Showing posts with label Economics. Show all posts
Showing posts with label Economics. Show all posts

Sunday, July 27, 2008

The bubble begins to burst

From Financial Times:


Oil prices continued their correction this week as the debate about the influence of speculators in energy markets reached a new pitch.

The US Senate yesterday failed to agree on proposals to limit excessive speculation in energy markets and, with oil prices becoming a huge political issue in a presidential election year, attention turns to the House of Representatives, which will debate the issue next week.

But with US lawmakers about to break for summer holidays, any change to regulations governing oil trading appears unlikely before September at the earliest.

Nymex September West Texas Intermediate sank $2.99 to a session low of $122.50 a barrel on Friday, down 5 per cent this week.

ICE September Brent lost $3.05 to a session low of $123.39 a barrel on Friday, off 5.9 per cent this week. Hurricane Dolly caused minimal disruption to production in the Gulf of Mexico and the ending of that threat contributed to selling pressure this week.

The correction for oil prices has lasted two weeks with Brent down 16.3 per cent since hitting a record $147.50 on July 11 while WTI has sunk 16.8 per cent since reaching an all-time high of $147.27 on the same day.

[. . .]

The correction in oil prices has weighed heavily across agricultural commodities, base metals and gold. Renewed fears about the health of the global financial system and the outlook for economic growth has prompted many hedge funds and short-term momentum players to cut back on their commodities exposures.

First the tech bubble then the housing bubble and now the oil bubble. These kinds of things have always happened (remember the tulip craze in the 1600's?) but why are they hitting us one after another like waves upon a beach?

Of course there are sound market reasons for a downward correction in the price of oil. One is that the momentum has shifted in favor of drilling in the US and the second is our success in Iraq. Now that it no longer looks like the region is going to dissolve into chaos with the jihadists emerging in control there is much less uncertainty about future supply.

Saturday, February 16, 2008

Historians of the future will say "here is where it started".

From Foreign Policy:

Millions of children are being raised on prejudice and disinformation. Educated in schools that teach a skewed ideology, they are exposed to a dogma that runs counter to core beliefs shared by many other Western countries. They study from textbooks filled with a doctrine of dissent, which they learn to recite as they prepare to attend many of the better universities in the world. Extracting these children from the jaws of bias could mean the difference between world prosperity and menacing global rifts. And doing so will not be easy. But not because these children are found in the madrasas of Pakistan or the state-controlled schools of Saudi Arabia. They are not. Rather, they live in two of the world’s great democracies—France and Germany.

[. . .]

“Economic growth imposes a hectic form of life, producing overwork, stress, nervous depression, cardiovascular disease and, according to some, even the development of cancer,” asserts the three-volume Histoire du XXe siècle, a set of texts memorized by countless French high school students as they prepare for entrance exams to Sciences Po and other prestigious French universities. The past 20 years have “doubled wealth, doubled unemployment, poverty, and exclusion, whose ill effects constitute the background for a profound social malaise,” the text continues. Because the 21st century begins with “an awareness of the limits to growth and the risks posed to humanity [by economic growth],” any future prosperity “depends on the regulation of capitalism on a planetary scale.” Capitalism itself is described at various points in the text as “brutal,” “savage,” “neoliberal,” and “American.” This agitprop was published in 2005, not in 1972.

When French students are not getting this kind of wildly biased commentary on the destruction wreaked by capitalism, they are learning that economic progress is also the root cause of social ills. For example, a one-year high school course on the inner workings of an economy developed by the French Education Ministry called Sciences Economiques et Sociales, spends two thirds of its time discussing the sociopolitical fallout of economic activity. Chapter and section headings include “Social Cleavages and Inequality,” “Social Mobilization and Conflict,” “Poverty and Exclusion,” and “Globalization and Regulation.” The ministry mandates that students learn “worldwide regulation as a response” to globalization. Only one third of the course is about companies and markets, and even those bits include extensive sections on unions, government economic policy, the limits of markets, and the dangers of growth. The overall message is that economic activity has countless undesirable effects from which citizens must be protected.

