Saturday Links:
Perseid Meteor Shower
New China Search Engine Will Be State-Controlled (NYT)
Why THESE companies are IPOing (Cleantech Investing)
Student Loan Debt Outpaces Credit Card Debt (Huffington Post)
Scorning debt, consumers’ credit scores soar (Reuters)
How Power Affects Us (WSJ)
Longest River, Wide Adventure (WSJ)
Kagame in Rwanda
Paul Kagame has now been reelected to an additional seven-year term in Rwanda with 93% of the vote. While his reelection was never in doubt, his position as Rwanda’s ruler for the foreseeable future ensures the country will continue its course of steady economic development underneath the supervision of a paranoid and repressive government.
It was only in 1994 that this country effectively destroyed itself through horrific genocide, with Mr. Kagame putting down the perpetrators and restoring order to what remained of the country. Rwandan society was completely restructured shortly thereafter, with ethnic distinctions being completely banned and Mr. Kagame establishing an iron grip on power.
When I was in Rwanda in 2005, only eleven years after the slaughter, Mr. Kagame’s vision for Rwanda was well under way. Since I have left, it seems to have only continued, with the central government providing a stable environment for outside capital investment and donor aid. The country is orderly, the rule of law is strictly enforced and criticism of Mr. Kagame’s regime is repressed.
Mr. Kagame’s management of the country and the measurable improvements are being achieved underneath his supervision are remarkable. He has turned a country that nearly ceased to exist sixteen years ago into one of the most successful and rapidly developing nations in Africa. No small achievement. Are the authoritarian practices of his government a small price to pay for the results that have been produced?
It’s a tough call.
Raghuram G. Rahan in The New York Times:
This guy is a finance prof at the Chicago School of Business and his column in the NYT really jumped out at me in terms of its breadth and accuracy. I watched part of a speech he gave at the St. Louis Fed after reading his column below and his definition of financial innovation floored me.
He said, “What financial innovation did was take this very local loan, a mortgage, and spread it across all borders all over the world, so that the local banker who looked a person in the eye and looked at their income was no longer relevant.”
Simple, but totally accurate.
Check out his column below. The link is here.
There is a fair amount of agreement that the world economy is in need of rebalancing. Countries like Iceland, Greece, Spain and the United States overspent prior to the crisis, financing the spending with government or private borrowing, while countries like Germany, Japan and China supplied those countries goods even while financing their spending habits.
Simply put, the consensus now requires U.S. households to save more and Chinese households to spend more in order to achieve the necessary rebalancing. Indeed, many believe that if only the United States toned down its consumerist culture and its households tried to stay within a monthly budget instead of having a Micawberish optimism about the future, and if only Chinese households stopped fearing Armageddon and started spending more, all would be well.
Of course, it is simplistic to reduce global trade imbalances to a bilateral imbalance between two countries. But since this is how the popular debate is posed, it is useful to ask whether rectifying the imbalances is only a matter of American and Chinese households switching personalities.
Clearly, consumer behavior is driven by habits formed over time, many of which are culturally determined — driving a Hummer, the gigantic low-mileage S.U.V., used to be an acceptable means of signaling the size of your wallet in the United States before concerns about global warming spread.
No longer!
However, the focus on consumer behavior misses the deeper policy underpinnings of the behavior we see.
In the United States, for example, credit-fueled consumption may have been exacerbated by the government’s push to expand home ownership, especially among low-income households. As house prices rose, households felt wealthier and borrowed against the home equity they had built to finance their lifestyle.
Indeed, this bought successive administrations political peace as debt-fueled consumption helped paper over the fact that incomes for the median household barely increased.
A second factor pushing American households to take on debt and consume has been the Federal Reserve’s policies. With business recoveries in the United States proving slow in creating jobs, and with consumption accounting for about 70 percent of demand, the political pressure on the Fed to revive the economy forces it to try to discourage household savings in downturns by keeping policy rates at ultra-low levels for sustained periods of time.
But if households do not save in downturns, how likely are they to save as the economy recovers and euphoria kicks in?
Finally, as other countries come to see that the United States is willing to be the world’s consumer of first and last resort, they are happy to rely on it to provide the extra demand to lift the world out of recessions, even while Americans get their finances in order. So policies around the world make the United States household the world’s designated spender.
