Friday, January 29, 2010

Bin Laden's Hip New Message: Global Warming, Same Old Goal

Perhaps realizing that his calls for jihad and terror have limited appeal, Bin Laden is now targeting a broader audience through a new message emphasizing the dangers of global warming. Unsurprisingly, his solution remains the same, destroy the United States and other Western industrial countries who are responsible for the death of millions through climate change.

Boy this guy's got some serious political game; if your message isn't finding much acceptance, just rehash it to fit the popular trend of the day and all of a sudden you sound no different than Al Gore or the other celebrated global warming preachers. Hell, maybe he won't have to live in a cave anymore, he'll stay in luxury hotels instead, fly around in a private jet, and all the while still keep true to his original goal of destroying the West. The only question is when will he get his Nobel Peace Prize and funding from the UN? Al-Queda Against Global Warming: Death to America, could be the next big NGO, well done Bin Laden!

Osama bin Laden blamed the United States and other industrialised countries for causing global warming in an extraordinary message issued yesterday.

In a departure from his usual religious rants, the Al Qaeda leader lectured on the dangers of climate change, claiming the only solution was to 'bring the wheels of the American economy' to a halt.

Rather than vows to inflict death and destruction on the U.S. and its allies, the man behind the September 11 atrocity in New York discussed the environmental future of the planet and monetary policy.

'This is a message to the whole world about those who are causing climate change, whether deliberately or not, and what we should do about that,' he declared.

He blamed Western industrialised nations for hunger, causing flooding and the destruction of fertile ground across the globe.

And he warned solutions must be 'drastic' rather than 'partial'.

Although bin Laden has briefly referred to climate change and global warming in past messages, this fresh audiotape was his first dedicated to the topic.

The speech, which included almost no religious rhetoric, has been interpreted as an attempt by the terror leader to broaden the appeal of his message beyond Islamic militants.

'Talk about climate change is not an ideological luxury but a reality,' he said in the tape released to the Al Jazeera television network, adding: 'All of the industrialised countries, especially the big ones, bear responsibility.'

Bin Laden referred to the fact that while wealthy nations had agreed to the Kyoto Protocol that binds them to emissions targets, former U.S. President George Bush later rejected such limitations in deference to big business.

continue reading story

Wednesday, January 27, 2010

Make Piracy A Foreign Policy Issue

Billions are lost every year due to piracy of our intellectual goods. These are the high value products that America manufactures and dominates in. Our music and movie industries are matched by none, yet piracy reduces our rightful rewards to a mere pittance. America is still the most innovative nation in the world, but what has changed is that we no longer are being rewarded fully for our innovative ideas that are being enjoyed around the world. As millions listen to our rap and pop artists, music record sales continue to drop. Software sales are stagnant even as more and more people use them. Our drug innovations are immediately stolen or forced to be sold at barely above manufacturing cost.

I'm astonished that this topic hasn't received very much attention though the effects are huge. Imagine if all the music, movies, software, drugs, etc. were paid for instead of stolen, the gains to the American economy would be huge and they would have a multiplier effect. Tower records would still be in business, employing tens of thousands of youth working their way through college. Software companies might actually hire programmers and release more software instead of declaring bankruptcy or praying for a white knight larger company to come along.

This should the the second most important foreign policy objective, taking a backseat only to terrorism. How China and others can steal our products with impunity while we beg them to extend us more credit so that we can legitimately purchase their goods is beyond me.

Monday, January 18, 2010

What's Wrong with California II: New York Times Magazine Weighs In

Peggy Orenstein, a 21 year resident, reminisces about the way California used to be in this weekend's New York Times Magazine.

I didn’t move to California to become a “Californian.” I usually say that I came for a job; the truth is, I was young and in love and I followed a boy. That was 21 years ago, and much to my surprise, I’m still here. The relationship fizzled, but I was seduced by the romance of the state. I’d become a true believer in the California dream, right as it began to fall apart.

Skip to next paragraph
Source: Public Policy Institute of California, December 2009.

