Tuesday, August 30, 2011

Die Luft Der Verschiedenheit Weht

On August 18, 2011, President Obama issued an executive order “Establishing a Coordinated Government-Wide Initiative to Promote Diversity and Inclusion in the Federal Workforce.”  The order will augment the many numerous existing federal programs on diversity and inclusion.

A committee consisting of the director of the Office of Personnel Management, deputy director of the Office of Management and Budget, the president’s Management Council, and the chair of the Equal Employment Opportunity Commission shall establish a strategic plan and oversee its implementation.

Under the order, federal agencies retain the right to also establish an independent Diversity and Inclusion Office.  It should be remembered that the Dodd-Frank financial regulation law authorizes the creation of 28 Diversity and Inclusion offices in federal financial regulatory agencies and the financial institutions they regulate.

[The title of this post is a play on Stanford’s motto, “Die Luft Der Freiheit Weht,” “The Wind of Freedom Blows,” replacing “Freedom” with Diversity.”]

Friday, August 26, 2011

Confucius Analect of the Week, August 26, 2011

"No one calls Wei-sheng Kuo upright!  When someone asked for vinegar he sought it from a neighbor and gave it to him [the someone]."  (James R. Ware, Chapter 5, Verse 24)

Look on the bright side.  Wei-sheng Kuo ASKED a neighbor.  Today politicians TAKE from a neighbor to give to another (to buy votes).  Who can call tax-and-transfer politicians upright?

P.S.  Confucius was on vacation last week, trying to catch a glimpse of the goings-on in Martha's Vineyard.

Tuesday, August 23, 2011

Chinese Economics With Midwest Characteristics

Brookings Institution scholar Cheng Li has written an historical account of Chinese think tanks.  In recent years, China has turned its attention increasingly in the direction of domestic economic policy and international economic issues.

A recently established think tank is the China Center for Economic Research (CEER) at Peking University, China’s premier university.  As of 2005 (Cheng Li’s data), CEER had 24 scholars, all holding Ph.D. degrees from foreign universities.  (See Table 5)

One held a degree from Stanford.  None held a degree from the East Coast Ivies of Harvard, Yale, Princeton, and M.I.T.  Two held degrees from Chicago.  CEER was to be modeled in line with the traditional Chicago school.

Half held degrees from Midwestern universities, the heartland of red states.  (The same was true for the foreign trained economists in Korea and Taiwan that spearheaded reform in those lands.)  Midwestern doctoral programs tend to deal more with real world issues than with the finer points of mathematical models that have little real-world applicability.

China’s economic policy is generally regarded as pragmatic.  Its foreign trained economists have been educated to see things in the same way.

Could we swap some of their think tank economists for ours?

Friday, August 12, 2011

Confucius Analect of the Week, August 12, 2011

Somebody remarked.  “Jan Yung may be Man-at-his best but he lacks eloquence.”

“Of what use is eloquence?  He who engages in fluency of words to control men often finds himself hated by them.  I don’t know whether Jan Yung is Man-at-his-best, but of what good would be eloquence to him?”  (James R. Ware, Chapter V, Verse 5)

Confucius describes the class of smooth (slick, sleazy) political talkers, who conflate eloquence with good judgement and competence in government.

Friday, August 5, 2011

Confucius Analect of the Day, August 5, 2011

"Continuous readaptation to suit the whims of others undermines Excellence."  (James R. Ware, Chapter XVII, Verse 11)

Small wonder that politicians rarely achieve Excellence!

Friday, July 29, 2011

Confucius Analect of the Day, July 29, 2011

“If a man does not give thought to problems which are still distant, he will be worried by them when they come nearer.”  (James R. Ware, Chapter XV, Verse12)

Congress and the White House (except President Clinton) disregarding the consequences of spending, deficits, and debt.

Tuesday, July 26, 2011

Would China Please Crash Already!

For the past several years, every day brings new warnings of the coming China crash.  The pessimists include business and finance analysts, journalists, expat professors and visiting economic experts, world economic institutions, and Western China specialists.  The pessimists steadily grow in numbers.  Only a handful dare deny the coming crash, exposing themselves to exclusion and ridicule.

The pessimists’ reasons for the coming crash include property bubble, inflation, overvalued currency, dependence on exports, widening rich-poor gap, urban-rural gap, rote learning in schools, counterfeiting, ill-defined rule of law and property rights, faulty social policies, one-party dictatorship, religious repression, and others.

China’s refusal to crash is harming the self-esteem of the China pessimists.  This must stop! 

Monday, July 25, 2011

Thomas Jefferson Opposed Public Debt

"I wish it were possible to obtain a single amendment to our Constitution.  I would be willing to depend on that alone for the reduction of the administration of our government to the general principles of the constitution:  I mean an additional article taking from the Federal Government the power of borrowing."

Friday, July 22, 2011

Confucius Analect of the Week, July 22, 2011

"Great Man is dignified but not proud,  Petty Man is proud but not dignified."  (James R. Ware, Chapter XIII, Verse 26)

Fill in the names of your proud, but not dignified, local, state, and federal politicians.

Wednesday, July 20, 2011

Spending Limit–Balanced Budget Amendment

A spending limit-balanced budget amendment is not an impossible pipe dream.

The Basic Law (mini-constitution) of the Hong Kong Special Administrative Region (HKSAR) and that of Macao provides for a spending limit balanced budget.  The text appears in Chapter V, Article 107.

“The Hong Kong Special Administrative Region shall follow the principle of keeping expenditure within the limits of revenues in drawing up its budget, and strive to achieve a fiscal balance, avoid deficits, and keep the budget commensurate with the growth rate of its gross domestic product.”

Article 108 requires that the HKSAR shall enact tax legislation “taking the low tax policy previously pursued in Hong Kong as reference,...” 

The proprietor of Thoughtful Ideas wrote several articles on the Spending Limit–Balanced Budget Amendment three decades ago.  These include:

Chapter 4,”Tax and Spending Limits,” The United States in the 1980s.  1980

In this essay, TI proposed an amendment to balance the federal budget and limit federal spending similar in spirit to the current House Republican "cut, cap, and balance" plan.

“A Compelling Case for a Constitutional Amendment to Balance the Budget and Limit Taxes 1982

Including a flat tax in the amendment would greatly enhance the proposal.  Call it a spending limit-flat tax-balanced budget amendment.

Tuesday, July 19, 2011

Let’s Raise the Debt Limit...

So we can dig ourselves deeper in debt
So we can continue to fight Hillary’s war in Libya
So we can stay in Iraq and Afghanistan
So we can borrow more money from China (and deter them from selling U.S. debt)

With a higher debt limit we can maintain China’s confidence in U.S. debt while...

We complain about China’s cyberspace attacks on America
We complain about China’s military buildup
We complain about China’s record on human rights
We complain about Chinese counterfeiting of U.S. products
We complain about China’s overvalued currency and other unfair practices
We complain about China having leverage over U.S. policy because it holds so much U.S. debt

Can you understand the logic of this arrangement?

