears based on social security sponging seems a little off target. However the question of pushing everybody into becoming an asylum seeker is part of the problem, and typical of far too many Euro-admin solutions. Of course, it is also interesting to note that while so much ink is being spilled on the need to undermine our pensions, and to get us to make all kind of disagreeable sacrifices, an economically coherent policy of encouraged migration is considered simply too 'radical'.

A report published on Tuesday June 10th by the International Organisation for Migration shows that the numbers abandoning their home country in search of a better life elsewhere are soaring: since the mid-1960s the numbers of migrants worldwide has more than doubled to 175m, or almost 3% of the world population.

Across the world, rich countries are struggling with the question of illegal migration, though the reasons why it worries governments differ from country to country. The United States of America was built on immigration and remains relatively open to skilled migrants. Moreover, the country turns a blind eye to huge swathes of illegal immigrants, especially Mexican migrant labourers, who have enough legal compatriots to affect electoral outcomes in key states like California and Texas. Moreover, since America has a more restricted welfare system than those in most European states, there is no feeling that taxpayers’ money is being lavished on asylum-seekers, and thus no widespread resentment that the country’s hospitality is being abused...........

However, it is in Western Europe that the issue of migration is most contentious. Europe needs migrant labour because of its ageing population. Britain’s National Health Service, which is one of the European Union’s largest employers, would collapse were it not for the large numbers of immigrant doctors, nurses and ancillary staff that keep it going. However, despite needing foreign workers, many Western European countries maintain such tough anti-immigration policies that many migrants from poorer countries resort to claiming asylum, seeing it as their best chance of being allowed to stay and work. Because many are not really fleeing persecution, the general perception that many asylum-seekers are “bogus”, in the words of one British politician, is an accurate one. Moreover, the asylum system is hugely expensive: Britain alone spends £3 billion ($5 billion) each year, more than four times the entire budget of the United Nations High Commission for Refugees. And many immigrants, particularly Muslims, are seen as not sharing liberal Western values, such as those encouraging the education of women. This feeling of intolerance of others’ perceived intolerance was a main reason for the rise of the late Pim Fortuyn in the usually ultra-liberal Netherlands.

The European Union is trying to work out a coherent immigration policy to be applied across its 15 member states................Greece, which currently holds the rotating presidency of the EU, and which therefore largely influences the agenda, has said that it wants the block to abandon its obsession with keeping unwanted migrants out and concentrate on how to attract the workers that its ageing population needs. But many EU leaders will be fearful of the popular backlash that such a radical change, however economically justified, might cause.
Source: The Economist

Germany's Fall Looks More Like a Tumble

The bad news from Germany continues. This provokes speculation of another rate cut (which there should be, please!!) and some 'now you see me now you don't' shuffling from Duisenberg.

German industrial output fell sharply in April, fuelling mounting concern over the fragile state of the eurozone's largest economy and increasing pressure on the European Central Bank to cut rates again soon. Production dropped by a bigger than expected 1.0 per cent in April after declining by a revised 0.1 per cent in March, the economics and labour ministry said on Wednesday. The fall in output, triple what had been forecast by private sector economists, was driven by a 1.1 per cent drop in manufacturing, hard hit by the soaring euro, and a 0.6 per cent slide in construction output. Economists said concern over the slowdown in Germany was deepening amid fears stagnation in what was once regarded as the engine of European growth could soon infect the other big eurozone economies. France and Italy are already feeling the drag of the German economy, which is technically in recession after two quarters of contraction. It is expected to shrink again in the second quarter of this year and show growth of little more than zero for the full year, depressing eurozone growth prospects further.
Source: Financial Times

Federalist or Supranationalist?

Europundit David Weman has a new-look Moveable Type blog, and he's very happy with it (will I be the last to leave blogger? I thought I was always the first to bail out if the ship started sinking!). He's asking about the difference between supranationalism and federalism. As I understand this I am an anti-euro federalist living in a small nation without a state (Catalonia, again, in neither case am I sure whether I'm simply first in or am about to become last out). I would be happy enough with the euro if we had the USE up and running, although I think we'd still have to sort something out about the language.

People often confuse two issues that are quite distinct from each other: The level of integration - Should X be decided on the EU level or the national level? and the level of supranationalism/intergovernmentalist debate (Should X be decided by the Parliament/the Commission/the ECJ vs. The Council of Ministers?)...........

UK: Right Decision Wrong Time?

Morgan Stanley's Joachim Fels with some interesting reflections on the UK economy:

it is impossible to disagree with the Chancellor's assessment that the UK economy has been better off staying outside the euro for the past five years. With the benefit of hindsight, euro entry in 1999 would have implied markedly lower interest rates given that euro area interest rates have been below UK rates at all times. This would have fuelled an even bigger housing price boom, stronger consumer spending, and higher inflation, with the latter being reinforced by the fact that the currency would have been weaker, which would have stimulated exports and pushed up import prices. In short, within EMU, the UK economy would probably have overheated in the last several years and might have seen what the Treasury calls another cycle of stop-go economics, or a boom-bust cycle, as we prefer to call it...........arguably, the last five years were an exceptional period for the UK economy, which is unlikely to last much longer. In retrospect, the strength in consumer spending owed much to the new stability-oriented monetary and fiscal policy regime introduced in 1997. Giving the Bank of England operational independence created a credible commitment for low inflation, which quickly anchored inflation expectations at around 2.5% and led to sharp decline in interest rates. This in turn helped fuel house prices, which created the well-known mortgage-equity-withdrawal bonanza for private households, very much akin to the mortgage refinancing cycle in the US. The consumer spending was reinforced by sterling's appreciation against the euro, which made imports cheaper and helped the Bank in securing low inflation with relatively low interest rates.

