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Friday, March 21, 2003

Bad Dream, or Real Life Nightmare?

Stephen Roach can't be the only one worrying this week about all the optimism the markets are showing about a past-war economic recovery. My feeling, like his, is that this is very premature. The outbreak of war has released a tension that had been building up for months. Now it has finally arrived, and the market response is a reflection of this feeling. What happens tomorrow, when it is all over, this is anyone's guess. My own feeling is that the hangover of discovering that the problem was something more than geopolitical uncertainty may have negative consequences. But as I've said many times, trying to guess the markets is a fools game.

In just one week, financial markets have gone from despair to hope. Rewarded for leading the battle into Iraq, the US has led the way. With oil prices having plunged by 20%, stocks up 9%, yields on long Treasuries up 40 basis points, and a beleaguered dollar seemingly on the mend, it is tempting to conclude that the angst of a week ago was nothing more than a bad dream. Is it time to focus on postwar recovery?

The answer to that question, in my view, is an unequivocal “no.” While I certainly concede that the jury is out on the great recovery debate, I would argue most emphatically that it is entirely premature for investors to put war and business cycle risks behind them. We’re all taught that financial markets were put on this earth to embarrass as many as possible for most of the time. Yet I would argue that it is truly an extraordinary leap of faith for investors to conclude that American military supremacy will lead to the “perfect victory” -- an outcome that can then be seamlessly translated into economic and financial market vigor. It’s times like this where the analyst has to keep cool and stay focused on fundamentals -- not emotion. As I see it, the market volatility of the past week smacks more of the latter than the former.
Source: Morgan Stanley Global Economic Forum

What Type of Deflation in Japan?

Morgan Stanley's Takehiro Sato draws our attention to a debate in Japan that is not without importance. The debate became public through the delcarations of BoJ Policy Board member Kazuo Ueda in an opinion article that appeared in the Nikkei Shimbun on March 17. In the piece he questions the Bank’s official stance toward the Non Performing Loan (NPL) problem. He draws a clear distinction between asset price deflation (particularly that of land and property, which has fallen some 70-80% since its peak) and the consumer price index, which has fallen rather moderately. The asset price decline is what bears comparison to the 1903's deflation problem, but the slow-burn chronic deflation reflected in the CPI is, in my book, something new and decidedly modern. This argument remains unchanged even if poor measurement practices mean the decline in the CPI has been slightly larger than estimated. The property angle is worthy of much deeper investigation for it's importance in the spectacular growth of the Japanese economy, and because with an ageing and shrinking population pressure on Japan property values are likely to decline and not increase. Again how to resolve the structural problem of the major outstanding policy problems facing Japan. All in all, the argument is an important one since it relates to whether or not monetary solutions can work in the absence of a complete restructuring of the banking system.

According to Ueda, asset price deflation, not general price deflation, is linked closely to the Japanese economy’s current stagnation and macro policies that work against general price deflation are unlikely to lead to a sustained recovery. Reasons given to support this view are (1) no indication of a rise in real debtor burden caused by higher real interest rates, as occurred in the 1930s, given the mild 3% cumulative decline in the CPI from its peak, (2) no evidence of general price deflation leading to asset price deflation with almost no correlation between asset price and general price trends, considering the 70-80% cumulative decline in the urban land price index from its peak, tantamount to asset deflation during the Great Depression, and (3), conversely, some downward pressure on general prices from the inability to resolve quickly setbacks to the financial intermediation function caused by asset price deflation.

Based on these assumptions, efforts to boost general prices using macro policy would not provide a solution for asset price deflation. This position blunts the arguments of those calling for inflation targets through the purchase of risk assets. Ueda also projects a continuation of negative pressure on asset prices until the Japanese economy succeeds with structural transformation and asserts that this is a necessary adjustment. It is hence necessary to revitalize the financial intermediation function along with macro policies to stop general price deflation in order to limit adverse repercussions from a debt-deflation-adjustment process comparable to the 1930s. There must be a restructuring of both borrowers and lenders and a rebuilding of the financial system using public capital where appropriate. However, Ueda’s view puts asset price deflation at the center of the NPL problem and differs in nuance from the Bank’s official stance presented last October in the areas cited below.
Source: Morgan Stanley Global Economic Forum

Thursday, March 20, 2003

Pedro Solbes is Concerned

More from the CSIS / EU Commission Ageing Conference. Pedro Solbes informas us that he is 'concerned', "concerned that there is a serious gap between the commitments to prepare for ageing populations and the actual reform measures which are being taken". This I think explains a little the recent exchanges within the Commission itself, most notably between Romano Prodi and the very same Pedro Solbes. For my part, I feel that number of important points emerge from Pedro Solbes' contribution to this conference.

Firstly, from his own perceptions, many EU governments are not living up to their obligations to try and leave a solvent pensions and social security system for their citizens. Too many are placing short run political steering problems above the need for long run stability.Secondly, having 3% annual growth rates as an objective is not the same thing as achieving it. On present showing, this is far from lkely to become a reality. When labour force participant numbers begin to decline, a number of European economies will be hard pressed not to decline, and if we add to this the possible presence of deflation, then this decline will only be more pronounced.

Thirdly, the EU seems to be working on a model of R&D which, if not totally out of date, is at least highly questionable. Targetting a percentage of GDP is no solution. The problem is to find the kind of creative dynamic which can produce genuinely productive innovation. This in part passes through a policy of abandoning 'national champions' and stimulating a genuinely new climate of enterprise and initiative. As I argue elsewhere, if unit information costs are declining, it is not clear that the old in-house expensive projects are the answer. A fourth, and important point, is that one of the consequences of all the welfare cutbacks will be an increasing number of elderly people in poverty. Apart from the ethical considerations (which are partly mitigated by the fact that there may be no real alternative, this must have an impact on domestic consumption. In general all contributions to the conference seem to pay little attention to the problem of negative re-inforcing, and negative feedback problems generally.

Europe has diagnosed the challenges but the pace of reform is inadequate

The EU, has in my view, correctly diagnosed the long-term challenges it faces. The EU Heads of State or Government set Europe an ambitious goal of becoming a dynamic economic area by raising potential growth rates to 3% by 2010. Detailed programmes for product and factor market have been defined to achieve this goal. Labour markets in particular have been singled out as essential for raising growth potential and preparing for ageing population and specific targets have been set. A three pronged strategy has been agreed to deal with demographic changes:

first, a fast pace of debt reduction;

secondly, raising employment rates especially of women and older workers;

thirdly reform of pension and health care systems.

These are all laudable objectives, and if achieved would go a considerable way to offsetting the economic and budgetary impact of ageing. But I am concerned that there is a serious gap between the commitments to prepare for ageing populations and the actual reform measures which are being taken.For example: four years after the launch of the euro and six years after agreement on the Stability and Growth Pact, several Member States continue to have large underlying budget deficits or debt levels well above 60% of GDP. The failure to reach our mediumterm budget objective cannot only be attributed to an unfavourable economic cycle. It is to a large extent driven by a failure to run sound fiscal policies in good times, unfunded tax cuts and a consistent failure to control public expenditures;reforms to raise employment rates, and in particular those measures needed to increase the employment of older workers are lagging. The Lisbon targets are therefore in jeopardy of not being met.