Friday, July 15, 2011

Confucius Analect of the Week, July 15, 2011

“This is certainly the limit!  I have yet to meet a man who, on observing his own faults, blamed himself!”  (James R. Ware, Chapter V, Verse 27)

Do you suppose Confucius foresaw American and European politicians, their economic advisers, and government-appointed regulators trying to escape blame for their roles in the financial crisis of 2007-09, the Great Recession, and risks of sovereign default?

Monday, July 11, 2011

New Young Thinking Ousts Old Old Thinking

On July 9, 2011, The Washington Post published an article by Laura Keeley entitled “Boston venture capitalists don’t want to let another big one get away.”

It’s about Boston VCs having turned down Mark Zuckerberg’s request for funds.  Off he went to Palo Alto, got funding, and built Facebook, estimated to be worth about $80 billion.  Boston VCs accounted for 11% of U.S. venture capital investments in 2010, down from 15% in 2003.  In contrast, Silicon Valley’s share has risen from 34% to 39% over the same period.

Why did they miss Facebook?  It’s about age, a generational issue.  The average angel investor in Boston is about 55 years old.  In California the average is 32.  Said MIT lecturer Howard Anderson, “To understand things like Facebook, you have to be 19 to 24 years old.  If you’re 56, you don’t quite get it.”

This is how traditional print publishing and media missed the digital (and self-publishing) revolution.  It’s why traditional universities will gradually lose out to much, much cheaper digital learning.  It’s how young Obama used the internet to defeat Hillary Clinton’s old-time political strategy.    And on and on and on.

Saturday, July 9, 2011

Confucius Analect of the Week, July 9, 2011

The Master wanted Ch’i-tiao K’ai to take office, but he replied, “I do not yet command sufficient confidence for that.”  And the Master was pleased.  (James R. Ware, Chapter V, Verse 6)

Wouldn’t it be nice to see a bit more humility among our political candidates?  Perhaps some experience other than a couple of uneventful years in political office and mouthing political shibboleths?

Tuesday, July 5, 2011

Can Bernanke Learn from Japan and Greenspan?

On May 27, 2000, a Member of the Policy Board, Bank of Japan, Eiko Shinotsuka, spoke on the subject “Japan’s Economy and the Role of the Bank of Japan.”  His main focus was the lost decade of the 1990s.

In his view, two factors were critical: (1) the bursting of the land and stock market bubbles, and (2) a structural problem.

Euphoria and loss of self-control, coupled with the Bank of Japan providing easy money for a long time, resulted in unfounded bullish expectations.  Capital invested in assets at the peak was devalued when the bubble burst (luxury resort hotels on remote islands).  The resulting fall in asset prices impaired the asset quality of both borrowers and lenders.

The structural problem was a decline in the average productivity of capital.  Wage growth exceeded labor productivity growth during the bubble, squeezing profits.  The structural problem exacerbated the impact of the bursting of the bubble.

Going forward, his recommendation was that the Bank of Japan needs to pay attention to rising asset prices, to be prepared to conduct pre-emptive monetary policy to prevent another bubble, and increase its awareness of this risk scenario.  Easy money for too long is playing with fire.

Will Bernanke learn from Japan and Greenspan?

Friday, July 1, 2011

Confucius Analect of the Week, July 1, 2011

“Extravagance leads to disobedience; parsimony leads to miserliness.  Of the two I prefer miserliness.”  (James R. Ware, Chapter VII, Verse 36)

Do you suppose Confucius was trying to warn us about the  European and American debt crises?  

Thursday, June 30, 2011

Training American Diplomats for Service in the Middle East State Department Bureau and Countries in the Region

Many Americans who join the diplomatic service do so out of a sense of doing good for the world, eliminating poverty and disease, and promoting human rights and democracy.

The Middle East is the perfect place in which to try to accomplish these goals.  But dreams must take reality into account.  Otherwise, failure and even making things worse are the likely outcome.

Every diplomat or desk officer with responsibility for the Middle East should be required to see Lawrence of Arabia and Khartoum every day for two weeks, followed by in-depth study of Shia-Sunni relations.  The last requirement is to spend a week in Baghdad changing coffee shops several times a day to get first-hand knowledge of frequent bombings.

Only then is reality likely to inform U.S. Mideast foreign policy.

Wednesday, June 29, 2011

Foreguess, Not Forecast

The Federal Reserve Board press release following the meeting of June 21-22, 2011, stated  “Information received since the Federal Open Market Committee met in April indicates that the economic recovery is continuing at a moderate pace, though somewhat more slowly than the Committee had expected.  Also, recent labor market indicators have been weaker than anticipated.”

And yet, the FOMC proceeded to project economic growth, unemployment, and other indicators through the fourth quarter 2013.  Huh?  If the Fed cannot forecast one quarter with any degree of accuracy, how they correctly forecast the next ten quarters?

Going further, how can any budget agreement accurately forecast ten years of budget savings?  Ditto for the Congressional Budget Office?

The answer is that they cannot.

The projections of the Fed, CBO, OMB, and other entities amount to foreguesses [conjecture], not forecasts [predicting, estimating].

Barry Ritholtz is more blunt.  His response to Ben Bernanke merits reading.

Monday, June 27, 2011

We the People

“We the people” are among the three most profound words written in any language.  Only now, thanks to the Internet, are they becoming reality.

Formerly a select group of elected, appointed, or self-anointed leaders governed human affairs.  The Internet, in its numerous and ever-growing modes, has now empowered hundreds of millions of people to have their say, even to the point of overthrowing corrupt, dictatorial regimes.

The Internet makes available audio, video, photos, skype, twitter, facebook, linked-in, blogs, iphone applications, email, ebooks, e-education, scribd, and  others to be developed.

        (Graphic:  Rosa Golijan, Technolog on MSNBC)

Government of, for, and by the politicians, lobbyists, bureaucrats, advisers, etc., will give way to government of, for, and by the people--despite the efforts of the ruling classes to hang on to their power and influence

Friday, June 24, 2011

Confucius Analect of the Week, June 24, 2011

Pu Shang said, "Remain sincere in purpose while studying widely, continuing to think while posing frank and open questions.  Therein lies Manhood-at-its-best."  (James R. Ware, Chapter XIX, Verse 6)

It's unlikely that Congress will place a statue of Confucius in the Capitol Rotunda.

Wednesday, June 22, 2011

Winning Design for $200 Banknote

Both Euros and Swiss francs are issued in denominations of 200.  To compete with Europe and enable consumers to keep up with inflation, the Federal Reserve Board will soon have to issue $200 banknotes.

The issue of any new banknote requires serious consideration of a presidential portrait on the obverse side (front) and iconic American political scene on the reverse (back).  My choice for the front is Bill Clinton.  Why?  The Clinton administration was the only presidency in the past half-century in which budget surpluses, not deficits, were the fiscal rule.  Had the Bush administration stayed on the Clinton fiscal track, the U.S. would have been paying down its public debt, not increasing it by trillions of dollars.

