Stalled: Brazilian economy is on the verge of vigorous growth
- disappointing numbers: 0.2% instead of 0.4% second term growth, 0.6% instead of 1.2% expansion due to tax cut.
- payroll taxes cut in electricity tariffs does not work well: government’s high-handed approach and hostile attitude towards the private sector.
- financial services, hit by higher defaults, fewer loans, tighter profit margins.
- good news: household consumption still growing.
Life and death struggle: Chinese anti-corruption campaigns again
- keep strict controls on microblogs in cases of those “smear” on the country, while often yield to public taste for blood in cases of local corruptions.
Free exchange: model effect of climate change on economic activity
- restrictions on movement increase welfare costs. beneficial to northern section of the globe due to increase in agricultural growth and trades.
- Prof Kahn (UCLA): productivity of rich places often has little to do with unique geographical advantages.
- carbon taxes raise the relative income of innovative cities that rely more on ideas.
- worries about market failures: areas that lose values may become magnets for poor families, may set the stage for humanitarian disaster.
Survival of the biggest: digital giants become too powerful for consumers’ good
- get consumers hooked on their own platforms;
- habit of gobbling up promising firms before they become a threat.
Not what it used to be: declining value of American universities
- in 1962 one cent of every dollar spent went on higher education and now the figure has tripled, but additional value has not been created to match this extra spending;
- graduates earned no more in 2007 than they did in 1979;
- young graduates facing decline in earnings and a lot more debt.
The Obama doctrine: to avoid costly entanglement in his second term
- “come home and rebuild America”: fix failing schools, potholed roads, snail-like internet networks, or a broken immigrant system;
- present but not deeply involved;
- compared with the 1990s America looks far lonelier: EU cannot offer significant help, Russia intensely suspicious, and China is a distilled essence of self-interest.
The dust settles: hints of reform from China’s new leaders
- from “demographic dividend” to “reform dividend” to boost development;
- state-owned monopolies, the biggest one? Li did not say whether he agreed but did speak the need for reform of household-registration system and land management;
- talked for years, but progress has been sluggish. how many will support him?
- far less swiftly in foreign affairs, not sure who will replace Dai Bingguo.
Alone at the top: Putin initiated high-profile battles against corruption
- anti-corruption purge would make Putin weaker, not stronger;
- after held in power in a decade, the “typical syndrome of an ageing general secretary;”
- now less faith in counsel and more certainty in his own judgment, “think he understands the situation, but in fact it can be quite incomprehensible for him.”
Getting a grip: Gary Gorton’s new book on financial crisis
- systemic financial crises are the result of a broad loss of confidence in bank debt;
- should apply Livingston doctrine to Lehman Brothers in 2008, where the subsequent panics were so devastating;
- it might be true that the Dodd-Frank act does not deal adequately with the liquidity cause of crises, but his alternatives seem impractical.
1. If you see something, say something
- Jefferey Immelt (former CEO of GE): “What we lack in the U.S. today is the confidence that is generated by solving on big, hard problem — together.”
- China, getting 90 percent of the potential benefits from its political system; Americans are getting only 50 percent.
- Narthan Gardels (editor of NPQ): like China U.S. should also tighten up in order to self correct. “Democracy is a consumer society driven by the ethos of immediate gratification is not self-correcting either without a dose of the kind of long-term meritocratic institutions that have served China so well.”
2. Ignoring our problems
- Kennan’s telegram: American people knew they had to be vigilant, creative and united, in order to avoid losing the competition with their great rival.
- Charles Vest (former president of MIT): “The United States cannot prosper based on low wages, geographic isolation, or military might. We can prosper only based on brainpower: properly prepared and properly applied brainpower.
- “no Hitler or Pearl Harbor to shock the nation into action, … no Berlin wall to symbolize the threat to America and the world, no Sputnik circling the Earth proclaiming with every cricket-like chirp of its orbiting signal that we are falling behind in a crucial arena of geopolitical competition.”
3. Ignoring our history
- “You win in the turns.”
- five pillars: public education, modernizing infrastructure, immigration, research and development, necessary regulation.
- David Kennedy (Stanford historian): “(regulations) were not about creating more state control and less private ownership. They were about creating the right synergy between the two.” (such as bankruptcy law) set the stage for more risk-taking, thus more incentive to innovate.
- big government?? – Suzanne Mettler (Cornell prof. of government) “the threat to democracy today is not the size of government but rather the hidden form that so much of its growth has taken” – people benefit from it but didn’t feel.
- Jefferey Immelt: “we worship false idols in terms of the power of the free market. The U.S. government has been the catalyst for change for generations.”
Unfortunately, the political debate in America has strayed absurdly from the virtues of our public-private formula. Liberals blame all of America’s problems on Wall Street and big business while advocating a more equal distribution of an ever shrinking economic pie. Conservatives assert that the key to our economic future is simple: close our eyes, click our heels three times, and say “tax cuts,” and the pie will miraculously grow.
4. Up in the air
- Apple – what has vexed Obama is that Apple and many of its high-tech peers are not nearly avid in creating American jobs – “It isn’t just that workers are cheaper abroad.”
- Americans work hard, but there are also structural advantages; merger of globalization and IT revolution makes us either better off or worse off?
- Flat world 1.0 & 2.0, not outsourcing anymore, just source everywhere.
- after recession it takes longer for the jobs to come back to prerecession levels – the nature of work changed radically from one recession to the next.
- “creative creators” “routine creators” “creative servers” “routine servers”
5. Help wanted
- America needs to keep high-skilled manufacturing at home.
- innovation is continuous nowadays not only take place in big-thinking R&D.
- “crowdsourcing” and distribute innovation instead of outsourcing to save money.
- hyper-connected world: innovation takes place from bottom-up instead of top-down.
6. Homework * 2 = the American dream
- The quality of education cannot exceed the quality of its teachers.
- Williams rewarded high-school teachers of its students.
- score difference is associated with parental involvement in the form of reading with their child, talking about what they have done during the day, instead of playing withe their children.
7. Average is over
For decades there has been a struggle between American economy’s desire to increase productivity and the desire to maintain blue-collar and white-collar jobs. We watched as more and more machines, better and better software, and cheaper and cheaper foreign workers replaced American manual laborers and service workers. As noted earlier, we compensated for this loss of blue-collar and white-collar jobs by inflating our housing and retail markets and by expanding local and state governments. But we cannot do that anymore. The only way we can compensate for all those jobs is by inventing new ones or taking old ones and teaching people to do them in new ways that add more value. But that requires more start-ups and better education and more investment in research and development to push out boundaries of science and technology. Today, the Chinese can generate growth just by educating their people enough to do their jobs now done in rich countries. For us to grow, we have to educate people to do jobs that don’t yet exist, which means we have to invent them and train people to do them and at the same time. That is harder, and it is why everyone needs to aspire to be a creative creator or creative server.
8. “This is our due”
- Reagan: first term deficits balllooned, but took back ore than 40 percent during the second term; Bush: put presidency in jeopardy to keep the deficit under control; Clinton: make deficit reduction one of his top priorities, eventually generate budget surplus in the end.
- Bush: tax cuts; easily to finance growing budget deficits by borrowing from other countries.
What Milton Friedman had failed to anticipate was that there would never be a global free market in currencies – that countries like Japan and China would manipulate their currencies to support their export growth models, and their export growth models turned out to support our consumption growth model.
- when funding slows or stops, three unhappy options: raise interest rates triggering economic downturn; printing money triggering inflation; spending cuts and tax increases.