Ageing Vulnerability Index

The Washington based Commission on Global Ageing has developed an Ageing Vulnerability Index whose purpose is to measure and compare the magnitude of the ageing burden in different countries and, by extension, the "vulnerability" of those countries to demographic ageing. The Index is calculated by combining country scores on eleven separate indicators. Without totally endorsing the methodology employed in this study, it is nevertheless to interesting to consider what they find. This is after all an index of indexes and this is an area where we have few reliable yardsticks to go by. Let's start by taking a quick look at the what the Index reveals about where some of the key countries are heading.


Aging faster today than any other developed country, Japan will have in 2040 one of the highest old-age dependency ratios in the world. It finishes ninth on the benefit-level and net-transfer indicators, eleventh on benefit growth and budget room, and twelfth on borrowing room. So how does Japan manage to rise to the middle of the overall rankings, with an Index score of exactly 50? For one thing, Japan's public pensions are relatively stingy and its public sector is relatively small. This keeps the overall cost of old-age benefits from rising even higher than it does, while allowing Japan a fourth place finish on tax room. Over the long term, moreover, the social and political reform environment in Japan appears surprisingly favorable. Japan ranks number three in the elder-affluence category. And it ranks number one in the benefit dependence category, with a first place rank on family ties, a first place rank on poverty impact, and (due to very high rates of elder employment and a broad-based private pension system) a third place rank on benefit share. No other country with comparable demographics and a comparable public burden enjoys as many offsetting advantages.


By 2040, Italy will have one elder for every working-age adult putting it in a dead heat with Japan and Spain for the developed world's worst demographics. On top of that, Italy's pension spending as a share GDP is the highest in the Index countries, and the Italian elderly are among the least likely to be employed or to receive a private pension. Moreover, Italy's overall eleventh-place ranking in the Index comes despite a series of pension reforms enacted in the 1990s (the "Amato" and "Dini" reforms) that are scheduled to make steep cuts in future benefits. Without these reforms, Italy would surely be in last place. The open question is whether Italy is likely to make good on its reform promises. Its second place ranking in the benefit dependence category (with family ties second only to Japan) gives some hope. Yet Italy comes in last in the elder-affluence category, a reflection of how seriously these future benefit cuts threaten elder living standards.


Spain might be described as Italy without the reforms. These two countries face a very similar (and dire) demographic future. They both have generous public pension systems that support elders who have little employment or private pension income to fall back on. Unlike Italy, however, Spain's pension generosity is due to continue unchecked into the indefinite future. Spain comes in in last place (number twelve) on all three public-burden indicators, and on the net-transfer indicator it does so by a wide margin. Aside from its runaway pension projections, however, Spain hardly fits the stereotype of the bloated welfare state. Its public sector is still relatively small. Its net debt is modest. And to judge by its average rankings in the elder-affluence and public-dependence categories (it has the third-strongest family ties after Italy and Japan), reform may not be beyond its grasp.

Robots to the Rescue?

Timely review from newsweek on how our future may be related to our iimminent intimated merger with the world of robots:

Elvis might very well be the king of the new age. It is one of 100 HelpMate robotic couriers, made by the San Diego-based Pyxis, for the nation's hospitals. It weighs 600 pounds, looks like a five foot tall cabinet on wheels and toils beneath the University of California, San Francisco, hospital, ferrying blood samples and medicine throughout the building. Once directed to a location, Elvis can chug down the hallway, wirelessly beckon the elevator and easily avoid other people and obstacles in its path.

Elvis is among an increasing number of robots being created to meet the needs of the health-care industry. Today there are five workers for every senior citizen. By 2020, the ratio will decrease to 3 to 1 (and in Japan, 2 to 1). Robotics firms are trying to stem the coming shortage of caregivers with products like Mitsubishi Heavy Industries’ Wakamaru, due out early next year. It’s a three-foot-tall, yellow-faced robot with beady black eyes, designed to serve as a home caretaker for the elderly. It can talk, hug and send e-mail to the owner’s relatives if something seems wrong. But there will be a whopping $10,000 price tag.
Source: Newsweek

Wired on Transhumanists

Wired Magazine in this hilarious spoof analysis identifies two prevalent transhumanist species. A golden opportunity to check out your own geneology.

Know Your Transhumanists

"If the future can't be now, it should be as soon as possible." That's the creed of transhumanists, a growing geek subculture that can hardly wait for the first major academic confab about its beliefs to unfold at Stanford later this year. Also anticipated: Ray Kurzweil's next book, The Singularity Is Near. But not all transhumanists think alike. Here's a field guide to the two major types.

The Extropian (Transhumanus aeternis)

Wants to live forever in a free-market, libertarian paradise, his psyche augmented by the best technology and drugs. Currently reading BioMEMS: Fundamentals of Implant Microfabrication. Most recent meal Day 9 of calorie-restricted diet: 20 grams of protein, 1 gram of carbohydrates, 600 ml of water. Last sexual encounter On DMA at the Extro-5 conference. Favorite tattoo SPINAL IMPANT GOES HERE. Saved on his iPod Local copy of his own genetic code. Stored in his basement Complete set of Reason magazine and Mondo 2000 back issues. Biggest fears Death, taxes.

The Singularitarian (Transhumanus transcendens)

Believes people will soon merge with computers and become an immortal new life-form - a "singular" event in human history. Currently reading Collected Stories of Vernor Vinge and The Cyborg Handbook. Most recent meal Whatever is in the lab vending machine. Last sexual encounter In a Doom mod in 1996. Favorite tattoo EVERYBODY LOVES RAYMOND (KURZWEIL). Saved on his iPod Algorithms - lots of algorithms. Stored in his basement Self-evolving AI network running on 42 linked PCs. Biggest fears Direct sunlight, women.
Source: Wired Magazine

UK: Bubbling Along?

Christel de Lindt from London looks at the state of the UK housing market. His view: despite some improvement in fundamentals which justifies an increase, the market may have overshot by some 10%. He is, given everything, remarkably re-assuring on this (too re-assuring on my view). His confidence lies in the fact that previous housing bubbles were burst by sharp rate hikes. These he doesn't expect in the UK any time soon. But is he considering possible deflationary forces? If we talk about real (not nominal rates) the BoE doesn't have to change anything, if the CPI starts to move into negative territory this itself is equivalent to a rate hike. He points out, correctly on my view, that the UK has benefited from significant positive feedback dynamics in recent years. These, as evryone knows, can unwind. There is also one important factor he doesn't mention. The UK, like the US, has an important structural imbalance: its balance of trade deficit. To pay for this the UK, like the US, has to attract large quantities of foreign funds on a regular basis. This constricts enormously manoevreability on interest rates. There is another factor not considered, and that is the situation of capital values and repayment weights looking forward. In all previous UK 'bubbles' the prospect of forward looking inflation served to 'sweat off' the real weight of the repayment burden. This time we may not be so lucky. In a low inflation, or deflation, environment, with forward income little changed, the weight of the debt burden can fall heavy on UK consumption.