With the Obama administration intent on propping up the housing market as best as it can with government credit, with the Fed on hold at near-zero rates, and with the U.S. exhortations to other countries to spend eliciting little enthusiasm at the recently concluded G-20 meetings, change seems very far away.
What about the Chinese household? Here again, policies are important.
While undoubtedly, the absence of a significant old-age safety net (and the paucity of children, the traditional Asian safety net) offers Chinese households a strong incentive to save, those savings rates are not significantly higher than savings rates in other Asian countries.
China’s overall savings rate has gone up in recent years because Chinese corporations are earning and saving more, while household consumption is low because Chinese households earn a much lower fraction of the income generated by the economy than in other countries.
Why is this? Because the Chinese economy has a strong bias favoring its corporations and against its households; interest rates on household bank deposits are really low so that corporations can get cheap credit and so that the central bank can maintain an undervalued exchange rate; corporations get cheap inputs like energy, natural resources and land; taxes on corporations are low, so their after-tax profit is high; and state-owned corporations pay very little of the gigantic profits they generate back to the state as dividends. As a result, household after-tax income is low, and consumption is low.
All this means that if China is to rebalance growth, it has to start being kinder to its households. The recent willingness of the Chinese authorities to tolerate worker strikes for higher wages suggests they want to increase household incomes.
Higher deposit interest rates, higher corporate taxes (with a commensurate reduction in household taxes), and fewer subsidized inputs for corporations will also help.
But these changes will not come easily, for they will put enormous pressure on corporate profits, something corporations will resist. And profitable corporations have a lot of power of resistance, even in a one-party state. Moreover, the Chinese authorities will be wary of imposing large adjustment costs on corporations too quickly and causing large job losses.
The recent crisis has convinced the Chinese of the dangers of relying so much on foreign demand, so they do want to boost household consumption, but the steps they take will again be gradual.
The bottom line is that rebalancing requires more than cultural change, it requires policy changes that will imply considerable political pain in the short term.
After this brutal recession, the natural tendency is to try to go back to the old patterns of growth before attempting change — the United States is trying to revive consumption while China is trying to revive exports.
Unfortunately, though, if the will to change is not found in the midst of a deep crisis, it is unlikely to be found as the recovery gathers steam. It is easier for politicians to emphasize the need for other countries to change while neglecting their own responsibilities. Stay tuned, but don’t hold your breath.
Little harm from the Gulf Spill?
U.S. Finds Most Oil From Spill Poses Little Additional Risk (The New York Times)
According to this article in the Times, the U.S. government will announce tomorrow that “three-quarters of the oil from the Deepwater Horizon leak has already evaporated, dispersed, been captured or otherwise eliminated — and that much of the rest is so diluted that it does not seem to pose much additional risk of harm.”
It seems to be a little bit premature to make such a broad statement.
Didn’t a total of 5 million barrels of crude oil from Deepwater Horizon enter the Gulf of Mexico? Wasn’t the leak capped only last week?
The newly released government report asserts that of the total amount of oil remaining in the Gulf, “about 26 percent of the oil released from BP’s runaway well is still in the water or onshore in a form that could, in principle, cause new problems.”
The spill has already caused huge amounts of damage and I fear that the damage from the Spill in the Gulf will continue to unfold for some time. The fallout for wildlife, fisherman, and the overall way of life for people living in the Gulf States could be significantly altered for a very long period of time.
The local economies of Mississippi, Alabama and Louisiana, driven by tourism and the harvesting oysters, clams and shrimp will not exactly bounce back from this. If you are in a restaurant ordering oysters in the near future and you discover that they’re from Gulf waters, will you hesitate to eat them? I suspect that many people would.
While it is a blessing that the oil leak has been stopped and BP’s efforts have paid off in the long run, it is somewhat surprising to see the government release a report minimizing what has happened.
I sincerely hope that most of the damage from the oil can be contained and mitigated over time.
Tuesday Links:
Goldman Sachs Creates Derivatives Clearing Unit (Huffington Post)
Wind farm ‘mega-project’ underway in Mojave Desert (LA Times)
Nuclear Energy Loses Cost Advantage (NYT)
Marine Corps General James Mattis before Senate Armed Services Committee (C-SPAN)
With Asian Industry Astir, More Job-Seekers Go East (NYT)
Want the Good News First? (Thomas L. Friedman @ NYT)
What are the prospects for comprehensive climate legislation? (Climate Progress)
Leveraging Climate Data and Services to Manage Climate Change (CSIS)
Soros set to buy stake in Bombay exchange (Financial Times)
Can we transfer this onto a 0% credit card?