My choice for the back is the Boston Tea Party.  It was an important event in the American colonies signifying opposition to Britain’s efforts to tax and regulate the American colonists.  Its reincarnation in the modern Tea Party demonstrates that the founding ideals are still alive in the American body politic.

The issue of this design will serve as a daily reminder of the benefits and virtues of limited, responsible government.

(HT:  Ellen Santiago)

Monday, June 20, 2011

Why Does Colonel Qaddafi Keep Fighting?

A better question is why Hillary Clinton and other state and defense department personnel think he will quit and leave Libya.

After all, Libya is a paragon of multiculturalism and diversity, the model of statecraft the U.S. is pursuing in Iraq, Afghanistan, and elsewhere around the globe based on doctrines taught in American universities.

Too bad that Libya is a tribal society and that those supporting Qaddafi have cause to fear for their lives and welfare should rivals in Benghazi and elsewhere come to power.  Think in terms of Shia versus Sunni in Bahrain, Saudi Arabia, Iraq, Yemen, and Iran.  Qaddafi and his family are not alone in clinging to power.  It’s also his own tribe and southern Saharan tribes from Libya’s old southern desert province of Fazzan and others that have tied their masts to his.

At least, so far, Hillary has had the good sense not to take on Syria’s Assad in the quest to build a multicultural democracy in that nation.

Friday, June 17, 2011

Confucius Analect of the Week, June 17, 2011

Chung Yu asked how to serve a prince.  “Don’t deceive him!  Resist him rather.”  (James R. Ware, Chapter IV, Verse 22)

Wouldn’t it be nice if advisers to the president, Members of Congress, governors, mayors, and regulators told the unvarnished truth instead of  playing the loyalty game and nodding yes to their bosses, going along to get along?

Monday, June 13, 2011

Forecasting China’s Decline

It has become fashionable in the economic blogosphere to predict hard times ahead for China.  Naysayers point to thousands of vacant apartments, bad loans on the banks’ books, rising inflation, an undervalued currency, and other negative indicators.

Using standard economic models, analysts insist that China’s economy will overheat, that it cannot continue to grow at 9-10%.  Nouriel Roubini of financial crisis fame is the latest to chime in, projecting a hard landing in 2013.  Three decades of 9-10% growth must come to a crashing halt.

Thoughtful Ideas remains bullish on China.  The principal reason is China’s investment in high-tech education, in mathematics, science, and engineering.

China’s decline will set in when it begins to emulate the U.S. in higher education–when student enrollment at home and abroad stagnates in science and engineering and grows in law, psychology, education, self-esteem, counseling, and diversity.  At that point, value added will slow and value subtraction will rise.  Meanwhile, investment in high value-added skills and hard work continue to propel growth in China.

Friday, June 10, 2011

Confucius Analect of the Week, June 10, 2011

Sorry.  No analect this week.  Confucius is distraught that someone ordered the removal of his statue from Tiananmen Square in Beijing.

All the more so since over 300 Institutes of Chinese language and culture have been established in his name around the world.

Wednesday, June 8, 2011

U.S. Troop Strength in Iraq and Afghanistan

President Obama was inaugurated in January 2009.  At that time U.S. troops numbered 142,000 in Iraq and 23,000 in Afghanistan.  At the end of May 2011, U.S. troops totaled 45,000 in Iraq and, at the end of April 2011, stood at 100,000 in Afghanistan.

Obama withdrew 97,000 in Iraq but added 77,000 in Afghanistan for a net reduction of 20,000.  Put another way, four-fifths of those removed from Iraq were sent to Afghanistan.  (It should be noted that phased U.S. withdrawal from Iraq was agreed during the Bush administration.)

President Obama recently stated that he would order a significant withdrawal from Afghanistan in July 2011.  Barring a change in the U.S.-Iraq accord, all U.S. troops are scheduled to leave Iraq by the end of 2011.

A deficit reduction agreement with Republicans will be easier to reach if overseas military expenditures decline in keeping with projected draw downs of U.S. forces in both countries.

Tuesday, June 7, 2011

It Was the Best of Times, It Was the Worst of Times

The best of times in the Middle East:

Peaceful, stable democracy in Iraq
Democracy in Egypt respecting women and Christian Copts
Democracy in Tunisia
Democracy in Libya
Reforming Syria
Orderly transition to democracy in Yemen
Palestinian state recognizing Israel as a Jewish state
Harmony in Bahrain

The worst of times in the Middle East:

Eruption of Sunni-Shia-Kurdish separatism following U.S. withdrawal
Muslim Brotherhood takeover in Egypt imposing Sharia Law
Uncertain future in Tunisia
Muslim extremist takeover of Libya
Syrian regime slaughter of thousands of Syrians
Al-Quade takeover of Yemen
Another intifada
Renewed Shia uprising in Bahrain

Place your odds!

Saturday, June 4, 2011

Confucius Analect of the Week, June 4, 2011

“Great Man’s concern is that he may die without a good name.”  (James R. Ware, Chapter XV, Verse 20)

I guess this leaves out most politicians, political spinmeisters, blowhards, purveyors of falsehoods, misspeakers, and politically-biased reporters claiming objectivity.

Friday, June 3, 2011

A Fresh Proposal for Peace in the Middle East

The Muslim Brotherhood, by itself or in alliance with other Muslim parties, is projected to win a governing majority in Egypt’s September parliamentary elections.  The new parliament will move quickly to establish Sharia law.  This bodes ill for Egypt’s estimated 8-12 million Christian Copts, who are suffering increased attacks at the hands of emboldened Muslims.

What’s this got to do with the Israeli-Arab problem?

I propose a people-for-people swap.  There are an estimated 1.6-2.3 million Arabs resident in the West Bank and 1.7 million in Gaza.  These 3.3-4.0 million Palestinian Arabs would be swapped for 4 million or more Egyptian Christian Copts, funded by money from the G8 $40 billion aid fund for Egypt and Tunisia to insure that all swapped people are equally well-off or better off after resettlement.

The benefits are immediately clear.  Israel would no longer have a Palestinian problem and 4 million Egyptian Christians would no longer live under fear of Sharia law.  Ideally, even more than 4 million Egyptian Christians might be welcomed into the West Bank and Gaza,  The resulting combined Jewish Christian population would strengthen Israel.

Palestinians would no longer live under Israeli occupation and could participate in the political life of the new Egypt.

The political structure of the West Bank and Gaza would follow that of the Hong Kong and Macau Special Administrative Regions of China.  For the immediate future the Christians would enjoy internal autonomy save for defense and foreign affairs which would remain in Israeli hands.

People for peace, not land for peace!

Friday, May 27, 2011

Confucius Analect of the Week, May 27, 2011

“The Master recognized four prohibitions:  Do not be swayed by personal opinion; recognize no inescapable necessity; do not be stubborn; do not be self-centered.”  (James R. Ware, Chapter IX, Verse 4)

The Master also wants to wish his American students a safe and happy Memorial Day.