The UK economy has long been more dynamic than its continental peers. In the past 10 years, the UK economy has grown on average 2.6% per year versus only 1.4% in Euroland. The engine has been the UK consumer, whose spending has risen a cumulative 36.8% since 1991, more than double its Euroland peers. The side effect has been household debt (as a percentage of disposable income) rising by over 10 percentage points (pp). This has given rise to fears that after rising sharply, consumer spending is about to cave in.

Housing price rise only partly driven by fundamentals. There are fundamental reasons behind housing demand strength in the past few years, namely robust growth in real disposable income (up an average 4.9% a year 1999-2002) and lower interest rates. However, even given supportive fundamentals, house prices seem to have overshot. Fitting a simple equation where house price inflation is a function of repo rate changes, real earnings growth, and employment growth, we find that while the acceleration in house price rises is partly driven by developments in fundamental variables, these alone cannot justify the full extent of the pick-up. The equation suggests the overshoot could be in the region of 10 pp (versus roughly 5 pp at the 1988 peak).

This is why household debt picked up so sharply. Again, in light of the lower inflation, a lower interest rate environment, sustained improvement in labour market performance, and financial market liberalisation, we are sympathetic to the idea that higher debt levels might be more sustainable than 10 years ago. However, even allowing for this, the debt ratio rose well above this trend. In fact, the excess happens to be 10.8%, strikingly consistent with the 10% overshoot in house price inflation found above.

Looking back to 1956, the three episodes of sharp plunges in house price inflation were triggered by large rate hikes. House price inflation peaks have almost perfectly coincided with interest rate troughs, and a simple causality test confirms that over the period 1956-2002, the repo rate 'caused' house price inflation. Could this happen again? We do not think so. There are major differences today compared with the last boom phase (which ended in 1988).

The major distinction is that the whole economy was overheating badly in 1988, a situation very different from today: the output gap was a record +4.7% in 1988, while it stood at -0.2% last year. Business investment rose 16.8% in 1988, while it contracted 10.1% in 2002. The current account deficit averaged 4.2% in 1988, versus 1.1% in the first three quarters of 2002. Finally, inflation was about to shoot up to a peak of 10.9% in 1990 (from a trough at 2.4% in 1986). On our current forecasts, inflation should average 2.8% this year and 2.6% next year. Against this backdrop, the repo rate was hiked 7.5 pp in just 17 months. As a result, household interest payments as a percentage of disposable income shot up by 4.6 pp over the same period.
Source: Morgan Stanley Global Economic Forum

Wednesday, March 19, 2003

EU Commission Conference on Economic Implications of Ageing

The European Commission has published the papers from a conference they sponsored jointly with the Global Ageing Initiative on 4, 5 March. The material looks interesting. You can find it here . I need some time to look through all this, but meanwhile an initial extract from Pedro Solbes. You know, I think some people are finally begining to 'get it'.

Our conclusions are worrying. On the basis of current polices, a clear and unequivocal risk of unsustainable public finances exists in at least half of EU Member States. Even countries which at first sight appear to be in a good position, face daunting challenges. Both reforms, with which I will deal later in the speech, and budgetary discipline have to remain high on the economic policy agenda. High debt countries, face a particular challenge as they are de facto obliged to run large primary surpluses and achieve ambitious debt reduction targets in order to ensure sustainability. This implies an enormous and sustained real budgetary effort. Alternatively sustainability in some countries appears to be based on sustaining very high tax ratios over several decades. The tax burden is a matter for Member States to decide, but there are questions as to whether high tax rates can be sustained in the face of globalisation and the increased mobility of tax bases. These conclusions underline the need for further increasing the focus on the debt level and long-term sustainability in the Stability and Growth Pact. Indeed, the upgrading of analysis on ageing populations was a central element in the proposals adopted by the Commission last November.

… but the core challenge is economic growth.

Over the past forty years, we have become accustomed to increasing levels of prosperity on the back of sustained increases in labour supply and high levels of productivity growth. However, ageing populations means that these sources of growth cannot be taken for granted in the future. The population of working age in Europe will start to shrink as of 2010 as the post war baby-boom cohort enter their retirement years. Unless offset by increases in productivity growth, a fall in the supply of labour will mean that the potential growth rate will fall. We have estimated that the pure impact of ageing populations will result in the potential growth rate falling by some 0.8 percentage points. A drop of this amount may appear small, but its cumulative effect would be a shortfall in GDP per capita of some 20%. Let me be clear. I am not suggesting that living standards will fall by 20%, but rather that they will be lower than what could be expected to be in the absence of demographic change. These changes in the labour market are not long-run concerns. Our recent economic forecasts show that these effects are already emerging in some EU Member States.

A fall in potential growth is not only a concern because it will lead to a relative decline in prosperity vis à vis other industrialised countries. It is a major problem because it will make it ever more difficult to meet the expectations and demands of a growing elderly population. Much of the pension entitlements which citizens are accruing in public systems today are based on an assumption of a potential growth rate of around today’s growth level.
Pedro Solbes

Deflation Alive and Well in the Czech Republic

Many observers seem to treat deflation as if it were a problem which was exclusively focused on Japan. In fact the problem is much more generalised, and seems to be spreading rather like that horrible pneumonia problem. Today some news from the Czech Republic. The seasoned deflation observer will note that the principle pillars of policy are increasing the government debt (which rose by a staggering 18% of GDP last year, provoking sharp criticism from the IMF) and lowering the value of the currency. Neither of these lines of attack would be open to the Czechs were they, at some future date, to enter the euro.

Czech consumer prices grew 0.2 % month/month and fell 0.4 % yr/yr in February, reports the Czech Statistical Office (CSU). In February, prices of food, clothing and household equipment fell, while other items in the CPI basket rose in month/month comparison. The main factors behind the month/month price increase in February were increased prices for recreation and culture (1.0 %) and transport (up 0.5 % due to a 2.3 % rise in fuel prices). Housing prices rose 0.3 %, while telecommunications added 0.9 %. On the other hand, food prices fell 0.3 % and clothing and footwear prices went down 1.0 % in February. As in January, the yr/yr fall in prices was influenced by decreases in consumer prices of food and non-alcoholic beverages (down 6.0 %), clothing and footwear (down 4.8 %), natural gas (down 11.4 %), electricity (down 4.7 %), says the CSU. "In the next months, prices of fuel and transport will continue to grow," predicts Komercni banka (KB) chief analyst Kamil Janacek. "Also there will be a reversal in the declining trend of food prices." He expects inflation to be just under 2 % at the end of 2003. Prices in 2Q 2003 will be compared to the relatively low base created in the second quarter of 2002, says Radomir Jac of Commerzbank Capital Markets, adding to the factors driving annual CPI inflation higher. Analysts believe deflation could continue until March or April. At the end of January, the Czech National Bank (CNB) reduced its rates by 0.25 bps, bringing the key two-week repo rate to 2.50 %, or 0.25 points below eurozone levels. Low inflation was the main argument for the cut. If the low inflation continues, Miroslav Brabec of Raiffeisenbank expects another 25 bp rate cut in anticipation of further monetary easing by the European Central Bank (ECB). The Czech crown firmed to below CZK 31.80/EUR Monday morning following the release of inflation data.
Source: Interfax Czech Republic

This is One to Watch

With all eyes firmly focused on the coming war in Iraq, real economic data and analysis is pretty thin on the ground this week. The situation in the US housing market is one area which needs careful watching. Greenspan seems happy to admit he really doesn't know what is going to happen next, and who am I to disagree.