Via Mint.com:
Sunday links:
What I Did When I Couldn’t Find a Job (Andrew Dana Hudson)
Four Ways to Kill a Climate Bill (NYT)
North Korea Warns of Nuclear Response to Naval Exercises (Bloomberg)
Pinning Down Zynga’s Revenues Is Like Playing Pin The Tail On The Bullet Train (TechCrunch)
Congrats Congress: You’re Less Popular Than HMOs (The Atlantic)
China turns on demand power (Asia Times)
Remarks by Jeff Bezos to Princeton class of 2010
“We are What We Choose”
Remarks by Jeff Bezos, as delivered to the Class of 2010
Baccalaureate
May 30, 2010
As a kid, I spent my summers with my grandparents on their ranch in Texas. I helped fix windmills, vaccinate cattle, and do other chores. We also watched soap operas every afternoon, especially “Days of our Lives.” My grandparents belonged to a Caravan Club, a group of Airstream trailer owners who travel together around the U.S. and Canada. And every few summers, we’d join the caravan. We’d hitch up the Airstream trailer to my grandfather’s car, and off we’d go, in a line with 300 other Airstream adventurers. I loved and worshipped my grandparents and I really looked forward to these trips. On one particular trip, I was about 10 years old. I was rolling around in the big bench seat in the back of the car. My grandfather was driving. And my grandmother had the passenger seat. She smoked throughout these trips, and I hated the smell.
At that age, I’d take any excuse to make estimates and do minor arithmetic. I’d calculate our gas mileage — figure out useless statistics on things like grocery spending. I’d been hearing an ad campaign about smoking. I can’t remember the details, but basically the ad said, every puff of a cigarette takes some number of minutes off of your life: I think it might have been two minutes per puff. At any rate, I decided to do the math for my grandmother. I estimated the number of cigarettes per days, estimated the number of puffs per cigarette and so on. When I was satisfied that I’d come up with a reasonable number, I poked my head into the front of the car, tapped my grandmother on the shoulder, and proudly proclaimed, “At two minutes per puff, you’ve taken nine years off your life!”
I have a vivid memory of what happened, and it was not what I expected. I expected to be applauded for my cleverness and arithmetic skills. “Jeff, you’re so smart. You had to have made some tricky estimates, figure out the number of minutes in a year and do some division.” That’s not what happened. Instead, my grandmother burst into tears. I sat in the backseat and did not know what to do. While my grandmother sat crying, my grandfather, who had been driving in silence, pulled over onto the shoulder of the highway. He got out of the car and came around and opened my door and waited for me to follow. Was I in trouble? My grandfather was a highly intelligent, quiet man. He had never said a harsh word to me, and maybe this was to be the first time? Or maybe he would ask that I get back in the car and apologize to my grandmother. I had no experience in this realm with my grandparents and no way to gauge what the consequences might be. We stopped beside the trailer. My grandfather looked at me, and after a bit of silence, he gently and calmly said, “Jeff, one day you’ll understand that it’s harder to be kind than clever.”
What I want to talk to you about today is the difference between gifts and choices. Cleverness is a gift, kindness is a choice. Gifts are easy — they’re given after all. Choices can be hard. You can seduce yourself with your gifts if you’re not careful, and if you do, it’ll probably be to the detriment of your choices.
This is a group with many gifts. I’m sure one of your gifts is the gift of a smart and capable brain. I’m confident that’s the case because admission is competitive and if there weren’t some signs that you’re clever, the dean of admission wouldn’t have let you in.
Your smarts will come in handy because you will travel in a land of marvels. We humans — plodding as we are — will astonish ourselves. We’ll invent ways to generate clean energy and a lot of it. Atom by atom, we’ll assemble tiny machines that will enter cell walls and make repairs. This month comes the extraordinary but also inevitable news that we’ve synthesized life. In the coming years, we’ll not only synthesize it, but we’ll engineer it to specifications. I believe you’ll even see us understand the human brain. Jules Verne, Mark Twain, Galileo, Newton — all the curious from the ages would have wanted to be alive most of all right now. As a civilization, we will have so many gifts, just as you as individuals have so many individual gifts as you sit before me.
How will you use these gifts? And will you take pride in your gifts or pride in your choices?
