Quote of the Week - Milton Friedman

"Nobody spends somebody else’s money as carefully as he spends his own.” --Nobel prize-winning economist Milton Friedman

USA Economy: Warning! Things are worse than you imagine

G. Tracy Mehan III


If you suffer from melancholia, or display other symptoms of clinical depression, you might want to skip reading Niall Ferguson’s The Great Degeneration: How Institutions Decay and Economies Die. For the rest of us, it is an essential grounding in the daunting realities facing the current and future generations of the Western democracies, especially the United States.

Ferguson, a Scottish transplant to Harvard and a senior fellow at the Hoover Institution, based this book on his 2012 Reith Lectures for the BBC. Warning: Things are even worse than you thought.

Ferguson’s short, articulate, and powerful book describes a quartet of pathologies plaguing the United States and most Western countries: “democratic deficits,” “regulatory fragility,” the “rule of lawyers” rather than the rule of law, and an “uncivil society.” Ferguson believes these conditions have contributed to making the US a “stationary state,” a term coined by his countryman, Adam Smith. This has led to “a shocking and perhaps unparalleled breach” of Edmund Burke’s partnership which the great Anglo-Irish conservative described as “not only between those who are living, but between those who are living, those who are dead, and those who are to be born.” Ferguson relies heavily on contemporary scholarship but also draws on the intellectual legacy of the formidable triumvirate of Smith, Burke, and Alexis de Tocqueville.

Read it all here. 

China economic growth winding down?

Major shifts underway in the Chinese economy that Stratfor has forecast and discussed for years have now drawn the attention of the mainstream media. Many have asked when China would find itself in an economic crisis, to which we have answered that China has been there for awhile -- something not widely recognized outside China, and particularly not in the United States. A crisis can exist before it is recognized. The admission that a crisis exists is a critical moment, because this is when most others start to change their behavior in reaction to the crisis. The question we had been asking was when the Chinese economic crisis would finally become an accepted fact, thus changing the global dynamic.

Last week, the crisis was announced with a flourish. First, The New York Times columnist and Nobel Prize-recipient Paul Krugman penned a piece titled "Hitting China's Wall." He wrote, "The signs are now unmistakable: China is in big trouble. We're not talking about some minor setback along the way, but something more fundamental. The country's whole way of doing business, the economic system that has driven three decades of incredible growth, has reached its limits. You could say that the Chinese model is about to hit its Great Wall, and the only question now is just how bad the crash will be."

Later in the week, Ben Levisohn authored a column in Barron's called "Smoke Signals from China." He wrote, "In the classic disaster flick 'The Towering Inferno' partygoers ignored a fire in a storage room because they assumed it has been contained. Are investors making the same mistake with China?" He goes on to answer his question, saying, "Unlike three months ago, when investors were placing big bets that China's policymakers would pump cash into the economy to spur growth, the markets seem to have accepted the fact that sluggish growth for the world's second largest economy is its new normal."

Read it all here.

 

Keynes' Work and his Sexual Preference

John Maynard Keynes was a brilliant, boastful and argumentative figure. He loved to verbally fence with some of the most outstanding minds of his time. About Keynes, Bertrand Russell wrote, "Annihilating arguments darted out of him with the swiftness of an adder's tongue. When I argued with him, I felt that I took my life in my hands."

Keynes's seminal work The General Theory of Employment, Interest, and Money (1936) is far from "general" in that it details short-run techniques for manipulating the economy, specifically addressing one of capitalism's chronic problems: employment. He introduced the concept of a national balance sheet to regulate the level of employment and the level of consumption and investment. The balance of which he writes is between the size of a nation's total resources and the demand for them. Keynes was convinced that nothing is "built in" to the economic machine. There is no invisible hand, no regulator, and no going back to some idealized economic past.

Lawrence Malkin (Time Magazine) wrote, "By demonstrating how to manipulate large forces in the economy, Keynes unwittingly drew the blueprint for an economic juggernaut that must eventually, if it has not done so already, kill the individual values and personal variety he passionately sought to preserve." (Horizon, Ug. 1969, p. 110)

Was Keynes's work blemished by the fact that he was a staunch eugenicist, a homosexual, and a bigot?  Ricardo Crespo, an expert on Keynes, believes that these factors are not significant in evaluating Keynes' contribution.

Ricardo Crespo

John Maynard Keynes, the last century’s most famous economist, was in the news this week. Harvard’s celebrity economic historian Niall Ferguson was addressing the Altegris strategic investment conference in California, an event for investors and financial analysts, when he was asked a question about Keynes’s impact upon modern economies.

John Maynard Keynes

To the consternation of his audience, he said that the great man’s economic theories had been influenced by his homosexuality: as a childless man he cared little for future generations. According to notes from a finance reporter he said:

“Keynes was a homosexual and had no intention of having children. We are NOT dead in the long run… our children are our progeny. It is the economic ideals of Keynes that have gotten us into the problems of today. Short term fixes, with a neglect of the long run, leads to the continuous cycles of booms and busts. Economies that pursue such short term solutions have always suffered not only decline, but destruction, in the long run.”

His remarks prompted a lot of hostile discussion in the media. Subsequently Ferguson later offered “an unqualified apology” on his blog.

The thesis of the influence of homosexuality on Keynes’ thought was proposed by Charles Hession in his 1984 book John Maynard Keynes. Ted Winslow also emphasised this point in a 1990 article in the journal Social Research.

But my feeling is that the key to understanding Keynes does not lie here. Rather, it is the ethical worries of the Bloomsbury group which helped Keynes to develop the philosophical theories which are at the root of his economic thought.

However, this storm in a teapot over the sexual orientation of the great economist may serve a positive purpose. It ought to remind us that the economy is not just about economics. As a human reality the economy is subjected to a multitude of influences, but the academic discipline of economics normally only takes economic arguments into account.

