Wednesday Night #1549

Is it conceivable to achieve economic growth, equalization of standards of living in the Third World to that of Canada today, and a world population of ten billion?

If Adam Smith were alive today, he would decry the dominant influence of large-scale corporations that have lobbying power, prevent free market capitalism and free market competition from protecting consumers, and ensure that externalities are imposed.

Economics is like physics – it has nothing to do with reality, but you can work everything out

European sovereign debt crisis
Possibly, the game of Monopoly has been so popular for over three-quarters of a century because it reflects the rules of economics, perhaps as accurately as Paul Samuelson‘s ubiquitous text on the topic (If you read Samuelson, you can be a brilliant economist; it just doesn’t get any better).  Money has no intrinsic value and credit represents two entries on a ledger, but the paper bearing the likeness of unattractive political figures, for some inexplicable reason, is accorded the same reverence  as was, in the days of the gold standard, accorded gold that had been dug up from the ground and deposited in a vault.  The myth of the value (or worthlessness) of currency issued by some countries in relation to others slowly becomes evident as the European Union crisis unfolds as predicted. Greece’s debt (a staggering 165% of GDP) and subsequent political problems have left centre stage. It is Italy’s turn, the world’s seventh-largest economy, whose sheer size defies any international attempt to bail it out.  Explanations and predictions tend to focus more on the political lifespan of elected representatives (Papandreou, Berlusconi), the future of the European Union and  preservation of the myth of the value of the accounting system invented by the ancient Egyptians.  Whether the facilitation of credit be to individuals e.g. the marketing of debit and credit cards by banks, or to nations, in order to permit politicians to prolong their political life by bribing constituents with goodies to be paid for by future generations, debt must ultimately be paid. Neither solution of inflation or taxation is ever accepted with grace by the electorate. Citizens of any country appear to expect their elected representatives to eliminate debt without additional cost to the electorate, while neither the electors nor the elected considered the intricacies of that sleight of hand, when the debt was incurred. Thus, the future has now caught up with the current generation of politicians who are now destined to become sacrificial lambs for the their own political greed as well as that of their political ancestors.
Still, firing the magician after the fact does not appear to be a viable solution and Angela Merkel risks her own political career to once again play the role of temporal savior.

Capitalism, Sustainable development and externalities
Tony Deutsch provoked an animated discussion with his reference to the late Professor Pigou’s work on externalities (unintentional side effects of an activity affecting people other than those directly involved in the activity). Among other things, Arthur Pigou argued that the existence of externalities justified government intervention through legislation or regulation. He also supported taxes to discourage activities that created harmful effects and subsidies for those creating benefits to further encourage those activities – now known as Pigovian taxes and subsidies.
Tony also reminded us that the juxtaposition of capitalism and negative externalities is inaccurate. The worst polluters have been the late USSR Russia and China, centrally run or command economies whose economists would have also had a grasp of negative externalities, and whose economies could be far more easily controlled than those based on the free market. More likely, it is the basic human condition that tends to profit from what is available here and now, without considering the future negative consequences.

The stock market
As for the stock market, it is described as gingerly dancing on the hot coals created by the Euro Zone conflagration.  It was due for a correction although its movement does not appear to be synchronized with the political events or world news.  There was a decline on October 2 followed by a fairly strong recovery.  November 18 marks the end of the current 21-year cycle.  The drama that follows may very well resemble the premiere of a theatrical performance with a brand new musical score totally unconnected with the Greek tragedy and Italian opera that have dominated the boards recently.  Gurus do not explain; they interpret.  One of Wednesday’s Night’s more popular gurus explains that the end of a 40-year cycle in the stock price cycle is traditionally marked by two impressively large bankruptcies;  we are said to have achieved that marker and are now at the beginning of the upward movement of the new cycle. [Update: Bloomberg reports that Goldman Sachs Group Inc. recommends buying the euro after developments in Europe’s sovereign-debt crisis this week. Morgan Stanley said its time to sell the 17-nation currency against the dollar.]

Nuclear Iran
In the wings awaits the mind-blowing spectacle of a Nuclear Iran, totally opposed by the United States and Israel.  Cautious predictions abound, but the near future promises to be spectacular, if, perhaps, not joyous.

Social unrest
The dissatisfaction on the part of the population who must bear the financial burden of the political greed of previous generations of politicians gives rise to concerns over the emergence of more charismatic but less altruistic politicians who lose nothing in offering such alternative options as fascism, socialism, self-serving religion, or other apparent panacea.  Fortunately, we have not reached that stage, but the attraction of blaming the target, and the inequities of the alternatives should continue to remind us of the underlying issue – unrealized expectations and the inability of governments/systems to provide what is expected.  We are denying expectations because we have to, but we don’t know where we are going.  A more equitable distribution of wealth, permitting more people to spend on purchases rather than on investment, might be the answer.  Certainly the ability to acquire material goods thanks to unrealistic credit rather than with realistic cash has been a greater contributor to the problem than to the solution.  If the people who control the system acted less in their own best interest and more in the interest of the masses, the problem would either have been less destructive or not have arisen at all.

Depressing demographics
Although earthquakes, volcanoes, floods and other disasters preoccupy us from time to time, few are prepared to enter the house of horrors in which longevity is increasing in contrast to a decreasing birthrate.  The baby boomers hit maximum spending around the age of fifty, shortly followed by membership in the aged population that they had supported during their productive years.  The logic of the Chinese one-child family is incontrovertible, on paper, but the sociological effects, as yet unknown, will be irreversible for a long period of time.  The more optimistic Wednesday Nighters point out that the demographics of developed countries have held center stage for some time now and the influence of the developing world has yet to be made clear, but may very well counteract or prevent the feared overcrowding of the grey-haired group with a concurrent reduction in the numbers of young men and women supporting them.

