Quote of the Day: Marc Faber is a Moron

No explanation needed:

The U.S. economy will enter “hyperinflation” approaching the levels in Zimbabwe because the Federal Reserve will be reluctant to raise interest rates, investor Marc Faber said.

Prices may increase at rates “close to” Zimbabwe’s gains, Faber said in an interview with Bloomberg Television in Hong Kong. Zimbabwe’s inflation rate reached 231 million percent in July, the last annual rate published by the statistics office.

“I am 100 percent sure that the U.S. will go into hyperinflation,” Faber said. “The problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate.”

Really, Faber? "Close" to Zimbabwe's gains? Really?

Stat of the day: Champions League Final edition

In honour of this evening's final in Rome, we go beyond the headlines:

Cristiano Ronaldo has never scored against a Spanish side in the Champions League. Lionel Messi has never scored against an English side in the Champions League.

Gentlemen, the stage is yours...

Update: What'd I say- Messi scores, Barca wins. Congrats to the Catalans.

Quick hits and pink picks: A very different kind of Iraqi purge

-Iraq's Commission on Public Integrity has announced that it is issuing approximately 1,000 arrest-warrants for government officials on corruption-related offenses. This massive purge is said to include upwards of 53 senior officials (director-general level or above), and is largely centered around the Ministry of Trade. The trade minister, Abdul Falah Sudani, resigned on Monday ahead of a no-confidence vote in parliament. Obviously, warrants and investigations are far easier to announce than actual convictions, particularly of high-ranking officials. But I find this announcement stunning on two levels: for one, its sheer scale is incredible. Never mind the anti-corruption records of (post-sectarian conflict) developing countries; in what developed country can you find such broad accountability in government? Britain is the only country that comes to mind in recent years, and even there the current expenses scandal is defined by public shame and resignation, rather than actual corruption charges (remember, MPs never actually "broke the law"). Second, the Ministry of Trade is dominated by the Dalawi faction of Prime Minister Nuri al-Malaki; the Iraqi PM is leading a massive anti-corruption investigation centered on his own political fiefdom. That is perhaps the most remarkable aspect of all.

-How concerned should we be that Russia is currently preparing for nuclear conflict on the Korean peninsula?

-Hizbollah is reportedly in talks with both the IMF and EU to safeguard Lebanon's external funding in the event of an election victory by the Shia group on June 7.

-The Economist examines the Obama Administration's first climate-change bill.

-The next big foreign target of Chinese investors is...LeBron James?

Leading Economic Indicators: Not what you'd expect

Which provides a more accurate indicator of economic trends:

Hookers and extra-marital affairs?

or...

Underpants?

Maybe we can combine these into one, perfectly accurate economic indicator: the underpants of people having extra-marital affairs with hookers. Discuss.

(via Real Clear)

Ask and you shall receive

Maybe we can count a reporter at the LA Times as one of our loyal readers because, a mere two days after I speculated on the impact of the financial crisis on retirement, the newspaper has reported that early retirement claims are running well ahead of expected rates (with 25% more than last year). And it's not likely that our baby boomers have been overcome by an irrepressible desire to golf:

Many of the additional retirements are probably laid-off workers who are claiming Social Security early, despite reduced benefits, because they are under immediate financial pressure, Goss and other analysts believe.

A similar story appears to be unfolding in Canada, where pension plan rules are going to be revised to make it easier to claim benefits sooner (although at a reduced level). In other words: we're going to see a prolonged set of costs for the economy, government coffers, and families who are affected by this surge in experienced workers taking early retirement.

The Great Supply Crunch

Take no false comfort, The Economist warns of the coming oil price spike.

I have been arguing since the fall that we are experiencing but a lull; the long term trends and short term pressures contributing to oil's remarkable rise in 2008 remain firmly in place. The Economist lays out the argument in a succinct and comprehensive manner:

The explanation is simple. Oilmen are worried because they believe that many of the factors behind the record-breaking ascent last year remain in place. Much of the world’s “easy” oil has already been extracted, or is in the hands of nationalist governments that will not allow foreigners to exploit it. That leaves firms to hunt for new reserves in ever more inhospitable and inaccessible places, such as the deep waters off Africa or the frozen oceans of the Arctic. Such fields take a long time and a lot of expensive technology to develop. Worse, new discoveries tend to be smaller than in the past and to run dry faster.