The number of new housing projects builders broke ground on in February plunged by 11 percent, the sharpest decline in nearly a decade, as bad weather and an uncertain economic climate took its toll on the residential construction market. Housing construction dropped to a seasonally adjusted annual rate of 1.62 million units in February, representing a 11 percent decline from the month before, the Commerce Department reported Tuesday.

The level of housing activity in February was weaker than the 1.75 million pace economists were forecasting. The housing and residential construction markets have been one of the few bright spots of the ailing economy. But Tuesday's report raised new questions about the extent to which the residential construction market will continue to serve as a pillar supporting the sagging national economy. Home builders, meanwhile, are less optimistic about sales prospects for March, as well as for the next six months, despite rockbottom mortgage rates, a new monthly survey by the National Association of Home Builders showed. "Even as the lowest mortgage rates in decades continue to support new-home sales, builders are understandably concerned about continued economic weakness, the situation in Iraq and the anticipated effect of these developments on consumer behavior, " said Kent Conine, president of the National Association of Home Builders.
Source: Yahoo News

Tuesday, March 18, 2003

New BoJ Governor: Actions Will Speak Louder Than Words

The traditional sport of governor watching will take a new turn this week with Toshihiko Fukui taking over as governor of the Bank of Japan on Thursday. Commentators are already hanging on his every word looking, almost hope against hope, for some sign of change. My own view is we will have to wait: to wait and see what lies behind the words, and to wait and see how events yet to unfold may affect BoJ policy:

Toshihiko Fukui, who takes over as governor of the Bank of Japan on Thursday, signalled that he is prepared to adopt a more aggressive monetary policy, though he said the central bank could not tackle deflation alone.

In confident testimony before parliament on Tuesday Mr Fukui said the BoJ would consider broadening the range of assets it buys, comments taken by analysts to refer to the possible purchase of property-backed securities or exchange-traded funds, a proxy for the stock market.Mr Fukui also said he would look favourably on requests from politicians for the BoJ to raise the Y2,000bn limit on the amount of shares it can buy from commercial banks. The BoJ broke a taboo last September when it said it would purchase shares from banks, but Masaru Hayami, who steps down as governor on Wednesday has been openly nervous about the effect this could have on his institution's credibility.

On the controversial topic of whether the BoJ should set an inflation target, Mr Fukui was less dismissive of the idea than Mr Hayami, though he said it would be foolhardy to set such a target without making clear how it was to be achieved. "I think inflation targeting can be an important policy tool for a central bank," he said. "I still need to debate with the BoJ policy board members whether the conditions are in place for such a policy."
Source: Financial Times

Schroder Struggles to Convince

This, anyway is the Economist view of things.They are worried by the reform appetitite and the will to change of the German Chancellor. I am worried about the diagnosis.

To be sure the German panorama does not look exactly appetising. After years of sub par growth, followed by a series of failed sallies on the part of the larger communications and technology enterprises into the new economy and the internet, and accompanied by deteriorating demographics and resistance to immigration, now, with deflation knocking on the door, Chancellor Schroder is for the first time seriously talking about addressing the problem of reform.

The Chancellor's main proposals, none of which come as a surprise, are aimed at making it easier for employers to fire workers, reducing the length of time unemployed people can receive benefits and eliminating some of the costs of the national welfare system. The program also includes proposals to increase public works spending, to make it easier for small businesses to hire temporary workers and to require unemployed people who have received welfare payments for a year or more to accept jobs, even if undesirable, that are offered to them by the state employment agencies.

Many of these reforms may well be necessary, and long overdue. The question is will they have the impact intended. My feeling is that the majority of the measures, in the short run, can only make the problem worse. Most Germans will feel more, not less, insecure. Meantime euro zone interest rates are way above what is required to treat the German malady (which could well turn out only to be a new variant of the Japanese one).

Germany needs a change of direction and a change of mentality. In particular there is a need on the part of politicians, employers, unions, civil society, in fact almost everyone for a recognition that fundamental change is needed. Changes in attitude to innovation and risk, to the internet, to the relations between the English and German languages, to patterns and styles of work. Despite all the talk of knowledge-based and information societies, there is little imagination being exercised in the search for change. For example, one of the consequences of the increased acces to and sharing of information through the internet and distinuted, SETI style, computing, is that tthe whole R&D situation has changed dramatically. The EU governments, however, still think in terms of the 'old' model of large scale, state-subsidised research. Isn't the key to change in Germany about motivating a new generation of young people with different values. Isn't it time they woke up to the fact that 'sharing' is about more than MP3. Wouldn't they do better subsidising high speed internet for the young people, and actively promoting on-line collaborative communities?

Above all Germany needs to recognise that it cannot do this alone. There is still a window of opportunity open for Germany, but passing through it means opening the doors to all those young people worldwide which Germany so badly needs. It means a new approach to German identity, to multiculturalism and diversity. For one thing is clear. This, not a new employment law, is the structural change Germany badly needs. Without it the future, as I said, does not look appetising.

CORNERED must be how Gerhard Schröder feels these days. With his opinion-poll ratings plummeting, and desperate to rescue his political reputation, the German chancellor unveiled a new package of economic reforms in parliament on March 14th...... About the diagnosis, there is no longer much debate. The largest economy in Europe is in deep trouble. It is, once again, teetering on the brink of recession, with growth forecasts for this year slashed to nearly zero. Unemployment is climbing—at 4.7m it is now well above the level that Mr Schröder inherited in 1998 and which he pledged to tackle in his first four-year term. Germany’s labour laws discourage companies from hiring workers in the first place: both because pension and other add-on costs make it expensive and because it can be difficult to slim down the workforce if business declines. The country’s generous but hugely expensive welfare system has become unsustainable and is putting great strain on the government’s finances.