Tuesday, May 24, 2011

Mao Zedong Was a Generation Too Soon

In early summer 1957, Mao Zedong, chairman of the Chinese Communist Party, launched a famous campaign: “Let a hundred flowers blossom and a hundred schools of thought contend.”  Mao’s objective was to advance progress in the arts and sciences.  Instead the campaign produced an outburst of criticism against the Chinese Communist Party and its policies.  Mao ordered a crackdown bringing the campaign to a quick close.

If only Twitter, Facebook, and social media had existed in 1957.  Today the blogosphere is replete with hundreds of flowers blossoming and hundreds of schools of thought contending across a broad range of topics.  Efforts to constrain schools of thought typically fail.  Millions are free to speak their minds in plain language, or coded language if necessary.  Monopolies and oligopolies of thought are giving way to real diversity of thought.  Viva la revolution!

Monday, May 23, 2011

Coping With Islamic Extremists

There are several Muslim groups that oppose, sometimes violently, predominantly Western Christian countries and Israel.  They include Al-Qaeda, Taliban, Hamas, Hezbollah, Abu Sayyaf, Wahhabi, Salafi, Islamic Jihad, and Muslim Brotherhood.

Which, if any, can be persuaded to recognize Israel and accommodate the U.S.?  With Usama bin Laden out of the way, can the Taliban be induced to give up their violent ways and become peaceful participants in a democratic Afghanistan?  Or, was the Taliban revenge attack that killed 80 police recruits in Pakistan proof to the contrary?

Can one or more of these groups be bought off with cash and diplomatic gestures?  Does the U.S. have a coherent policy in dealing with the threats from radical Islam?   Or, will the U.S. continue to respond in what looks like an ad hoc manner, trying to take out Qaddafi but politely asking Syria’s Assad to show restraint, and the leaders of Yemen and Bahrain to undertake political reforms.  "Oh what a tangled web we weave..."

Friday, May 20, 2011

Confucius Analect of the Week, May 20, 2011

“Because of his lies Duke Wen of Chin must be considered less than upright.  Because of his uprightness Duke Huan of Ch’i did not lie.”  (James R. Ware, Chapter 14, Verse 15)

Are there ten politicians in America who match the uprightness of Duke Huan of Ch’i?  Remember what Mara Liasson of the Fox News All-Stars said on television about a politician some time back: “Lying is a benign accusation.”

Thursday, May 19, 2011

Why President Obama is Likely to Win Reelection

President Bill Clinton, in my opinion, was the greatest talker in Western civilization since Pericles.  He ate Republican opponents for breakfast, and still had the rest of each day to pursue his agenda.

Great as were Clinton’s oratorical skills, Obama’s are even better.  His gift of gab is so electric and compelling that he can probably persuade enough voters to give him the 270 electoral votes he will need for a second term, even if the economy remains weak and gasoline prices remain high.

A variation on one of Lincoln’s quotes is applicable:  you only need to persuade a majority of the electorate to vote for you a second time.  That he should be able to accomplish.

Would it be so bad to have Republicans control the House and Senate and Obama the White House.  Gridlock worked pretty good during 1995-2000.

Wednesday, May 18, 2011

"On Liberty"

In 1859 John Stuart Mill published “On Liberty,” one of his defining essays.  Here is a sample of lines that merit serious consideration.

The tyranny of the majority “practices a social tyranny more formidable than many kinds of political oppression.”  The Six Great Humanistic Essays of John Stuart Mill (New York:  Washington Press Square, 1963, p. 130)

“...the tyranny of the prevailing opinion and feelings...prevent the formation of any individuality not in harmony with its ways...”  (130-31)

“...there is also in the world an increasing inclination to stretch unduly the powers of society over the individual, both by the force of opinion and even by that of legislation:...”   (139)

“We have now recognized the necessity to the mental well-being of mankind...of freedom of opinion and freedom of the expression of opinion...”  (176)

“The despotism of custom is everywhere the standing hindrance to human advancement...”  (194)

Are these statements compatible with political correctness?

Tuesday, May 17, 2011

Egypt Spring.....To Be Followed by Egypt Winter?

The euphoria over Egypt’s “spring democratic revolution” may have been a bit premature.

Several troubling trends have emerged.  Muslim partaies are organizing for an electoral majority in September’s parliamentary elections.  If successful, they promise to impose Sharia Law.

Several presidential candidates are campaigning on a platform to reset relations with Israel.  What that could bring is cutoff of natural gas exports to Israel, renegotiating the Egypt-Israel peace treaty, and closer relations with Iran, to name a few.

Muslims are burning Coptic Christian churches and provoking religious conflict.  Christians may have to leave Egypt, as has about half of Iraqi Christians since the U.S. invasion in 2003.

And it’s only the middle of May.

Are these the objectives of U.S. foreign policy?  Just asking...

Monday, May 16, 2011

Illegal Immigrants Do Work Americans Won’t Do

Proponents of “comprehensive immigration reform,” a combination of stronger border control measures and a path to citizenship for those already here who may have entered illegally, argue that those already here and even more immigrants will be needed in the future to do the jobs lawful resident Americans won’t do.

Jobs Americans won’t do with unemployment at 9%, combined unemployment and underemployment over 16%, and several percent of the population having dropped out of the labor force no longer looking for work taking the total close to 20%.  Huh?

What if every year hundreds of thousands in the resident population decide to stop doing the jobs they formerly did because they don’t want to do them anymore?   Should we say “fine,’” and call for more low-wage immigrants to do that work?  And, by the way, widen the income gap between the well-to-do and the poor?  Is there any limit to this behavior?

Friday, May 13, 2011

Confucius Analect of the Week, May 13, 2011

Having read that 47% of the population of Detroit is “functionally illiterate,” Confucius is beside himself with despair.

How, he wants to know, is America going to win the future, to compete successfully with China, if nearly half the population of a major American city is functionally illiterate?  Not much point in offering Detroit another analect on the benefits of learning, is there?

Or, is “win the future” just political rhetoric?

Tuesday, May 10, 2011

Stanford Economics Major Becomes Successful Digital Entrepreneur

The Washington Post ran a weekend feature story on a thin pretty brunette who majored in economics at Stanford (class of 1994), and who recently discovered the magical, profitable, golden world of self-published e-books.  The lengthy article, with photos, explains her explosive growth in sales and revenue when she augmented her traditional print books with self-published, self-promoted e-books.

The young lady, with a husband, two children, and a home in the Sonoma California foothills, is Nyree Belleville, with three noms de plume: Bella Andre (for adult readers), Lucy Kevin (for tweens, teens, and young adults), and Bella Riley (for all ages).

By way of disclosure, her maiden name was Rabushka, and I am the proud father.

Monday, May 9, 2011

Scottish Nationalism Surges

Since the first election of members to a Scottish Parliament in 1999 (following the 1998 Scotland Act), Alex Salmon’s Scottish National Party (SNP) won an absolute majority of 69 of 129 seats on May 5, 2011.  He now has the votes to propose a Scottish independence referendum, an aim in the SNP’s policy platform.  Here’s hoping.