So oil firms must work doubly hard to replace declining fields and to increase output. As Francisco Blanch of Merrill Lynch puts it, they must find another Saudi Arabia’s worth of oil every two years just to maintain their production at today’s levels. Yet the oil industry is short of equipment and manpower, thanks to decades of underinvestment in the 1980s and 1990s, when prices were low. That left it struggling to expand despite the strong price signal of recent years, and thus poorly positioned to cater to vast new markets in the developing world, including China and India, where oil consumption has been growing fast. At the height of the boom, with the price repeatedly setting records, production outside OPEC even fell.

As soon as the world economy starts growing again, the theory runs, demand for oil will once again outstrip the industry’s ability to supply it. The seemingly ample cushion of inventories and spare capacity will quickly be exhausted, sending prices soaring. In other words, the global recession has only interrupted the “supercycle” of which many analysts used to speak, during which the normal boom-and-bust cycle of oil and other commodities would give way to a protracted period of high prices, as ever-growing demand from emerging markets swallowed everything the extractive industries could produce. “The commodity supercycle is not over, just resting,” says Mr Blanch.

It is important to note that a number of factors can help mitigate this super-cycle: technological innovation, cap and trade and fuel efficiency standards in the world's largest and emerging economies, a prolonged demand slump in the developed world, the conversion of vehicles and mass transportation systems to natural gas, to name but a few. But the underlying demand, reserve and production trends will sustain oil's steady rise.

The Great Supply Crunch is coming.

Monday Morning Round-up

- North Korea is not content to let the world forget that it is bat**** crazy

- There are grumblings and speculations about the US losing its AAA sovereign debt rating after the UK was threatened with a downgrade last week. I'm inclined to agree with Felix Salmon on this one: credit rating agencies have lost so much credibility in recent months that their opinion doesn't count for much. Nevertheless, that doesn't take away from the huge challenges facing the US economy (and its currency) as the government loads up on debt.

- Please leave the UK: a message that's not just for immigrants anymore! (via The Browser)

- The Canadian winter olympics committee has unintentionally revealed the secret weapon to be used by their olympic snowboarders in 2010. Slow learners, those Canucks.

A Brief Weekend Note to British MPs: you FAIL

A brief note to British MPs in the wake of the (still) ongoing expenses scandal:

You FAIL. The public trust, your democratic duty, even the most basic notions of ethics and honour. So please, Archbishop Williams/Speaker Martin/Nadine Dorries...especially Nadine Dorries: just go away. The drip, drip, drip of leaks is the least a society you have woefully failed should offer you in return. In fact, I suspect many Britons would prefer to subject you all to a very different kind of drip, drip, drip. The only thing more shameful than the massive fraud (whether the claims were technically legal or not) you have collectively perpetrated is the ridiculous attempts to label their exposure excessive.

Please don't misinterpret my outrage; I am no populist. In fact, I rather admire the British establishment. But it has failed, and MPs would be well served to fall on their swords and stop trying to deflect shame onto the messenger.

I hold no illusions as to the true aspirations of public servants in this, or any, country. But as someone presently weighing a career in my country's foreign service, deep down I like to think that every public servant holds an allegiance greater than their own personal enrichment and power. When you betray that duty, you need to walk away. Then: 1) lay low for a couple of years (unless you are this guy), 2) write a book, 3) do the morning talk show round, 4) find a pet-issue and display phony-outrage, 5) run for office all over again...you all know the drill.

Friday Factoid: Indian Democracy

Manmohan Singh is the first Indian prime minister since Jawaharlal Nehru to be returned to office following a full five-year term (that's since 1964, for those keeping track at home).

Note: I heard this little anecdote on the BBC this morning, and in trying to confirm its validity came across Singh's Wikipedia page. Sure enough, it appears in the introduction. Which got me thinking: is the venerable BBC really relying on Wikipedia for its research? Or was some Wiki nerd really quick to update Singh's page this morning? Either scenario highlights the remarkable velocity with which information is disseminated and distributed in the Internet age.