California has always been as much a state of mind as a state of the Union. Other places have sunshine. Other places have beaches. Other places even have decent organic produce, or so they say. But California promises something more: transformation. The state is the repository of America’s frontier spirit, the notion that a better life is possible for anyone who wants it, regardless of the circumstances of her birth. You can leave your past at the border and reinvent yourself here — whether as a film director, a high-tech entrepreneur, a Pilates instructor or simply a person who deserves a second chance (though, admittedly, the same mentality has been responsible for an overabundance of cults, serial killers and idiosyncratic drivers).

Nothing is more integral to that aura of possibility than the Golden State’s 1960 Master Plan for Higher Education, which guaranteed that residents could attend college virtually free. The top 12.5 percent of high-school graduates were funneled into the University of California system, which included the finest public institutions in the world. The top third were eligible for California State campuses. And for anyone who was “capable of profiting from the instruction offered,” the doors of community colleges were wide open. Free! Imagine the chutzpah, the pie-in-the-sky optimism of such a plan! Class and race would no longer be an obstacle to mobility: this state would be a model of diversity, fluidity — a true melting pot.

I’m now married to a beneficiary of that vision. My husband, Steven, a native Angeleno, is the son of a factory worker and a supermarket checkout clerk — Japanese-Americans who were interned during World War II and did not themselves attend college. Four years at a grand total of about $4,000 (including rent and ramen) changed his life: it didn’t ensure his success, but it provided the opportunity for it.

Flash-forward three decades. The state’s budget crisis led to cuts of $800 million from the U.C. system in 2009; $500 million from C.S.U.; and $700 million from community colleges. In December, the state regents increased U.C. student fees by 32 percent. That means, once you factor in books, room and board, that a year at Berkeley, the system’s flagship school, will top $30,000 next fall — hardly most people’s idea of gratis.

read the rest of the article here

I too, have benefited from the UC school system. The affordable tuition of around $5500 a year was one of the major reasons I choose to attend UCLA (that and I was winter wait-listed at Berkley). Community colleges were all but free, just a couple of dollars per unit. Back then, the high taxes we paid got us something--some of us might not have wanted what our taxes bought us, but at least it was something. Nowadays, I scratch my head and wonder what exactly we are paying for. Our taxes are higher than ever, but it seems we're getting less and less benefit in return. Ms. Orenstein doesn't point the finger at anyone (surprise, surprise) but I will. Government employees and their predatory unions have stolen the Californian Dream from all of us. Lest we do something soon, Ms. Orenstein's last words in her article will become reality.

The California dream is dead. Long live the California dream

Sunday, January 17, 2010

Haitian Culture and Poverty: A Debate On How Culture Influences A Nation's Success Or Failure

David Brooks wrote a controversial op-ed in the New York Times stating the importance of culture in a nation's success or failure.

Third, it is time to put the thorny issue of culture at the center of efforts to tackle global poverty. Why is Haiti so poor? Well, it has a history of oppression, slavery and colonialism. But so does Barbados, and Barbados is doing pretty well. Haiti has endured ruthless dictators, corruption and foreign invasions. But so has the Dominican Republic, and the D.R. is in much better shape. Haiti and the Dominican Republic share the same island and the same basic environment, yet the border between the two societies offers one of the starkest contrasts on earth — with trees and progress on one side, and deforestation and poverty and early death on the other.

As Lawrence E. Harrison explained in his book “The Central Liberal Truth,” Haiti, like most of the world’s poorest nations, suffers from a complex web of progress-resistant cultural influences. There is the influence of the voodoo religion, which spreads the message that life is capricious and planning futile. There are high levels of social mistrust. Responsibility is often not internalized. Child-rearing practices often involve neglect in the early years and harsh retribution when kids hit 9 or 10.

We’re all supposed to politely respect each other’s cultures. But some cultures are more progress-resistant than others, and a horrible tragedy was just exacerbated by one of them.

Fourth, it’s time to promote locally led paternalism. In this country, we first tried to tackle poverty by throwing money at it, just as we did abroad. Then we tried microcommunity efforts, just as we did abroad. But the programs that really work involve intrusive paternalism.

The op-ed led to the usual leftist hand-wringing and reluctance to "impose" culture on another society this time echoed by Chris Blattman.