Alas, the days of the consumer boom with low inflation are numbered, in our view, and the UK economy is facing a tough challenge. House price increases, after the fireworks of last year, have slowed and are likely to peter out soon. Thus, a major support for consumer spending is fading. Sterling has weakened, which has helped push inflation higher to 3%, curtailing the growth rate of real disposable income. Taxes and National Insurance Contributions have been raised to finance the government's push to raise public investment. Taken together, the consumer should no longer be the driver for the UK economy -- the recent GDP data for Q1 already showed a significant slowdown in household spending.

So far, so good. But his next point leaves me really bemused. If UK interest rates are where they are now, then this is because of all the concern about a housing boom-bust cycle. When this 'bubble' bursts, UK rates will fall, most probably faster that ECB rates, possibly arriving close to zero (Mervyn King is an astute follower of the US 'deflation' debate, and the 'lessons' of the Ahern paper will not go unlearnt in Threadneedle Street). Prolonging the 'boom', even were this possible would be extremely unwise (I am with Joaquim's boss Stephen all the way here), and the UK will now have to face up to some pretty harsh post-bubble realities. On the currency lock-in argument, this is just the point, what the Uk does not want to do is lock-in its currency, at this or any other rate. If the shock following the fall-back in house prices is severe, then (as all adepts of the 'foolproof path' well know), letting the currency value decline is one way of easing the deflationary pressure, but this is only an option the UK will have outside the euro. On FDI, I think we need to look a bit closer at the dynamics of the knowledge based economy, and at the advantages in having English as a first language, but this will have to await another post.

By joining the euro now, the UK could have killed two or even three birds with one stone. First, with the level of euro area interest rates now fully 175 basis points lower than UK rates, the house price boom could have been prolonged and consumer spending would have been supported further. Second, by locking in a competitive exchange rate at around current levels, the UK could have secured a major expansion of trade with the euro area. One of the Treasury's many thorough background studies published yesterday concludes that the potential increase in UK trade with the euro area resulting from UK membership of EMU is between 5 and 50 percent in the long run, which under certain assumptions could raise the level of UK per-capita GDP by up to 9.25% in the long run. While such estimates have to be taken with a large grain of salt, there is no denying the fact that joining a currency area has a significantly positive impact on trade with other members of the area.

Third, but not least, by joining the euro now, the UK could have ensured higher foreign direct investment in the UK from both inside and outside the euro area. This could have helped to both minimize the crowding out of domestic investment by public investment and raise the tax base to pay for higher government spending. The costs of staying out of the euro in the form of reduced inward investment have already been felt by the UK in the last several years, when it has attracted a smaller share of inward investment in the European union than before the start of EMU.
Source: Morgan Stanley Global Economic Forum

I can see this really leading to a whole lot of fun ..........

Back to my piece over on Eamonn's Rainy Day and the topic of taxing childless couples, Maynard has got the point. It would be a bureaucratic minefield, and very unjust.

Well there's a bright idea. How exactly is a "couple" to be defined?
Expect to see a large decline in marriage applications if marriage is what's used. And what about them gay folks and them catholic priests and them couples who, sure are living together to save money, but claim (and dare you to prove them wrong) that they refuse to have sex because it's against their religious beliefs and them "conscientious objectors" who refuse to have kids on the grounds that the world is overpopulated and consists of more than just Germans? And what about those who want children and can't conceive. Are they now entitled to state aid indefinitely as they try one fertility treatment after another? I can see this really leading to a whole lot of fun once civil rights lawyers get into the game.

More Grist To the Mill

On the more macabre end of the Japanese crisis, Kevin has sent me a piece from AP which he thinks may be too grizly to post. I don't know whether he remembers the detail about the Resona auditor who took his own life under the pressure.

A record number of Japanese managers, engineers and workers died of overwork last year, the government said Tuesday, showing that the country's economic slump hasn't reduced pressures on Japanese to work long hours. The number of deaths resulting from excessive work rose to 317 in the fiscal year through March, more than double the previous record of 143 set the previous year. Death from overwork, known here as "karoshi," has steadily increased since theHealth Ministry first recognized the phenomenon in 1987. With effects such as brain aneurisms, strokes and heart attacks, karoshi strikes a wide range of people, but doctors, factory workers and taxi drivers were hit the hardest. It sometimes is triggered by
logging as many as 50 overtime hours in one week. The jump was partly due to a redefinition of karoshi to encompass up to six months of accumulated work-related stress and fatigue instead of the previous standard of just one week.
Sourde: AP Tokyo

Now Nokia Warns

Whatever the reasons, and whatever the final result, it is clear that the long promised 'tech rebound' still isn't with us. The list of excuses is endless, and my feeling is that SARS is serving as a very convenient explanation.