In addition, the current trend in economics is to examine all human activity through a narrow economic perspective. Input from other social sciences, psychology and sociology is systematically excluded as the logic of economics is substituted for the logic of social sciences. To get the flavour of this, just check out the blog Freakonomics, where economist Steven D. Levitt and journalist Stephen J. Dubner offer an economic explanation of everything from child abuse to the Kentucky Derby.

This is what has been called the “scientific imperialism of economics”, a research program that has predominated from the second part of the 20th century. It has originated concepts or disciplines such as law and economics, human and social capital, the economics of crime, the economics of the family, the constitutional political economy, and the economics of religion.

Today, however, we are in the twilight of homo economicus. Economists are realising that they need import insights from other social sciences rather than export the logic of economics to them.

The referee for a fruitful interchange among these disciplines is ethics.

In recent years, and particularly after the global financial crisis, many economists have turned to the father of the systematic study of both economics and ethics, Aristotle. A good example is the publication last year of Reckoning with Markets: The Role of Moral Reflection in Economics, by James Halteman and Edd S. Noell. They argue that economics is not a “value-free” discipline and that it has always incorporated moral reflection into its equations and diagrams. One chapter deals almost entirely with Aristotle’s contribution to economics.

Robert and Edward Skidelsky published another widely-discussed book last year which was based on Aristotle’s notion of the good life. In How Much is Enough?: Money and the Good Life the father and son team contend that something is wrong if we work harder and hard but enjoy life less and less. Arguing that economics is essentially a moral science, they trace the notion of “the good life” from Aristotle to Keynes.

And then there is Michael Sandel’s book What Money Can't Buy: The Moral Limits of Markets, also published last year, in which the popular Harvard professor rings alarm bells about our drift from being a market economy to a market society. (See the MercatorNet review here.)

The list gets longer: Debra Satz, of Stanford University; the late Albert Hirschman; Deirdre McCloskey; and very especially the winner of the 1998 Nobel Prize in economics, Amartya Sen. Most of these authors use Aristotle as a reference point.

Why Aristotle? Joseph Schumpeter answers this question in his magisterial History of Economic Analysis:

"But only a small part of his analytic performance is concerned with economic problems. His main work as well as his main interest, so far as social phenomena are concerned, was in the field we have decided to call economic sociology or rather it was in the field of political sociology to which he subordinated both economic sociology and technical economics. It is as a treatise or textbook on state and society that his Politics must be appraised. And his Nicomachean Ethics—a comprehensive treatise on human Behavior presented from the normative angle—also deals so preponderantly with political man, with man in the city-state, that it should be considered as a companion volume to the Politics, making up together with the latter the first known systematic presentation of a unitary Social Science.”

This is what modern economists appreciate in Aristotle: he does not deal with the economy in isolation, but as part of the reality of politics. This is why it requires interdisciplinary attention and analysis. The loss of this unity is at the root of our political, social and economic crises.

And to some extent, Keynes was a forerunner of the revival of the ethical dimension of economics. Because he drifted into economics as a career, it is often forgotten that he studied philosophy at Cambridge. As a member of the Bloomsbury Group, he was immersed in an environment which esteemed lively discussion of philosophy, metaphysics, aesthetics, ethics and mathematics.

The Bloomsbury group, although its members had complicated personal lives, was centered on an essentially moral concern. Was it possible to create an authentic alternative to the decadent and hypocritical Victorian ethical system? The young Keynes began his research into inductive logic from a fundamentally ethical position.

As far his economics goes, the fact of his homosexuality is a red herring. My feeling is that it had no substantial influence upon the formation of his economic theories. What did matter, however, is that he placed an ethical system at the heart of economics. That is an insight on which contemporary economists can build.


Ricardo Crespo is professor of economics at IAE Business School in Buenos Aires, Argentina. He is the author of El Pensamiento Filosófico de Keynes: Descubrir la Melodía, a study of the philosophical underpinnings of Keynes’s thought. He has also written on Keynes in the European Journal of the History of Economic Thought. This year he published Theoretical and Practical Reason in Economics. Capacities and Capabilities (Springer). Another book, A Re-assessment of Aristotle’s Economic Thought will be published in October (Routledge).


Related reading: The Media's "sea of fire"; Harvard Professor Trashes Keynes for Homosexuality; Ferguson's Open Letter Apology to Harvard

Nigeria Emerging Economic Power

"Africa has more than one story. When we get to know it well and completely, we surprisingly discover a continent that is big, joyful, generous, enthusiastic and optimistic. It is today the darling of many foreign investors, and the world's superpowers are competing to lay first claim to it, not now as lords as in times past, but with a desire to be first to be regarded Africa's friends. So much has it grown in many facets, economy included, that it portends hope for many peoples.

A one-word Ibo proverb "Nkoli" loosely translates to "tell your own story". Harambee blog sets out to contribute local brush strokes to build the real story about Africa told by Africans themselves.

There is much hope Africa can offer the rest of the world; from its love of life and family, to the heroic examples of people who have withstood great odds with a smile on their lips, and great stories of innovation achieved with limited resources." --Eugene Ohu, a Nigerian freelance journalist

_______________________________

From his office overlooking the Bank of England and the Shard, Charlie Robertson, one of the leading emerging market economists in the City, shows me his charts and graphs. According to his research, what started as a boom for raw materials will culminate with the complete transformation of the African continent by 2050.


Nigeria’s reinforced foundations

The Nigerian economy will eclipse South Africa, which by then will become just a regional player. I query whether the growth in countries like Nigeria, is built on shaky foundations, and whether corruption will undermine its prospects.

“All I can talk about is what I’ve seen,” says Robertson. He points to Sanusi Lamido Sanusi, Nigeria’s Central Bank Governor since 2009, “who is remarkable. I haven’t heard anyone suggest that he’s in any way corrupt.”

And Sanusi is not alone. “If you go to the central government side, you’ve got Ngozi Okonjo-Iweala who could have been the World Bank chief, if the Americans and Europeans hadn’t stitched up who gets the top job at the IMF and the World Bank…she’s that good.”