His confidence makes me uncomfortable. To paraphrase, unkindly: These Haitians need to be more like hardworking, thrifty Americans. We’ve spent five decades learning that everything we thought would work in aid did not. Clearly it’s time to get tough. I read about some people who made this work in Harlem, so it’s obviously the answer for Haitians, whom through newspaper reading, I have deduced are also resistant to progress.

Don’t misunderstand me: Brooks could be right. In fact, I’m starting one randomized control trial to test the idea. I’m a little further from propounding it as God’s honest truth on the pages of the Times.

Sometimes the problem with big development solutions is they spring from hubris and certitude rather than caution and humility. There’s another approach to change, described in the previous post.

Finally, this topic was debated on Economist's View, a blog I frequently comment on. A college educator, Michael Gordon aka The Buggy Professor, wrote a detailed comment to which I responded after his post generated many negative responses by the leftist crowd found there. Please go here and scroll down to view the full post by The Buggy Professor as it is too long for me to quote, only half is offered below.

1) THE SUMMARY PROFESSOR CHRISTOPHER BLATTMAN OF DAVID BROOKS NY TIMES OP-ED IS UNFAIR TO BROOKS, especially since Blatttman ignores two key paragraphs that refer to a recent good book by a number of well-known developmental theorists: “What Works in Developoment: Thinking Big and Thinking Small” ed, Jessica Cohen (2008): Brookings Institute. Source,

Specifically, with not just a reference to this impressive book, but also with an explicit quote from the most stimulating of the chapters --- the summary one by Abhijit Banerjee of MIT --- Brooks sides with the microeconomists who specialize in development theory as opposed to macroeconomic developmentalists who have been pushing one set of nostrums after another as the solution to economic backwardness, and for over 65 years now.



“In the recent anthology “What Works in Development?,” a group of economists try to sort out what we’ve learned. The picture is grim. There are no policy levers that consistently correlate to increased growth. There is nearly zero correlation between how a developing economy does one decade and how it does the next. There is no consistently proven way to reduce corruption. Even improving governing institutions doesn’t seem to produce the expected results.

“The chastened tone of these essays is captured by the economist Abhijit Banerjee: “It is not clear to us that the best way to get growth is to do growth policy of any form. Perhaps making growth happen is ultimately beyond our control.”


3) THAT BROOKS ACCURATELY SUMMARIZES WHAT MICROECONOMISTS IN DEVELOPMENTAL THEORY HAVE BEEN INSISTING ABOUT BIG BIG QUESTIONS AND BIG BIG ANSWERS or Nostrums that macroeconomist theorists in developmentalism have been pushing for 65 years now --- one after another, each nostrum hailed as the key to rapid and sustained economic growth for economically backward countries, none of which have worked in most of Asia, the Middle East, Africa, or large parts of Latin America --- can be underscored by quoting the end of Professor Banerjee’s chapter (my paragraphing and capital letters).

“Which brings us to our last, most radical, thought: It is not clear to us that the best way to get growth is to do growth policy of any form. Perhaps making growth happen is ultimately beyond our control. Maybe all that happens is that something goes right for once (privatized agriculture raises incomes in rural China) and then that sparks growth somewhere else in economy, and so on.

“Perhaps, we will never learn where it will start or what will make it continue.




4) WHAT EXACTLY HAS BROOKS THEN SAID ABOUT HAITI ‘S FAILED STATE AND ECONOMIC BACWARDNESS HAT ALMOST ANY DEVELOPMENTALIST TODAY --- including those in political science who specialize in political institutions, political conflict, civil war, corruption, crony patron-client networks, ethnic diversity etc --- Would Agree With:

(i.) Namely, it’s a dismal mess ---the poorest country and probably the worst governed in all of Latin America and the Caribbean.

And nothing by way of outside help --- foreign aid, American military intervention to help overthrow a dictatorship, and more recently limited UN intervention, 10,000 various micro-economic projects funded from abroad --- has improved the abysmal conditions in Haiti:

Its infrastructure is primitive still; its building codes are ignored; its hospital and medical services were abysmal before the recent devastating earthquake; poverty is rife; agricultural development has languished for generations; huge jerry-built shelters have been created around its two main cities, former peasants flocking by the millions there; and the huge gulf between the few rich and powerful on one side and the vast mass of Haitians on the other still looms despite all outside efforts.

