2011 crash?

what if like many earthquakes , at first there is a tremor, some damage, recovery, smiles and then the big hit.

what if the financial crises of 2008, recovery in 2009 with smiles in 2010 results in a big crises in 2011.

1755_Lisbon_earthquake

a bit morbid

but, important to analyze.

Kevin, my good friend sent this over. when kevin asks you to read something, a good portion of the time, you really want to read it. kevin is blessed with outside-of-the box thinking, contrarian point of view, blended with down-to-earth smarts, and the ability to think different and say it.

i think you should read this . (un?) likely but plausible

basically,

“Over any extended period of time, no economy can be prosperous if the government is

• overspending,
• raising tax rates,
• printing too much money,
• over-regulating, and
• restricting international trade.

It’s really as simple as that. Especially when the U.S. economy appears to have “green shoots”, it’s imperative to remember the U.S. economy cannot have prosperity given the policies of the Obama administration and Congress”

moreover,

During 2010 the economy will continue to improve, growing by more than 4%.

By the end of 2010 the unemployment rate could fall to as low as 7.0% and the Obama Administration will be busting with pride and conceit. And then 2011 will enter center stage, followed quickly by an economic catastrophe.

All the factors that will make 2010 (and have already made the last half of 2009) look so good will reverse direction, and 2011 will be a train wreck. The first effect is the so-called “slingshot” or “freefall” effect. Whenever an economy stops freefall, as the U.S. economy has, everything seems better because it’s getting worse more slowly. The slingshot effect will exert a powerful positive influence on the U.S. economy in 2010 but won’t exist in 2011.

if this is indeed the case, what should we do today?

looking for a new job?

about to commit to a new house?

consider this and may the force be with you.

i am still optimistic, but think this should be on our radar screens

the tension between ‘one person, one vote’ and ‘one dollar, one vote’

talk about corruption, consequences and reform.

parking violations by UN diplomats: UN diplomats in NYC do not pay parking tickets (until 2002) since a 90% drop. still, diplomats from Scandinavian countries have close to zero fines, other countries with high corruption have many tickets.

key takeaways:

Scandinavian countries have a lot of things that work. inequality, social services, cities with bikes.

the tension between power and money will exist forever. what is legitimate is relative. lobbyists, create almost all the problems of corruption, but just under a legal pretext. think of the tobacco lobby or the farmer’s lobby. the movie borat comes to mind regarding how relative values are.

corruption is the tension between power and money and actually tries to replace one person, one vote with one dollar, one vote

‘bribe is a way of getting personal’ creating a personal relationship.

singapore changed in a big way, buy paying public officials market rates. enforcement is crucial

transparency – aggregating costs and telling the public in a quantified way how much it costs may help.

size of government and likeliness of corruption? no clear evidence. some of the bigger governments (Scandinavia)  are not corrupt but there is a cause and effect, the state functions well, is big, and is not corrupt

key terms:

corruption: misuse of public power for private gain. could be included in private companies for self gain

CPI: corruption perception index. high number (1-10) means good = low corruption. poorer countries tend to be more corrupt.

incentives for bribery:

• government gives access to scarce resources. e.g. license to run a casino. seek monopoly rent to be shared. only one electric company to be privatized. anything with a cap on it – admissions to universities, or anything requires a license.
• better quality service. pay to get ahead of the queue
• obtain a benefit to all qualified

is there a problem? inefficient, poor pricing mechanism, vicious cycle to create red tape. so better to privatize it or price it officially. consequence include lower state legitimacy, higher cost of doing business.

result: underinvestment in education and growth, over investment in infrastructure

Scandinavian countries are leaders. 2002 -2007 israel dropped from #20 to # 30 in the world. still a very good place.

strength of mafia has influence with positive corrlation

post conflict is great – destruction , need to build, lots of money coming in quickly with weak domestic institutions. iraq add natural resources. how you integrate former fighters is crucial.

shift in public attitude towards corruption?

