Tuesday, June 1, 2010


The global middle class expansion.

More on the Jamaican situation:
Anger over Prime Minister Bruce Golding's handling of police operations last week against a suspected drug lord that left 73 people dead pushed Jamaica's Parliament to introduce a no-confidence measure Tuesday that could have cost the beleaguered leader his job.

Several Tivoli Gardens residents…spoke Monday of Coke's good works, including a concert held every September called Champion in Action to raise money to sponsor school tuition, uniforms and supplies for resident children. A second annual event, called Jamboree and held in December, raises money for Christmas gifts for poor children and Christmas dinners for poor elderly people. Residents said crime is kept low by Coke's enforcers.

"We get free medication. We get everything assisted, anything we want," said Catherine Quesd, 24. "Old people who are hungry can go to him, they can ask him for money, money to buy them food, medication, anything at all you can ask him for.

"I could walk in the streets naked and nobody come trouble me. I feel like my community is the peacefullest community in Jamaica. And who do that? Mr. Golding don't do that," Quesd said.

Reassessing the 1970s:
Above all else, the 1970s marked the moment when world leaders and ordinary citizens alike woke up with a jolt to their common status as inhabitants of an interconnected world -- and understood, in the process, that this didn't necessarily make the planet a more predictable place. "This is the decade when things start to unravel," says Harvard historian Charles Maier, one of the editors of the new book The Shock of the Global: The 1970s in Perspective. In his essay in the book, historian Daniel Sargent offers a citation from 1975: "Old international patterns are crumbling ... The world has become interdependent in economics, in communications, and in human aspirations." The writer was Henry Kissinger.

Rethinking drone attacks.

On Steve Jobs and the American economy:
The rise of Apple illustrates a number of social trends. Consider that Apple, a company that serves relatively affluent consumers and a handful of electronics-obsessed imbeciles (that's me), is now worth more than Walmart, a company that serves a far larger number of working- and middle-class Americans. Apple's success amidst the downturn, fueled by robust sales of the iPhone and more recently the iPad, is an almost perfect illustration of Plutonomics at work. As Ajay Kapur first observed in 2005, in a report written for Citigroup, the United States has become a Plutonomy, in which the richest fifth of the population is responsible for as much as three-fifths of all spending. And if anything, the painful economic transition we're living through now will only reinforce this tendency. Middle-class households are carrying an extraordinarily heavy debt load. One study, citing 2007 data from the Federal Reserve, found that while households in the top tenth had a manageable debt-to-disposable-income ratio of 116 percent, the next 40 percent of households had a debt-to-disposable-income ratio of 205 percent. Basically, it is that top tenth that is buying the bulk of Apple's products. As long as this slice of the population fares well, there's reason to believe that Apple really will live up to the outsized expectations of investors.

On the BP spill and broader indications for regulation:
If ever there were a wake-up call for Western society to rethink its dependence on ever-accelerating technological innovation for ever-expanding fuel consumption, surely the BP oil spill should be it. Even China, with its “boom now, deal with the environment later” strategy should be taking a hard look at the Gulf of Mexico.

Economics teaches us that when there is huge uncertainty about catastrophic risks, it is dangerous to rely too much on the price mechanism to get incentives right. Unfortunately, economists know much less about how to adapt regulation over time to complex systems with constantly evolving risks, much less how to design regulatory resilient institutions. Until these problems are better understood, we may be doomed to a world of regulation that perpetually overshoots or undershoots its goals.

What’s the right amount to pay bankers?:
Our results led us to conclude that financial rewards are often a two-edged sword. They motivate people to work well, but when these financial rewards get very large they can be- come counterproductive and actually hurt performance. If our tests mimic the real world, then higher bonuses may not only cost employers more, but also hinder executives in working to the best of their abilities.

When I presented these results to a group of banking executives, they assured me that their own work and that of their employees would not follow the pattern we found in our experiments. (I suggested that with a suitable research budget and their participation, we could examine their assertion, but they were not interested.) I strongly suspect that they were too quick to discount our results. I’d be willing to bet that for the vast majority of bankers, if not for all of them, a multimillion-dollar compensation package could easily be counterproductive because of the stress involved in attaining it, because of the fear of not getting it, and because it takes their minds off the job and focuses their attention on the large bonus.