Its population of slightly more than 9 million, moreover, suffers as the CIA World Factbook observes, from widespread infectious disease . . . not least owing to a lack of access to clean water, proper sewage removal systems, and basic healthy food.


(ii.) As for its economic conditions, the best summary is found in the CIA World Factbook for 2010:

“Haiti is the poorest country in the Western Hemisphere with 80% of the population living under the poverty line and 54% in abject poverty.

“Two-thirds of all Haitians depend on the agricultural sector, mainly small-scale subsistence farming, and remain vulnerable to damage from frequent natural disasters, exacerbated by the country's widespread deforestation.

“While the economy has recovered in recent years, registering positive growth since 2005, four tropical storms in 2008 severely damaged the transportation infrastructure and agricultural sector.

---- [Buggy note: the Dominican Republic, which shakes the same island, climate, and geography with Haiti, suffered the same tropical storms, but weathered them far better --- not least to markedly superior infrastructure, fire-and-police systems, and healthcare systems. The economy quickly recovered from those storms, only to be hurt by the current global recession: As the CIA World Factbook observes,”T he Dominican Republic has enjoyed strong GDP growth since 2005 and continued to post sound gains through mid-2008 . . . “

Back to Haiti’s economy:

“US economic engagement under the Haitian Hemispheric Opportunity through Partnership Encouragement (HOPE) Act, passed in December 2006, has boosted apparel exports and investment by providing tariff-free access to the US. HOPE II, passed in October 2008, has further improved the export environment for the apparel sector by extending preferences to 2018; the apparel sector accounts for two-thirds of Haitian exports and nearly one-tenth of GDP.

“ Remittances are the primary source of foreign exchange, equaling nearly a quarter of GDP and more than twice the earnings from exports. Haiti suffers from high inflation, a lack of investment because of insecurity and limited infrastructure, and a severe trade deficit. In 2005, Haiti paid its arrears to the World Bank, paving the way for reengagement with the Bank. Haiti is expected to receive debt forgiveness for about $525 million of its debt through the Highly-Indebted Poor Country (HIPC) initiative by mid-2009.

“The government relies on formal international economic assistance for fiscal sustainability.”



• With a tad more population than Haiti’s 9.2 million people --- and, to repeat, located on the same island and hence sharing the same natural conditions and history of colonialism, slavery, and dictatorship for most of its history until American military intervention in the early 1960s, followed by a corrupt rigged electoral democracy that then evolved since 1996 into a solid electoral democracy --- is far richer, far better governed, has far better infrastructure, and enjoys A PER CAPITA INCOME 7 TIMES HIGHER THAN HAITI’S

• Specifically, per capita income is $8200 in the Dominican Republic. In Haiti, it is $1300.

• As for poverty, 80% of Haiti’s population was estimated in 2003 (latest figures) to live below the poverty line. Next door in the Dominican Republic is half that: 42%.

• On top of this, even as the Dominican Republic’s more diversified economy continues to export large amounts of coffee, sugar, and tobacco --- not least owing to free-trade zones with the USA and others --- its largest foreign exchange comes now from its thriving service sectors, and especially tourism . . . now the largest employer in the country.

• Unemployment shows a similar huge gap: estimated to be 14.1% in the Dominican Republic, it happens to be . . . well, the CIA World Factbook admits it can’t estimate the level because 80% of the Haitian 9 million population has no formal jobs!

o Literacy is 87% in the Dominican Republic and 52% in HaITI

Another worthwhile lesson from the buggy professor, unfortunately you can't make people learn, thus ignorance is perpetuated.

With regards to the Dominican Republic and its greater wealth, I was wondering the same thing. Why does the Dominican Republic have better infrastructure and greater political and social stability despite similar histories than Haiti? The cultural and social factor can't be dismissed, try as those here might.