Age and (Un)Employment, Deux

Here's a tangential thought to my post on baby-boomer retirement, below:

We occassionally report on examples of counter-cyclical assets: where market demand for something increases as the market itself is going down the tubes. But what will be the possible market impact of a the baby boomer generation retiring? Here are some "pro-geriatric" assets that come to mind:

1. Health care
2. Golf memberships
3. Bridge club memberships
4. Timeshares in Florida, the Caribbean, etc
5. Wrap-around sunglasses
6. Prunes

Now I'm not one for business advice, but I think Oakley or Fendi could really tap into the designer wrap-around sunglasses market - there's a lot of growth potential there.

Age and (Un)Employment

Here's a thought: I've seen a few different breakdowns of the recent spikes in unemployment, or at least unemployment in the G7 countries. Some have looked at unemployment by sector (white collar vs. blue collar, etc) others at income distribution, and so on. But what about by age bracket?

We have long been expecting labour market pressures to rise as the baby boomer generation starts to retire. Even as people of that generation tend to work an extra 5-10 years, that only delays, not reduces, the pressure. Now add the recession into the mix. There are two reasons to suspect that unemployment will fall heavily on the baby-boomer generation: more experienced workers are 1) more expensive, and 2) less easily re-trained than their younger counterparts.

If recent lay-offs are falling heavily on workers of the baby boomer generation, how will that impact medium- and long-term unemployment rates? Will we be seeing a prolonged spike in the unemployment rate as many baby boomers are forced out of work prematurely and are unable to return with ease?

Of course, many people may simply choose to retire early (assuming their savings didn't nose-dive into the concrete) and therefore wouldn't be counted in unemployment statistics, per se. But the social impact of fewer people in the labour force is effectively the same.

Mind you, this whole line of thinking is based on the assumption that unemployment actually will affect older workers more heavily. Someone find me a chart!

Which of our closely held beliefs will our grandchildren be appalled by?

I love this question. Here's a selection of possible answers.

To that list I would add:

- Our treatment of animals
- Our tolerance of a lack of universal health care
- Probably most things to do with psychology and our assumptions about human judgement in law and society.
- Our belief that we are fashionable.

What are your suggestions?

Also: for a short but interesting discussion of this topic, listen to this interview with Miranda Fricker at Philosophy Bites (audio).

Best IPE Article of the Week

My pick goes to Martin Wolf's column from yesterday's FT: "Capitalism is dead, long live capitalism"

Another lesson from the crisis that I would add to Martin's list: America's economic policies are way more "extreme" than European ones, both in their deregulation leading into the crises and in their Keynesian-style reaction to the crisis. The only country that I can think of that has undergone a more radical turnaround in economic policymaking is Iceland, and they're the ones blowing up their Land Rovers because it's cheaper than trying to pay them back.

The No-Longer Missing Link: Darwin was right

At a news conference in New York, scientists have presented what is being called the "eight wonder of the world", a 47-million-year-old skeleton said to be the evolutionary link between man and monkey.

Quick hits and pink picks: Dowdy, gloomy, dire no more

-Last week, Michael Skapinker wrote a piece in the FT entitled 'Britain's years of progress were no illusion.' It remembers 1970s Britain and asks us to retain a little perspective on the tremendous progress of the past three decades (in Britain and beyond).

-The NYT looks at the likely response of the US credit card industry to regulatory reform.

-Brazil and China will begin using their own currencies in official trade transactions, accelerating an intended shift away from the dollar by two of the world's (emerging) economic powers.

-How the Russian military (and pop stars?) sees the country's energy diplomacy with Europe, set to song and dance. Funny, and frighteningly true.

-Say it aint so, Arsene.

The surprisingly similar anatomical abnormalities of fascist dictators

I apologize in advance to our readers, but this was too good not to post. Apparently, a new book claims that Franco had more in common with Hitler than their shared love of war and oppression. A choice excerpt from the BBC:

Franco was wounded in the lower abdomen at El Biutz, near Ceuta, in June 1916.

Biographers have long speculated this affected the reproductive organs of the dictator, who ruled from 1939 to 1975.

Seriously, who are these biographers?

All Crises are Local: The Associated Press' Economic Stress Index

The AP provides a county-by-county visualization of the contracting US economy here.