In the past, tough talk of reform has petered out—proposals have been watered down or abandoned. Germans are anxious about the state of their economy. But many are also strongly attached to the generous welfare provisions which the state provides. On the streets, Germany still feels like an affluent country. Not everyone is yet convinced of the need for urgency or radical change—a situation not unlike Japan in some respects. Mr Schröder’s political position was further undermined by defeats in two crucial state elections in February. These gave the opposition a clear majority in the upper house—one that they used on March 14th to block changes to the tax system which the government wanted to push through. Unusually, there are only two further state elections this year, in May and September, which might give the chancellor some breathing space to show he can deliver his economic reforms. The changes he has now proposed are an absolute minimum, and might not be sufficient to rescue what is left of the chancellor’s reputation. Any backtracking now could fatally undermine his position and would probably revive talk of a new election or of a grand coalition in the national interest between the two main parties. It seems unlikely that Mr Schröder would survive in either case. For him, as well as for the German economy, the stakes are high.
Source: The Economist

Italy Losing Its Shine

Those who follow my arguments here at Bonobo Land will know that I see Italy's future as something of a test. If I am right in my demographic hypothesis then it is reasonable to assume that the next economy to find itslf really mired in deflation should be not Germany, but Italy (closely followed by Spain). I was getting worried since Germany seems clearly to be winning the deflation race at the moment, but the most recent results in from Italy tend to cast a rather long, dark shadow over things. Growth in 2002 was only 0.4%. Inflation, in this normally inflationary country, has all but disappeared, and the public debt has passed through the 100% of GDP mark. Note also that the even the European Commission is publically challenging some of the 'official' story. Unfortunately we don't have an economic statistics reliability index.

Economic growth in Italy this year is likely to fall well short of the government's official target of 2.3 per cent, even if the world economy is not disrupted by a long war in Iraq, Italy's central bank said on Monday.In its regular six-monthly economic report, the Bank of Italy said gross domestic product growth was unlikely to exceed 1.3 per cent and could be lower if a war lasted for a long time. GDP growth in 2002 was 0.4 per cent, its lowest level since 1993. Private sector economists described the Bank of Italy's assessment as broadly in line with their own, but noted that some forecasters are predicting GDP growth of less than 1 per cent this year. Economists at Barclays Capital in London expect growth of only 0.6 per cent.

Italy's centre-right government has been criticised by the European Commission for publishing macroeconomic forecasts that in the Commission's view are based on over-optimistic assumptions about GDP growth.In an updated stability programme sent to the Commission last year, the government forecast growth of 2.3 per cent this year, 2.9 per cent in 2004 and 3.0 per cent in both 2005 and 2006. Using these estimates, the government says Italy's budget deficit will fall from 2.3 per cent of GDP last year to 1.5 per cent this year, 0.6 per cent in 2004 and 0.2 per cent in 2005. The government is predicting a budget surplus of 0.1 per cent in 2006. The government is also forecasting a fall in Italy's public debt from 106.7 per cent of GDP last year to 96.4 per cent in 2006.

However, the Commission said recently that the government's projections "do not appear to be in line with the degree of caution that should underpin a prudent fiscal strategy".Some private sector economists say Italy's budget deficit, far from going down this year, is at risk of exceeding the limit of 3 per cent of GDP set out under the European Union's stability and growth pact.They say Italy's public finances remain a cause for concern because the government's 2003 budget relies on one-off savings and revenue-raising measures rather than long-term structural reforms to keep down the deficit and public debt.
Source: Financial Times

Monday, March 17, 2003

Globalisation At Risk?

Stephen Roach argues that globalisation may be at risk. I beg to demur. At least not at present. His argument, slowing global trade, global imbalances (of the US, EU, China, India variety), and increased global tension. On all three of these he is surely correct. The world is in more trouble today than it was five years ago. But that doesn't mean globalisation is on the way out. If we look at the rush to get into China things in fact seem to be going the otherway. Globalisation experiencing diminishing returns then? Possibly. What is clear that anyone who goes out gets stuck in total lockout. Those in doubt please look at Argentina. So I think throwing globalisation into reverse gear is just not plausible. At least for now. My department of heretical thoughts would also add this: there has long been a debate among globalisation theorists about when a world economy actually got off the ground. Some would trace the origins of the modern world economy back to the 13th and 14th centuries (Braudel, Wallerstein). Others have argued that there is something qualitatively new in the 19th century (Williamson, O'Rourke). To date I have been more on the side of the latter group, but jsut recently a strange thought has been going through my head. What if globalisation went in waves, and with emergent properties (ie each wave got stronger)?. On this view this wave is so strong there is no way back. Given the steady demise of the nation state and the national identity: just what is there to go back to? (Expect more blogs on this!!!).

For the rest Stephen almost makes me look an optimist. I concur.

As I look ahead over the next several years, I see little relief on the economic horizon. In fact, I fear an intensification of pressures on globalization coming from three major forces: First and foremost are the likely impacts of a weaker US dollar brought about by America’s long overdue current account adjustment. America’s current account deficit hit a record -$548 billion (annualized) in 4Q02, or 5.2% of GDP. This is an unavoidable by-product of a near evaporation of national saving -- a net national saving rate (net of depreciation for consumers, businesses, and government units) that plunged to a record low of 1.6% in 3Q02. Lacking in domestically generated saving, the United States must import surplus saving from abroad, and run massive current account deficits to attract that capital. Yet ever-widening US budget deficits will only exacerbate these pressures -- having the potential to push the national saving rate toward zero and the current account deficit toward 7% of America’s GDP over the next few years.

There are two other economic forces that are likely to put intensified pressure on globalization in the years ahead -- both emanating from the powerful trends emerging in the developing world. The first is the so-called “China factor” -- the emergence of a low-cost, high-quality manufacturing platform with extraordinary scale and scope. Always in search of a scapegoat, the world has been quick to blame China for many of its problems. China-bashing is at its worst in Japan, where fears of “hollowing out” -- a rather ironic accusation coming from Japan -- have reached near epidemic proportions. But hand-wringing over China -- also evident in Washington and Europe -- can be expected to worsen, as rising unemployment becomes more of a problem. Lost in the fear-mongering is that China’s emergence is very much made in the industrial world, itself -- a by-product of conscious outsourcing strategies that improve business efficiencies and offer consumers price breaks on high-quality goods. China topped the world as a recipient of $52.7 billion in foreign-direct investment in 2002; in the first two months of 2003, FDI into China has surged further to $11.1 billion, running well ahead of last year’s record pace. While industrial world businesses are shifting to China for economic reasons, xenophobic politicians are blaming China for their problems. That’s yet another strain on the fabric of globalization.

A third force putting pressure on globalization is evident where few suspect it -- in the so-called non-tradable, or services, sector. For lack of a better term, I call it the “India factor” -- emblematic of a surge in IT-enabled services (ITES) exports that are a key by-product o the globalization of services. Now, with the click of a mouse, multi-national service enterprises can extract increasingly high-valued and low cost services from foreign destinations such as Bangalore, Shanghai, Dublin, and Australia. Nor are these just call-center outsourcing strategies. The ITES phenomenon is migrating increasingly up the value chain, involving a wide array of activities such as software programming, consulting, logistics management, engineering and design, transcription and translation services, and knowledge-creating research centers. Expected to grow by roughly 50% per year, India’s ITES sector is estimated to be a $17 billion industry by 2008.

