Capitalism has an international push by its nature, one that contradicts the regionally based political structures of the world, principally the nation state. As each region faces pressures from its private sector to foster growth, it comes into conflict with geopolitical rivals, particularly in a time of recession. The principal reason for the Bretton Woods system was to prevent these type of tensions - including protectionism and currency devaluation - from spiraling out of control.
The implosion of Western banking reduced the tensions involved with opening up China's banking sector, as required by its WTO admittance in 2001. Western banking is swamped in too much debt to think about expansion at the moment. But there are many other areas of potential conflict, as a WTO case regarding the trade of raw materials illustrates. The WTO ultimately represents a loss of control for Beijing. By joining the organization, China put itself on a collision course with the international demands of capitalism. This ultimately means a loss of power for the CCP, and that is something I believe they will not accept. China's currency controls and trade restrictions are done to maintain domestic employment, which is the foundation of social and political stability. But the West is not going to accept a permanently restricted Chinese market.
Past growth doesn't predict future growth. If it did, Japan would now have the largest economy in the world. And mainstream publications are already hinting about "The End of the Big Business-China Love Affair".
One can envision a scenario in which a China under strong centralized control mostly disengages from the West, and establishes a regionally based trading system. A Chinese-centered sphere of influence based around South East Asia is a common theme through history, and one I believe will ultimately occur again. Another scenario would be the weakening of Beijing's central authority, with provinces establishing trading relationships with the West that fit their particular needs. Of all the scenarios in China's future, a global titan that overtakes the United States is the least likely.
---
Related:
1 "Cracking China's Banking System" - Blended Purple
2 "Storm Clouds Over Globalization" - Blended Purple
3 "The End of the Big Business-China Love Affair" - Time
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4 "Maoists Gaining Influence Within China's Government ?" - Blended Purple 9/27
Wednesday, June 24, 2009
Tuesday, June 23, 2009
I Support this Cause
There have been plenty of blogs and other internet sites debating the meaning of the recent Iranian protests. The Washington political establishment seems somewhat divided between Obama's hypocritical "we are bearing witness" approach, and right-wing interventionism. But as individuals, what does it really mean to support something ?
A blog posting announcing ones support of the recent Iranian protests - or ones interpretation of them - offers the potential to change minds and create public awareness. And international public support might raise the morale of the people on the streets, to an extent. But it is unlikely to deter the tactics of the Basij. More facile are the green avatars that have been floating around. They seem to be more about personal absolution than supporting a cause. Better, are attempts to protect the identity of twitter posters by having everyone change their time zone to Tehran time - thus swamping posts in a blanket of anonymity.
The Left has, at times, made claims about the power of their public support that was unsupported by the situation on the ground . This was notable during the Troubles in Northern Ireland - which was a radical nationalist movement principally motivated by the desire for self-protection. Working class Catholics in the North were fighting for survival and that was the reason for the Provisional IRA. Speeches and debates from Left groups in the rest of the West didn't matter all that much. What sustained the Provos was money from the Irish-American community and the loyalty of their constituency.
Money matters a lot, and ultimately, if one can't put a body on the line - that's the best way to support a cause.
Tangentially, it's similar in the arts. Most musicians would much rather have a somewhat taciturn audience that is willing to pay - than play for free for a similarly moneyed and more outwardly enthusiastic audience. The bottom line is, people have to eat and pay bills. The less time they have to worry about survival is the more time that can be spent on being artistic or fomenting social change.
A blog posting announcing ones support of the recent Iranian protests - or ones interpretation of them - offers the potential to change minds and create public awareness. And international public support might raise the morale of the people on the streets, to an extent. But it is unlikely to deter the tactics of the Basij. More facile are the green avatars that have been floating around. They seem to be more about personal absolution than supporting a cause. Better, are attempts to protect the identity of twitter posters by having everyone change their time zone to Tehran time - thus swamping posts in a blanket of anonymity.
The Left has, at times, made claims about the power of their public support that was unsupported by the situation on the ground . This was notable during the Troubles in Northern Ireland - which was a radical nationalist movement principally motivated by the desire for self-protection. Working class Catholics in the North were fighting for survival and that was the reason for the Provisional IRA. Speeches and debates from Left groups in the rest of the West didn't matter all that much. What sustained the Provos was money from the Irish-American community and the loyalty of their constituency.
Money matters a lot, and ultimately, if one can't put a body on the line - that's the best way to support a cause.
Tangentially, it's similar in the arts. Most musicians would much rather have a somewhat taciturn audience that is willing to pay - than play for free for a similarly moneyed and more outwardly enthusiastic audience. The bottom line is, people have to eat and pay bills. The less time they have to worry about survival is the more time that can be spent on being artistic or fomenting social change.