Nokia of Finland warned on Tuesday that its second-quarter sales of mobile telephones may be lower than forecast, blaming general economic weakness, currency fluctuations and the Sars epidemic.However, the world's number one producer of mobile handsets calmed investors by reaffirming its second-quarter profit forecast of pro-forma earnings in the range of 0.13-0.16 euro per share.The Finnish company said sales growth for its mobile phones "is expected to be positive but at the low end or below the guided range of 4 to 12 per cent on last year's sales of 5.4bn euros, with sales growth slightly less for the Nokia group".It added: "Sales reflect continued general economic weakness in Europe and the US, the impact of currency fluctuations and the effect of Sars on consumer behaviour, especially in China."
Source: Financial Times

The Ups and Downs of Global GDP

My last post, has reminded me of a piece I have in the mailbox from Dave who is worried about Stephen Roach's use of data. His latest point only hammers it home even further, in economics there are only lies, damn lies, and statistics. Put more another way we should think very carefully about the limitations of the data we are working with, always ask ourselves why we are presenting something one way rather than another, and always try to bear in mind the weaknesses inherent in any particular data set. Which is why I think it is madness for the ECB to have placed such emphasis on the HICP numbers.

One further point on my original question: I was not using PPP data, just straightforward current and constant currency national income accounts from the Fund's International Financial Statistics. I share your reservations regarding "real" numbers, yet when the discussion concerns output growth I can't see the point of using anything else. With nominal dollar data you have both the distortion of price-level changes (admittedly small in recent years) and, more seriously, the effect of exchange rate movements. By my calculations, world aggregate GDP actually declined in 1997 - 1998 in current US dollar terms. That can't possibly tell us anything meaningful about output growth. And, of course, once we're able to extend the series to 2003 and 2004 the end-point to end-point US share of growth will collapse.
I could re-phrase Steven Roach to use these data as a more elaborate argument for dollar adjustment - if we assume that the dollar has been correctly valued, then we obtain the absurd result that the US has accounted for two-thirds of world output growth in the past seven years, therefore we are driven to conclude that the dollar's rise cannot be justified, or something like that. But I don't believe that was his point.

Japan Continues Its Weary Path

I suppose there are some crumbs for Joerg here, the Japanese economy did in the end actually grow, if only by a measly 0.1%, during the first three months. It is important to remember that these are real figures, in nominal (money) terms, with deflation continuing, the economy actually shrank. Although, of course, with the Yen rising, the share of the world economy may have increased. The only conclusion to be drawn from all this, economic statistics are complicated things. Bottom line, Japan seems to be moving back into recession.

Japan's economy grew slightly in the three months to March, according to revised figures released early on Wednesday which showed that while the pace of growth is still slowing, the economy did not contract in the first quarter as economists had predicted. Revised gross domestic product figures showed that GDP grew by 0.1 per cent in the first quarter. Provisional data released last month indicated the size of the economy stayed the same over the quarter, and economists had forecast that Wednesday's revision would reveal a contraction. But the revised figures provide only crumbs of comfort as they did not point to a turnaround in the economy, which has been slowing steadily in the past year. Some economists still say Japan's economy may be slipping back into recession - which is defined technically as two consecutive quarters of contraction. The loss of growth momentum has been blamed on a fall in exports to the US, where consumption in the first quarter was subdued in the run-up to the war in Iraq, and a pre-Sars drop in shipments to Asia. Household consumption in Japan, however, remained surprisingly strong as people dug into savings so they could spend and maintain the same standard of living. GDP grew 0.5 per cent between October and December, 0.8 per cent in the quarter before that and 1.4 per cent between April and June last year.
Source: Financial Times

Tuesday, June 10, 2003

There must be something in the Catalonian air ......

Eamonn has posted a short piece he solicited from me about recent proposals to tax childless couples in Germany:

On Friday, Germany's Federal Statistical Office issued a report headed "In 2050 every 3rd person will be 60 or older in Germany". A "dramatic ageing" of the country is taking place, said the report, naming constantly increasing life expectancy and a birth rate of 1.4 children per woman as the factors responsible. If this continues, the German population will drop from today's 82.5 million to 75 million by 2050...........

But realistically, what are the chances of this path being taken?

Eddie Lee has picked up my Crossing the Gate of Deflation Land post, which was really a reference to the debate Stephen Roach had been organising over at Morgan Stanley GEF. This is a tough topic, and it is reassuring I am not the only one who is hesitating. I think Eddie, and Stephen Roach are completely right, something special is needed, and needed now. Talk of what may or may not be the case ten years from now is to fail to get to grips with the situation we have. So we need to plead some special-caseism for the Germany economy, and apply all the macro stimulus we ahve available, which realistically isn't too much. I also agree that this may not be the precise moment to reform German pensions. The reform will have to come, but introducing them now will only deflate internal German demand even further. There may be a case for some fine distinctions here, since I think that shaking up the under 45 labour market can only be good, and should be done as soon as possible. It is the advisability of sending a lot of 50+ people out onto the street, with reduced pension expectations, and limited job expectancy, it is the advisability of doing this in the precise moment that you are trying to 'jump start' the economy that fails to convince me. Likewise changes in the law which make it easier to start small businesses can only be beneficial. So it is not a question of postponing reform, but looking to reform where most short term benefit can be achieved.

On the topic of inflation targeting, perhaps I should make clear that I am not against inflation targeting in principle, I am against using inflation targeting as a panacea for all our ills. Clearly having an inflation targetting approach in the eurozone now would be beneficial, trying to avert the disaster. Now once you have reached where Japan is today, the problem becomes much more complicated, and I think there is a real problem of putting in place a credible inflation target, and, in addition, of winning political support from an elderly population for any such target. Also given the fundamental instability which characterises Japan today, it isn't clear to me that you might not risk a serious brush with hyperinflation if you really stoked up the fires to a sustained rate of 4 or 5% over a number of years as some commentators are suggesting. Once the genie is out of the bottle, it may not be so easy to get back in.