The globalization of services challenges the orthodox model of income generation and wealth creation in the advanced world. Intensified competition in tradable goods is to be encouraged, not feared. That’s because the core competency of wealthy, knowledge-based service economies was in information-based activities, long thought to be sheltered from global competition. That model is now being challenged before our very eyes -- not just by surging ITES activity but also because of global deregulation of services and surging cross-border M&A activity, which has led to the creation of huge multinational service behemoths. Unlike the past, services are no longer operating under local supply curves -- the global supply curve is now shaping pricing in this vast segment of the world economy as well.
Source: Morgan Stanley Global Economic Forum

On the Advantages of not Having Television

Gosh, I can hardly believe it. Idly Googling at the weekend I came across someone who actually came up with a demographic inflation, deflation theory six years ago. He's an amateur organic farmer, he doesn't have a TV, he studied, oh sin of sins, sociology, and he lives in Belgium. Well Mr Van Nieuwenhov, I and the rest of the thinking world salute you. You got there first. Even if the theory is of the basic, back of the envelope model, type. Even if there are plenty of holes to be filled in, here we have someone, for once, who has actually understood something. Isn't this what science is all about. While all the doctors honoris causus, professors emeritus etc are busy looking the other way (probably applauding the latest Nobel, maybe even the one for inventing the euro. We know that life imitates art, but does science really have to sink to the level of an Oscars ceremony?), a low-tech, carrot growing, asparagus lover, who was meanwhile building his very own tube amplifier, nips quietly in behind. Remember he was saying all this back in 1997. Chapeau Walter.

It is curious to see that economists take notice of the phenomenon of inflation, without giving an explanation of how this important trend comes to be. Now that inflation seems to be nearly dead after decades of persistent price increases, we see a sudden interest in the subject arise. As will be shown in this text, inflation is not an eternal thing. It was just present in the post-WWII period, which happens to be the timeframe of our collective memory. To understand inflation, we have to look at this century's history from a different angle: that of agricultural development and population growth. Now the odds seem to favour stable prices and even deflation. Our thinking of investing, borrowing and even of our lives will change drastically at the beginning of the next century...........

The model described here is a very mechanical one. As this is about human behaviour we can assume feedback, learning and anticipative behaviour. After an initial stage of inflation, price increases become institutionalized...........

An historical test of the model is quite difficult: The population explosion is unprecedented in known history, so historical studies of a comparable situation are not available. Comparing several present-day economies seems to supply some proof the model is right: In countries with a fast growing population and a relatively small active age group (USA, Brazil), inflation tends to be higher than in countries with slow population growth and a large active age group (Japan, Germany). A treasure of demographic data can be found at the International Data Base of the US Census Bureau.

Business Week and The Fed Funds Rate

Business Week thinks the Fed will hold fire this week and maintain rates unchanged: I think they are probably right, but you never know. As I said last week, this one is a game of poker.

Ever since the idea of a New Economy dawned in the mid '90s, Alan Greenspan's adherence to its nostrums has made him the undisputed ruler of the roost at the Federal Reserve. Sure, as chairman of the central bank he has always been the first among equals, especially when it comes to setting monetary policy. But his willingness to throw many time-honored economic theories aside in the belief that the U.S. was entering a new era of productivity-powered growth, helped cement his position as policymaker nonpareil.

Now, though, as the U.S. struggles to recover from the excesses of the bubble economy of the late '90s, other Fed officials have been emboldened to question Greenspan's grasp on the interest rate reins. In the runup to the Tuesday, Mar. 18, meeting of the Fed's Open Markets Committee (FOMC), Greenspan has tried to downplay the need for further rate cuts, arguing that the economy's recent weakness is mainly a case of Iraq-induced geopolitical jitters that'll clear up once the war is won.

Other monetary mandarins aren't so sure. They fear that the economy is still fighting the fallout from the boom years, with companies saddled with too much capacity and consumers burdened by too much debt. And they think another rate cut is needed to keep the economy moving ahead (see BW Online, 3/14/03, "One More Cut, Please, Mr. Greenspan").

The likely result from Tuesday's powwow? A compromise. In deference to Greenspan, the Fed will probably hold off from cutting rates immediately. But it will also make clear in a statement that it's ready to act promptly to ease policy should that prove necessary after the U.S. launches its long-awaited attack on Iraq. "Policymakers likely will change their risk assessment toward economic weakness and probably will announce that they'll closely monitor economic and financial conditions," says Richard Berner, chief U.S. economist for Wall Street broker Morgan Stanley. "That's Fedspeak for saying another easing move could come at any time."
Source: Business Week

The Conventions of Unconventional Policy

With the 'soft patch' getting softer and pressure once more rising on the Fed to lower rates, Stephen Cecchetti again asks the dreaded 'D' question: what should we do if and when we hit zero. His answer is not to panic, since, he tells us, policymakers have studied and prepared a set of unconventional options and are convinced that they will work. Now both these points should worry us a little: that the options are unconventional, and that they are 'guaranteed' to work. In the first place we need to exercise a little prudence. The dollar-peso peg was 'guaranteed' to work in Argentina, the euro was a 'guaranteed' good thing for the EU, and ........ These 'options' exist on paper, they are not in any sense tried and tested, and when we are offered 'foolproof' policies which are guaranteed to work to solve a problem which has been steadily growing for three years (this month is the third anniversary of the NASDAQ break), we have the right, nay the duty, to remain a little skeptical. I can see three major problems that deserve our attention.

Firstly while I am in no sense a 'rational expectations' fan, I think we need to remember Churchill's point about not being able to fool all of the people all of the time (because of course it is the citizens who are presumed to be the 'fools' here, or is it the politicians, I am never quite sure). Deflation is in part about expectations, not the sophistocated kind which are assumed to work in, for example, the Ricardian equivalence argument. No, a more basic and primitive set of expectations, possibly motivated by that most basic of emotions fear. Keynes 'animal spirits' comes to mind here. If the expectation sets in that deflation is here, and that it has come to stay for a time, then this will alter people's attitude to cash. Interest rates may reach zero, but if prices are declining at, say, 2% per annum, and are expected to continue to do so, then holding cash carries a positive interest rate. Much of what follows then depends on the stability of other prices.

If, as in Japan, this slow-burn deflation is accompanied by a more general decline in asset values, then cash can become extremely attractive, people can hold more of it, and the velocity of circulation can decline. If this happens to any significant extent then the central bank intervention is effectively sterilised. This, and not simply Ahearne style 'cut early and cut often', is the true lesson from Japan. If, with interest rates tending to zero, fixed operating costs and low margins, and an increase in non-performing loans, the banking sector becomes per se weaker, then this turns itself into yet another argument for holding cash. (Actually I have a feeling that if we wanted to be really 'smart' and look to really new ways to deal with a new situation, we would be thinking about e-money and its possible role and use, but this is for another day). I mean, at the end of the day, people aren't fools, and it is extremely hard to convince them you are going to be irresponsible long term, and that once the irresponsibility stops you won't fall back into the whole again, only this time deeper. The 'man on the clapham omnibus' is far more likely to use this type of rule of thumb guidance than the professional economist is. This is doubly true since 'responsible' central bankers have spent years convincing us that 'fine tuning' inflation is a difficult art, now they want to convince that they can fire it up to 3% and hold it there, no problem.