Saturday, June 20, 2009
Iran's Regime Unlikely to Fall in the Near Term
It seems clear that the recent election was the trigger for an expression of deep discontent in Iranian society. But the weakness in the protests has been their reliance on well established figures in the Iranian state. Mir Hossein Mousavi was a prime minister of Iran during the 1980's, and oversaw the execution of thousands of dissidents during that time. Much of what is going on in the elite is a territorial dispute over power, and access to the oil and resource wealth that controlling the state allows. The principle figures are Hashemi Rafsanjani, who was president at the same time Mousavi was prime minister, and current "Supreme Leader" Ali Khamenei, who backs Mahmoud Ahmadinejad. Whoever is on the losing side of this power struggle will face harsh recriminations.
However, the action on the street is only partly about this power struggle. Like all embryonic mass movements, it has multiple grievances and sources of support. As Mousavi has sought to utilize the power of mass protest, he also has been careful to not undermine the set-up of the Iranian state and has called for protesters to do the same. As his statement today read, "We are not against the Islamic system and its laws but against lies and deviations and just want to reform it". However, these type of situations can spiral outside the control of authoritarian management, and new leaders can emerge.
Given today's reports of crowds in the range of 10,000 people, it seems that Khamenei has been able to isolate and weaken the protest movement. Perhaps there is a perception that he moderated his stance during his recent address, such as admonishing Ahmadinejad's debate style, or expressing a willingness to recount ballots. But a good part of it must also be the threats he unleashed during that same speech. No matter how chaotic the situation is, small protest numbers do not act as regime threat. In some ways, they encourage the brutality of the Basij, and that's what we are seeing and hearing about today. Larger protests would render their power moot, since they are essentially state sponsored thugs - not even a militia, which tends to have more organization and a military structure. The Basij , in a way, serve a role as buffers between greater police and military involvement, and preserve the perceived neutrality of this key source of power for the state.
Some have argued that the genie cannot be put back in the bottle. But Tiananmen showed that even a large and relatively well organized mass movement can be crushed for at least a generation.
---
Sources : 1, 2, 3, 4, 5, 6
However, the action on the street is only partly about this power struggle. Like all embryonic mass movements, it has multiple grievances and sources of support. As Mousavi has sought to utilize the power of mass protest, he also has been careful to not undermine the set-up of the Iranian state and has called for protesters to do the same. As his statement today read, "We are not against the Islamic system and its laws but against lies and deviations and just want to reform it". However, these type of situations can spiral outside the control of authoritarian management, and new leaders can emerge.
Given today's reports of crowds in the range of 10,000 people, it seems that Khamenei has been able to isolate and weaken the protest movement. Perhaps there is a perception that he moderated his stance during his recent address, such as admonishing Ahmadinejad's debate style, or expressing a willingness to recount ballots. But a good part of it must also be the threats he unleashed during that same speech. No matter how chaotic the situation is, small protest numbers do not act as regime threat. In some ways, they encourage the brutality of the Basij, and that's what we are seeing and hearing about today. Larger protests would render their power moot, since they are essentially state sponsored thugs - not even a militia, which tends to have more organization and a military structure. The Basij , in a way, serve a role as buffers between greater police and military involvement, and preserve the perceived neutrality of this key source of power for the state.
Some have argued that the genie cannot be put back in the bottle. But Tiananmen showed that even a large and relatively well organized mass movement can be crushed for at least a generation.
---
Sources : 1, 2, 3, 4, 5, 6
Friday, June 19, 2009
Mass Action Can Work - Some Background on Peru
A significant protest movement of indigenous groups in the Peruvian Amazon has ended in some marked social protections.
The New York Times notes the political retreat of the government in Peru, without much explanation:
The two most controversial decrees were called 1090 and 1064. Decree 1090 would have increased the amount of land available for privatization in the Amazon region. This privatization would have benefited capital rich energy companies who are looking to buy land, and develop and profit from its resources. This land grab would have come at the direct expense of the largely communally oriented people in the area. Decree 1064 would have overridden indigenous representation on land use issues.
There has been a media focus on the deaths caused by confrontations with the Peruvian state. This violence has been completely disproportionate, with mostly unarmed poor people confronting a heavily armed military apparatus. As reported by the New Zealand Herald:
There are many anecdotes about the attitude of disrespect among South America's largely European-oriented elite:
The improvements in the lives and political representation of the poor in South America has come about only through radical mass action. These actions have included street protests, strikes and physically taking over and disrupting the apparatus of the established elite. This is how mass action can work, by presenting a new alternative, or a new pillar of social leadership.
---
Sources: 1, 2, 3, 4, 5, 6, 7
The New York Times notes the political retreat of the government in Peru, without much explanation:
Peru’s Congress on Thursday overturned two decrees by President Alan García that were aimed at opening large areas of the Peruvian Amazon to logging, dams and oil drilling but set off protests by indigenous groups this month in which dozens died.