Almost every nation on the planet (I can't think of an exception) has faced foreign invaders and "interference". The United States was invaded in 1812 by the most powerful nation in the world. It's navy was no match for England's, allowing the English to land forces at will. Washington D.C., the capital, was captured, the White House burned to the ground. Using a leftist perspective, this should have led to utter collapse of U.S. progress, we should have been mired in poverty and even now be roaming masses of despondent poor due to this invasion and incidence of European imperialism (that Madison foolishly welcomed war can be dismissed, the internal actions of the invaded are irrelevant in leftist analysis or viewed simply as resisting colonialism) and our failure to this day can be blamed completely on this incident in the past. But we are not a nation of roaming despondent poor, neither is China which had to endure colonialism and several opium wars along with a prolonged occupation by Japan that only ended after WWII. Warfare in Europe during the Middle Ages to 1800's was constant. Two world wars devastated the continent, yet somehow the affected countries were more or less able to recover, especially Germany after WWI which suffered heavy foreign interference along with outright occupation by France after they missed debt repayments. Yet somehow Germany was able to establish itself as a dominant power in a mere 20 years after its defeat. Foreign interference is so common that it cannot be the single factor that determines success or failure. I won't even go into the occupations of Germany and Japan post WWII. Standard leftist analysis would state that Japan is still occupied to this day as U.S. forces have bases in Okinawa against the wishes of the local populace, Japan should be even worse off than Haiti since its constitution was largely written by American imperialists.

The view that institutions and culture, each which influence the other, are the largest factors in a nation's success or failure is gaining support even amongst the left. Obama seems to understand, but as the buggy professor notes, actual policy is much more difficult to enact.

We can try to set up institutions and change culture through education, but the populace have to be willing to adopt and embrace the changes. Otherwise the effort will fail and will result in resentment along with more leftist accusations of colonialism. Yes any help we offer today, should it not succeed is immediately viewed as imperialism. Furthermore there is danger that our educational efforts, even the small scale educational programs the buggy professor recommended above, will be rendered ineffective by destructive leftist accusations of propaganda and brainwashing. An effective surefire policy method still has not yet been found that can guarantee success in light of the many difficulties, the leftist-Marxist influence amongst the worst and most destructive. So we struggle on, I suppose if it were easy, every nation would be prosperous. Good thing President Clinton's involvement shelters our help somewhat from leftist attacks. That is the real value of having a Clinton and Obama, as members of the left, they are more resistant to false leftist accusations.

Saturday, January 16, 2010

Anti-Americanism Hampers Our Efforts to Help Haiti

Because of Soviet style anti-Americanism, it is very hard to do anything today that does not lead some brainwashed fool to view the act as a form of imperialism, and then blame the U.S. for whatever subsequent negative events that occur in that country, no matter how much time has elapsed or the actual impact of the initial U.S. engagement. Thus all the bad can be blamed on the United States and our need to conquer. Strangely though, should we do the opposite and avoid any sort of engagement, then we are guilty of isolating the country and that act is also used to explain all the negatives that the country experiences subsequently. Basically, to these people, the United States will always be at fault no matter what. It is hard not to have had some contact with another country in the 230+ years of our existence, and these people have a gift for spinning whatever engagement in a negative light. Give aid and it's called propping up a government. Don't and it's harm by neglect. The real harm of this tactic is that by viewing every act as harmful, it hides the actions where the United States really did do wrong and prevents a logical, straightforward discussion and analysis of our bad deeds.

So if we try and help Haiti, even with just advice, that act would be seen as propaganda and an attempt to brainwash the Haitians, no doubt so that we can exploit their natural resources later. Any trade thereafter would be viewed as exploitation, and whichever company engaged in trading would be the evil benefactor, the reason that we started the brainwashing/propaganda program in the first place.

Still I feel that we must do what we can to help, even if we will be blasted for it later and blamed for any future setbacks the Haitian people might face. It's our duty to help our neighbors, and we've seldom backed away due to hardship in the past. Clinton did the right thing by restoring order and democratic rule in Haiti, we must not let cowardice deter us today.

Friday, January 15, 2010

Where Was the Inflation? Right In Front of Your Nose!

I think we need to seriously reconsider the basket of goods used to measure inflation. Intermediate and manufactured goods are becoming cheaper thanks to emerging countries like China and Vietnam. We are in an era of greater manufacturing productivity being passed on in the form of lower costs for manufactured items. So we will not see inflation in this era as long as we measure inflation primarily through manufactured goods.