Quote of the Day: China as saviour

In a Sunday interview with The Guardian, British Foreign Secretary David Miliband acknowledges China's unspoken assumption of great power status this past year, pointing to the G20 London meeting as a defining moment in China's rise. He goes on to offer the following 'joke':

'After 1989, capitalism saved China. After 2009, China saved capitalism.'

British Pubs update

Last year I reported on the state of pub culture in Britain, and then later on Ireland. Here is the latest news on that front, from an article in this week's Economist:

39 public houses a week are closing... as recession and cut-price beer in supermarkets thin their business. It is not just tenanted pubs that are vanishing: more than half of the pubs boarded up in the first half of 2008 were owned by their managers. Some flourish: JD Wetherspoon, for example, a company that runs about 700 of its own managed pubs, continues to open new ones—35 are planned this year. But Wetherspoon is exceptional.... The pubcos Punch Taverns and Enterprise Inns are having to sell pubs, partly to service huge piles of debt.

The decline of the pub is causing concern in more quarters than corporate suites, however, for public houses have long been part of the fabric of the community. Their position should be shored up, says a new report from the Institute for Public Policy Research, a think-tank, through planning policy, lower business rates, grants and perhaps letting them double up as general stores and post offices.

Interesting idea- but the line-ups (sorry, queues!) at British post offices are horrid at the best of times; do we really want to add beer into the mix?

Quote of the Day: Pakistan edition

"The Taliban is like a franchise"

This off-the-cuff remark made by a member of Pakistan's National Assembly, although partly flippant, is actually a serious reminder of the nature of the enemy being fought by the military in Pakistan. Instead of being a uniform set of religious believers, the Taliban is instead a collection of fighters (many of them foreign) that possess varying levels of extremist ideology. In many cases, local "land mafias" have simply adopted the Taliban brand name in order to bolster their regional power grab. These local warlords play upon fear and a deep mistrust of Pakistan's government and military - effects which are particularly pronounced in regions that lack law & order, literacy, or adequate levels of nutrition and health services.


Understanding this as largely a set of human problems, rather than simply military ones, is a nuance that is often lost in the recent media reports of violence in and around the Swat valley. A growing majority of Pakistan's population want the Taliban thrown out, but the problem lies in the government's lack of capacity to provide credible alternatives - once the shells stop exploding, that is where the international community should focus their efforts.

Jeffrey Sachs on America

I attended a talk given by Jeffrey Sachs yesterday. For those who are unfamiliar with the name, Sachs is a rather huge deal when it comes to development economics. Love him or hate him, when he speaks, influential people listen. The talk was very interesting overall; here are some quick thoughts:

1) Attending a Sachs lecture is like attending church/mosque/synagogue: it reminds you of all the things you should be doing, but aren't. You walk away with a slightly stronger conviction that you will try harder this time, but knowing all the while that reality will get in the way.

2) Sachs has completed a remarkable intellectual shift in his career. He began with pro-market/small-government "shock therapy" policy recommendations that were tested in post-communist Poland, Bolivia and Russia. Now, two decades later, Sachs' idea of a model society is Sweden with its 50% tax rate. Indeed, most of his lecture focused around how America needs more (and better) government. I was already well aware of this shift, but it was still fascinating to hear it spoken so plainly.

(As a side-note, one of my undergrad econ TAs suggested that this was the best way to make a name for yourself in economics: start by espousing rigid pro-market theories, then gradually moderate your work to the center or left side of the spectrum. I wonder if that still holds true.)

3) Someone in the audience pointed out that the main themes of Sachs' talk were identical to those put forward by J.K. Galbraith in his 1958 book The Affluent Society - that is to say, even as the private sector has grown rich in recent decades, the wealth of the public sphere (in America) has not kept pace. This trend has created widening income disparities, crumbling infrastructure, a weakened welfare state, etc. It's interesting to see how we've returned to the very same debate 50 years later, and attitudes haven't really changed much.

4) While I don't agree with all of Jeff Sachs' priorities, his overall point was dead on: we cannot treat this crisis like an ordinary dip in the business cycle. Policies with short-run horizons that are designed to bring our financial markets back to normal are doomed to fail: "normal" was the problem, and we should not attempt to re-create it.