There is also the agriculture minister, “who looks great,” the trade and industry minister, the stock exchange chairman. “You seem to have a whole load of people with global and western skills in Africa pushing for change in the right direction.”

However, he concedes that Nigeria’s reputation for corruption is something that cannot be brushed aside. “I’m not naïve,” he says. “One of the key things I talk about is corruption and I say, well there’s a lot of corruption. This is normal at this income level, and inevitable, but you have got countries that are making a big difference.”

He points to a chart showing corruption linked to per capita GDP, with scores of 1 to 10 given by Transparency International. “Now the thing about all of these countries that are getting a good score, is that they are all rich…If you are poor, if your per capita GDP is $7000 or less, you are perceived to be corrupt.”

This suggests that the growth of the middle class in many Sub-Saharan African countries will mean an increase of educated people who are starting to question the government, demanding accountability.

“Basically we’re all pretty badly behaved when we’re poor, and as you get richer you begin to demand more transparency and more improvement. It’s not even about democracy versus dictatorship, because a lot of these countries like Qatar and Singapore don’t get great scores on democracy. But they are nonetheless seen to be quite un-corrupt, compared to poor countries,” says Robertson pointing to his chart.

“So my argument is that corruption is a problem and it will continue to be a problem until Sub-Saharan GDP is at $10,000, which we’re not going to get to for another 20 years, before you start to record scores in a three to six range instead of a 2 to 4 range. It’s going to be a very long process I suspect.”

“So my first point is corruption does exist, it is an obstacle. However, you’ve got good people in place to do the right thing. If you look at transparency scores for Nigeria, in 2001 it had a score of 1, today it’s got a score of 2.4. That was the 3rd best improvement of any country since 2001.”

Nevertheless, when it comes to Africa, it is, of course, not all plain sailing. Robertson admits there is a risk of countries going backwards, but he says: “That’s true for almost all the African countries.”


Democracy happens at $6000 GDP

There is an element that Robertson refers to as the democratisation risk. When per capita GDP reaches US$6000 p.a. all countries become democracies other than oil exporters, but before the country reaches that level of GDP there are inherent risks of failure in the system.

To support this theory he points to the fact that every country in the world which had a per capita GDP above $6000 in 2009 is a democracy of sorts, apart from six countries. The exceptions are China, which he predicts will democratise within a decade, Belarus, Cuba and Singapore. Tunisia and Thailand the other two of those six countries are now both democracies. “Tunisia which obviously led the whole Arab revolution, and the reason it led it in my view, was because their per capita GDP was over $6000, the middle class was ready for democracy.”

“Now that’s good, as you get richer, democracy gets stronger, and never ever dies. There is no case in history of a country above $10,000 losing democracy, it’s never happened. But sadly if you’re at $2000 or less of GDP, there’s quite a high chance, in fact, in any given year there’s about an 8 per cent chance of losing democracy,” Robertson explains. Hence the democratisation risk.

“A year ago when I started writing this book an 8 per cent chance, basically told me that one or two of them were likely to fall to a coup in any given year. And they did, Mauritania and Mali, and there should be, statistically, another coup this year in a nice but fragile democracy.”

Read it all here.

 

Olympic Games, Media Hype and Government Ineptitude

By Lawsmith

The London 2012 Olympic Games have been a triumph of wastefulness, nannying government, corporatism, deceit and incompetence. Our writer Lawsmith asks, how could our political class have gotten it so wrong?

The first and only time I've met Boris Johnson was when we were on our bicycles at the traffic light at the bottom of King William Street in the City. I stammered: "Uh, good morning, Mr. Mayor." Play it cool. After a brief (and awkward) exchange, he pushed off, away from my sight and into eternity.

Months later, as the tangible effects of the Olympic Movement's month-long occupation of central London started to make themselves felt, my thoughts once again turned to my cycling buddy. After reminding yourself for a moment that Boris once gave some constructive criticism to the city of Portsmouth by saying it was "too full of drugs, obesity, underachievement and Labour MPs," and that barely two months ago he referred to the BBC – which, like that brainchild of the Blairite Labour Party, the 2012 Olympics, is state-run – as “corporatist, defeatist, anti-business, Europhile and… overwhelmingly biased to the Left”, I take the view that BoJo -- currently the Games' biggest cheerleader -- would be doing one thing, and one thing only if he were in opposition (if he were so inclined).

He would tear the government, the media, and anyone even remotely associated with bringing the Olympics here to shreds.

In his absence, others have tried. Most have failed to make a dent. Dominic Lawson, writing for the Independent, fired the opening salvo of reason against Olympics fever last month — writing a fairly broad-brush piece which covered most of the general criticisms of this circus (cost, inconvenience, armed police), he scored his best points at the ‘leftist’ BBC's expense: "[news coverage of the Games] really does make one feel as if this is North Korea,” he wrote, “rather than a country supposedly characterised by individualism and nonconformity."

Read it all here.


Related reading:  Olympic Disaster (Want to know why Her Majestic Queen Elizabeth II was not smiling?)

Poor India is Economic Giant

India, Ancient Economic Behemoth, to Overtake China

By Ron Robins

When Europe was going through its murderous medieval period, India was an economic behemoth controlling from one-fourth to one-third of the world’s wealth. After the death of the Indian Mughal Emperor Aurangzeb in 1707, India descended into fractious internal wars. This gave the British with their East India Company the opportunity to seize and control vast Indian assets, eventually assuming supremacy over all India.

In 1700, India’s economic output—its gross domestic product (GDP)—was almost 9 times that of Britain’s. By 1947, just before Indian independence from Britain, the tables had turned dramatically with British GDP about 1.2 times that of India, according to data by Angus Maddison in his study, The World Economy.