• could think of shift in opportunities. usually economic, occurs often
• change in values. good people can not be suckers. slow but does happen once in a while. e.g. good government movement in the US in 19th century lead by jefferson

Culture matters – the myth of progress

evolutionary thinking about the world

history of development: evolution or exploitation?

franco: progress is a myth. if you want to live in that myth, that is ok. how do we structure humanity? there is a bottom line and it is treatment of earth. think in circles

dapo: development is dignityty

the need for new world institution. move the UN from US.

in the west: civilization, progress, great chain of being, modernization

is international trade good for all? how much government intervention is good

key takeaways:

think circle not upward sloping line

how is development defined? just economic terms? culture matters

individual responsibility as a success factor for fighting poverty. social fabric and adaptations to it

poverty is relative, to your neighbor to your neighbor country

in some peoples there is no notion of progress, only a notion evolution. it is circular and has to do with giving back to mother earth. they prefer no competition, retribution. we are inside a tale.

rural vs urban. it seems that with economic indicators people in urban areas are doing well. over time?

is culture just a coat that you take off when you want something warmer?

summary and terms:

dependency theory (andre gunder frank, samir amin, walter rodney, immanuel wallerstein):

all societies are part of one world capitalist system which benefits the core by appropriating the surplus value produced by the periphery. international trade benefits one side and exploits the other

marxist evolutionary thinking

primitive communism to to feudalism to capitalism to socialism. feudal societies are poor because they are still trapped in feudal relations of production. socialists societies bring an end to capitalist exploitation.

world-system (wallerstein)

there are no feudal societies anymore, and not yet truly socialist societies, because all societies are still in one integrated global capitalist world-system

vicious cycle of poverty and widening gap (bauer)

there is no exploitation because most countries and most people are getting wealthier all the time. international trade is good for everybody.

chaundry

international trade may be good, but only if the government plays its part by promoting health and education, nurturing new industries, and regulating markets. by forcing governments to shrink, the World Bank and IMF have actually made conditions worse for capitalism, not better

tucker

the idea of development and the evolutionary thinking upon which it is based is not only inaccurate, it legitimates the capitalist world-system and conceals its exploitative nature. it is also euocentric.

The vicious cycle of poverty

this is a summary of the article by P.T. Bauer, “The Vicious Cycle of Poverty and the Widening Gap”

About Bauer

Peter Thomas Bauer, Baron Bauer (1915 – May 2, 2002) was a world-famous developmental economist.

Bauer is best remembered for

1. his opposition to the widely-held notion that the most effective manner to help developing countries advance is through state-controlled foreign aid; foreign aid not only fails to promote economic progress but may actually retard this process
2. private property rights are necessary and sufficient (in addition to smith’s rudimentary baseline).

Adam smith wrote in the ‘wealth of nations‘ in 1776, that “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things” . Bauer echoed Smith’s sentiment. According to him, “Emergence from poverty requires effort, firmly established private property rights, and productive investment.”

Bauer was born in Hungary, taught at LSE,  Prime Minister  Margaret Thatcher was his his friend and admirer.

Nearly all of Lord Bauer’s greatest contributions concerned development economics, international development and foreign aid. Bauer sought to convince other development experts that central planning, foreign aid, price controls, and protectionism perpetuate poverty rather than eliminate it, and that the growth of government intervention politicizes economic life and reduces individual freedom.

For Bauer, the essence of development was the expansion of individual choices, and the role of the state to protect life, liberty, and property so that individuals can pursue their own goals and desires. Limited government, not central planning, was his mantra.

state or central planning implies concentration of power in the hands of an elite that ultimately leads to corruption and abuse.

sounds familiar?

About the article

abstract:

the article challenges popular themes that

• ‘countries are poor because they are poor’
• that there is a ‘vicious cycle of poverty’ and
• that to get out of it what is required is

1. drastic sacrifices at home
2. massive aid from abroad

the above ‘wrong’ themes serve as basis for academic, government and literary thinking and for most current policies and measures.

