Sunday, January 31, 2010

Wanted: Leading Edge Technologies to Drive Investment

The U.S. has not yet recovered from the collapse of the IT and Internet driven investment boom. While the housing bubble was able to mask weakness in non-structural investment for a period of years during the aughties, that time is over with.

Innovation at the moment is evolutionary, not revolutionary, and businesses are finding increased investments in equipment and technology unwarranted given the benefits they bring in productivity.

On a personal consumption level this also makes sense. Everyone 'had' to have Windows 95 when it came out. Windows 7 might be a good thing to have, but there's no need rush in buying it unless it comes with a new computer.

These type of graphs are synonymous with flat private sector employment, such as existed in the aughties. Capitalism is very much dependent on private investment to lead growth, and non-structures investment is probably the most dynamic within an economy.

As a high wage capitalist country, the U.S. continually needs to find new technologies which increase productivity and encourage private investment. I suspect this is going to eventually require massive government support in research and development. I'm not sure the culture is ready for that and the political system surely isn't.

Incidentally, sections of the clean energy industry, such as solar panels or wind turbines, seem to be on the verge of market glut now that China has entered the game full bore. In general, that is the problem for private companies investing in R&D now. The information age makes copycatting much easier, which decreases the time in which a company can benefit from any technology innovations they may achieve. Their monopoly power quickly becomes a supply glut as other firms rush in.

The U.S. military does have such cutting edge technologies, particularly within equipment designed for their satellite systems. But those will not be brought into the marketplace anytime soon. National security, and all.

Friday, January 29, 2010

'Volcanic Specks in the Pacific'

From the CSM:

A handful of volcanic specks in the Pacific Ocean are sparking fresh diplomatic ruckus, as China and its neighbors tussle over the resource-rich and militarily strategic seas that lie off their coasts.

China is building a resort on the Paracel Islands, Vietnam is buying submarines from Russia, and Japan is turning rocks into permanent islands, in the middle of the ocean.

1'Who cares about volcanic specks in Pacific? China, Vietnam, Japan.' - CSM; Ford

Thursday, January 28, 2010

U.S Oil Production

Even after domestic peak oil, the United States is the world's third largest oil producer. It's just the U.S. consumes so much it still needs to import, so people often don't remember how much it produces.

Extend Unemployment Benefits

Both the Congressional Budget Office and Mark Zandi agree that one of the best ways to improve the jobs picture is to increase and extend unemployment benefits. The question is whether capitalists are smart enough to support the system that supports them. A knee jerk reaction towards austerity will create a shock to private consumption levels and undermine demand within the economy. And the idea that people would rather stay on unemployment, when it pays 60 % of their previous wage without benefits and without retirement , is ludicrous. In many cases , it just serves to pay health benefits. Zandi is no radical, he was John Mc Cain's economic adviser during the presidential campaign.

From the CBO, via Econbrowser
1Mark Zandi - 'More Stimulus Needed'
2'Policies for Increasing Economic Growth and Employment' - Econbrowser

Wednesday, January 27, 2010

Europe to Launch Space Solar Power Station

While harvesting solar energy in space has been discussed by scientists for more than 30 years, engineers at EADS Astrium, Europe's largest space company, now believe the technology is available to allow them to start building a working prototype.

They hope to have a small demonstrator of a full sized space-based power station, capable of beaming back 10-20kW of power, ready for launch in the next five years.

1'Lasers to beam energy to Earth from space' - UK Telegraph
There is no doubt that there will be a full court press by developed nations into this technology. Future energy needs are going to be too great to be accommodated by the resources on earth.

Tuesday, January 26, 2010

China Moves Against Bank Lending

Apparently markets are shocked, just shocked, that China is trying to rein in its banks. It's a smart move on their part. China does not currently have the ability to replace OECD countries as a consumer market, and their 2008-09 expansion of bank lending was done for domestic reasons, not to save (or dominate) the rest of the world. It was deep credit and treasury markets that allowed the US to support the world economy on the consumption side, without massive inflation, for one. That model is now broken. China has a very small bond market; new money dumped into their system much more quickly becomes inflationary and speculative. Their private consumers basically do not take on debt.

1"Bank of China, Construction Bank Start Curbing Credit"; Bloomberg

Monday, January 25, 2010

The One Term Presidency of Obama

If the Republicans can field a marginally coherent candidate, that is.