No wonder, then, that the French default attitude is to be suspicious of market forces and private entrepreneurship, not to mention any policies that would strengthen them. Start-ups, Histoire du XXe siècle tells its students, are “audacious enterprises” with “ill-defined prospects.” Then it links entrepreneurs with the tech bubble, the Nasdaq crash, and mass layoffs across the economy. (Think “creative destruction” without the “creative.”) In one widely used text, a section on technology and innovation does not mention a single entrepreneur or company. Instead, students read a lengthy treatise on whether technological progress destroys jobs. In another textbook, students actually meet a French entrepreneur who invented a new tool to open oysters. But the quirky anecdote is followed by a long-winded debate over the degree to which the modern workplace is organized along the lines imagined by Frederick Taylor, the father of modern scientific management theory. And just in case they missed it in history class, students are reminded that “cultural globalization” leads to violence and armed resistance, ultimately necessitating a new system of global governance.

This is a world apart from what American high school students learn. In the United States, where fewer than half of high school students take an economics course, most classes are based on straightforward, classical economics. In Texas, the state-prescribed curriculum requires that the positive contribution of entrepreneurs to the local economy be taught. The state of New York, meanwhile, has coordinated its curriculum with entrepreneurship-promoting youth groups such as Junior Achievement, as well as with economists at the Federal Reserve. Do American schools encourage students to follow in the footsteps of Bill Gates or become ardent fans of globalization? Not really. But they certainly aren’t filling students with negative preconceptions and suspicions about businesses and the people who run them. Nor do they obsess about the negative side effects and dangers of economic activity the way French textbooks do.

French students, on the other hand, do not learn economics so much as a very specific, highly biased discourse about economics. When they graduate, they may not know much about supply and demand, or about the workings of a corporation. Instead, they will likely know inside-out the evils of “la McDonaldisation du monde” and the benefits of a “Tobin tax” on the movement of global capital. This kind of anticapitalist, antiglobalization discourse isn’t just the product of a few aging 1968ers writing for Le Monde Diplomatique; it is required learning in today’s French schools.

Germans teach their young people a similar economic narrative, with a slightly different emphasis. The focus is on instilling the corporatist and collectivist traditions of the German system. Although each of Germany’s 16 states sets its own education requirements, nearly all teach through the lens of workplace conflict between employer and employee, the central battle being over wages and work rules. If there’s one unifying characteristic of German textbooks, it’s the tremendous emphasis on group interests, the traditional social-democratic division of the universe into capital and labor, employer and employee, boss and worker. Textbooks teach the minutiae of employer-employee relations, workplace conflict, collective bargaining, unions, strikes, and worker protection. Even a cursory look at the country’s textbooks shows that many are written from the perspective of a future employee with a union contract. Bosses and company owners show up in caricatures and illustrations as idle, cigar-smoking plutocrats, sometimes linked to child labor, Internet fraud, cell-phone addiction, alcoholism, and, of course, undeserved layoffs. The successful, modern entrepreneur is virtually nowhere to be found.

German students will be well-versed in many subjects upon graduation; one topic they will know particularly well is their rights as welfare recipients. One 10th-grade social studies text titled FAKT has a chapter on “What to do against unemployment.” Instead of describing how companies might create jobs, the section explains how those without jobs can organize into self-help groups and join weekly anti-reform protests “in the tradition of the East German Monday demonstrations” (which in 1989 helped topple the communist dictatorship). The not-so-subtle subtext? Jobs are a right to be demanded from the government. The same chapter also details various welfare programs, explains how employers use the threat of layoffs as a tactic to cut pay, and concludes with a long excerpt from the platform of the German Union Federation, including the 30-hour work week, retirement at age 60, and redistribution of the work pie by splitting full-time into part-time jobs. No market alternative is taught. When fakt presents the reasons for unemployment, it blames computers and robots. In fact, this is a recurring theme in German textbooks—the Internet will turn workers into “anonymous code” and kill off interpersonal communication.

Equally popular in Germany today are student workbooks on globalization. One such workbook includes sections headed “The Revival of Manchester Capitalism,” “The Brazilianization of Europe,” and “The Return of the Dark Ages.” India and China are successful, the book explains, because they have large, state-owned sectors and practice protectionism, while the societies with the freest markets lie in impoverished sub-Saharan Africa. Like many French and German books, this text suggests students learn more by contacting the antiglobalization group Attac, best known for organizing messy protests at the annual G-8 summits.