Secondly, the coming defation seems generalised and sustained. This seems to set it apart from being a mere business cycle phenomenon ( at least in the normal 'short cycle' sense, and with all due respect to Brad: I will have more to say on this on another occasion). In this case, what might work in an isolated case of localised and short-term deflationary pressure, seems from the start to be more problematic. The most effective and convincing part of the fire-fighting programme is the one relating to currency value. In fact I am pretty convinced that the recent 'permissive' fall in the value of the dollar forms part of the Bernanke strategy. But such currency devaluations, by their very nature, cannot be generalised. The dollar has fallen, at what price? Japan's export lead expansion has faltered, and Germany stands on the brink of deflation.

My third objection relates to the causes of the problem. I'm afraid I don't buy the view that all of this is simply a business cycle blip. There is, after all, a real economy out there somewhere. There is a globalisation process, the relative fortunes of countries can rise and fall. There is a something called Moore's law, it is still operative. We do live on an ageing planet, this must have consequences. I don't think I have all the answers, far from it. What worries me is that so many people are not even asking the pertinent questions. When Cecchetti tells us that 'these policies are bound to be effective, driving up prices and eliminating any deflation', we have the right to doubt. Remember, only last November he was informing us that "while there are some things that I think about late into the night, deflation and the ineffectiveness of monetary policy are not among them".

Overnight interest rates have fallen to their lowest levels in decades. With the US Federal Reserve's federal funds rate at 1.25 per cent, the European Central Bank's main refinancing rate at 2.5 per cent and the Bank of England's repo rate at 3.75 per cent, we are approaching a very clear limit. And since nominal interest rates cannot go below zero, what will policymakers do if they reach that limit? Importantly, what will they do if nominal interest rates are zero and the economy is experiencing deflation?

These questions have been on the minds of central bankers since before the Bank of Japan, in response to a mild but persistent deflation, moved its policy rate to zero in early 1999. Policymakers have studied a set of unconventional options thoroughly and are convinced that they will work. What are these unorthodox policies? How do they work and what do they mean for policy both now and in the future?

The mechanics of unconventional monetary policy is straightforward and based on the fact that the central bank controls the size of its balance sheet. It is through changes in its assets and liabilities that it influences the economy. During normal times, policymakers operate by controlling the supply of their liabilities to meet an interest rate target. The details vary with each central bank, but the thrust is always the same. All monetary policy, conventional or not, is the result of balance sheet manipulation...........

This line of reasoning leads to two important conclusions for policy today. First, the mere prospect of hitting zero means acting earlier and faster. What looks like caution in moving slowly, can turn out to be very risky. This was one element that led the Fed to lower interest rates 4.75 percentage points over a period of 11 months in 2001. While there is every reason to believe that tomorrow's meeting will not produce another cut, Open Market Committee members are surely ready to pull the trigger should conditions worsen perceptibly between now and their next meeting in early May. And, with the main refinancing rate at 2.5 per cent the ECB should be giving serious consideration to the same sort of pre-emptive action.

The second conclusion is that, in order to avoid having to use unconventional policies of uncertain effect, policymakers are willing to tolerate a bit more inflation. A year ago, the Federal Reserve would probably have been comfortable with consumer price inflation of 1-2 per cent. Today I am not so sure. My guess is that Fed officials are nervous enough that they are going to aim for inflation in the 2-3 per cent range in the hope that unconventional policies remain unnecessary. At least, I hope so.
Source: Financial Times

Sunday, March 16, 2003

US Life Expectancy on the Rise

Nothing particulary surprising or shocking in the latest US CDC report. American life expectancy rose in 2001 to 77.2 years from the 77.0 years reported in 2000. This is good news all round. Except that is, for the actuaries. You may be surprised to learn that most pensions related calculations assume a tapering-off and not a continuation (much less an acceleration) in life-expectancy trends. better start getting your calculators out!!

Americans’ life expectancy hit an all-time high in 2001, while age-adjusted deaths hit an all-time low, according to a new report released today by HHS Secretary Tommy G. Thompson.The report from HHS’ Centers for Disease Control and Prevention (CDC) documents that the national age-adjusted death rate decreased slightly from 869 deaths per 100,000 population in 2000 to 855 deaths per 100,000 in 2001. There were declines in mortality among most racial, ethnic, and gender groups.

Meanwhile, life expectancy hit a new high of 77.2 years in 2001, up from 77 in 2000, and increased for both men and women as well as whites and blacks. For men, life expectancy increased from 74.3 years in 2000 to 74.4 years in 2001; for women, life expectancy increased from 79.7 years to 79.8 years. Record high life expectancies were observed for white men and for both black men and women.“This report highlights some encouraging progress, including a continued reduction in death rates from the Nation’s three leading killers -– heart disease, cancer, and stroke,” Secretary Thompson said. “At the same time, it reminds us that we need to do more to reduce the health disparities that disproportionately affect certain racial and ethnic groups.”
Source: US National Centre for Health Statistics

These kind of numbers seem to confirm what they've been saying over at the Commission on Global Aging for some time:

Our findings confirm that the population forecasts used to calculate unfunded benefit liabilities in every G-7 country assume that the demographic trends of the past half-century will moderate in ways that improve the actuarial soundness of old age benefit programmes. In general, official forecasts assume that:

• life expectancy will increase much more slowly than in the past;
• recent low birth rates will rebound rapidly toward replacement-rate levels;
• immigration will likely persist at historical rates, or possibly decline somewhat over coming decades.

Forecasts of the size and composition of the populations of all G-7 countries for the period 2000 to 2050 were prepared by Shripad Tuljapurkar, Nan Li, and Michael Anderson of Mountain View Research. The findings on longevity that underlie these forecasts were featured in an article by Tuljapurkar and colleagues in the June 19, 2000 issue of Nature. The forecasts employ a probabilistic methodology that translates historical trends in population into dynamic projections.An important feature is that they incorporate variability around past trends, and project this into the future.

The findings of this study suggest that most of the G-7 countries continue to significantly underestimate increases in longevity, while the low-fertility countries overestimate the prospects for a recovery in birth rates. Significantly, actuarial optimism is greatest among countries that have the highest per capital public debt burdens, are ageing the fastest, and face the greatest social security funding shortfalls.
Source: Commission on Global Ageing

Maya Mystery May be Drying Up

Having just ploughed through William Calvin's provocative A Brain for All Seasons , I'm all eyes and ears for anything which links climatic change and social evolution. Haug's theory seems interesting. Nevertheless, the trained eye will observe that the old boom-bust theories are still knocking around there somewhere. Funny how 1,000 years later we're still looking at relatively similar competing scenarios for our future: humanly engineered climatic change and population boom-bust. Ecologically-based systems theories suddenly seem on the up-and-up again.