Obama was put forth as an antidote to the Bush years. He was containment. With the Bush years fading and the financial crisis in Wall Street's rear view mirror, Obama probably senses in some raw political way that he has to turn right. If not, his masters will be done with him.

Forgetting About Mexico

When talking about the rise of the BRIC consumer, and forecasting power changes in the world economy, it's curious why Mexico is basically forgotten. It's a large country next to the world's biggest economy. Its per capita standard of living is far ahead of China and India, and surpasses Brazil. Its GDP is close to cracking the Top 10, and will probably creep into in it during the next generation. It has a proud history of both pre-Columbian civilization and revolution.

I suspect this forgetfulness has to do with American 'prejudices' about Mexicans, that are formed based upon immigration patterns. I will discuss this more at another date.

Sunday, January 24, 2010

Resource Disputes Flare in East Asia

East Asia remains a region dominated by xenophobia and nationalist rivalries that will ultimately undercut its current economic dynamism.

The running disputes over various 'islands' in the East and South China Seas are one signpost of these rivalries. At their root are turf battles over oil and natural gas in a region where both are in scarce supply. UN law gives sovereign rights to the resources around any island that a nation stakes legitimate claim to.

Japan's government plans new legislation that will bolster its claim to an island disputed with China by allowing it to build ports or other structures there, the Nikkei business daily reported ...

If the new bill is enacted, the government would be able to build and maintain ports and other infrastructure in remote islands such as Okinotori, which lies about halfway between Guam and Taiwan, 1,700 km (1,050 miles) from Tokyo, the Nikkei said.

1'Japan eyes bill to boost disputed island claim - media' - Reuters
2'Japan's plans for atoll not to change its legal status' - China Daily

Deep seated national pride, mixed with xenophobia, will also cause problems for countries like South Korea and Japan as their populations age. South Korea's birth rate is among the lowest in the world. Japan's working age population is in decline. And even China's will begin falling within a decade, ending their 'reserve army' of surplus labor. Immigrants are going to be necessary for countries that continue with the growth-based capitalist model; countries that are set up to welcome them are in much better shape in this regard. This is not the case for any country in East Asia.

Friday, January 22, 2010

Recent Happenings

It looks like the recent Senate race was about budget deficits as much as anything else. It's something people can latch onto quite easily, even if it's not the same relationship that an individual has with their credit card. And I've heard the deficit often conflated with the idea that 'China owns us', even if it that too has no semblance in reality.

Fiscal or monetary austerity at this point and time would be depressionary in its effect. I don't even think it's where most of big business wants to go yet.

Volcker apparently has regained influence within the administration; how far that extends remains to be see. Volcker is no stranger to austerity, and as Fed chairman oversaw a strong dollar rally after jacking up interest rates. This also led to the Latin American debt crisis in the 1980's. There has been a lot of borrowing in dollars recently, and any type of unforeseen rally would leave a lot hedge funds (and possibly countries) broke. While Bernanke is obviously fond of the printing press, with his re-nomination in doubt, he might have to shift policy in this regard.

China has been forced to tighten credit expansion in recent days. The bubble arguments are well documented, but I think the overall point is that China does not currently have the ability to drive the world economy. They need to export; even just soaking up internal capacity requires massive loan expansion. They also don't have the ability to absorb capital inflows; after all, there isn't much of a Yuan bond market. This means inflation can blow up quite easily.

Thursday, January 21, 2010

The World Needs More Consumption

The vast majority of people in the world need more money to buy more stuff. The posters at Starbucks of humble farmers making organic coffee - well, most of those farmers want their kids to go to college and own big houses with heat and air conditioning. They don't want their kids to work so damn hard for so little. Most of the world's population does not want to be a favored servant smiled on by a kind overlord. Their greatest dreams in life do not include working in a factory, though it may be a means to an end. The thing about humans is once they get a toe on the ladder, they want to keep climbing.

Wednesday, January 20, 2010

'Lazy Haitians and Muslims, Hard Working Asians'

Apparently the rather ignorant New York Times columnist David Brooks had a column recently on Haiti where he blamed the country for not having an 'achievement culture', and said it was their fault they were poor. The achievement metaphor is basically the new way of saying an ethnic group or person is lazy. In a weird way, it does represent an improvement from maybe 50 years ago. At that time, reactionaries would just have said that a person was poor because of genetics or that they were an inferior 'race'. Now, it's not genetics, but choice. This is a small improvement , but still an important one.