Just read your blog. I believe your “Crossing the Gate of Deflationland” is the closest thing to an action plan. If I get you correctly, you’re making the argument for freeing up the macro arsenal. And fire as much and as quickly as possible.

Avoiding deflation is better than trying to fight it. Of course Germany’s foot is probably already in the ‘quaqmire’. There is no time to lose. The lower you sink, the harder it is to get out. I think these pension and labour market reforms should probably be delayed so as not to distract from the more immediate tasks. That is, we give ourselves too much of a burden by bundling recovery and reform as a package. Because the deflationary pressures are so great, reform is not possible without some recovery first? And to get the recovery, you need all the resources you can muster. And you need the focus.

You seem more sympathetic to inflation targeting then usual. Perhaps it’s the desperate situation Germany is in. The world can’t afford the second and now the third largest economies sinking into deflation. I sympathise with this idea simply because you need to just try any demand-side stimulus you can think of. But it may be hard to change expectations. I get your point about ageing and fear of inflation. Still there may be time left if the median age is 40 and not 50. You need to create jobs and push people out of the dole mentality. such a mammoth task. My sense is that you’re right on the argument that all this, even if it succeeds initially, will fail if "German society (fails to).. open itself and its labour markets to the world " If Europe doesn’t see it. Then there is no future (literally). There is no other way I think. Immigration would ease the pension reform, that must still come. But at least changed when the economy is growing again. So here we have a starting point “Germany must unshackle itself from the Euro”, and a plan “free its labour market and the german mindset”.

But realistically, what are the chances of this path being taken? The starting point itself is as painful as the plan. Isn’t Schroder trumpeting those structural economic reforms as the only cure?

More On the Euro Test

Brad Delong has three posts about the euro-no decision ( here , here , and here ). This obviously qualifies the topic as news of the week - although it was hardly breaking news, since we all expected it.

Brad is surely right in suggesting that since the principal objections to joining now - the greater correlation of British with American than European business cycles, and the greater vulnerability of Britain to interest rate shocks - aren't going to disappear any time soon this is more like a diplomatic never phrased as a 'not now'. Indeed, if any of the Treasury economists have been giving thought to how the eurozone will ever be able to collectively drag a deflation-mired Germany out of the mud, they probably realize that a 'not just now' should be all it needs.

I am much more at a loss to understand the thinking of such a venerable collection of economists as David Begg, Olivier Blanchard, Diane Coyle, Barry Eichengreen, Jeffrey Frankel, Francesco Giavazzi, Richard Portes, Paul Seabright, Alan Winters, Anthony Venables, and Charles Wyplosz, who are apparently suugestion that the UK has more to lose by staying out than by going in. This sounds more like moral pressure than clear reasoning to me.

Finally there is Michael Prowse of the Financial Times making the argument that it makes sense for Britain to enter the euro zone if and only if the European Union is committed to a long-term program to create a real United States of Europe: only if European political integration is going to proceed much farther will Europe become an optimal currency area, and the euro make sense. As Brad says: "It's an interesting argument. It may well be a correct one", indeed it is one I have been using continuously from the start of this blog. But we are oh sooooooo far away from this.

Italy Proposes Large Infrastructure Project for EU

This proposal from Italy, which is being presented as a contibution to Europe's search for a growth model, looks extremely dubious. The only 'novely' seems to be that it would use privately raised finance effectively guarenteed by the European Investment Bank, which in its turn would be guaranteed by the individual member states. In practice this means no-risk projects guaranteed by public funds. I fail to see what is new in this proposed model for growth. Since all the risk is assumed by public finance, it is merely a kind of SPV for keeping the money of the public books, and thus not violating the Growth and Stability Pact. All this has rather the smell of Japan about it, with infrastructural projects of unproven worth being financed to keep the construction industry moving in the search for a new growth miracle.

Italy's centre-right government on Monday launched an initiative to revive economic growth in Europe with a multi-billion euro spending programme bringing together private sector finance and the European Investment Bank. Giulio Tremonti, Italy's finance minister, said the plan envisaged annual expenditures of 50bn-70bn euros ($58.5bn - $82bn), equivalent of up to 1 per cent of the European Union's GDP, mainly on infrastructure projects in the EU's 15 member states and the 10 countries on course to join the EU next year. "The message is: 'Something must be done, collectively'," Mr Tremonti told the Financial Times in an interview. "It is an urgent matter. We need a model for growth." The initiative was formally communicated on Monday to other EU governments and is intended to be a central element of Italy's six-month term in the EU's rotating presidency, which starts on July 1. Italian officials say they are open to suggestions from other EU countries and the European Commission about how to improve the plan, but hope the broad idea of large-scale infrastructure spending will win approval as early as next month from EU finance ministers.

The plan aims to square the circle of European economic policymaking by stimulating domestic demand without increasing national budget deficits and putting more strain on the EU's stability and growth pact. Some politicians and economists have blamed the pact, which sets rules on EU fiscal discipline, for aggravating Europe's economic problems by imposing limits on spending at a time of weak growth. But Mr Tremonti emphasised that Italy's initiative was not intended to undermine the pact. "The action programme is totally compatible with the stability pact," he said. "The supply of capital would be private, the financing of the infrastructure plans would derive from the market."