One might expect Europeans to view the world through a slightly left-of-center, social-democratic lens. The surprise is the intensity and depth of the anti-market bias being taught in Europe’s schools. Students learn that private companies destroy jobs while government policy creates them. Employers exploit while the state protects. Free markets offer chaos while government regulation brings order. Globalization is destructive, if not catastrophic. Business is a zero-sum game, the source of a litany of modern social problems. Some enterprising teachers and parents may try to teach an alternative view, and some books are less ideological than others. But given the biases inherent in the curricula, this background is unavoidable. It is the context within which most students develop intellectually. And it’s a belief system that must eventually appear to be the truth.

Add the above details to the fact that Europe is becoming Islamic and to the fact that the various nations of Europe are ceding their sovereignty to the very undemocratic European Union and you see that the time in which the United States could retain friendly relations, let alone an alliance, with "Old" Europe is rapidly coming to a close.

America needs to realize that it is going to lose its NATO allies in Europe and it must cultivate other alliances if it is to survive as a free and prosperous nation into and through the 21st century and beyond. As I have said before India as a good candidate for a special relationship with the US in that it possesses a huge population, a fast growing economy and a tradition of democracy (thanks to its period as a British colony). However India spend most of its time after independence as a socialist nation aligned with the USSR and has only recently made the transition to a free market state open to a close relationship with the West and there is still residual distrust to be overcome. That is why the US needs to proceed with a light touch in its approach to India.

Another thing America needs to do is take measures to help Mexico develop into a strong, stable and prosperous ally. The first step in that process is to close the border between the US and Mexico to any but legal traffic. As long as the government of Mexico has the safety valve of large scale emigration (legal or illegal) to the United States for its disaffected masses it will have no real incentive to undertake the painful process of reform.

The US also needs to build even closer ties with Eastern Europe. These nations have existed until recently under the iron boot-heel of Soviet communism and have no stomach for a return to totalitarianism. They recognize that the US was the main bulwark against the USSR and that it was pressure primarily from the US which brought down the Soviet empire (with due credit going to Margaret Thatcher and the Pope, of course).

It is very nearly certain that within the next 1oo years America will fight another war centered on the European continent. It is not possible to define the exact parameters of that war at the present time, but it is likely to be in aid of holdout states which have not become Muslim majority and placed themselves under sharia.

Historians will look back at this time as the time in which the foundation of the conflict was being laid down. It reminds us of the old Chinese curse about living in interesting times.

Saturday, December 30, 2006

Economics for (Euro) Dummies

From The Brussels Journal:

On January 1 2007, Europe celebrates the fifth anniversary of the launch of euro notes and coins by welcoming a 13th member of the eurozone – Slovenia, the tiny former Yugoslav republic. But the eurozone’s geographical expansion is modest in comparison with the rapid growth in euro notes in circulation within the region and beyond. Earlier this month the value of euro notes pushed through the €600bn (£402bn, $787bn) level – roughly double the value of the then-national currencies in circulation at the end of 2001. The signs are that in December the currency came of age by overtaking the US dollar in terms of the value of notes in circulation.

Pay attention to the part where it says that the value of euro notes is now twice the value of the national currencies that they replaced. We should point out here that by "value" they mean the face value, not purchasing power. Now here's the first test question:

Do you believe that the productivity of the European member states has doubled in the past five years?

If you've been paying attention to the stagnant European economic situation with its anemic growth rates the answer will be an obvious no.

This leads us to the second test question:

If you double the amount of currency in circulation without doubling the economic strength backing that currency what will happen to the purchasing power of that currency?

If you said that it will fall by nearly half then you get the gold star. Twice as many bank notes chasing the same amount of goods will each buy half as much. This is called inflation and it is caused more than anything else by governments issuing currency which is unbacked by reserves of precious metal and then turning on the printing press and growing the money supply.

If you doubt this then study the history of the Weimar Republic, which sought to pay striking workers and pay off war debt by turning on the printing press. The result had people burning money because it was cheaper than firewood.

The fact that the inflation rate in Europe has not been nearly 100% (there has been some growth in the European economies after all) means that there is a very large and heavy "other shoe" getting ready to drop in Europe.

I'm afraid that the "thump" when it hits the ground somewhere between Paris and Berlin will send out vibrations that will be felt in North America and Asia as well.

As the Chinese said, interesting times.