The two most controversial decrees were called 1090 and 1064. Decree 1090 would have increased the amount of land available for privatization in the Amazon region. This privatization would have benefited capital rich energy companies who are looking to buy land, and develop and profit from its resources. This land grab would have come at the direct expense of the largely communally oriented people in the area. Decree 1064 would have overridden indigenous representation on land use issues.
There has been a media focus on the deaths caused by confrontations with the Peruvian state. This violence has been completely disproportionate, with mostly unarmed poor people confronting a heavily armed military apparatus. As reported by the New Zealand Herald:
First, the cops fire tear gas, then rubber bullets. As protesters flee, they move on to live rounds.
One man, wearing only a pair of shorts, stops to raise his hands in surrender. He is knocked to the ground and given an extended beating by eight energetic policemen in black body armour and helmets.
There are many anecdotes about the attitude of disrespect among South America's largely European-oriented elite:
...once I did visit Lima and the wife of my host, a beautiful lady of Spanish extraction, told me the Indians were still a bit of a nuisance and stood in the way of the Europeans getting rich.
She was openly and honestly racial about it. Not only were the barbed-wire fences around the house reminiscent of South Africa, so too were the racial attitudes.
The improvements in the lives and political representation of the poor in South America has come about only through radical mass action. These actions have included street protests, strikes and physically taking over and disrupting the apparatus of the established elite. This is how mass action can work, by presenting a new alternative, or a new pillar of social leadership.
---
Sources: 1, 2, 3, 4, 5, 6, 7
Thursday, June 18, 2009
The Nixon Shock, and Now
One evening in the early Fall of 1971, President Nixon went on television and announced without warning that the United States would no longer honor the gold standard. His primary concern in making the address was its timing in relation to the television show Bonanza. Only his closest advisers knew about the decision beforehand, not even the U.S. State Department was informed.
Thus the United States defaulted on its obligations under Bretton Woods, and the era of free floating currencies began.
As Martin Wolf recently noted, countries with large dollar reserves and current account surpluses should take the possibility of default into account :
Thus the United States defaulted on its obligations under Bretton Woods, and the era of free floating currencies began.
As Martin Wolf recently noted, countries with large dollar reserves and current account surpluses should take the possibility of default into account :
If (China) and other surplus countries wish to run huge surpluses and accumulate vast financial claims, they should expect defaults. They cannot have both safe foreign assets and huge surpluses.Capitalism is a ruthless business, and international politics the same. When its self-interest has been impinged upon in the past, Washington has not hesitated in abrogating its international agreements. It will not hesitate to do so in the future, as well.
Wednesday, June 17, 2009
Too Much Capacity, Too Little Demand
Capacity Utilization reached a post World War 2 low in the United States in June. And the World Bank's chief economist recently warned "Significant excess capacity has been built up and unless this issue is addressed, we will face a deflationary spiral and the crisis will become protracted".
This indicates that unemployment has the potential to go significantly higher. And given the same statistical criteria, much of the world is in a similar situation. The car industry is most emblematic of this, with excess capacity existing in nearly every developed and developing country .
This should not be a surprise. Excess capacity relative to demand - overproduction or underconsumption - is a historical feature of capitalism. Private firms competing for profit get ahead of themselves in the battle for market share. Too much is built, creating too much overhead and debt. Workers are squeezed for profit, and demand retreats.
The current glut in capacity comes despite the growth of new markets in developing economies. But to date, these economies remain largely export oriented. The push to increase demand in developing countries represents an attempt to reduce worldwide excess capacity through increased aggregate demand. There are reasons this will be a difficult solution. Developing countries are competing with each other to support established export industries. The improved labor practices and wages that would increase domestic demand run counter to the ability of each country to compete and profitably support investment.
Left to its own devices, the market weeds out lower profit firms in favor of higher profit firms. Liquidation wipes out excess capacity, and the process starts anew. U.S. capacity utilization has peaked at a lower percentage for each business cycle since the end of the post World War II boom, meaning the system has not been fully cleansed. It was an anemic 81 % at the height of the Bush II recovery.
The liquidationist society is not a particularly enjoyable one to live in. And it is incongruent with elections and political power. No politician spends years moving into a position of power, only to throw it away on a 'necessary' recession. Particularly intense cycles can lead to dramatic social and political instability. People don't like losing their jobs, and in most cases - it seems rather arbitrary. An individual can be doing a good job at a poorly run company that goes bankrupt. They do not what to hear they are part of the majesty of 'creative destruction'.
Since the end of the post World War 2 boom, governments have prevented the full amount of 'necessary' liquidation to their domestic capacity, relying on bubbles, cheap credit, and deficit spending to float things along. All G7 governments now find themselves deeply in debt, making the traditional salves to the business cycle more difficult to apply.
To go with this, private capital has become more powerful and mobile then governments themselves. This makes it difficult to tax the great reservoirs of wealth that exist in the capitalist class, as done in the traditional liberal model.