If Scots vote for and attain independence, it will be important for party leaders to establish policies that encourage firms and individuals to invest and do business in Scotland.  A quick way is to follow the examples of Central and Eastern Europe by enacting a low flat tax on individuals and corporations.

Continuing with the dream, a flat tax breakthrough in Scotland would open the door to other Western European countries taking steps to remain competitive, hopefully moving away from the tradition of steeply graduated high taxes to a low flat tax environment.

By way of disclosure, I have numerous in-law aunts, uncles, and cousins scattered throughout Scotland.

Friday, May 6, 2011

Confucius Analect of the Week, May 6, 2011

Confucius was in Lexington, Kentucky, getting ready for the Kentucky Derby.  As was his wont, he offered an analect for the occasion.

“When his stable was burned the Master returned home from the palace and inquired, ‘Was anyone injured?’  He did not ask about the horses.”  (James R. Ware, Chapter X, Verse 11)

Upon hearing his analect, Derby officials promptly escorted Confucius out of town.  Evidently Confucius did not understand the market value of Derby racehorses.

Confucius wants to wish all you moms out there “Happy Mother’s Day.”

Thursday, May 5, 2011

What Are Our Values?

With the passing of Osama bin Laden, the chattering classes on cable television, talk radio, and the new and old media have renewed their discussion on “what are our values.”  Going forward, should the U.S. engage in torture (even if torture provided the information to find bin Laden), wiretaps, preventive wars (Iraq invasion), killing foreign leaders and their family members (bin Laden and Qaddafi), and other aggressive actions?

The debate is really about the contents of one word: “our.”

Take the Hoover Institution.  Over the years it has developed a reputation as a home for conservative scholars and former government officials.  I and several of my colleagues disagree with members of the recognized Hoover foreign policy community.  Speaking for myself, I favor prompt full withdrawal from Iraq and Pakistan; they cost too much for a country borrowing 40% of its annual federal government spending. I oppose intervention in Libya and Syria.  Let the contending parties fight it out and limit U.S. measures to consequential direct threats to Americans and American vital interests.  I oppose trying to teach democracy to Middle East countries.  In the past few days (May 4-5, 2011), several dozen Iraqis have been killed and over a hundred wounded in suicide attacks, despite eight years of American occupation.

On domestic economic, social, and cultural matters, there is considerable variety of opinion within Hoover.  There is no consensus on a flat tax, a balanced budget amendment, pro-choice or pro-life, pro- or anti-climate change measures (or even if it exists), and other issues.

This post cites Hoover as just one an example of conflicting views and values on foreign and domestic policies and values.  Similar differences pervade think tanks, universities, talk radio hosts, and cable television programs.

So what exactly is “our?”  In the last analysis, “our” is rhetoric, whatever list of values an individual asserts to support his specific policy views and choices.  "Our" is Rousseau's "general will," the will of all, in modern parlance.  Or, I should say, the denial of diversity of opinion.  Unless, that is, diversity is our values, in which case there can be no consensus on a specific set of values.

Tuesday, May 3, 2011

Oh Canada!!!

On May 2, 2011, Conservative Prime Minister Stephen Harper’s party won an absolute majority, 164 out of 308 seats, in Canada’s House of Commons after governing as a minority during the past five years.  This is a remarkable turnaround from the 1993 election when the Progressive Conservative Party won only 2 (yes, 2) seats, a staggering defeat from 169 seats in 1988.  The Progressive Conservative Party was more progressive than conservative (a.k.a. “compassionate conservatism”).  Harper’s return to real conservatism has transformed Canada’s political and economic landscape.

Harper comes from Alberta, the province in Canada with a low, flat, provincial income tax.  The Conservatives are strong in the Western provinces and Ontario.  Harper plans to reduce the current 16.5% corporate tax rate to 15%.

Perhaps Harper could loan the Republican Party some of his advisers to help with tax reform and other real "conservative" policies.

Friday, April 29, 2011

Confucius Analect of the Week, April 29, 2011

Confucius is in London attending the royal wedding.  As a gift to the newlyweds, he offered the following advice.

“Tuan-mu Tz’u asked about Great Man.
‘First he sets the good example, then he invites other to follow it.’” (James R. Ware, Chapter II, Verse 13)

Tuesday, April 26, 2011

Bernanke’s First Press Conference: Whither QE II?

Fed Chairman Ben Bernanke will hold his first press conference following Wednesday’s Fed meeting.  His press conference is the first in a series of four annual press conferences the Fed will hold to provide greater transparency in its decisions.

What will Bernanke say?

Will QE II (the Fed’s second round of quantitative easing totaling $600 billion, due to end June 30, 2011) end early, on schedule, or be extended?

Is there a QE III in Ben’s future?

Given the excitement over Will and Kate’s royal wedding), does Bernanke control the British throne?  If QE II ends as planned on June 30, and there is little to no chance of a QE III, is this a sign that Queen Elizabeth II should give way to her first-born son, Charles III?

Monday, April 25, 2011

Scorecard on U.S. Involvement in the Muslim World, 2001-2011

It’s been ten years since the U.S. removed the Taliban from power in Afghanistan.  Perhaps this is a good time to review American involvement in the Muslim world.  I assign letter grades in each case.

Israeli-Palestinian peace process: F.  Every U.S. president takes office pledging to give priority to the Israeli-Palestinian peace process.  Every president has failed to resolve the issue on leaving office.  The best thing a new president can do is to downgrade the peace process and leave the parties to settle their differences by themselves.

Gaza: F.  Hamas was voted into power with 70% of the vote, more than double the 30% projected by U.S. officials.

Lebanon: F.  Hezbollah, an ally of Iran, holds the presidency following the most recent election.

Iraq: D.  Muqtada al-Sadr, former arch enemy of U.S. forces in Iraq, is a member of Iraq’s governing coalition.  Those who praise the U.S. overthrow of Saddam Hussein and the establishment of a democratic coalition government in Iraq should wait a year or two to see if the country holds together after U.S. military withdrawal, or if it fragments into separate political units with the Shia majority in closer alliance with Iran.

Egypt: D.  Long-time ally Mubarak was thrown overboard.  The post-September election is likely to show greater influence of the Islamic brotherhood.  Mohamed ElBaradei , with more than 150,000 followers on Twitter and having expressed interest in becoming Egypt’s new president, has stated his desire for tearing up the Egyptian-Israeli peace treaty.

Yemen: INC.  Who knows what pro- or anti-American policies a post-Salleh government will adopt?  Projected grade: D or F.

Libya:  D.  It’s hard to imagine a worse leader than Colonel Qaddafi, but greater influence of Al-Qaeda and other radical Islamic factions is likely in Eastern Libya.

Syria: F.  No comments necessary.

Afghanistan: F.  Karzai government probably hopeless.

Pakistan: D.  Unpredictable, unreliable “ally.”

Iran: F.  No comments necessary.