Commodity, energy, and asset prices, on the other hand, don't benefit from lower cost manufacturing. If the Fed is using inflation as an indicator of whether monetary policy is too tight or too loose, they must understand that the manufactured item category will give them a lower inflation rate than normal thus fooling them into thinking monetary policy is tighter than it is. The Fed should look at inflation ex manufactured items or at least adjust for the China effect that skews the inflation numbers. They are treating current CPI numbers as if they were the same as CPI in the 1980's or 1990's, but the era has changed.

I believe this is why the Fed has adopted a monetary policy far far too loose, because they are being tricked by a natural deflation in manufactured goods due to the entry of China and other emerging markets. If they adjust for these factors, they would see that inflation was out of control in the 2000's, but unfortunately, they did the opposite. Instead of paying attention to food, energy, and asset price inflation and ignoring manufactured goods, they used the CPI ex food and energy as their main measure of inflation. How stupid! Furthermore, a change in the housing component of CPI to owner equivalent rent removed housing asset prices from CPI and replaced it with a non-asset alternative. No wonder they haven't been able to pick up inflation, they've removed everything that can rise in price from the CPI!

Now if someone like me can see this, why are Fed members still scratching their heads over the lack of inflation? It should be obvious by now, and I'm going to give Bernanke the benefit of doubt when he says that he will be alert to inflation and raise rates quicker than the Fed did in the past. So the real key is how commodity, energy, and asset prices behave. Oil and gold are already at elevated levels, the stock market has recovered. Should we see food prices skyrocket as they did during the bubble and oil go back to 100, we will know that inflation is back and out of control again. But should the Fed continue to be clueless and look at CPI ex food and energy, then they will never see the signs of loose credit and they'll never get why their policies are causing bubble after bubble.

Monday, January 4, 2010

Fundamental Causes of the Financial Crisis

As I've learned recently, capital requirements (as in Tier I capital, etc.) are the only limit to lending by banks. But the use of SIVs and off balance sheet subsidiaries allowed banks to escape the capital requirements imposed on them. Even without the SIVs, a "well-capitalized" bank only needs a tier 1 ratio of around 8%!

The capital requirement for Fannie, and other GSEs were even lower at around 3%. Back in 2002-4 when Fannie had an accounting scandal, Congress had a chance to reform and limit the outrageous size of the GSEs, but of course this was defeated. Meanwhile Bush pushed for lower down payment requirements and government subsidies to make housing "affordable for all".

The crisis is almost totally due to bad loans, or loans that are underwater. Had the standard 20% down payment been in place, it would have been hard for the majority of the populace to engage in the bubble. Bubbles can only happen when the mainstream populace participates. The 20% equity would have also cushioned the banks from the majority of losses in my opinion as the peak would have been lower to begin with.

Interestingly enough, we're not the only ones with a housing induced crisis. Australia and Spain are only some of the many other nations that similarly experienced a housing bubble. This leads me to the belief that there is a systematic problem within the global financial network. The problem is that bank lending is not constrained adequately. Furthermore, the low interest rate environment does NOT translate into commodity or consumer good inflation thanks to what the modern financial system has developed into, which is a credit based system.

In this new system, firms or agents first identify an investment opportunity (it can be to build a factory or buy an income producing asset that will generate a greater return than the cost of the loan). Banks then lend to the firm or agent. Notice that the identification of the investment opportunity is step number one, not the lending. With a low interest rate environment, the hurdle to clear for a profitable investment is much lower. Borrowers then borrow to acquire assets. I believe this is why we saw asset and commodity inflation but no inflation in goods and services tracked by the CPI. Firms and agents aren't borrowing to consume, they are borrowing to acquire income assets or building a factory (or store) that produces consumer goods and services to sell at a profit. The new production that comes online keeps prices for consumer goods and services down, but the means of production get bid up. The lower the interest rate, the lower the threshold yield needed for a firm or agent to borrow to acquire or build.

I don't think people understand this new system of finance. This is why people are constantly looking for inflation (as measured by CPI) but finding none except in asset prices (which aren't included in CPI) and can't see the connection between the FED's loose monetary policy and the various bubbles (all asset bubbles) that have popped up. In sum, I identify lax leverage limits and the low interest rate environment established by the various central banks as the underlying causes of the crisis.