The interplay of large public sector debt with mobile private wealth will exacerbate the economic problems associated with significant excess capacity. In terms of investment, it means bubbles and stampedes of speculation - as established sectors of the economy will have stagnant growth, and be unable to generate acceptable returns. Geopolitically, there will be increased tensions between nation states - as they attempt to foist the pain of 'liquidation' upon their rivals. Internally, each domestic ruling class will attempt to impose the cost of restructuring upon the general population.
----
Sources:
1 "IMF Warns of Deflationary Spiral"
2 Federal Reserve Capacity Utilization Statistical Release
2 "There's no quick fix to the global economy's excess capacity" - UK Telegraph, Ambrose-Pritchard
This indicates that unemployment has the potential to go significantly higher. And given the same statistical criteria, much of the world is in a similar situation. The car industry is most emblematic of this, with excess capacity existing in nearly every developed and developing country .
This should not be a surprise. Excess capacity relative to demand - overproduction or underconsumption - is a historical feature of capitalism. Private firms competing for profit get ahead of themselves in the battle for market share. Too much is built, creating too much overhead and debt. Workers are squeezed for profit, and demand retreats.
The current glut in capacity comes despite the growth of new markets in developing economies. But to date, these economies remain largely export oriented. The push to increase demand in developing countries represents an attempt to reduce worldwide excess capacity through increased aggregate demand. There are reasons this will be a difficult solution. Developing countries are competing with each other to support established export industries. The improved labor practices and wages that would increase domestic demand run counter to the ability of each country to compete and profitably support investment.
Left to its own devices, the market weeds out lower profit firms in favor of higher profit firms. Liquidation wipes out excess capacity, and the process starts anew. U.S. capacity utilization has peaked at a lower percentage for each business cycle since the end of the post World War II boom, meaning the system has not been fully cleansed. It was an anemic 81 % at the height of the Bush II recovery.
The liquidationist society is not a particularly enjoyable one to live in. And it is incongruent with elections and political power. No politician spends years moving into a position of power, only to throw it away on a 'necessary' recession. Particularly intense cycles can lead to dramatic social and political instability. People don't like losing their jobs, and in most cases - it seems rather arbitrary. An individual can be doing a good job at a poorly run company that goes bankrupt. They do not what to hear they are part of the majesty of 'creative destruction'.
Since the end of the post World War 2 boom, governments have prevented the full amount of 'necessary' liquidation to their domestic capacity, relying on bubbles, cheap credit, and deficit spending to float things along. All G7 governments now find themselves deeply in debt, making the traditional salves to the business cycle more difficult to apply.
To go with this, private capital has become more powerful and mobile then governments themselves. This makes it difficult to tax the great reservoirs of wealth that exist in the capitalist class, as done in the traditional liberal model.
The interplay of large public sector debt with mobile private wealth will exacerbate the economic problems associated with significant excess capacity. In terms of investment, it means bubbles and stampedes of speculation - as established sectors of the economy will have stagnant growth, and be unable to generate acceptable returns. Geopolitically, there will be increased tensions between nation states - as they attempt to foist the pain of 'liquidation' upon their rivals. Internally, each domestic ruling class will attempt to impose the cost of restructuring upon the general population.
----
Sources:
1 "IMF Warns of Deflationary Spiral"
2 Federal Reserve Capacity Utilization Statistical Release
2 "There's no quick fix to the global economy's excess capacity" - UK Telegraph, Ambrose-Pritchard
Sunday, June 14, 2009
China : The Biggest Bubble Of Them All
Around 2006, a public crescendo was reached about China's Non-Performing loan problem. Most famous was the withdrawn report of Ernst and Young, which estimated that China's Non-Performing Loan (NPL) exposure was nearly 1 trillion dollars.
Whatever happened to those NPL's ? China developed their own version of the "bad bank" scenario to discharge NPL's from their four major banks, Bank of China, China Construction Bank, Cinda Industrial and Commercial Bank, and Agricultural Bank of China. According to stratfor.com , NPL's declined from 31 % of total loans in 2001 to around 3 % in 2008 under this "bank bank" scenario.
The loans were transferred to new government-backed organizations called Asset Management Companies, while the banks received bonds worth the full value of the original loan, plus interest. (Good deal !) As with most "bad bank" scenarios, the NPL's were supposed to be sold off to the highest bidder, at their real market value. To a large extent this has not happened as well as planned, and the AMC's: Orient, Cinda, Haurong, and Great Wall, are stuck with a mountain of liabilities.
As the Financial Times reported :
AMC's are now reluctant to take on any more NPL's:
This, as China engages in a massive stimulus plan which has been predicted to create another surge of NPL's.
Through the last decade, China has been able to manage their NPL situation by riding a wave of export-led growth, enabling the stockpiling of enormous reserves, and the ability to inject capital wherever needed. Foreign and domestic investment has similarly ridden this wave, leading to a sharp increase in property values, which have become a significant portion of earnings for Chinese-based companies. According to the Financial Times (September 7, 2007) "While declared earnings growth is 75 per cent (for Chinese companies), growth in operating earnings, profit from actually running a business, is 33 per cent. Most of the rest comes from property and other investments."