Not a pretty picture.  During the past ten years, costs have exceeded two trillion dollars, thousands dead, and thousands more maimed and wounded.  In a fiscal sense, U.S. military involvement in Muslim countries contributed to the transformation of large annual budget surpluses into massive annual budget deficits and a huge public debt.

Sunday, April 24, 2011

How to Pay Off the National Debt and Solve Other Economic Problems

The competing deficit reduction proposals of President Barack Obama and Congressman Paul Ryan depend on long-run assumptions about economic growth, unemployment, and other economic variables.  Growth is clearly the most important factor.  Sustained high growth increases tax revenues more rapidly than planned expenditures (assuming no new major spending programs).

Therefore, the quickest and least painful way to eliminate deficits and pay down public debt is to project growth of 6% over the next 10-12 years.  If inadequate, raise the projection to 7%.  Learn from China!

A second problem is growing inequality in the distribution of income and wealth in America.  The top 1% has gained an increased share of national income and wealth in the past few decades.  One way to solve this problem is to change how we think about it.  We should consider the benefits going to the top 1% as a very powerful incentive for everyone to try to rise to the top 1% of income earners.

A third problem is to improve educational outcomes, especially in inner cities, so that America can win the future.   A quick solution is to lower the standards for success.  In that way, an increasing number of students will graduate with successful academic records.

Are these solutions any more absurd than what you hear from politicians and read from their supporters in the media and from some of the more ideological in the academy?

Friday, April 22, 2011

Confucius Analect of the Week, April 22, 2011

Confucius is on Holiday for Passover and Good Friday.

Wednesday, April 20, 2011

Liveblogging the Future: July 1, 2037

On July 1, 2037, Standard & Poors issued its 16th consecutive downgrade of U.S. sovereign debt, from AAA in 2012 to CCC+.  Interest rates on U.S. Treasury bills, notes, and bonds surged well past 100%, making it impossible for the federal government to meet its obligations.  The U.S. dollar had lost its reserve currency status a decade earlier.  The government could no longer print money to borrow in its own currency without catastrophic inflationary consequences.  China’s renminbi had become the world’s reserve currency, along with Swiss Francs, Brazilian Reals, Canadian and Australian Dollars, and several others of fiscally-sound countries.

U.S. currency was no longer accepted abroad.  Foreign currency had to be bought in U.S. black markets if anyone wanted to travel overseas.  U.S. merchants preferred cash payments in foreign currencies or precious metals.  The once-upon-a-time, good-as-gold greenback had become like the Revolutionary currency, which depreciated so badly during the war giving rise to the phrase “not worth a continental.”

The U.S. had run out of financial assets to sell to foreigners to sustain federal spending on retirement benefits, health care, unemployment benefits, public education, and infrastructure.  It had already privatized its property holdings.  All that was left was land, pure and simple.

In a last ditch effort to stay afloat, the federal government put American land up for sale.  The sovereign states could not object because they were no longer sovereign, surviving entirely on federal transfers.

The federal government initiated a series of one-on-one negotiations to sell chunks of U.S. land to the original foreign colonial powers, who had heeded Standard & Poors warnings.  These sales became known as “Land for Survival.”  As in the Northwest Ordinance of 1787, U.S. settlers residing in the new foreign domains would enjoy their customary rights for one generation, after which they and their successors would become citizens of the new foreign realms.

United Kingdom - New Jersey, Maryland, the Carolinas
Canada - Northern New England
Spain - Florida
France - Louisiana and other portions of the Louisiana Territories as required
Mexico - Southern Arizona and New Mexico (reverse Gadsden Purchase)
Netherlands - Manhattan and New York
Delaware - Sweden
Denmark - Virgin Islands
Russia - Alaska
China - California as a Special Administrative Region of China
Japan - Pacific territories

Historical Note: Each successive downgrade of U.S. sovereign debt was met by presidents and Members of Congress as a call to action, but invariably they resorted to politics as usual a short while later.

Monday, April 18, 2011

Fiscal Follies

There has been much caterwauling over $38.5 billion in what big spending liberals call draconian painful budget cuts as the price of a budget deal to avoid a government shutdown.

If spending cuts of $38.5 billion are draconian, what adjectives will be used to describe the targeted $4-6 trillion over 10-12 years as the politicians squabble over the competing Obama-Ryan deficit reduction proposals, not to mention the trillions in borrowing and hundreds of billions paid in interest?  Monstrous?  Unfathomable?  Inconceivable?  Catastrophic?  Gigantic?  Colossal?  Stupendous?  Staggering?  Humongous?  Astronomical?  Galactic?

“Paying Their Fare Share.”  What does it mean for the rich to pay their fair share in taxes?  Is there a once-and-for-all-time definition of “fair share” that does not change every two or four years?  Which tax-rate schedule of the last 90 years best approximates the rich paying their fair share?  President Wilson?  Harding?  Coolidge?  Hoover?  Roosevelt?  Ike?  Kennedy?  Nixon-Ford?  Carter?  Reagan?  Bush 41?  Clinton?  Bush 43?  Obama?  Pick one and justify that choice?

Over the last 20 years, President Clinton’s years look the best for growth (annual average 3.3% real growth 1992-2000), employment, and deficit reduction.  Does that make the Clinton tax rates the presumptive first choice?  If the Bush tax cuts were necessary to spark growth (2.2% annual average real growth 2001-08), why did the economy’s performance under his watch lag the Clinton years?  How were Clinton’s surpluses transformed into Bush’s deficits and debt?

Just asking...

Friday, April 15, 2011

Confucius Analect of the Week, April 15, 2011

“Great man is sparing in words but prodigal in deeds.”  (James R. Ware, Chapter XIV, Verse 27)

Talk is cheap.  Action speaks louder than words.

In political parlance, watch what politicians do, not what politicians say.  Judge them not by their eloquent talk and self-praise, but by their constructive deeds.

Monday, April 11, 2011

China’s Inflation Problem

Catastrophic inflation in China undermined President Chiang Kai-shek’s Nationalist government, abetting the Chinese Communist Party’s ascension to power in 1949.  Since then, China’s leaders have remained wary of inflation.

To minimize the appearance of inflation, the largest denomination banknote issued by the People’s Bank of China (China’s central bank) is Renminbi (RMB) 100.  At current exchange rates (US$1=RMB 7.53), RMB 100 is worth US$15.32.

Wages and prices in China are rising rapidly.  It is becoming increasingly inconvenient to carry thick stacks of RMB 100 banknotes for purchases of goods and services.  Accordingly, it is time for China to recognize the reality of its fast-growing middle class and issue larger denomination notes.

In that regard, it is time to give the late Deng Xiaoping, the man who opened up China’s economy and set it on a path of sustained high growth, an extra honor.  I have done this below in the design of a possible RMB 500 banknote, which places Deng’s portrait on the obverse side.

(HT:  Ellen Santiago)

Friday, April 8, 2011

Confucius Analect of the Week, April 8, 2011

“Let the other man do his job without your interference.”  (James R. Ware, Chapter VIII, Article 14)

Sounds a lot like “getting government off our backs.”