Now, the International Monetary Fund (IMF) believes the Indian economy has grown to be the world’s fourth largest on a purchasing power parity (PPP) basis, that is, equalising exchange rates given the purchase of a set basket of goods. A Citi study reviewed in The Times of India on February 23 said that based on PPP, India will have the largest economy in the world by 2050. And the World Bank suggests that India’s economic growth rate could surpass that of China this year. The Indian government is projecting 2011 GDP growth of near 9 per cent.

Furthermore, the US Census Bureau projects India’s population becoming the world’s largest and surpassing China in 2025. And by 2050, the Bureau sees India’s population at 1.66 billion compared to China’s 1.3 billion.

Population demographics are crucial in another sense. In Ed Dolan’s, India's Secret Weapon in its Economic Race With China: Demographics, November 11, 2010, he writes that, “rich countries with slow population growth have high dependency ratios because they have many retirees. Low-income countries with fast population growth have high dependency ratios because they have lots of children. In between these two states, countries go through a Goldilocks period when the working age population has neither too many children nor too many parents to support... India is just entering its Goldilocks period while China, like the United States, is already leaving.”

While considering demographics, Mckinsey & Co expects India’s middle class population to grow from 50 million in 2007 to 583 million by 2025, while over 291 million will move away from desperate poverty to a more sustainable livelihood. Mckinsey also sees India’s consumer market becoming the world’s fifth largest by 2025, up from twelfth place in 2007.

Such consumption growth implies enormous economic investment. And in fact, in the next three years, a massive $500 billion is being spent on Indian infrastructure says Chris Devonshire-Ellis in his post, China Demographics Dictate India as Global Manufacturing Hub, last September 27. Citing data from Asian Comparator, he says that Indian wage rates and associated costs are highly favourable when compared to China and other Asian nations.

However, for now it is India’s service sector that is its real star. Relative to China, and given its state of development, India’s service sector is much larger too and is thus offering a different growth path to that of China. In fact, Ejaz Ghani, Economic Advisor at the World Bank, says in The Service Revolution, March 23, 2010, that the growth in services has India and other South Asian countries exhibiting the growth patterns of middle to high income countries.

Mr Ghani also says, “productivity growth in India’s service sector matches productivity growth in China’s manufacturing sector… that the effect of services growth on aggregate economic growth appears to be as strong, if not stronger, than the effect of manufacturing growth on overall growth… India’s growth experience suggests that a global service revolution—rapid growth and poverty reduction led by services—is now possible.” Incidentally, services represent about 70 per cent of global GDP, whereas manufacturing is much lower at 17 per cent. Thus services represent potentially, a much higher order of growth for India than does manufacturing.

And services continue to grow rapidly. In a February 21 article in India’s Express Computer, it says that IT-BPO (information technology-business process outsourcing) is estimated to be up 19 per cent this year with revenues of $76 billion. Exports are expected to be $59 billion of that. For fiscal year 2012 the publication says that software and services growth is expected to increase 16 to 18 per cent.

India may have yet another advantage over China: it might be more attractive to foreign executives says Mr Devonshire-Ellis. He quizzed a number of western executives who had worked in China and India and asked them where they prefer to work. He said that, “the surprising conclusion was that India was preferable. Several executives expressed a desire never to return to China.”

Also, the world’s business language, English, is used by 350 million Indians, while about 100 million speak and write the language fluently. Moreover, unlike China, much of India’s legal, political, financial and commercial framework is more familiar to developed countries’ businesses that would like to do business with or invest in India.

India has traditionally been a land of great entrepreneurial activity and wealth. The past three centuries of poverty have been an anomaly. Now its economic growth could soon surpass that of China and its economy become the biggest in the world by 2050. Its population is projected to be the largest of any country by 2025. As it grows to have the world’s biggest pool of working age individuals, its forthcoming massive investments in infrastructure, its comparative wage cost advantages, widespread use of English and globally compatible financial and legal structures, India could soon become a major world centre for both manufacturing and services.

India is rising again to become a global economic behemoth.

Copyright alrroya.com

Not Funny Quote of the Week - Donald Trump

“Right now, frankly, the country isn’t doing well,” Trump added, “Recession may be a nice word.”


Read more: Trump Says The Way President Obama Is Running The Country Is "Stupid" 

The Federal Reserve Cartel

Dean Henderson

The Four Horsemen of Banking (Bank of America, JP Morgan Chase, Citigroup and Wells Fargo) own the Four Horsemen of Oil (Exxon Mobil, Royal Dutch/Shell, BP Amoco and Chevron Texaco); in tandem with Deutsche Bank, BNP, Barclays and other European old money behemoths.  But their monopoly over the global economy does not end at the edge of the oil patch.

According to company 10K filings to the SEC, the Four Horsemen of Banking are among the top ten stock holders of virtually every Fortune 500 corporation. [1]

So who then are the stockholders in these money center banks?

This information is guarded much more closely. My queries to bank regulatory agencies regarding stock ownership in the top 25 US bank holding companies were given Freedom of Information Act status, before being denied on “national security” grounds.  This is rather ironic, since many of the bank’s stockholders reside in Europe.

One important repository for the wealth of the global oligarchy that owns these bank holding companies is US Trust Corporation – founded in 1853 and now owned by Bank of America.  A recent US Trust Corporate Director and Honorary Trustee was Walter Rothschild.  Other directors included Daniel Davison of JP Morgan Chase, Richard Tucker of Exxon Mobil, Daniel Roberts of Citigroup and Marshall Schwartz of Morgan Stanley. [2]

J. W. McCallister, an oil industry insider with House of Saud connections, wrote in The Grim Reaper that information he acquired from Saudi bankers cited 80% ownership of the New York Federal Reserve Bank- by far the most powerful Fed branch- by just eight families, four of which reside in the US.  They are the Goldman Sachs, Rockefellers, Lehmans and Kuhn Loebs of New York; the Rothschilds of Paris and London; the Warburgs of Hamburg; the Lazards of Paris; and the Israel Moses Seifs of Rome.