1. the ‘invalid’ vicious cycle theory

developing nations can not get their heads abouve water- poverty itself set obstacles to its own conquest

• low level income makes savings impossible, thus no capital accumulation neceassiry for increase in income
• narrow markets obstruct specialization, needed for higher income
• demand is too small to permit productive investment
• government revenues are insufficient for effective public services
• malnutrition and poor health keep productivity low
• lock of profitable opportunities for private investments

it is this thesis, or accumulation of reasons, that the article would like to challange

2. invalidity

argues that empirical evidence refutes the theory

3. empirical evidence

evidence is provided to the contrary, showing that developing economies are developing

4.  international demonstration effect

demonstration effect states that should the vicious cycle be broken, another one is waiting: contact with advanced economies is damaging to underdeveloped economies, is encourages consumption vs savings

5. consideration of objections

3 considerations that may be objections to the anti vicious cycle theroy:

a.  thesis does not argue that there is progress throughout the underdeveloped world

b. recognition of material progress in some parts of the under developed world is not a plea for laissez-faire or any other policy

c. advanced sectors in under-developed countries are outposts of advanced economies which do not improve the economic prospects of the local population

6. aspects and implications of change

cash crops as insturment of material advance is discussed

7. impact of change

discussion of difficulties of adapting insitutions and attitudes to fast changing conditions

8. appeal of the vicious cyle

discussion of why the vicious cycle has become so popular

widening gap?

9. the vicious cycle and the widening gap

developed countries are developing and under developed countries are stagnating. so there is an ever-widening gap.

not true without looking at a broad set of issues including:

• concept
• interpretation
• measurement
• comparison

10. ambiguities in the Concept of the Gap

11. distinction between Developed and Underdeveloped countries

12. problems of international income comparasons

13. population growth and the widening gap

ss

14. further implications of population growth

15. the national income as index of welfare

16. wider considerations on the Gap

some groups may be adjusting better than others. so need to consider widening of relative differences of average incomes between groups over time with adjustments for age.

17 conclusion

arguments for ever-widening gap do not indicate or consider:

• what is measured (changes in differences, ratios)
• between which groups
• over what period

these arguments (vicious cycle, ever-widening gap) are used to promote policy

the gap arguments’ limitations are less clear and therefor more effective to promote policy and course of action. it adds fear to guilt of the West. it promotes urgency and an attendant feeling

Superclass

a discussion with david Rothkopf about his book called ‘superclass‘

claim:

say the world is 6 billion , there are 6000 people who really influence the world

they are interconnected and have abnormal power, but are heterogeneous and do not always have a similar agenda. they include members of government, military, religious, media stars, terrorists, criminals

they are 1 in a million

there is a huge pareto in wealth and power, there is alos a huge pareto within the group. the top 60 are way ahead of the top 6000, who are way ahead of the top 600,000 who are all millionaires.

the superclass is the new royalty.

next book is ‘power, inc.’ gross inequality. corporations are bigger than most nations

key takeaways:

none does policy. too many short term, fire fighting

in politics, power of media can not be overstated. management of media is crucial

trading is a daily referendum

reading is an old technology. people like video

people have electronic media on all day long. when do you stop to think

___________________

MEDIA
Marshall McLuhan media observer

the medium is the message

internet as:

• decentralization of news sourcing
• accelerate and amplification -> volatility

realclearpolitics.com

most people do not read. they consume video

they vote for who they like. the age of emotions. with volatility can cause panic. SARS as example

infodemic.

cross border constituents.  conflict of interest vs common good.

LEADERS

are they becoming younger? what will the retired ones do. meetings of the superclass?

Clinton Global Initiative. kissinger.

people live longer. there is a surplus of leaders. they can not all come to yale. lots of experience will be waisted if old standards regarding retirement are used.

there is a governance gap

many governance systems have been designed to be ineffective.

quotes

if you have to ask the price, you can not afford it

events are about people. people is the agenda

democracy works pretty well, over the long run, on the average

we did not get out of the stone age because we ran out of stones