Quick hits and pink picks: Back from the dead

Following a not-so-brief sabbatical from these fine pages...your Wednesday quick hits and pink picks:

-While the financial markets are cautiously optimistic the US economy may be stabilizing, some prominent figures are still anticipating Armageddon: John Taylor, of Taylor Rule fame, thinks the Fed is dangerously loose with its monetary policy and has "caused, prolonged, and worsened" the financial crisis. He challenges the Fed's assurances that it can quickly shrink its balance sheet to prevent an inflationary tsunami on the upswing. In a potent dose of IPE, he points to the likely, and severe, political constraints such steps would face. If Taylor is correct, the Fed has little room left to stimulate credit/growth before a rapid, and sharp, tightening of monetary policy is necessary. A second alarm has been sounded by David Walker, formerly director of the Government Accountability Office, who warns the US' triple-A credit rating is at serious risk. He identifies two primary risk factors: health care reform and poor post-crisis fiscal constraints. Walker acknowledges that health care reform is critical to correcting the country's fiscal imbalance and driving down the cost to individuals, but contends that we should focus on reforming the massively unfunded liabilities we are already living with, namely Medicare. Second, like Taylor he worries that political constraints will limit the political will to impose fiscal discipline after the flood. There's also that tricky little issue of tax increases.

-In an admittedly lightweight piece for Vanity Fair.com, Matt Pressman identifies four reasons why Newsweek and Time will never be The Economist. The US newsweeklies are looking to the emulate the print media's shining star, a sentiment so widely held in the industry that Pressman likens it to the ever-present "10 secrets to perfect abs." While the analysis could be much better, the article does identify a critical gap in the US media landscape, intelligent international affairs reporting, and in a way challenges the print media's death knell. There are publications, like The Economist and FT, both of which have seen US circulation numbers steadily rising over the past decade, who are still growing amidst print's great decline. While Pressman is correct that "do as The Economist does" has become an industry cliche rarely realized in circulation or quality, he is wrong to suggest that The Economist's reporting/analysis/"snob appeal" cannot be emulated. Much of the US media talks to Americans like they are their worst stereotype: isolated, ignorant, superficial and uninterested in the world around them. Newsweek and Time should thus be applauded, not mocked, in their efforts to emulate The Economist, whether ultimately viable or not. A final point: is it a coincidence that thriving print publications are seemingly all British?

-It is once again the CIA v. Congress, a battle seemingly waged once every other decade. Isn't blame/failure in such instances always systemic? And is this stunning reversal related?

-Over the past year, we have tried to highlight some of less visible victims of the credit crunch, be it sport or contemporary art. Yachts and independent films could be added to list, as this year's Cannes Film Festival kicks off under a cloud of financial uncertainty.

-The Finnish government is merging the country's top three universities to form a single, new institution of higher education: Aalto University. The new school will endeavor to approach innovation from a multidisciplinary track. Seed Magazine examines its vision.

Monday Morning Round-Up

Awesome blogs by "really smart people" (pointer from Free Exchange)

The Buy-American mentality in action: a Belgian-owned, Canadian-made pipe is ripped out of the ground and replaced by an identical one that was made in the U.S. of A. Serves 'em right for making bilingual pipes, anyway.

The podcast of a CFR round-table entitled "The Financial Crisis and Global Financial and Monetary Cooperation"

Boeing's arial drones are now available for rent.

Taking stock at Arsenal

Quote of the Day

From a German Green Party Candidate debating tax havens in parliament:

That's the problem when one tries to fight tax evasion with Gordon Brown. It is as likely to succeed as if one were trying to fight the Mafia with Silvio Berlusconi.

Snap!

(This gem was stolen from the pages of FP Passport)

Political Economy of Sport: Hockey & Football

The political economy of professional sports has reared its ugly head this week, with politics winning a decisive victory over economy (and common sense). Case in point: the messy debate over the future of Phoenix's NHL franchise. Somehow it makes more sense to the NHL brass to keep a team that is dying from financial dehydration in what is both literally and figuratively a hockey desert than to move it to a region with several million hockey fans.

Along a similar vein, the boardroom maneuverings over the ownership of the Arsenal football club are once again taking on a xenophobic flavour. Isn't sport fun?