Thursday, April 7, 2011

Market Forces Slowly Alter China’s “One Country, Two Systems” Policy Towards Hong Kong

China has largely honored its promises to Hong Kong, spelled out in Hong Kong’s Basic Law, the territory’s mini-constitution, since it resumed sovereignty over the former British Crown colony on July 1, 1997.

Chapter V (Economy), Article 111 states “The Hong Kong dollar, as legal tender in the Hong Kong Special Administrative Region, shall continue to circulate.”  Subsequent paragraphs in Article 111 require that “the issue of Hong Kong currency must be backed by a 100 per cent reserve fund”...”with the object of maintaining the stability of the currency.”  So far, all Hong Kong currency is backed by several hundred percent holdings of foreign reserves, largely in dollars (but the Basic Law does not specify which currencies are required in Hong Kong’s foreign reserves).  The Hong Kong dollar is pegged to the U.S. dollar at a rate of US$1 = HK$7.80.

A dramatic change has taken place in customer deposits in Hong Kong banks in the past year.  Renminbi (RMB) deposits in January 2008 amounted to RMB 40.4 million, rising to RMB 54.4 million in January 2009, RMB 63.9 million in January 2010, and RMB 370.6 million in January 2011.  Year over year RMB deposits in Hong Kong banks in January 2011 grew 580%, of which time deposits rose 1,071% and demand deposits 309%.

RMB deposits as a share of Hong Kong dollar deposits have grown from a fraction of less than 1% to 15.3% (converting RMB into HK$), or 5.3% of all currencies (including HK$, US$, and non-US$ foreign currencies).  Given the expected appreciation of the RMB, this trend is likely to continue.  Perhaps in the short span of a few years, RMB yuan will displace Hong Kong dollars as the de facto currency of Hong Kong, even if it does not enjoy the legal tender status of the Hong Kong dollar.  As RMB deposits rise and the yuan become fully convertible, perhaps as soon as 2015, Hong Kong people will likely pressure the Hong Kong Monetary Authority to switch reserves from dollars to RMB.

Wednesday, April 6, 2011

Worried About Inflation? Skip Europe and Stay Home This Summer

Over the course of two weeks in August 1967, TBBW (The Beautiful Brilliant Wife) and I visited the capitals or leading city in Greece, Italy, Austria, Switzerland, France, Belgium, Netherlands, and Denmark.  Our average daily expenditure was $22, which covered hotels (all en suite bathroom), meals, entertainment, and local travel (including to and from each airport).  The CPI Inflation Calculator puts the 2009 value of $22 at $141.31, an increase of 642%.  (Using 2009 data permits easy comparison with German Marks, French Francs, Swiss Francs, Austrian Schillings, Belgian Francs, and Danish Kroner, based on conversion values into Euros for eurozone countries from 1999).

How far will $141.31 go in Europe this summer?  Not very far.  (European currencies have appreciated against the dollar in 2010 and early 2011, further reducing dollar purchasing power.)  Maybe dinner for two with house wine at a decent restaurant.  Slum accommodation.  Plan on lots of walking, public transportation, and search out free museums.

What happened to King Dollar?  Between 1967 and 2009, the German Mark (followed by equivalent euros) appreciated 65%, Swiss Franc 75%, Austrian Schilling 62%, Belgian Franc 42%, Danish Kroner 23%, and Norwegian Kroner 12% against the greenback.

The dollar doesn’t buy what it used to buy overseas, at least in places one might want to travel on vacation this summer.  So stock up on charcoal and spend days and nights watching the travel channel.  (Thanks to all Members of Congress and the Federal Reserve Board for encouraging us to stay home by debasing our money.)

Monday, April 4, 2011

Burning the Koran and Other Provocations

The First Amendment has limits.  Yelling fire in a crowded theater is not protected by the First Amendment.  Although burning the U.S. flag is protected free speech, perhaps burning the Koran, which causes loss of innocent lives in Muslim countries, should not be protected.  Maybe some public interest law entity can bring a case to the Supreme Court and urge the “fire” doctrine to incorporate burning the Koran.  And, for that matter, cartoons about Islam and any other expression that insults Islam.  If, after ten years in Afghanistan, the action of an obscure American cleric can incite murderous acts against innocent international aid workers, will any amount of military and civilian assistance  put Afghanistan on the path to a peaceful, stable democracy?  Just asking....

In keeping with Islam, any American president who orders U.S. forces to commence hostilities against an Arab Muslim country should first watch Khartoum and Lawrence of Arabia.

P.S.  This is funny budget week, with the Ryan deficit reduction plan, threat of a government shutdown, and other machinations.  Asking the Congress to reduce the deficit and curtail the long-term growth of entitlements is akin to lecturing rats on the benefits of proper hygiene to eliminate the plague.  (I’m not equating Members of Congress with rodents, only the impact of asking each nicely.)

Friday, April 1, 2011

Confucius Analect of the Week, April 1, 2011

“If an urn lacks the characteristics of an urn, how can we call it an urn?”  (James R. Ware, Chapter VI, Verse 25)

Is “honest politician” an oxymoron?

Are self-interested politicians and government officials serving the public interest?

Richard Darman, George H. W. Bush’s Budget Director, knew how to distinguish between an urn and a non-urn when he proclaimed “If it looks like a duck, walks like a duck, and quacks like a duck, it meets the duck test.”

Monday, March 28, 2011

Government Programs Are Like Crabgrass

Spring has sprung, and with it baseball, flirty dresses, and lawn care.  To prevent the scourge of crabgrass, spurge, oxalis, and other nasty weeds from taking over your lawn, it is necessary to apply crabgrass preventer in early Spring.  Late application or failure to apply crabgrass preventer will result in noxious weeds chocking off your Kentucky bluegrass.  Once crabgrass takes over, you will have to wave the white flag of surrender and accept defeat or face the costly task of planting a new lawn.

Government programs are the same.  They start out slowly but then spread like wildfire.  Eternal vigilance is necessary to control them.  Cabinet offices and regulatory agencies proliferate, with unaccountable czars and regulators intruding, quoth the raven “evermore,” into our private affairs.

To propose serious cuts in any program, much less termination, brings howls of protests and charges of heartlessness.  This is the Republican spring.  They can try to stop the crabgrass in its tracks, or pull out weeds one-by-one.  Fear of the political consequences of a government shutdown has thus far taken Republicans down the second road.  Not an auspicious start.

Friday, March 25, 2011

Confucius Analect of the Week, March 25, 2011

“Great Man is conscious only of justice; Petty Man, only of self-interest.”  (James R. Ware, Chapter IV, Verse 16)

This analect pretty much describes the political classes of elected officials, appointed officials, lobbyists (former officials) and their advisers.  I guess we get the government we deserve.  Where is George Washington when we need him?