The Mayan civilisation of Central America collapsed following a series of intense droughts, suggests the most detailed climatic study to date.The sophisticated society of the Maya centred on large cities on the Yucatán peninsula, now part of Mexico. Their population peaked at 15 million in the 8th century, but the civilisation largely collapsed during the 9th century for reasons that have remained unclear to this day. Now, researchers studying sediment cores drilled from the Cariaco Basin, off northern Venezuela, have identified three periods of intense drought that occurred at 810, 860 and 910AD. These dates correspond to the three phases of Mayan collapse, the scientists say. Furthermore, the entire 9th century suffered below average rainfall, "so it was a dry period with three intense droughts", says Gerald Haug, from ETH in Zurich, Switzerland, who led the research. "The climate change must have been what pushed the Mayan society over the edge."

Experts on the Maya have greeted the new data cautiously. "Any explanation for decline is a complex one: over-population, environmental problems and economic factors all made them vulnerable," says Jeremy Sabloff, director of the Museum of Archaeology and Anthropology at the University of Pennsylvania. "But there is growing evidence that climate played a role. Perhaps it was the straw that broke the camel's back." Haug and his colleagues identified the bands in the sediment cores that correspond to the annual wet and dry seasons. They then analysed the concentration of titanium in the sediment in great detail, taking measurements at intervals of 50 micrometres. Titanium is an indicator of rainfall, explains Haug, because higher precipitation washes more of the metal from the land into the ocean floor sediments. The difference in concentration between the wet and dry season each year is as much as 30 per cent. "We looked in detail at the period corresponding to 9th and 10th centuries - taking 6000 measurements per 30 centimetres of sediment - and found three extreme minima, as well as a low background level of that lasted about 100 years," Haug told New Scientist.
Source: New Scientist

Power To Distributed Computing: Right On!

Having used up more than a million years of computation time across more than 4 million computers worldwide, the SETI@home data-crunching screensaver that searches through intelligent-looking signals from space, has finally come up with a list of 150 candidate radio sources that deserve a second look.

Three members of the SETI@home team will head to Puerto Rico this month to point the Arecibo radio telescope at up to 150 spots identified as the source of possible signals from intelligent civilizations. SETI@home is a computer program disguised as a screen saver that pops up when a computer is idle and analyzes radio telescope data in search of strong or unusual signals from space. The candidates for re-observation are particularly strong signals or ones that have been observed in the same spot more than once, some of them five or six times. "This is the culmination of more than three years of computing, the largest computation ever done," said UC Berkeley computer scientist David Anderson, director of SETI@home. "It's a milestone for the SETI@home project." SETI@home users should find out the results of the re-observations - what The Planetary Society, the founding and principal sponsor of SETI@home, is billing as the "stellar countdown" - within two to three months. Though excited at the opportunity to re-observe as many as 150 candidate signals, Anderson is cautious about raising people's expectations that they will discover a signal from an extraterrestrial civilization."If there is any possibility at all of finding an extraterrestrial signal, it's probably much less than one percent," he said. UC Berkeley physicist Dan Werthimer, SETI@home chief scientist, isn't getting his hopes up, either. He has conducted a Search for Extraterrestrial Intelligence (SETI) for 24 years - 11 years using Arecibo's 1,000-foot diameter radio dish - and has returned several times to look again at promising locations and frequency ranges to determine if a strong radio signal is more than random noise, a glitch or a passing satellite. He has been disappointed each time. On the other hand, SETI@home has mobilized so much more computing power than has ever before been thrown at signal analysis, that the team has been able to perform much more detailed and complicated computations on the radio data than now possible with Werthimer's ongoing SETI project, called SERENDIP IV (Search for Extraterrestrial Radio Emissions from Nearby Developed Intelligent Populations).
Source: ScienceDaily

And What if Netscape Had Won?

This week has seen the third anniversary of the break in the NASDAQ boom (March 10 2000). It's an anniversay which seems to have passed us by without the razz-m-taz normally reserved for important commemoratives. Still it isn't hard to understand that many want to forget. Not Charles Cooper it seems, who this week asks us: and what if Netscape had won? Looking at the continuing dominance of microsoft across so many platforms, it's a question many of us may think worth asking. To innovate, or not to innovate, is that the question?

It's anniversary season in Silicon Valley. When March 10 rolled around, the San Francisco Bay Area's media dutifully marked the three-year anniversary of the peak of the Internet frenzy with the usual menu of "then and now" stories. Truth be told, it was a date few people in this region--let alone the wider computer industry--cared to fix in their calendars.
Almost 5,000 Internet companies have either been acquired or gone bust since 1999, and the computer industry, which boomed during the go-go era, is still dealing with the fallout from the dot-com collapse. But another big anniversary is around the bend: Next month will mark 10 years since the invention of the Mosaic Web browser, a seminal development that led to the subsequent creation of Netscape.

Netscape these days survives as a desolate outpost in the vast AOL Time Warner empire, something akin to banishment to Irkutsk. Note to AOL's people in PR: Don't bother calling to explain why I'm wrong and how this forgotten software unit still plays a critical part in the overall company's future. It ain't happening. In fact, the only reason more critics aren't seizing on the utter embarrassment that is today Netscape is because they're having too much fun picking on senior management for their laundry list of blunders.You don't need to be a "Netscapee" to bemoan the demise of what once was the hottest company in the tech kingdom. I'm not going to waste time revisiting the much-chronicled sequence of events that led to its besting by Microsoft and subsequent acquisition by America Online. But what might have been had Netscape won--or at a minimum, not lost--the browser war against Microsoft?
Source: CNET

Will the Tokyo Delegates Get Wet or Cold Feet?

With all attention centred this weekend either on Iraq or 'atypical pneumonia' (and with those in need of some light escapism knee-deep in Warren Buffet-type armaggedon warnings) this one may not get the attention it deserves. The UN predicts that around the globe by 2020 the average water supply per person will be one third less than it is now. With agriculture responsible for of 75% of global water consumption, and third world populations still growing fast, some sort of resource crisis seems quite possible:

The 10,000-plus delegates to the World Water Forum in Japan have a challenging week ahead. They must work out how to reach the UN target of halving the numbers of people without clean water by 2015. They will have to tackle drought, floods, climate change, and the prospect of conflict over water. More than two million people die annually from water-related diseases like cholera. The forum, the third of its kind, runs from 16 to 23 March, and is sponsored by the World Bank, the UN, and many non-governmental groups. It is being held in three cities - Kyoto, Osaka and Shiga.

Many of the conference sessions are precisely geared to generating ways of preventing water being wasted, be it through improved supplies or better irrigation methods. But controversially, the conference will also examine how much water supplies could be improved with the involvement of the private sector. Many NGOs have balked at that idea, insisting water is a right for all and should not be charged for. Indeed, the Blue Planet Project - a coalition of environmentalists, human rights activists, and anti-poverty campaigners - was formed in direct reaction to the "Water Vision" proposed at the last World Water Forum. This vision endorsed a for-profit view of water as a resource, they claim. However, the success of water charging schemes in places like South Africa has encouraged both businesses and governments to consider a greater role for private sector involvement in the water supply.
Source: BBC News