Property values are poised to drop in China over the next few years, as a spate of articles have mentioned recently.
Large undeclared liabilities and debt in the state dominated financial sector, combined with the possibility of weakened export growth and deflated property values, make China's economic future far more precarious then commonly assumed.
---
(Update)
Noted China watcher Michael Pettis makes similar points:
Andy Xie, on China's property values (whose appreciation accounts for a substantial amount of the earnings growth for domestic Chinese companies):
-----
Related:
1 Cracking China's Banking System
Whatever happened to those NPL's ? China developed their own version of the "bad bank" scenario to discharge NPL's from their four major banks, Bank of China, China Construction Bank, Cinda Industrial and Commercial Bank, and Agricultural Bank of China. According to stratfor.com , NPL's declined from 31 % of total loans in 2001 to around 3 % in 2008 under this "bank bank" scenario.
The loans were transferred to new government-backed organizations called Asset Management Companies, while the banks received bonds worth the full value of the original loan, plus interest. (Good deal !) As with most "bad bank" scenarios, the NPL's were supposed to be sold off to the highest bidder, at their real market value. To a large extent this has not happened as well as planned, and the AMC's: Orient, Cinda, Haurong, and Great Wall, are stuck with a mountain of liabilities.
As the Financial Times reported :
Until three years ago the AMCs were reporting aggregate returns of about 20 to 22 fen on the renminbi – a 20-22 per cent return on the face value of the assets they received from the banks. However, they have since been much less forthcoming.
“These AMCs must by now be massively insolvent because all the better assets have been sold and they have used the proceeds to pay the interest on the bonds they issued,” says Lardy.
(note: Nicholas Lardy is a senior fellow at the Peterson Institute for International Economics).
AMC's are now reluctant to take on any more NPL's:
China Construction Bank Corporation (CCB) failed to sell its non-performing asset package due to low bid prices, sources reported. The asset package includes 626 loans from 390 consumers, with book value hitting CNY 9.31 billion. CCB planned to sell the package as a whole to China Huarong Asset Management Corp., China Great Wall Asset Management Corp., China Orient Asset Management Corporation and China Cinda Asset Management Corporation via public auction. But it failed to sell the package in an action held at the end of March 2009, as the four firms are much more rational amid the global financial crisis, a top executive of Cinda Asset said in an interview.
This, as China engages in a massive stimulus plan which has been predicted to create another surge of NPL's.
Through the last decade, China has been able to manage their NPL situation by riding a wave of export-led growth, enabling the stockpiling of enormous reserves, and the ability to inject capital wherever needed. Foreign and domestic investment has similarly ridden this wave, leading to a sharp increase in property values, which have become a significant portion of earnings for Chinese-based companies. According to the Financial Times (September 7, 2007) "While declared earnings growth is 75 per cent (for Chinese companies), growth in operating earnings, profit from actually running a business, is 33 per cent. Most of the rest comes from property and other investments."
Property values are poised to drop in China over the next few years, as a spate of articles have mentioned recently.
Cao Jianhai, professor at the Chinese Academy of Social Sciences, a leading government think tank, said an apparent rebound in the property market was unsustainable over the medium term and being driven by a flood of liquidity and fraudulent activity rather than real demand.China's economy remains closely tied to its export sector, with an Export to GDP ratio of 40 %, and a trade surplus which represents around 10 % of GDP. But an export led recovery will be difficult to achieve in the face of a deleveraging U.S. and European consumer. There is good reason to believe that China's growth has stalled. Krugman notes that electricity consumption, is dropping, while reported growth figures are rising, breaking a long-term trend.
He told the Financial Times he expected average urban residential property prices to fall by 40 to 50 percent over the next two years from their levels at the end of 2008.
For most of the past decade, China’s industrial value-added growth (IVA) –industry output less input costs – has moved broadly in step with movements in electricity consumption. But the relationship’s broken down recently: electricity use is still seeing negative growth, while IVA is growing at a decent positive rate again...China’s association of electricity generators has a solution: it’s stopped publishing consumption data.
Large undeclared liabilities and debt in the state dominated financial sector, combined with the possibility of weakened export growth and deflated property values, make China's economic future far more precarious then commonly assumed.
---
(Update)
Noted China watcher Michael Pettis makes similar points:
I have always argued that other not-yet-recognized liabilities, such as hidden municipal and government debt, the bankrupt AMCs, and other non-recognized debt, probably means that real government debt levels are higher than the official numbers by at least 15-25% of GDP, which suggests that, correctly counted, government debt levels may now be approaching 50-70% of GDP. If we throw in the possibility that the current bank-lending spree is also likely directly or indirectly to add to government debt burdens in the future (contingently, through a rise in NPLs), I would not be surprised if policy-makers are already starting to consider the possibility of a debt problem at the central government level.