The plan aims to attract the private sector by creating a pivotal role for the European Investment Bank, an institution that has been the largest supplier of funds over the past 10 years for the EU's Trans-European Network (TEN) infrastructure projects. The bank could provide guarantees for private project financing, including for long-term projects that have an investment grade rating. For such guarantees to be fully effective, Italy is suggesting that EU ministers consider giving the bank a zero risk-weighting. Another Italian proposal is for the bank to set up a special purpose vehicle, in co-operation with EU member states or national transport authorities, that could buy portfolios of TEN loans from national financial institutions, securitise them and issue triple-A bonds to the market.

This would release new resources to be invested in TEN projects, while ensuring capital relief for the financial institutions, Italian officials say. Italy first raised the idea of an action plan for growth last April and suggested that projects could be financed outside national budgets, for example by means of special EU bonds. However, Germany was reluctant to endorse the idea of increasing public debt in the EU, while the UK feared that such methods might lead to more centralisation of European economic policy.
Source: Financial Times

Monday, June 09, 2003

Targeting the Quantity of Money........"has not been a success"

The Financial Times Simon London has had lunch with Milton Friedmann, and discovers he has changed his mind about targeting the quantity of money, which is, as Stephen Roach notes ironic at a time when Bernanke and company would have things otherwise.

Hold on to your hats and prepare to be amazed: Milton Friedman has changed his mind. "The use of quantity of money as a target has not been a success," concedes the grand old man of conservative economics. "I'm not sure I would as of today push it as hard as I once did." Granted, this is hardly a conversion of Damascene significance. But, heck, it's a start. It also shows that, at the age of 91, Friedman still has his critical faculties intact. The man once described as "the most consequential public intellectual of the post-war era" is still engaged - and engaging.

We are at the North Beach Restaurant in San Francisco. While he will be forever linked with the "Chicago school" of economics, Friedman and Rose, his wife and sometime co-author, moved to the area in the late 1970s when he retired from teaching. The restaurant is only a couple of blocks from Friedman's home and, it transpires, is a regular haunt. He receives a voluble welcome. Those under the age of 40 are probably unaware how consequential Milton Friedman has been. His mild recantation on monetary targeting would have caused a sensation - and perhaps saved a lot of grief - had it been uttered 20 years ago. In the early 1980s, both the US and the UK set interest rates according to Friedman-style targets for money-supply growth. The common aim was to bring down inflation without the pain of recession.

The common outcome, however, was partial success. Inflation fell, but at enormous cost in terms of unemployment. The fact that central banks the world over have given up trying to "fine-tune" economies to an imaginary perfect pitch is a measure of his wider influence. Money-supply targets may have been replaced by inflation targets - but the Friedman influence remains strong. If this was not enough for one lifetime, Milton Friedman the polemicist has been at least as influential as Milton Friedman the economist. His championing of small government, low taxes and market forces helped set the terms of public policy debate through the 1980s and beyond. It comes as no surprise to find he has strong views about the menu, too. On Friedman's recommendation, I order sand dabs, a flatfish said to be something of a house speciality. The professor opts for eggplant and we agree on two green salads to start, with iced water all round.

Free To Choose, the "personal statement" published with Rose in 1979, closed with the observation that the intellectual climate was shifting away from collectivism in favour of free market ideology. What has happened in the 20 years since, I wonder? "The fall of the Berlin Wall, which occurred 10 years after Free to Choose was completed, means that support for socialist, collectivist forms of social organisation has all but disappeared...

"On the other hand, anti-collectivism has not meant anti-big government. In terms of the attitude towards big government, it is very hard to say that there has been any improvement. There may have been backsliding." I point out that government spending fell as a proportion of national income during the 1990s, reversing a long upward trend. Surely this was a sign of big government in retreat? More a sign of political gridlock in Washington, he responds, with President Clinton's Democrat White House pitched against a Republican-controlled Congress.

He adds, with an air of disappointment, that spending under George W Bush is back on an upward trend. "The second President Bush appears to have inherited the free-spending tendencies of the first," he says dismissively. What, then, of the tax cuts that the president recently signed into law? "His insistence on tax cuts is good," he concedes. "That is the only real way of bringing pressure on Congress to hold down spending. In my view, the size of government is determined much more by how much they can raise in taxes than by any ideological theory." The entrees arrive very, very hot.

"To go back to your original question, the tide of public opinion has continued to go against government. People are as suspicious as ever of government - big or small. Unfortunately, the slowness with which public opinion affects policy has not changed."

His favourite example of the mismatch between public opinion and public policy is school vouchers. Such a scheme, he says, would unleash market forces in the education sector by giving parents the right to choose which school their child attends. Funding would be granted in the first instance to the child, not the school. Schools would then have to compete for business by raising standards or pleasing parents in other ways.