Oil
A problem not directly related to debt and the distribution of wealth, is the ultimate decline in the availability of  petroleum and petroleum products.  This appears to have not as yet resulted in the rise in human anxiety but without being itself comestible, is closely related to our ability to deliver food as well as other goods to population centres at an affordable cost.

Does the Liberal Party of Canada have a future?
If  it succeeds in rising from the ashes  it will have pulled off the hat trick of the century. The Liberals have to overcome the alienation of the West – and other regions – and provide a new vision, along with fresh new faces, perhaps most importantly, new ears.
Considerations include the westward movement of the population, the Liberal base in (declining) southern Ontario and the new-found popularity of the N.D.P., along with the fact that the Conservatives’ base is in Alberta – the destination of  growing numbers of easterners.
Meanwhile, it must be understood that both the Conservatives and the NDP are committed to the destruction of the federal Liberal Party. Objective observers and admirers of Bob Rae, it is to be hoped, wrongly, see a prolonged re-enactment of the story of Sisyphus, undoubtedly a Liberal supporter, to the detriment of those who wish to preserve the distinction of Canada from its southern neighbor.

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Prologue

We confess to being somewhat overwhelmed by all the headlines about last week’s G20 Summit – admittedly it was an uphill battle to accomplish anything in the face of the dramatic developments in Greece, increased concerns over Italy, lack of consensus about whether or not to beef up the IMF; as one report says: Although G20 leaders pledged they were “ready to ensure additional resources could be mobilised [for the IMF] in a timely manner”, they failed to outline a precise amount, or how the funds would be disbursed.”

The BBC published a concise table of possible outcomes Eurozone crisis: The possible resolutions on Friday, but our feeling is that even that sensible analysis has long-since been overcome by events. And what really happened with Mark Carney’s new baby, the FSB? We are told that it is to be “an enhanced FSB with more resources and institutional independence” – what exactly does that mean and will it be able to enforce reform?

We look forward to Kimon’s return from Moscow and Paris – in two weeks – for a debriefing on Greece. In the meantime, we attempt to follow the play-by-play of news and opinions.
As we wait for the world-class centipede with which we are living to drop more of its geopolitical shoes, some of which are more than likely Italian (see Berlusconi burlesque for a wry account of some of Signor Silvio’s problems), we might turn briefly to some other topics that have been pushed to the back of the closet.

From the mega to the micro … the Global Microcredit Summit 2011 is taking place in Valladolid, Spain next week (14-17 November). Wednesday Night will be well represented as Katleen Félix is leading a workshop and Sheila Arnopoulos will be attending.

Cleo Paskal, who plans to be with us, has recently written a fascinating two-part series for HuffPost on India. Part I analyses the Roots of Corruption in India ,while Part II Weeding Out Corruption In India describes some of what is being done today. The BBC Delhi correspondent offers a less optimistic view in Will India’s anti-corruption campaign implode?.

Speaking of corruption, we are astonished by the lack of outcry about Pakistan’s findings regarding Benazir Bhutto’s murderers. It seems quite obvious that the seven accused are low-level scapegoats. The Financial Times reminds us that A report by a UN commission of inquiry published last year said any credible investigation should not rule out the possibility that members of Pakistan’s military and security establishment were involved in the killing … It criticised Pakistani authorities, saying they had “severely hampered” the investigation.

Following on last week’s discussion of John and Holly Jonas’ trip to Iran, Reuters reports that the UN International Atomic Energy Agency is expected this week to put forth evidence that Iran might be secretly developing its capability to build nuclear weapons, including computer models of nuclear warheads, yet stops short of explicitly saying that the country is doing so.

The Keystone Pipeline is again in the news with demonstrations at the White House on Sunday and the announcement that Keystone pipeline decision faces special U.S. review in the wake of criticism from Democrat lawmakers that included media reports that a company that performed an environmental review on behalf of the State Department had listed pipeline developer TransCanada as a “major client.”

We have been alerted that Environment Minister Peter Kent, will deliver a speech in advance of COP 17 in Toronto on Tuesday. Given the latest move to de-fund the RCEN (Canadian Environment Network), we cannot imagine what positive note he could sound unless it were to say Canada won’t be going to the Climate Change Conference in Durban, thus sparing us the humiliation of the recent appearances of the Canadian delegation at other COPs. [Update: we were right – no positive note; quite the contrary Canada’s climate stance expected to spark controversy]

As Mr. Harper has reassured us that Canada will not be helping to bail out the European economies, it is appropriate to see what he plans to do with our own. The Crime Bill C-10 is not a promising start. Much has been written and said about it and it appears that even the National Post disapproves, but we would refer you to two very different pieces. The first, by Brian Topp: Harper’s crime bill is government by angry old uncle zeroes in on a specific amendment that would eliminate the principle that prison guards must use the “least restrictive measures” required to control inmates. The second is Liam McHugh-Russell’s articulate and moving plea On some level you must know how wrong this is  to Minister of Justice Nicholson to reconsider the underlying philosophy that shapes Bill C-10. Please read it, absorb it and reflect on it.

And now for the really important news: “The Adventures of Tintin: Secret of the Unicorn” starring Jamie Bell as Tintin, will make its North American début in Quebec on December 9 – 12 days before it hits the screens in the rest of Canada.

We don’t often end on an inspirational note, but this is irresistible: Bunker Roy: Learning from a barefoot movement (TED Talk)
In Rajasthan, India, an extraordinary school teaches rural women and men – many of them illiterate – to become solar engineers, artisans, dentists and doctors in their own villages. It’s called the Barefoot College, and its founder, Bunker Roy, explains how it works.