Andy Xie, on China's property values (whose appreciation accounts for a substantial amount of the earnings growth for domestic Chinese companies):
China's property market holds even less value in the long run. Chinese properties are sitting on land leased for 70 years for residential properties and 50 years for commercial properties. Their residual values are zero at the end. The hope for perpetual appreciation is a joke. If you accept zero value at the end of 70 years, the property value should only be the use value during those 70 years. The use value is fully reflected in rental yield. The current rental yield is half the mortgage interest rate. How could properties not be overvalued ? The bulls want buyers to ignore rental yield and focus on appreciation. But appreciation in the long run isn't possible. Depreciation is, as the end value is zero.
-----
Related:
1 Cracking China's Banking System
Friday, June 12, 2009
When the Boss Guilt Trips
I'm not sure why people fall for it. Now if there's an implied threat behind it, then yes, it's understandable. But otherwise, let them screw themselves.
This story is not unusual in the education sector:
The private sector learned this years ago, about the time any pretense of lifetime employment ended. With the destruction of tenure, and increase in temporary or probationary positions, workers in the education sector should as well.
To her credit, "Jane" reportedly ignored the dean's tale of woe.
This story is not unusual in the education sector:
(“Jane”) received an offer and a contract for a new position at another university during exam week at her current institution. Her “old” job had not yet extended her contract (that typically happened at the start of the fall semester), so she would not break an agreement by leaving. As she notified her dean that she would be moving in the next few weeks, he was clearly upset.Teachers too often fall under the sway of selflessness. It's part of the job description, helping others. But those feelings should not extend to management, who will not pause to fire or stomp on teachers if it means protecting their own necks.
Staring at his desktop, he said, “I hope you know what this will do to your colleagues. Because of the current budget and hiring freezes the board has instituted, we will not be able to replace you next year. This means that your colleagues will have to teach overloads to cover your courses. This is very unfair of you. I hope you have thought this through very carefully. It’s going to be hard not to think of you as a traitor, to some extent. If I were you, I’d rethink the other position and be loyal to your colleagues. Think about staying for their sakes.”
The private sector learned this years ago, about the time any pretense of lifetime employment ended. With the destruction of tenure, and increase in temporary or probationary positions, workers in the education sector should as well.
To her credit, "Jane" reportedly ignored the dean's tale of woe.
Thursday, June 11, 2009
As Goes California, So Goes the Nation ?
As goes California, so goes the nation ?
Says Krugman :
The ability to implement the liberal model of progressive taxation is weakening, because capital and production are globalized, and easier to move than ever. Meanwhile, governing institutions exist within the framework of the nation, or state, and regions can be played against each other.
Modest tax proposals by Obama have been met with vitriol by the ruling class, most notably Microsoft CEO Steve Balmer :
The United States, like California, is not broke. But the public sector is, and this has traditionally salved the harshness of capitalism. Private capital interests are fully back in control, after a brief moment of disarray last fall. Because of this, I expect Obama's media honeymoon to vanish, as his candidacy was largely an escape valve for the ruling class. Unchecked greed and competitive ruthlessness in the elite, the psychological underpinnings of a capitalistic society, seem poised to present themselves more assertively now that there is a perception systemic crisis has passed. This will mean more forceful attempts to impose austerity onto the backs of workers.
---
Related Posts:
Gergen , On the Town Hall Meetings
"Out of Money" in California
Says Krugman :
America’s projected deficits may sound large, yet it would take only a modest tax increase to cover the expected rise in interest payments — and right now American taxes are well below those in most other wealthy countries. The fiscal consequences of the current crisis, in other words, should be manageable.
But that presumes that we’ll be able, as a political matter, to act responsibly. The example of California shows that this is by no means guaranteed. And the political problems that have plagued California for years are now increasingly apparent at a national level.
The ability to implement the liberal model of progressive taxation is weakening, because capital and production are globalized, and easier to move than ever. Meanwhile, governing institutions exist within the framework of the nation, or state, and regions can be played against each other.
Modest tax proposals by Obama have been met with vitriol by the ruling class, most notably Microsoft CEO Steve Balmer :
Ballmer said the world’s largest software company would move some employees offshore if Congress enacts President Barack Obama’s plans to impose higher taxes on U.S. companies’ foreign profits.
“It makes U.S. jobs more expensive,” Ballmer said in an interview. “We’re better off taking lots of people and moving them out of the U.S. as opposed to keeping them inside the U.S.”
The United States, like California, is not broke. But the public sector is, and this has traditionally salved the harshness of capitalism. Private capital interests are fully back in control, after a brief moment of disarray last fall. Because of this, I expect Obama's media honeymoon to vanish, as his candidacy was largely an escape valve for the ruling class. Unchecked greed and competitive ruthlessness in the elite, the psychological underpinnings of a capitalistic society, seem poised to present themselves more assertively now that there is a perception systemic crisis has passed. This will mean more forceful attempts to impose austerity onto the backs of workers.