"There is no doubt about public opinion," he says, tucking in to his eggplant. "Everyone knows that the public school system is lousy. The solutions proposed are all ineffective with one exception: a greater degree of parental choice - more competition. The majority of the American public is in favour of child-centred financing. But the teachers unions exercise such strong political control that it is very, very difficult to make any progress." Listening to him it is easy to understand why his formula appealed to political leaders - think Margaret Thatcher and Ronald Reagan - who craved black-and-white answers to complex questions. As well as turning out academic papers and polemics, Friedman in his prime was also a prolific producer of newspaper articles. One of his most influential appeared in The New York

Times Magazine circa 1970, arguing that business should keep its nose out of social affairs and concentrate on maximising returns to shareholders. "The only responsibility of companies is to make a profit," he wrote - providing thousands of future MBA students with an easy starting point for essays on the topic of corporate purpose. This is one area, I suggest, in which the tide of opinion has surely turned against him. Recent scandals involving Enron, WorldCom and others have added to the interest in "business ethics" started in the late 1990s amid growing concern about environmental degradation and globalisation.

Nonetheless, Friedman's passion for shareholder primacy remains undiminished. The fashionable idea that companies should balance the needs of shareholders, employees, customers, communities and other "stakeholders" strikes him as wrong-headed. "The stakeholder notion is a very dangerous notion. It is a socialist notion. It says that employees are major stakeholders. It is really a movement towards employee-run enterprises." But what about the claim that human capital is as important to businesses as financial capital? Surely employees - the providers of human capital - should have some say in the way businesses are run?

His answer is twofold. First, human capital is not new. The share of wages and earnings in national income has been remarkably stable through the decades. Second, the best system of corporate governance is one that provides the best incentives to use capital efficiently. The self-interest of employees in retaining their jobs will often conflict with this overriding objective. Besides, shareholders enjoy none of the contractual protection enjoyed by employees. Thus, they bear the residual risk when a company fails. "You want control... in the hands of those who are the residual recipients because they are the ones with the direct interest in using the capital of the firm efficiently. How do you like the sand dabs?" Sand dabs, it turns outs, are a favourite in the Friedman household. Rose's sand dabs are unmatched even by the North Beach Restaurant.

I ask whether he has changed his famously sceptical views about European monetary union. After all, the euro has been around for a couple of years and is, as we speak, kicking sand in the face of a weak dollar. Surely this suggests that the European single currency could be a long-term success. "I've been wrong so far, so I don't have too much confidence in my view. But I think within the next 10 to 15 years the eurozone will split apart. The British government, on balance, should stay out of it." I remark that Friedman the economist seems less sure of himself these days than his polemicist alter ego. After a long pause, he agrees: "You form a philosophy at a certain stage and for the rest of your life it dominates. On the big issues of policy I don't think there is anything I've changed my mind about."
Source: Financial Times

Whither Goes the 'Coalition of the Willing?

Just in case you were thinking that Bonobo was getting a bit low on economics content today, here's a really interesting piece from Stephen Roach:

On the surface, the policy bet isn't hard to understand. The world's major central banks are now taking dead aim at that once "nonexistent" risk - deflation.......American investors are taught, “Don’t fight the Fed.” Does anyone dare to confront the collective firepower of this international “coalition of the willing”?

Yet in the end, the policy bet may well be the weakest link in this daisy chain. History tells us that macro policy has had a truly terrible track record in dealing with deflation. That’s been the case since the 19th century but has been especially evident in so-called modern times. The worldwide deflation of the 1930s, to say nothing of the more recent Japanese experience, are grim reminders of stunning policy failures in dealing with this most corrosive of all macro diseases. Yet this time, we’re all being asked to believe it’s different -- that policy makers have learned the lessons of history and will never allow deflation to occur again. None other than Fed Governor Ben Bernanke -- the intellectual force behind America’s anti-deflation battle -- has said this in no uncertain terms. Recently, at Milton Friedman’s 90th birthday celebration, he honored the world’s most well-known monetarist by thanking him for showing us all the way. The “way” is Bernanke’s belief in the power of the printing press as the central bank’s antidote to deflation. It is at the core of the Fed’s purported last line of defense against deflation. It’s also as pure a monetarist prescription as you could ask for. Fed Chairman Alan Greenspan has echoed this confidence, boasting repeatedly of the Fed’s possession of the unlimited ammunition of monetary creation as the means by which the anti-deflationary battle ultimately will be won. It’s the ultimate compliment of a Friedmanesque view the world -- that fluctuations in the aggregate price level are first, and foremost, a monetary phenomenon.

The markets are up, and many an economic forecaster is joining the celebration. But a new note of caution is now in order: The same intellectual deception that was in vogue in the 1980s has returned with a vengeance. This is not the time to embrace the seductive promises of failed theories. Policy traction in a post-bubble and increasingly deflationary climate is not about the quick fix. That’s the lesson from history that keeps me awake at night. And yet that’s the very possibility that ever-bullish markets are now ignoring.
Source: Morgan Stanley Global Economic Forum

A Portrait of the Blogger As a Young Man

Going back to the topic of Liverpool as the cultural capital (of Ireland?). I have been trying to get some material on this from my brother. Unfortunately all he's been able to send me are some sonnets he recently had performed to music in Leipzig and some acrimonious reminisences about our childhood. It might help to know that the person reffered to as Mrs Gibson was our mother.

Huddled and cold on the city's bleak damp earth, I watched grey-locked man limp away from my derelict site.
His laugh is as harsh as the North Wind, yet to me sings the redemtion of beauty as it echoes against the crumbling brick at my back.