CPA Thomas D. Schauf corroborates McCallister’s claims, adding that ten banks control all twelve Federal Reserve Bank branches.  He names N.M. Rothschild of London, Rothschild Bank of Berlin, Warburg Bank of Hamburg, Warburg Bank of Amsterdam, Lehman Brothers of New York, Lazard Brothers of Paris, Kuhn Loeb Bank of New York, Israel Moses Seif Bank of Italy, Goldman Sachs of New York and JP Morgan Chase Bank of New York.  Schauf lists William Rockefeller, Paul Warburg, Jacob Schiff and James Stillman as individuals who own large shares of the Fed. [3]  The Schiffs are insiders at Kuhn Loeb. The Stillmans are Citigroup insiders, who married into the Rockefeller clan at the turn of the century.

Eustace Mullins came to the same conclusions in his book The Secrets of the Federal Reserve, in which he displays charts connecting the Fed and its member banks to the families of Rothschild, Warburg, Rockefeller and the others. [4]

The control that these banking families exert over the global economy cannot be overstated and is quite intentionally shrouded in secrecy.  Their corporate media arm is quick to discredit any information exposing this private central banking cartel as “conspiracy theory”.  Yet the facts remain.

Read it all here.

Spain: Unemployed Nears 6 million

Spanish unemployment has hit a new record high, official figures have shown.

The number of unemployed people reached 5,639,500 at the end of March, with the unemployment rate hitting 24.4%, the national statistics agency said.

The figures came hours after rating agency Standard & Poor's downgraded Spanish sovereign debt.

Official figures due out on Monday are expected to confirm that Spain has fallen back into recession.
Earlier this week, the Bank of Spain said the economy contracted by 0.4% in first three months of this year, after shrinking by 0.3% in the final quarter of last year.

Other figures released on Friday showed that Spanish retail sales were down 3.7% in March from the same point a year ago, the 21st month in row sales have fallen.

Read it all here.

Quote of the Week - Alexander Hamilton

“If we continue united, we may counteract a policy so unfriendly to our prosperity in a variety of ways. By prohibitory regulations, extending, at the same time, throughout the States, we may oblige foreign countries to bid against each other, for the privileges of our markets.” -- Alexander Hamilton (Federalist Paper #11)

USA: Education, Jobs and Family

Digital textbooks. That is the latest idea from the White House for lifting the performance of American schools -- a strategy on which Korea and other countries are already ahead. Something certainly needs to be done; a new report from the Harvard Business School identifies the education system from kindergarten through to the end of high school (K-12) as one of the root causes of the country’s decline in business competitiveness.

Whether technology really is the solution, however, is in doubt. A must-read book published last week warns that America is coming apart culturally and not just economically. Marriage, the work ethic, respect for the law and religious practice are values increasingly absent from even white working class homes, while very much holding their own among the upper class, says author Charles Murray.

But without those supports it is difficult for children to benefit even from the best schools. And when they don’t, it is not only bad news for them but another nail in the coffin of US competitiveness.

In the 1980s US business was losing ground against Japan; today it’s the world, especially the developing economies where there is not only cheaper unskilled labour but also, according to 1700 Harvard Business School alumni personally involved in decisions about where to place business activities and jobs last year, “better access to skilled labour”.

Among those respondents, two-thirds of their decisions about placing business went against the US, say Michael E Porter and Jan W Rivkin, directors of the school’s US Competitiveness Project, in their report, Prosperity at Risk. Two thirds. “Facilities involving large numbers of jobs, high-end work [research, development and engineering], and groups of activities located together moved out of the US much faster than they moved in.”

When asked what they saw as the main problems with the US business environment the business leaders put the K-12 eduction system at the top of the list along with America’s tax code and political system. It was one of six weaknesses they viewed as getting worse.

What exactly they thought was wrong with education is not reported, but clearly the system is not turning out sufficiently skilled, productive and adaptable people. The businessmen themselves agree that they can and must be part of the solution -- by supporting educational institutions and investing in workforce sills, among other things. But to fully address these practical issues they need to look deeper.

As a number of academics and scholars have pointed out, America (and the West in general) has been running down its human and social capital for some decades now. Charles Murray is just the latest to point out that the effects have been distributed in a very lopsided way. He writes:

When Americans used to brag about "the American way of life"—a phrase still in common use in 1960—they were talking about a civic culture that swept an extremely large proportion of Americans of all classes into its embrace. It was a culture encompassing shared experiences of daily life and shared assumptions about central American values involving marriage, honesty, hard work and religiosity.

Over the past 50 years, that common civic culture has unraveled. We have developed a new upper class with advanced educations, often obtained at elite schools, sharing tastes and preferences that set them apart from mainstream America. At the same time, we have developed a new lower class, characterized not by poverty but by withdrawal from America's core cultural institutions.

The withdrawal of the working class from marriage (just 48 per cent of 30- to 49-year-old adults with only a high school education are now married), divorce, the rise of single-parenthood and cohabitation, the loss of community and moral support from church attendance and membership of other civic groups, combined with rising crime, unemployment and erosion of a work ethic -- all this has put a huge swathe of children at a disadvantage in the education system.

Murray’s work confirms the landmark 2010 study, When Marriage Disappears: The Retreat from Marriage in Middle America, by W Bradford Wilcox and colleagues. Their report sounded the alarm that the erosion of marriage had reached deep into American society, affecting the 58 per cent of the population that is moderately educated, threatening “the American Dream” of economic mobility and, in particular, the emotional and social welfare of children. They said:

“We know, for instance, that children who grow up in intact, married families are significantly more likely to graduate from high school, finish college, become gainfully employed, and enjoy a stable family life themselves, compared to their peers who grow up in non-intact families.”

By the late 2000s, they noted, non-marital childbirths accounted for a disturbing 44 percent of children born to moderately educated mothers -- up from 13 per cent in the early 1980s, and 54 percent of children born to the least-educated mothers, but only 6 percent of children born to highly educated mothers. Only 58 per cent of Middle American kids today will grow up with both their mom and dad to the age of 14.