---
Related Posts:
Gergen , On the Town Hall Meetings
"Out of Money" in California
As Goes California, So Goes the Nation ?
As goes California, so goes the nation ?
Says Krugman :
The ability to implement the liberal model of progressive taxation is weakening, because capital and production are globalized, and easier to move than ever. Meanwhile, governing institutions exist within the framework of the nation, or state, and regions can be played against each other.
Modest tax proposals by Obama have been met with vitriol by the ruling class, most notably Microsoft CEO Steve Balmer :
The United States, like California, is not broke. But the public sector is, and this has traditionally salved the harshness of capitalism. Private capital interests are fully back in control, after a brief moment of disarray last fall. Because of this, I expect Obama's media honeymoon to vanish, as his candidacy was largely an escape valve for the ruling class. Unchecked greed and competitive ruthlessness in the elite, the psychological underpinnings of a capitalistic society, seem poised to present themselves more assertively now that there is a perception systemic crisis has passed. This will mean more forceful attempts to impose austerity onto the backs of workers.
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Related Posts:
Gergen , On the Town Hall Meetings
Traditional Governing Institutions Tottering
Reforming the IMF
"Out of Money" in California
Says Krugman :
America’s projected deficits may sound large, yet it would take only a modest tax increase to cover the expected rise in interest payments — and right now American taxes are well below those in most other wealthy countries. The fiscal consequences of the current crisis, in other words, should be manageable.
But that presumes that we’ll be able, as a political matter, to act responsibly. The example of California shows that this is by no means guaranteed. And the political problems that have plagued California for years are now increasingly apparent at a national level.
The ability to implement the liberal model of progressive taxation is weakening, because capital and production are globalized, and easier to move than ever. Meanwhile, governing institutions exist within the framework of the nation, or state, and regions can be played against each other.
Modest tax proposals by Obama have been met with vitriol by the ruling class, most notably Microsoft CEO Steve Balmer :
Ballmer said the world’s largest software company would move some employees offshore if Congress enacts President Barack Obama’s plans to impose higher taxes on U.S. companies’ foreign profits.
“It makes U.S. jobs more expensive,” Ballmer said in an interview. “We’re better off taking lots of people and moving them out of the U.S. as opposed to keeping them inside the U.S.”
The United States, like California, is not broke. But the public sector is, and this has traditionally salved the harshness of capitalism. Private capital interests are fully back in control, after a brief moment of disarray last fall. Because of this, I expect Obama's media honeymoon to vanish, as his candidacy was largely an escape valve for the ruling class. Unchecked greed and competitive ruthlessness in the elite, the psychological underpinnings of a capitalistic society, seem poised to present themselves more assertively now that there is a perception systemic crisis has passed. This will mean more forceful attempts to impose austerity onto the backs of workers.
---
Related Posts:
Gergen , On the Town Hall Meetings
Traditional Governing Institutions Tottering
Reforming the IMF
"Out of Money" in California
Friday, June 5, 2009
Reforming the IMF
Much has been made of reforming the IMF to reflect current GDP size in the world economy. This would mean increasing China's voting percentage, and reducing Europe's and Japan's. However, with more votes comes the obligation to contribute more. And China is none to eager to do that as long as the United States has veto power, with 16.8 % of the vote, when only 15 % is needed to block major legislation.
For obvious reasons, this is extremely unlikely to happen. The U.S. is not in that weak of a position right now.
As for the Eurozone, they have a de facto veto, with Germany, Italy, France, and Belgium making up 16 % of the vote . Throw in the Netherlands and it's 18.4 %, and add Spain and it's 19.8 %.
So the Eurozone has some room to give, and still maintain its relative power.
Within China, there is some debate as to the necessity of contributing more , given its low per capita income.
For now, the United States and Europe seem to view China as a lever to use against each other, rather than a potential equal partner. One could see them agreeing to up China's vote total, but not at the expense of their own ability to veto legislation. Meanwhile, China would be required to contribute more money for essentially the same role. These negotiations require delicate balancing and could easily collapse.
Sun Lijian, dean of Fudan University's Economics School, said: "A meaningful reform should not only increase the voting power of developing nations, but also remove America's de facto veto power in the IMF.
"If the US continues to dominate IMF decisions, there will be little change in the international financial system."
For obvious reasons, this is extremely unlikely to happen. The U.S. is not in that weak of a position right now.
As for the Eurozone, they have a de facto veto, with Germany, Italy, France, and Belgium making up 16 % of the vote . Throw in the Netherlands and it's 18.4 %, and add Spain and it's 19.8 %.
So the Eurozone has some room to give, and still maintain its relative power.
Within China, there is some debate as to the necessity of contributing more , given its low per capita income.