Thanks for your offer of Liverpool slot but I think I’ll pass. Things that go through my mind are :

A)Filling up the yellow consul with its white wall tyres driven by Billy Fury's brother. He always paid in silver shillings because he emptied the gas meters.
B) Your first record I think was Tony Orlando “Bless You”. Was the Lonnie Donegan your first LP?
C) Your red and grey Eumig transistor radio, radio luxembourg and the Bulmer’s cider show.
D) The vono iron beds in the front bedroom and the anthology of horror stories compiled by the unlikely named Herbert van Thal.
E) The idea that you looked like Dave Clark
F) You making out with your girlfriend Pauline by the Colston Dishwashing machine. Why on earth did we have a dishwashing machine! Mrs. Gibson’s foibles.
G) Another of Mrs. Gibson’s foibles: the serving hatch put into the back room to the kitchen and our father insisting on eating in the front room!
H) Our father making all your women friends take their shoes off in the back room to save the carpet when you had a party.
I) Miss Gibson exuding over the card game Canasta! The middle classes at play!
J) Mrs Lewis as the first charity shop: always having to wear Mrs. Gibson’s hand me downs. Yet Mrs. Lewis’ son Arthur was a War Hero with his VC. But Oakfield Road was not West Derby.
K) You getting your Harry Quinn aluminium framed bicycle and father having a go. Did not Harry Quinn’s wife get controversially killed by her washing machine? I seem to remember father wanting to take Mrs. Gibson to Lancashire Lamp after that to make some purchases.

You could call the above “Pym Street Blues”!

No. I think I’ll pass thank you.

Now here is my tip for the UK economics. A sort of new paradigm
1) The currency will fall.
2) The prices will in the main remain the same
3) Unemployment will rise
4) Wage rates at the lower and middle end will decline
5) The social differences will increase
6) There will be social unrest

There will be social unrest across Europe. Over the long term power always evens out. The East will rise, the West will Fall. And then it starts all over again. We have enjoyed the Golden Age, brother. Count your blessings. This is what it probably felt like in Rome at the start of the Barbarian Invasions.
As regards humanity the trick has been to fill in the time between breakfast and lunch and lunch and dinner. It is just that this fill-in is different at different stages of technology. In the Roman times you went to the Coliseum, in the Middle Ages you went to grand Church Services, today we have TV. But the real prize, the one we have all been aiming for and which is programmed into us from the start is the brain in the bottle scenario. We are biological entities built to expend the least physical or mental effort (and the latter is any event physical) for the maximum pleasure. Thus the virtual reality wet suit will be followed by the electronic implant linked to the brain, followed by the final dispensing with the body altogether. The body will become the ultimate phantom limb.

Of course there will be attempts to get people to work in the interim equivalent to the Spartan cancelling of all debts to try and promote competition into a moribund populace.

But in the end we shall become brains in bottles!

Mines a tequila, bro! I just aim to be ahead of the pickled pack!

We're the Feds and We Know Best

Back to my post from Frans about politics and immigration in Holland. Maynard has written-in with some (typically) interesting arguments. Aside from the fact that I don't buy expressions like 'human garbage' at all, I think there's something in the argument worth reflecting on. In particular since I am a little older than Maynard, and didn't grow up on Forrest Gump etc. But what I have noticed is how many of the educational programmes in the UK have not benefited the poorest and most disadvantaged children rather in the way the housing programmes in the US seem not to have done. I think part of the problem here is the model deployed.

The article on political change in Holland made me want to write something like this.Over the last few days I've been reading two books, one, The Builders, by Martin Mayer, published in 1978, a discussion of a variety of matters related to housing in America, and the other How we got Here, by David Frum, published in 2000 and a history of the 70's.

What is striking about these books (in particular Mayer's book, written without the benefit of hindsight) is the extent to which the attitudes of "liberal democrats" had indeed proved a failure in the eyes of most people. I get the impression that most bloggers are not old enough (certainly I'm not old enough) to have lived through the 60s and 70s as politically aware animals, and their knowledge of the times is based essentially on pop-culture --- songs, _Forrest Gump_, TV documentaries. But what is clear in Mayer's book is that there was a persistent pattern of government intervention in housing, based on an arrogance that the feds knew best, and that the results were disastrous, especially for the poorest and weakest of society.

So what's my point? That it does not make sense to simply bemoan the Republican ascendency in America without understanding why it occurred---that the things it vilified were at the time genuine problems. It WAS the case that the federal government tried to mismanage vast sectors of the economy, and did so unsuccessfully. It WAS the case that some environmental regulations made absolutely no sense from a cost-benefit standoff. It WAS the case that an obsession with civil rights led to human garbage being able to demand to live in any public housing (and plenty of non-public housing), followed soon thereafter by widespread crime, vandalism and a substantial degradation in the quality of life of the rest of the inhabitants (always poor, generally black, and, if they had a choice, quite willing to kick out the punks). It WAS the case that ludicrous union make-work rules led to things costing more (and sometimes being of lower quality) to the general detriment of all of society (including the poor). So voters, angry at what they saw, were happy to vote for someone who promised to change all this. Especially as the alternative candidates, for the most part, not only would not acknowledge the sins of the past, but actively promised more of the same. (None of this is to excuse the current Republicans. If some regulation is too much, an over-reaction to no regulation may not be an improvement. And few Americans voted for [and perhaps even understand yet that what they have is] a plutocracy propped up by media fiercely loyal to preserving the power and wealth of corporations and the few that control them.)