This leads into Thomas Frideman's recent harangue against Muslims . He contrasts the Middle East with Taiwan, and asserts that the Taiwanese are working hard while the lazy Muslims are relying on oil.

Of course, East Asia was as poor, or poorer than Africa after World War 2. Its development mainly has to do with compromises the U.S. made in the Cold War. The US was forced to bolster certain key areas against Communist influence, and this took the form of market favoritism and technology transfer through military hardware export/import. The US more or less gave Japan its electronics industry during the LBJ era in exchange for military bases. Likewise, both South Korea and Taiwan received large amounts of US technology through the import of high tech military hardware. And for all of East Asia, US markets were opened unconditionally. One can find this type of analysis not just in Left organs, but in rightist publications such as Stratfor. It's not a mystery. At the same time, these economies managed to not fall under the sway of mainstream US economic thought, more or less ignoring free market dogmatism as they protected nascent industries.

The basic problem with Friedman and Brooks is not that they are racist per se, they are just completely ignorant of history. Their anti-intellectualism is the hallmark of a ruling class drunk and reckless with its power.

Tuesday, January 19, 2010

The List of Billionaires is Growing in Asia

One thing the narrow minded US billionaire class will find out in the coming years is that most profit comes via regional markets. It is very difficult being based on one continent, while investing and operating primarily in another. Wall Street and Corporate America's dream of riches through tapping China's domestic market is already proving fanciful, and given the CCP's growing centralization, this will only continue in the future.

Henry Sy is a Filipino billionaire whose wealth doubled last year, as his domestic market remained relatively untouched by the Western financial crisis. He is also Chinese, and a native of China, which gives him the connections to move into mainland operations in a way that the round-eyes will never be able to.

If American billionaires want to remain in charge, they would be wise to cultivate the North American market because they are always going to be standing in line when it comes to China and India. Unfortunately for them, I see little foresight in this regard, but rather a grim determination to cut costs of every type in the U.S. and drive the middle class under.

1'Philippine tycoon to expand mall operations in China' - China View

Monday, January 18, 2010

The Washington Post Quotes Some Retired Military Asshole

From the Washington Post, on the Mass. senate race and anti-Obama 'anger':

"It's socialism. It starts with health care. It starts with the government bailouts," said Johnson, 43, who's retired from the military. "I work for a living and I see more and more of my money going to people who sit home and don't do it. I'm all for helping people out, but I like keeping what I earn."

This guy is perfectly happy to get his government health care and retirement after working for 20 years in the military. Now he gets to sit on his ass the rest of his life, or complain about other people who 'sit at home'.

Most military jobs have little to do with combat. And the social respect and financial entitlements these guys expect is ridiculous.

I've known far to many of these goldbricking military types to be impressed by their 'sacrifice'.

Why Resistance to Health Care Reform ?

A big driver is the perception that it will undermine Medicare, and in fact, the bill does reduce Medicare reimbursements as a way to 'cut costs'. There is likely a big shift against Obama in the plus 55-age group, the people who actually vote. No doubt, organs like the UK Guardian will regard this shift as 'old people who are racist', but it has nothing to do with that. It will be interesting to look at exit polls from the Senate special election.

Sunday, January 17, 2010

"An Innovation Slump"

Though he appears to freelance for the far-right Cato institute, economist Arnold Kling insightfully points out that :

Since 2000, the economy has been in an innovation slump. The human genome project yielded less immediate benefits than expected. Progress in computer and communications technology has become evolutionary, not revolutionary. Nanotechnology is far too immature to create major new business opportunities.

Only when an innovation reaches the point where its economic impact can be felt, as happened with personal computers and the Internet in the 1990's, will lots of new businesses be created. Remember that in 1987 Robert Solow quipped that "we see computers everywhere but in the productivity statistics." That soon changed. Today, one could argue that we see genome decoding and nanotech research everywhere but in the productivity statistics.