An interview with the Financial Times by Li Daokui, who serves on the Chinese central bank’s monetary policy committee, included an uncharacteristically candid comments on the state of China’s housing market and by implication, the direction of Chinese interest rate movements. From the Financial Times:

“The housing market problem in China is actually much, much more fundamental, much bigger than the housing market problem in the US and UK before your financial crisis,” he said in an interview. “It is more than [just] a bubble problem.”

On why Social Darwinism fails:
Although such moral objections are clearly relevant, the most devastating counterargument to the Cachet of the Cutthroat is that it is simply wrong. Both the social and natural sciences have conclusively demonstrated that ostensibly "softer and fuzzier" qualities in people and the communities they engender–compassion, goodwill, and above all empathy–are integral to sustainable success, particularly in complex organizations, but even in nature at its rawest and bloodiest. By fostering social cohesion and solidarity against adversity, such attributes paradoxically make us more, not less, competitive as individuals and as a society. Over time, the strongest and most productive individuals, communities, and nations all tend to be especially rich in these supposedly soft-hearted characteristics, while the most cutthroat societies collapse in a state of corruption and acrimony–their "winners" ultimately hoisted on their own petards. The latter, if anything, defines the vicious cycles of corrupt banana republics, their leaders utilizing bribery, coups, and even assassinations in the cutthroat march to power.

This is not to say that all competition is bad, but rather that not all flavors of "competitiveness" are equal. A competitive atmosphere can be constructive and productive, driving individual performers to improve and collaborate, to learn and boost creativity, and ultimately to engender innovation and institutional betterment. The extraordinary discoveries of quantum theory in the early twentieth century were a product of such cooperative competition, or "co-opetition." A handful of brilliant minds–Planck, Schrödinger, Einstein, de Broglie, Pauli, Bohr, and Born–vied to outdo one another. Yet this was far from cutthroat competition: From their scattered bases in the universities of Austria, Germany, France, Britain, and Denmark, they periodically met and mutually stimulated one another to devise a theory that is today at the heart of countless high-tech industries–a gift to the world worth trillions of dollars in created wealth.
An FT column posits that ideas like these are becoming a trend.

Sometimes the tangents are fascinating—here’s an idea within a larger post about defaults:
Banks may find themselves hoist on their own petard, and the larger implications are even more significant. A calculating, contract-driven mindset eats away at the foundations of commerce. When I was young, it was possible to deal with most clients on a handshake (I’d still write the arrangements up, but it was mainly a device for confirming that we had heard each other correctly). Now pretty much every one I know has very carefully crafted agreements precisely because if things stray outside the bounds initially contemplated, it is much less likely that the party on the other side of the table will try to reach a middle of the ground resolution. It is now the norm that parties to a contract will try to exploit ambiguous or unforeseen situations to their advantage.

On African aid:
Using an empty wine bottle and a plastic box of sand, José Antonio is busy trying to explain the principles of solid state physics to a class of rowdy 16-year-olds.

But with 68 pupils squeezed into a classroom designed for half as many, he is struggling. “It is not easy. You need to explain things individually, but with so many it is impossible,” he says, shouting to be heard above the din.

The teacher’s dilemma would be familiar to his colleagues in Mozambique’s education system. Helped by foreign aid that supplies almost half of the country’s national budget, one of Africa’s poorest and most aid-dependent countries has succeeded in drawing more children into education, with secondary school attendance up more than fivefold since 1998.

An interesting trend, bad causation: an AdAge article notices that teenagers are beginning to get fewer driver’s licenses than before, and posits that it’s due to increased internet use among the youth. But I think this is wrong: what about gas prices, the recession, and all these other secular trends?

On California legalizing pot:
The Los Angeles Times/USC poll found that voters back the marijuana legalization measure on the November ballot, 49% to 41%, with 10% uncertain about it. But support for the initiative is unstable, with one-third of the supporters saying they favor it only "somewhat."

(part of) Health care reform working in Massachusetts.

Richard Florida has some more notes on the innovation offshoring trend.

Sam’s Club is giving out discounts based on what you’ve already bought.

A great post on how cap-and-trade will effect demand for nuclear power in Great Britain.

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