But the modern Republicans are not my point. My point is that, no matter what polite society may want to believe and may say on the genteel pages of the NY Times, the bulk of the population can (eventually) spot a disconnect between appearance and reality and there will be a reaction. I don't know why integration has been so tough in Europe. Maybe the locals are hostile to outsiders; maybe it's because the outsiders refuse to learn the local languages and ways; maybe it's because Islam really is incompatible with the secular society that Europeans want. I do know that Fortuyn was simply the first, not the last. That while the European elite continue to insist that integration is going just swimmingly and that Muslims are just like us only with funny hats, a wave of anger and resentment will continue to grow; and when it gets voted into power as it will, the over-reaction, and the hijacking of the program by those with less-publicly-mentionable ideas, will be, like has happened in the US, not pretty. These things build up slowly --- it took 32 years to get from the end of Johnson to GWB --- but they build up fairly unstoppably.

On the other hand the stuff on bureaucratic solutions to housing problems puts me in mind of a point Margy made in a chat last week. Bottom line, understanding how all this works, or doesn't work, seems to have some vital importance for all our futures.

margy_joy: sorry - still sleeping :)
margy_joy: Reading this Holland blogg..... I cannot understand!
margy_joy: So the problem we face here is not “backwardedness of the Islam” but backwardness of the macho-culture (that often goes with the Islam). This also contributes to the high “performance” of the Moroccan (and Antillean) young in crime.

margy_joy: Do you have a minute to tell you about the collapse of one experiment on integration here?
margy_joy: Ok - I'll try to make the long story short:
margy_joy: With urbanisation Romany people here had faced problem with changing their crafts and to enter new jobs
margy_joy: Pay attention - it is on networks! They startet to create ghetoes in big cities
margy_joy: illegal building, lack of infrastructure, isolation from society etc
margy_joy: So - the communists decided to solve the problem through deplacement
margy_joy: here was an ideya to have 1 roma family in one appartment building
margy_joy: yes - some families become more integrated in terms of language, life style, new strategies of prosperity etc
margy_joy: After the fall of comunism they were the first people to be unemployed
margy_joy: and guess what?
margy_joy: They started to sell their apartments and in mass they moved back to ghetoes
margy_joy: Why? because here the social networks kinship-based are the only social support nets
margy_joy: you will not die from hungryness if relatives are there. But all will suffer malnutrition.........

margy_joy: So - you will see - there is such a relation - the illegal emigrants are settling together and are meeting more often then the others
margy_joy: Yes - I did it here in 3 town ghetoes
margy_joy: that's why I am interested in networks.

Motorola Lowers Forecasts

Blaming SARS as well as weak sales, Motorola has been lowering its expectations. It would be interesting to know the relative importance of the two factors. My feeling is that SARS can be used as a scapegoat for a multitude of sins, and the tech 'recovery' may not be as pronounced as Wall Street has been anticipating. Also of note the reduced expectations on semi-conductors sales 2003 and 2004.

Motorola lowered sales and earnings expectations for the second quarter as handsets and semiconductors in Asia suffered the combined effect of Sars and excess inventory, pushing its shares down 5 per cent during morning trade in NewYork. The US technology group said on Monday sales for the second quarter were now expected to be between $6bn and $6.2bn, down from previous guidance of between $6.4bn and $6.6bn. Earnings per share, excluding special items, are expected to be around the breakeven point, down from estimates of between 3 cents and 5 cents. Motorola said full-year sales and earnings guidance would also be lowered as factors affecting the second quarter were likely to hit the third and possibly even the fourth quarter. Although it was confident that Asian health authorities would bring SARS under control, the company said timing of this remained uncertain. Last week, World Semiconductor Trade Statistics cut estimates for global semiconductor sales in 2003 and 2004. The industry group said the long-awaited recovery in the sector was being slowed by the outbreak of Sars.Nokia, which dominates the global mobile handset market, is due to issue its mid quarter update on Tuesday.
Source: Financial Times

It's Never Too Late to Say Yes

Which is why I think today's decision by the UK Chancellor Gordon Brown to hold fire on joining the euro has to be welcomed. Only one of the 'famous five' tests came in positive, the others seem to have turned in a 'more work to do' report. While I'm really not sure how much importance to attach to these tests in and of themselves, I feel that the biggest test of the euro itself now lies in front of us (resolving the 'German' problem). Of course if it can surmount that test the arguments against the currency union would at least need reconsidering, and if it can't, then the question of UK membership will I feel be settled definitively, and not by any of Mr Brown's tests. So I feel the arguments for taking a wait and see approach have to convince at this juncture.

Britain is not yet ready to adopt the euro, chancellor Gordon Brown said on Monday, as the Treasury’s assessment of the five economic tests for membership of the single currency was finally published.

In a speech to parliament, Mr Brown said that only one of the five tests, relating to the impact on the City, had definitely been met. “We still have to meet the two tests of sustainable convergence and flexibility,” Mr Brown said. “Subject to the achievement of sustainable convergence and sufficient flexibility, the tests for investment and employment would be met.” Mr Brown kept open the option of holding a national referendum on the issue before or soon after the next general election, something Tony Blair and pro-euro ministers wanted. He confirmed that draft legislation would be published that could enable Britain to hold a euro referendum before the next general election.
Source: Financial Times

No Blogging No Cry

Hello there, I'm back. It's been another one of those European holiday weekends, and I've been out of town . One of the benefits of Spain being a catholic country inside the European Union is that we get all the religious holidays, plus the contractual ones. This time it was a local holiday called the 'second easter'. Two weeks from now comes the big one, summer solstice or St John.