Liu Jing, associate dean of Cheung Kong Graduate School of Business, is not convinced that China needs a substantially bigger role in the IMF.
"It could be difficult for China to make a major increase in its contribution to the IMF. It may be better for the nation to spend its foreign exchange reserves on its own economic development, given its low per capita GDP and status as a developing nation."
For now, the United States and Europe seem to view China as a lever to use against each other, rather than a potential equal partner. One could see them agreeing to up China's vote total, but not at the expense of their own ability to veto legislation. Meanwhile, China would be required to contribute more money for essentially the same role. These negotiations require delicate balancing and could easily collapse.
Tuesday, June 2, 2009
Mr. Geithner Goes to China
Making promises and offering advice:
I don't doubt that the Obama administration would impose austerity on the American public if it could, but the fact is, they need to win elections. Seniors vote, and when boomers retire, they are going to vote a lot. Furthermore, cutting the safety net turns the U.S. consumer into the proverbial 'Asian' consumer. There will be some attempted cutbacks in entitlements, but they will be politically impossible - in my opinion - without new sources of tax revenue to create the perception of a shared burden. Wealthy private interests have the clout and hostility to avoid substantial new taxation, and a rumored VAT tax might be as regressive to consumption as austerity. These political 'obstacles' mean that the U.S. is going to be running large deficits for the foreseeable future.
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During an economic slowdown, this is not going to happen in any substantive way. China needs to employ people first and foremost, and a rising yuan would damage their most labor intensive industries.
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This is also not going to happen in a substantive way. Continental Europe has enough votes now to constitute a veto, and they are not going to give up their sway in the IMF, along with its sizeable gold holdings.
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What's more likely is that Quantitative Easing, and an escalating debt-to-GDP ratio, are going to result in some type of de facto devaluing of the dollar. There are a number of scenarios for this, including increased core inflation, speculative inflation in commodities, or a decline relative to other currencies. Moderate devaluation against other currencies would be beneficial to the U.S export sector, and would reduce domestic unemployment.
There is the real potential of significant devaluation, which would not only damage China's reserve holdings, but lead to a more severe global financial crisis.
Stimulus has bought time, but not much else as of yet.
Geithner renewed pledges that the Obama administration would cut its huge fiscal deficits and promised "very disciplined" future spending, possibly including reintroduction of pay-as-you-go budget rules instead of nonstop borrowing.
I don't doubt that the Obama administration would impose austerity on the American public if it could, but the fact is, they need to win elections. Seniors vote, and when boomers retire, they are going to vote a lot. Furthermore, cutting the safety net turns the U.S. consumer into the proverbial 'Asian' consumer. There will be some attempted cutbacks in entitlements, but they will be politically impossible - in my opinion - without new sources of tax revenue to create the perception of a shared burden. Wealthy private interests have the clout and hostility to avoid substantial new taxation, and a rumored VAT tax might be as regressive to consumption as austerity. These political 'obstacles' mean that the U.S. is going to be running large deficits for the foreseeable future.
---
"In China ... growth that is sustainable will require a very substantial shift from external to domestic demand."
To that end, Geithner said a more flexible exchange-rate regime for the yuan, which would almost certainly see the value of the Chinese currency rise against the dollar, was particularly important because it would spur more Chinese demand.
During an economic slowdown, this is not going to happen in any substantive way. China needs to employ people first and foremost, and a rising yuan would damage their most labor intensive industries.
---
Geithner offered U.S. backing for a higher-profile role for China in running global institutions including the IMF -- a controversial proposition since it raises the sensitive issue of reducing Europe's voting share in the global lender.
This is also not going to happen in a substantive way. Continental Europe has enough votes now to constitute a veto, and they are not going to give up their sway in the IMF, along with its sizeable gold holdings.
---
What's more likely is that Quantitative Easing, and an escalating debt-to-GDP ratio, are going to result in some type of de facto devaluing of the dollar. There are a number of scenarios for this, including increased core inflation, speculative inflation in commodities, or a decline relative to other currencies. Moderate devaluation against other currencies would be beneficial to the U.S export sector, and would reduce domestic unemployment.
There is the real potential of significant devaluation, which would not only damage China's reserve holdings, but lead to a more severe global financial crisis.
Stimulus has bought time, but not much else as of yet.
Monday, June 1, 2009
A Nuclear North Korea, and Iran
The U.S. has toppled 3 heads of state within the last 20 years, in Panama, Iraq and Serbia. That's what almost guarantees that North Korea and Iran will continue developing nuclear weapons. The U.S would not have invaded Iraq if it was a nuclear country. And no leader wants to end up like Saddam - or Milosevic, or Noriega.
That's what makes the final endgame of these confrontations murky. Will the United States initiate military strikes before either become full nuclear powers, and under what conditions ?
That's what makes the final endgame of these confrontations murky. Will the United States initiate military strikes before either become full nuclear powers, and under what conditions ?
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