This is the reality that business leaders and Harvard heavyweights need to come to grips with.

If children do not have a stable home, if their parents are not committed to one another, if they split up and a step-parent enters the scene, if the father is absent, the mother struggling alone or in successive relationships with boyfriends -- how much more difficult it will be for them to settle to homework, to get help with it, to focus on the world of learning and think in terms of a college or vocational degree. Chances are they will prefer to escape family tensions by immersing themselves in television or the internet.

(A recent study found that “students who have experienced repeated changes in their family structure status will be less successful academically” even when attending schools with a strong academic culture and support for students.)

And how much less likely children are to learn the virtues that will make them reliable and ambitious workers -- honesty, delayed gratification, industriousness -- when parents themselves do not have the traditional supports for morality, especially the church, or any replacement for them, and this at a time when unemployment, crime and the culturally corrosive power of the mass media are all against them.

Academics, as Wilcox has noted, have been reluctant to accept that the trends affecting family life in much of American society (as elsewhere) are a problem. Many hold to the line that the family is just changing, not declining.

This is not a mistake that business leaders or smart politicians should make. They should let the data talk. Today, 38 per cent of kids from intact families will continue their education and get a college degree compared with only 20 per cent from non-intact families. Children and adults who are not connected to an intact family, says Wilcox, are significantly less likely to strive to succeed and save.

The When Marriage Disappears report suggested that,

Given the current trends, it is not too far-fetched to imagine that the United States could be heading toward a 21st century version of a traditional Latin American model of family life, where only a comparatively small oligarchy enjoys a stable married and family life—and the economic and social fruits that flow from strong marriages. In this model, the middle and lower-middle classes would find it difficult to achieve the same goals for their families and would be bedeviled by family discord and economic insecurity.

That, combined with a North American model of the job market would seem to be the worst of all possible worlds for Middle America, and indeed, for the whole country. Not just America but any nation that wants to compete in the globalised economy will have to first look after the family. Then the family will produce the social capital that will make everything else work. There is no other way.


Carolyn Moynihan is deputy editor of MercatorNet.


Editor's Note:  Every institution in our society has a self-serving agenda and/or ideology that has an impact on the education of students. I teach in a Christian school that is committed to Young Earth Creationism. This ideology, though not supported by the Bible, precludes the offering of courses such as astronomy and geology.  In other words, the school is less committed to a well-rounded education for the students than to an ideology that the Bible itself debunks.



Related reading:  American Higher Education Mimics China; Dorothy Sayers, The Lost Tools of Learning; Diane Ravitch, “The Language Police: How Pressure Groups Restrict What Students Learn,”

Socially Responsible Investors Balance Values and Returns

American Socially Responsible Investors Don't Want to Sacrifice Returns, Wharton Study. -  "Investors interested in socially responsible investing do not necessarily expect to sacrifice a portion of their gains. Thus, to encourage socially responsible investing, its returns should be comparable to returns for conventional investing."

Fortunately, the conclusion generally drawn from the dozens of studies indicate that over the long term, socially responsible-ethical investors don't have to sacrifice returns. However, this study does contradict many surveys that show SR-ethical investors would tolerate lower returns if they are invested in industries and companies that relate to their values.

It could be that many newly converted SR-ethical investors, investing in green-sustainable companies, don't really share the same values of the more traditional SR-ethical investors.

Socially Responsible Investing, by Olivia S. Jung, January 12, 2012, Wharton, University of Pennsylvania, USA.

Reported by Ron Robins at Investing for the Soul

Vatican Calls for Financial Reforms

by George Patsourakos

The Vatican called today (October 24, 2011) for radical reform of the world's financial systems -- including the creation of a global political authority to manage the economy -- according to the Huffington Post website.

A proposal by the Pontifical Council for Justice and Peace calls for a new world economic order based on ethics and the "achievement of a universal common good."

The proposal suggests the reform process -- which will take some time to complete -- begin with the United Nations as a point of reference.

"It is an exercise of responsibility not only toward the current but above all toward future generations, so that hope for a better future and confidence in human dignity and capacity for good may never be extinguished," the document said.

From here.

Jonathan B. Hall Reflects on Occupy Wall Street

Beatus vir. The happiness of the just and the evil state of the wicked.


Blessed is the man who hath not walked in the counsel of the ungodly, nor stood in the way of sinners, nor sat in the chair of pestilence.

But his will is in the law of the Lord, and on his law he shall meditate day and night.

And he shall be like a tree which is planted near the running waters, which shall bring forth its fruit, in due season. And his leaf shall not fall off: and all whatsoever he shall do shall prosper.

Not so the wicked, not so: but like the dust, which the wind driveth from the face of the earth.

Therefore the wicked shall not rise again in judgment: nor sinners in the council of the just.

For the Lord knoweth the way of the just: and the way of the wicked shall perish.

(Psalm 1, Douay-Rheims translation, 1609)



Recently, I had a quick lunch next to Ground Zero.

Directly across the street—one of those tiny, narrow streets for which Lower Manhattan is so famous—was the perimeter of the construction site. I was with friends in a pizzeria, deeply shadowed by sidewalk scaffolding and the monumental project next door.

To get to the pizzeria, we walked south from St. Paul’s on Trinity Place, along the eastern boundary of the World Trade Center site, and had to cross right by Zuccotti Park. This is the park that has been dubbed “Liberty Park” by the Occupy Wall Street protestors.

As we walked by the park, of course we could see them. The park looked fairly full, packed end to end with blue tarps and mostly-young people. Around them were police, mainly occupied in directing traffic. Nothing appeared to be happening.

Inside the pizzeria—where, I’m happy to report, I was able to get a low-sodium grilled-chicken salad—there developed a queue of workmen. It was lunch hour for one of the work shifts, apparently. We had gotten our orders in just in time.

What an incredible human contrast.