I got the idea to start Amazon 16 years ago. I came across the fact that Web usage was growing at 2,300 percent per year. I’d never seen or heard of anything that grew that fast, and the idea of building an online bookstore with millions of titles — something that simply couldn’t exist in the physical world — was very exciting to me. I had just turned 30 years old, and I’d been married for a year. I told my wife MacKenzie that I wanted to quit my job and go do this crazy thing that probably wouldn’t work since most startups don’t, and I wasn’t sure what would happen after that. MacKenzie (also a Princeton grad and sitting here in the second row) told me I should go for it. As a young boy, I’d been a garage inventor. I’d invented an automatic gate closer out of cement-filled tires, a solar cooker that didn’t work very well out of an umbrella and tinfoil, baking-pan alarms to entrap my siblings. I’d always wanted to be an inventor, and she wanted me to follow my passion.
I was working at a financial firm in New York City with a bunch of very smart people, and I had a brilliant boss that I much admired. I went to my boss and told him I wanted to start a company selling books on the Internet. He took me on a long walk in Central Park, listened carefully to me, and finally said, “That sounds like a really good idea, but it would be an even better idea for someone who didn’t already have a good job.” That logic made some sense to me, and he convinced me to think about it for 48 hours before making a final decision. Seen in that light, it really was a difficult choice, but ultimately, I decided I had to give it a shot. I didn’t think I’d regret trying and failing. And I suspected I would always be haunted by a decision to not try at all. After much consideration, I took the less safe path to follow my passion, and I’m proud of that choice.
Tomorrow, in a very real sense, your life — the life you author from scratch on your own — begins.
How will you use your gifts? What choices will you make?
Will inertia be your guide, or will you follow your passions?
Will you follow dogma, or will you be original?
Will you choose a life of ease, or a life of service and adventure?
Will you wilt under criticism, or will you follow your convictions?
Will you bluff it out when you’re wrong, or will you apologize?
Will you guard your heart against rejection, or will you act when you fall in love?
Will you play it safe, or will you be a little bit swashbuckling?
When it’s tough, will you give up, or will you be relentless?
Will you be a cynic, or will you be a builder?
Will you be clever at the expense of others, or will you be kind?
I will hazard a prediction. When you are 80 years old, and in a quiet moment of reflection narrating for only yourself the most personal version of your life story, the telling that will be most compact and meaningful will be the series of choices you have made. In the end, we are our choices. Build yourself a great story. Thank you and good luck!
Go Forth
This a pretty nice clip containing footage from Braddock, PA, a town that has definitely seen better days. Check it out. Too bad it is a Levi’s commercial.
Thoughts on the climate bill
It’s a shame that the Democrats are unable to muster the votes to push through a comprehensive clean energy bill. It seems that the Republicans, alongside Democrats from coal country and Southern states can claim victory (or defeat) on this one.
Some of you may have seen Thomas Friedman’s recent column, What 7 Republicans Could Do, and that just about sums it up. The partisanship in our government is paralyzing us.
It is unfortunate. The political reality for someone from Appalachia like Jay Rockefeller (D-WV) is clear. It is politically necessary to oppose a bill that is designed to place added costs on coal, a commodity that has been a source of economic strength in his state for generations. But for all of the Republicans to uniformly oppose the bill is pretty amazing. Many of them were being lobbied by renewable energy firms, utilities and construction companies based in their states, describing the compelling long-term value and job-creating benefits of a clean energy bill. The fact that this did nothing to persuade them to support the measure is very telling I think, and illustrates the remarkable political pressure being exercised in Washington today. That’s my first thought.
Secondly, the shortsightedness of both political parties here is exceptional. They seems to view this only through a domestic prism, as if international considerations do matter. In a global economy, other countries are outpacing us in clean technology rapidly and are implementing policies that price carbon. This is the crucial requirement necessary to create a market mechanism that will spur widespread investment in low carbon technologies.
Some of you may have caught this article on China’s “cap-and-trade” plans yesterday. The Chinese do not need to bicker back and forth over political victories at the expense of important legislation. I guess that is one of sometimes frustrating, but necessary components of our system of government. Nonetheless, while we dither, they move ahead.
After the upcoming elections, the likelihood of revisiting a climate bill is essentially nill. The Democrats will see their numbers diminished and the Republicans will oppose any new measures that hint at pricing carbon emissions or clean technology.
Our government seems unable to implement the policies necessary to ensure economic growth and environmental security. It is a real problem.