A Dose of Eichengreen

I fell a little behind on things last week, but here's an article by Barry Eichengreen which was brought to my attention a few days ago. Eichengreen is a well-respected (political) economist who cut his academic teeth researching the gold standard in the Great Depression, but has since become a prolific writer in areas of financial crises, European monetary issues, financial globalization, and much more. His website has links to his 100+ research papers and other articles.

Anyway, this piece provides an excellent, easy-to-read summary of the some of the underlying problems in the financial industry (including business, regulation and academia) that led to the mess in which we find ourselves. This is a popular topic these days, but Eichengreen does a better job than most. Here's a concluding paragraph:

What got us into this mess, in other words, were not the limits of scholarly imagination. It was not the failure or inability of economists to model conflicts of interest, incentives to take excessive risk and information problems that can give rise to bubbles, panics and crises. It was not that economists failed to recognize the role of social and psychological factors in decision making or that they lacked the tools needed to draw out the implications... Rather, the problem was a partial and blinkered reading of that literature. The consumers of economic theory, not surprisingly, tended to pick and choose those elements of that rich literature that best supported their self-serving actions. Equally reprehensibly, the producers of that theory, benefiting in ways both pecuniary and psychic, showed disturbingly little tendency to object. It is in this light that we must understand how it was that the vast majority of the economics profession remained so blissfully silent and indeed unaware of the risk of financial disaster.

There's a great summary of the areas of economics which did provide useful insights, so read the whole thing. (Thanks for the pointer, Manoli).

Counter-Cyclical Asset of the Day

Bank note paper - quantitative easing is good for business!

Shoeleather costs

Here's a question I've never been able to figure out the answer to: why doesn't the price of running shoes ever seem to fall?

Because it seems to me that running shoe "technology" has improved noticeably over the last decade, but the prices of the base models don't seem to be falling. In cars and computers, the fancy pants technology tends to filter down over time from the high-end models to the lower-end ones. Not so with shoes: if you're only willing to spend $80-$100 at a typical shoe store, you will end up with same crappy piece of footwear you would have spending the equivalent amount ten years ago. The only thing that has changed is that now you have the option of spending $250-$300.

What am I missing?

Alternative Employment for Engineers: Chinese Politician, Terrorist

The Browser has brought my attention to a very interesting article from The Economist which explores the differences in professional backgrounds for political leaders around the world.

Some findings:
Lawyers dominate democracies, Africa is full of military veterans (quelle surprise), Egypt likes academics; Brazil, doctors; and South Korea, civil servants. What caught my attention, however, was the predominance of engineer-politicians in China. Many of the top dogs, including the Prime Minister, President and previous President, were trained as engineers. Here is The Economist's explanation for why this might be:

The presence of so many engineer-politicians in China goes hand in hand with a certain way of thinking. An engineer’s job, at least in theory, is to ensure things work, that the bridge stays up or the dam holds. The process by which projects get built is usually secondary. That also seems true of Chinese politics, in which government often rides roughshod over critics. Engineers are supposed to focus on the long term; buildings have no merit if they will collapse after a few years. So it is understandable that an authoritarian country like China, where development is the priority and spending on infrastructure is colossal, should push engineers to the top.

Can anyone think of any other possible reasons?

This passage reminded me of another area of work dominated by engineers: terrorism. I noticed this trend and mentioned it to an undergraduate professor of mine who specialized in political thought in the Middle East. He confirmed that, yes, this was quite common: engineers and doctors make good terrorists because they are "do-ers" and less likely to argue about theology/ideology. Instead, it's all about putting ideas into practice. Sure enough, the al-Qaeda recruitment handbook recommends recruiting among the non-religious, particularly at colleges/universities, for precisely this reason.

So obviously I'm not suggesting that all terrorists are engineers, or that all engineers are terrorists, or even that all Chinese politicians are terrorists. Disclaimers aside, however, the parallel between terrorist groups and China's leadership is an interesting idea to play with. In both cases there is a strong ideological/theological foundation which the academics can quibble over, and, when it comes to getting things done, they turn to the engineers.

Quote of the Day

Google is to privacy and respect for intellectual property rights what the
Taliban are to women’s rights and civil liberties

Provided by none other than Willem Buiter (and you wonder why we love this guy?). Read the rest.