In the park, a collection of (for the most part) shaggy-haired, grinning, college-age kids, intermingled with older folk indulging in a kind of second political childhood. No one was doing much of anything. Their movement—over a month old—had still failed to produce any organizing document, make any concrete demands, or do anything except lay about and complain about America in general.

I was glad that nobody was banging on garbage cans—sorry, “drumming”—at that moment!

Michael Moore had dropped by, and Alec Baldwin had dropped by.

The number of “supporting” organizations had grown to fifty, including the American Communist and the American Nazi parties alike. When these two groups both admire something, you have to ask what their common hatred—the missing middle term—could be. Of course, that term is America.

But in the pizzeria: a steady stream of men. Hard-working, strong, short-haired, quiet, orderly men, ordering lunch. Some in uniforms, some in overalls, some with hard hats, many sporting T-shirts with slogans like “Rebuilding America Together.”

Black men, and white men. Men with the jet-black hair that could only come from Sicily, and men with unmistakably Irish and Slavic features.

And many expressions of patriotism: printed on their shirts, pinned to their suspenders, pasted on their hard hats. America, here, was a word of blessing and not of cursing. It is their common denominator, and it is a shared love.

These men were not of my social class—let me acknowledge that openly. No relative of mine has worn a hard hat or overalls since the end of the Civil War. When I passed by the protestors, I recognized a number of people with whom I had something in common, as far as life experience is concerned. When I was in the pizzeria, I felt I was among the Other. I did not feel natural simpático for the men at the counter.

I also had memories of when this class of man took itself too seriously. Memories of a trucker using the F-word in my mother’s hearing on East 22nd Street in Manhattan: my mother transfixing him with a gaze, and he blushing and apologizing.

Memories of the arrogance of the labor unions, of shoddy American goods, of the overbearing and violent comportment of the working-class “ethnics” on my Catholic school playground.

Then I realized: that’s the big mistake. My big mistake.

And I shifted focus by a conscious act of will. I put aside the issue of where I’d come from, and asked myself where I was going. Put another way, I listened to Psalm 1.

And as if a dam were suddenly breached, a wave of empathy came over me. I saw these hardhats as my fellow Americans, my people, my brothers.

I saw that what they were doing was, on the face of it, meritorious. Their behavior was in every way appropriate and benign, insofar as I could witness. Their choice was a good one.

My higher-educated brethren in Zuccotti Park—what of them? I couldn’t very well deny them the same recognition. Empathy is empathy is empathy. But I saw more clearly than ever that they are caught in a pincers. They cry out against capitalism, and resent not having what they deem their “fair share” of its fruits.

While the workingmen were rebuilding the most emotionally-charged acreage in the country, these protestors were protesting, in essence, for the sake of protesting. There is little question in my mind that, of the two different groups I saw that day, one was engaged in building up, and the other in tearing down.

Even a single coherent statement from the latter would have prevented that stark judgement. But I must stand by it.

Now: here is where this sermon is not going.

I am not going to equate the protestors with the “wicked man” of the first Psalm. Nor am I going to equate the workingmen with the “just man.” The Psalm does not lend itself to such a shallow social application. Nor, for that matter, does anything in the Scripture. This is why the Scripture disappoints so many people, people who will go thus far but no farther.

There are very possibly people in both scriptural categories in both groups.

However: I now see that Saint Paul’s Cathedral in London—the “mother church,” if there is such a thing, of Anglican Christianity—has been shut down by Occupy protestors.

This settles it for me.

The individuals involved (whether in building up or tearing down, and there is a “time” for both) may or may not be pleasing to God. The movement per se is displeasing to God. A Christian, at this moment, in the chilly light of this October morning, has no choice but to oppose the movement, until and unless it justifies its existence, and stops bullying the Church.

It is time for Occupy Wall Street to apologize, strike its tents, and go home.

No Christian can presently support this movement. By its actions in London, it has closed itself to the positive possibilities of Psalm 1.

Here, the first Psalm is eerily applicable. There is a stark contrast between fruitful trees near running water, and dust driven by the wind.

I cannot but contrast, in my mind, the memorial at Ground Zero—Reflecting Absence, two sources of flowing water near a small urban grove of trees—and the dust of September 11, 2001, now driven from the face of the earth by a decade of wind.

Which do you want to be? Do you want to live, or not?

Can the first Psalm be applied in a corporate sense? If so, let OWS tremble. And whether you agree with this or not: the next time you see a man in lower Manhattan wearing a hard hat, think of him in the language of Isaiah 58: as a “repairer of the breach, the restorer of streets to live in.”
Amen.


Jonathan B. Hall's writings mostly concern the pipe organ and sacred music. Before studying organ, he studied English literature. To read another meditation by Jonathan B. Hall, go here.


Related reading: Drum Circles and Wall Street

Senate Bringing Pressure on China

The Senate on Tuesday approved a bill that would put greater U.S. pressure on China and other countries to allow their currency to appreciate, giving the green light to a measure that supporters say would level the playing field with China but that both the White House and House Republican leaders have warned could lead to a trade war.

The chamber approved the measure on a 63-to-35 vote. The next step remains uncertain; House Republican leaders have declined to bring the measure up for a vote, arguing that the White House must first formally make its position known.

Read the story here.

USA-China: Who's Talking Nonsense

Noah Millman

I’m trying to understand, per this post by Matt Yglesias, why when China asks us to reduce our indebtedness that reflects “confusion” on their part (since their currency policy depends on there being lots of American debt to purchase) while when we ask China to reduce their trade surplus we’re just being clear and honest (even though we’re dependent on Chinese debt purchases to keep long-term rates as low as they are).

It seems to me both countries are dependent on a policy that has risks and unpleasant side effects for both countries. I happen to think the short-term costs are more serious for the Chinese while the long-term risks are new serious for us – but it’s pretty clear that both countries manifest a high degree of policy confusion, at least with respect to our public statements. I see no reason to single out the Chinese for talking “nonsense.”