The U.S. is a high wage capitalist country which relies on private sector investment in new technology to drive growth. We aren't exactly bringing peasants off the countryside anymore. Without innovation in new industries, leading to productivity growth, there will not be substantial new private investment. The question will be if the ruling class is functional enough to realize that public sector investment is going to be needed to explore avenues of new innovation. In the meantime, there will be weak growth and a lot money slopping around in the financial sector or funneled into emerging markets, and more crisis.

1'Why Such a Deep Recession?' - Arnold Kling

Saturday, January 16, 2010

Analyzing the U.S. by Skin Color

The under-18 population in the U.S. is less than 50 % white. There are some dynamic changes regarding 'race' going on in the younger age groups (under 30) that really need to be contemplated by people who profess to understand American politics. The affirmative action construct that was used to hold American society together after the 1960's is not going to work going into future generations. I.E., promoting the talented 10th from various minority groups to create a public perception of diversity. As the U.S. becomes more diverse, and factions increase in scope, the affirmative action construct will balkanize the political class into various petty bourgeois factions mostly concerned with grievance politics. This social foundation will be incapable of forming a functioning government (see California).

It also won't work in terms of 'race'-oriented Left political analysis. Not when at least a quarter of relationships under 30 are 'mixed' and when the wealthiest 'ethnic' group (as defined in its non-scientific BLS way) is non-white. I mean, it is hard to moan about a white supremacist America when Asians make a lot more than any other group, and have a considerably lower unemployment rate. (To be sure, there are reasons for this based around class-based immigration patterns, but they can not be addressed within an affirmative action construct of race grievance.) Generally, workers are becoming more - not less - tolerant.

I personally don't care, on an intellectual level, if the American empire crumbles from within. But the U.S. ruling class desperately needs to create a common vision and a new model for social cohesion. It seems like the leading guardians of public thought would begin addressing these problems. Or maybe, the rot is just too deep and no one with any power cares about anything but the next loot.

The UK Guardian Tongue Lashes Racist Americans

To ask where racism ends and politics begins in all of this is to set up a false dichotomy – America's politics has always been steeped in race and racism is a political force. The psychic scars of centuries are not removed in one election or as a result of one person. Indeed they may be deepened and made even more raw as a result of them.

The Europeans really are fixated on this idea of America as it was 50 years ago. And of course, Obama is unpopular because he is black. Just go to the most unrepresentative hollow in Kentucky to prove it. Don't report that, nationwide, Obama did better among working class whites than Kerry. And that, nationwide, Republicans are much more unpopular than Democrats.

It's much easier to report that Americans are racist than that they are deeply alienated with the political system. That later might make the smug European ruling class just a trifle nervous.

1''Even Charles Manson could beat him now' - UK Guardian; Younge

ASEAN China Free Trade Zone

I haven't heard much talk about this. It will benefit people in terms of cheap goods from China, but will also drive down already low wages throughout the ASEAN countries.

It could provoke a lot of political instability because of the unemployment issues it will create.

From China's view, it is about reforging the traditional relationships that existed before the Western invasion, sort of a modern Chinese empire - with perhaps trappings of colonialist exploitation.

Filipino activist/scholar Walden Bello writes that "a second look makes one wonder if the relationship with China is not reproducing the old colonial division of labor, whereby low-value-added natural resources and agricultural products were shipped to the center while the Southeast Asian economies absorbed high-value added manufactures from Europe and the United States."

1"Indonesia back-tracks on China trade pact" - Channel News Asia
2"The China-Asean Free Trade Area: Propaganda and Reality" - Philippine Inquirer, Bello

The Economic Center of Gravity in the U.S.

Due to the emerging markets of Asia, it's now somewhat commonplace to refer to a new center of gravity in the world's economy. Regardless of the truth in that, I believe a similar type of change is occurring in the United States.

Starting in the 1970's, the economic power of the industrial Midwest, centered in Michigan, began to be debilitated by years of of outsourcing and reduced market share. This power shift benefited not only countries like South Korea, or Japan, but areas in the southern United States where production shifted. And, in terms of political influence, Silicon Valley and California replaced the Big 3.

It seems that California is now locked into a long-term cycle of decline. This means that Texas, with the second largest GDP by U.S. states, and much less affected by the recession, is poised to gain leadership and political influence at the expense of the West.

1"Even with austere budget plan, California counts on federal funds" - Washington Post; Vick and Cho