Source:  The American Scene

 

Related reading:  US Government's Addiction to Debt

US Government's Addiction to Debt

This is why China warns the USA to "cure its addiction to debt":

“If the US Government was a family, they would be making $58,000 a year, they spend $75,000 a year and are $327,000 in credit card debt. They are currently proposing 'big spending cuts' to reduce their spending to $72,000 a year.” --Dave Ramsey (H/T to Anglican Curmudgeon)

Read what the Anglican Curmudgeon has to say here about whose is more savvy about the debt crisis.  It is President Obama or Sarah Palin?

Jobs Cut, Economy Slows

Medical device maker Boston Scientific Corp. plans to eliminate up to 1,400 jobs worldwide during the next 2 ½ years to free money for new investments. This is the second round of cuts since last year. The company would not say how many jobs will be lost in Massachusetts. In February 2010, Boston Scientific said it would pare 1,300 jobs worldwide, but similarly did not say where.

HSBC Holdings PLC will cut around 30,000 jobs world-wide over the next two years as the bank executes its plan to it exit from some retail markets.

Job cuts surged to a 16-month high in July as 66,414 employees found themselves out of work, according to consulting firm Challenger, Gray & Christmas Inc.

U.S. manufacturing grew at its slowest pace in two years in July as new orders contracted.

 

US Near End of Game on Debt

Ron Robins, Founder & Analyst - Investing for the Soul


It is a simple statistic that continues to warn of huge economic problems ahead for the US. Some economists call it the ‘marginal productivity of debt (MPD).’ It relates the change in the level of all debt (consumer, corporate, government etc.) in a country to the change in its gross domestic product (GDP). However, due to the message it is delivering, most US economists employed in financial institutions, governments and private industry, as well as financiers and politicians, want to ignore it.

And for the US economy and government finances, the MPD (and related variants of it) is continuing to indicate extremely difficult economic times ahead.

I have vague recollections of the MPD concept from my economics classes long ago. But I was re-introduced to it around 2001 by a renowned economist who, during the following few years prior to his passing, became alarmed as to the MPD path of the US. His name was Dr. Kurt Richebächer, formerly chief economist and managing director of Germany’s Dresdner Bank. Dr. Richebächer, was so respected that former US Federal Reserve Chairman, Paul Volcker once said of him that, “sometimes I think that the job of central bankers is to prove Kurt Richebächer wrong," reported the online financial journal, The Daily Reckoning on May 15, 2004.

Investigating Dr. Richebächer’s concern further, I wrote an article on my Enlightened Economics blog on January 23, 2008, titled, Is the Amazing US Debt Productivity Decline Coming to a Bad End? I found that, “for decades, each dollar of new debt has created increasingly less and less national income and economic activity. With this ‘debt productivity decline,’ new evidence suggests we could be near the end-game... ”

Another way of viewing the debt productivity problem is to look at it in terms of how many dollars of debt it took to help create total national income, which is the wages, salaries, profits, rents and interest income of everyone. Again, from my above mentioned article, which quotes Michael Hodges in his Total America Debt Report, that, “in 1957 there was $1.86 in debt for each dollar of net national income, but [by] 2006 there was $4.60 of debt for each dollar of national income - up 147 per cent. It also means this extra $2.74 of debt per dollar of national income produced zilch extra national income. In 2006 alone it took $6.32 of new debt to produce one dollar of national income.”

Such data helps explain why US exponential debt growth—after reaching certain limits—collapsed in 2008 and contributed massively to the global financial crash.

However, whereas the US private sector debt has marginally ‘de-leveraged’ (retrenched) since that crash (which might now be reversing), the US government, as everyone knows, has run up mammoth deficits to purportedly keep the country’s economy from imploding. Thus, the US’s MPD is marching to another, perhaps even more frightening tune, suggesting government financial insolvency and/or debt default.

One fascinating way of looking at the declining MPD of US government debt has just been presented by Rob Arnott on May 9, 2011, in his post, Does Unreal GDP Drive Our Policy Choices? What Mr. Arnott does is to subtract out the change in debt growth from GDP, and refers to this statistic as ‘Structural GDP.’ He finds that, “the real per capita Structural GDP, after subtracting the growth in public debt, remains 10 per cent below the 2007 peak, and is down 5 per cent in the past decade. Net of deficit spending, our prosperity is nearly unchanged from 1998, 13 years ago.”

In its effort to counter the significant economic difficulties since 2008, the US government has added, or will have added, around $4 trillion in deficits (financed by new debt) in its three fiscal years 2009, 2010 and 2011. Yet, all this massive government deficit spending has failed to really ignite economic growth. Most likely this is because of the enormous dead weight of unproductive and onerous private sector debt, particularly that of consumer debt. Hence, real US GDP will have increased probably less than $1.5trn during these years. Including some further economic benefit in the years thereafter, a total GDP benefit of only about $2trn is probable.

So, $4trn borrowed for $2trn in GDP gains. Thus, in very rough round numbers, each new one dollar of US government debt might only produce $0.50 in new economic activity and probably only about $0.08 in new federal tax revenue. (Federal tax revenue as a percentage of GDP is around 15 per cent.) Therefore, the economic marginal return for each new dollar of US government debt is possibly around -50 per cent! If you loaned someone $10 million and they gave you back $5m, you would not be happy!

Hence, it might not be long before those holding or buying US government bonds perceive the reality that the US government, and US economy, are losing massively on government borrowings. This will result in much, much higher US government bond yields and interest costs. Most importantly, it may make the rollover of US debt and new debt issuance incredibly difficult unless either US taxes rise stratospherically to cover the deficits, and/or the US Federal Reserve money printing goes into hyper-drive to purchase the debt the markets will not buy. (Of course US banks, pension funds etc., could also be forced to buy them.)

Thus, the idea that US government debt continues to be ‘risk-free’ is absurd.

For this, and for many other reasons cited above, is why the US financial and political elites want to keep hush-hush about what the MPD and its variants reveal!


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