Monday, March 21, 2011

China Breaches its “One Country, Two Systems” Policy for Macao

China resumed sovereignty over Hong Kong on July 1, 1997, and Macao on December 20, 1999.  They became respectively the HKSAR (Hong Kong Special Administrative Region) and MSAR.  Each was given a Basic Law, a mini-constitution, that sets forth the principles on which the two former colonies would be governed.  China promised a high degree of autonomy, stating that it would not impose its socialist system on the two capitalist entities for 50 years.  Guarantees included political, social, economic, cultural, and other rights.  This post deals with recent developments in Macao that erode an important article in its Basic Law.

Chapter V of Macao’s Basic Law deals with “Economy.”  Article 104 states that Macao “shall have independent finances,” and “shall use its revenues exclusively for its own purposes, and they shall not be handed over to the Central People’s Government.”  Moreover, “the Central People’s Government shall not levy taxes in the MSAR.”

Article 104 has now been breached.

First some background on Macao’s revenues.  Macao practices a conservative fiscal policy.  Rather than incurring annual deficits, Macao’s budgets typically produce annual surpluses.  The surplus in 2010 was Macao Patacas (MOP) 41.9 million.  (US$1=MOP 8.0)  Over the years Macao has built up large fiscal reserves, which stood at MOP 130.7 million on December 31, 2010.  Fiscal reserves equal 3.4 years of 2010 outlays.  Spending in the three prior years was much lower at MOP 18.9 million, MOP 25.9 million, and MOP 33.8 million respectively.

The principal source of public revenue in Macao is gaming tax.  Gaming tax constitutes between 85-90% of total tax revenues. In 2010, just under 25 million tourists came to Macao, of which 82.9% were from mainland China and Hong Kong.  Macao is the only region of China in which casino gambling is legal.  Macao’s taxes, and its accumulated fiscal reserves, have been largely paid by mainland China and Hong Kong gamblers.

On March 6, 2011, a Framework Agreement on Cooperation Between Guangdong and Macao was signed in Beijing, consisting of 38 articles in 8 chapters, totaling about 10,000 words..  It was accompanied by a lengthy interpretation document, a timetable for 2011, and an ongoing review of the work schedule.  The cooperation extends to creating a world class travel and leisure destination that brings together Macao, the neighboring Chinese city of Zhuhai, and all of Guangdong Province in one big tourism destination.  Other cooperative endeavors include development of renminbi business, upgrading of industry, the development of neighboring Hengqin Island (in which the new campus of the University of Macao will be located), and developing such sectors as Chinese medicine, education, and linkages between public services.

The agreement specifies that the Macao government shall provide scholarships for Guangdong students studying at tertiary institutions in Macao.  Other statements give Macao the lead responsibility in funding cooperative projects and activities.  I was unable to find any statements which specified that the Guangdong government shall provide financial support to Macao for any project or activity.  Should Guangdong banks lend money to Macao firms, it will be in the interests of the banks, not a requirement of the framework.

The word “shall” does not mean consider, think about, or discuss.  It means that Macao will pay for the activity, plain and simple.  The only issue is how many scholarships.

The chief executive of the MSAR is presumed to have signed the agreement on the basis of its mutual benefits for Macao and Guangdong Province.  However, it is difficult to imagine that he could have refused to sign.  Were he to refuse, it is likely that China, on behalf of the provincial government of Guangdong, would make Macao an offer it could not refuse.  China could, for example, restrict the number of monthly visits of mainland Chinese gamblers to Macao, as it has done in the past.

Even if the agreement rests on a mutual voluntary basis, the reality is that Chapter V, Article 104 of the Macao Basic Law has been abrogated.  Macao is required to spend tax revenue in support of Guangdong residents.  As the decade unfolds, it will be interesting to observe the extent to which Macao’s fiscal reserves bear a disproportionate share of the funds expended to achieve framework goals.

Neighboring Hong Kong holds fiscal reserves equal to two years current spending, but their value is far, far larger than Macao reserves.  Perhaps the Guangdong-Macao Cooperative Framework will be extended to Hong Kong in the not-too-distant future

Friday, March 18, 2011

Confucius Analect of the Week, March 18, 2011

"The end has indeed arrived.  I have yet to meet a man as fond of Excellence as he is of outward appearances."  (James R. Ware, Chapter XV, Verse 13)

Does this analect have the touch, sound, and feel of today's political class and its handlers?

Thursday, March 17, 2011

Autocrat vs. the Arab Street

“Oh what a tangled web we weave...”

The U.S. government was for the Street against the ruling autocrats in Tunisia and Egypt.  It has uttered strong statements in support of the Libyan rebels against Gaddafi, but offered no material support.  It has criticized the Sunni ruling family of Bahrain for forcibly suppressing a Shia uprising and the Saudis for sending troops into Bahrain in support of a fellow Sunni ruling family.

But the U.S. has taken no action against Bahrain or Saudi Arabia.  Indeed, to the contrary, Defense Secretary Robert Gates stopped in Bahrain for a photo-op with the ruling monarch during the uprising.  Perhaps this was necessary to protect the U.S. Fifth Fleet that is stationed in Bahrain.  As to the Saudis, it is vital that their oil keeps flowing freely.  Different strokes for difference folks.

Since the removal of Hosni Mubarak in Egypt, violence has broken out between Christians and Muslims in Egypt, precipitated by Muslims burning  a Christian church.  The Sunni suppression of Shiites in Bahrain will not sit well with Iraq’s large Shia majority, especially after the U.S. withdraws its remaining 47,000 troops by the end of 2011.

Evidently, overthrowing autocrats and seeking democracy is good for some Arabs, but not for others, at least for now.

Wednesday, March 16, 2011

Say Hello to More Greenhouse Gases

Japan’s nuclear crisis has unnerved many political leaders around the globe.  German Chancellor Angela Merkel has announced that Germany will close (temporarily, but with no promise of restarting) all seven reactors that began operation before 1980.  Merkel has said that Germany should take this opportunity to focus on such renewable sources of energy as solar and wind power.

Switzerland, which gets 40% of its electricity from five nuclear reactors, is also concerned about building new reactors.  The existing reactors are due to come off the power grid by the end of 1919, and a nationwide referendum on construction of new reactors, sometime during 2014-15, could well determine the fate of nuclear energy in Switzerland.

Malaysia and other countries are rethinking their development of nuclear power.  The future of nuclear powered electricity could depend on the success (or failure) of Japanese efforts to contain and resolve its current problems.

Meanwhile, to make up for the lost electricity, countries will have to burn more coal.  Radioactive contamination or greenhouse emissions?  Not a pretty choice?

Tuesday, March 15, 2011

Putting the Federal Budget Deficit in Perspective

Estimates of the cost of Japan’s earthquake-tsunami disaster keep rising (excluding lives and personal injuries).  The highest thus far is US$100 billion put out by Singapore’s DBS Bank.  The damage includes losses to infrastructure, residences, and output.   The insurance industry may have to pay $60 billion in damage claims.

So far, the $100 billion amounts to 2% of Japan’s GDP of about $5.47 trillion.  The $100 billion represents about 11% of Japan’s holdings of U.S. Treasury securities.

In February 2011, the U.S. federal budget deficit was a record $223 billion.  Estimates of the annual deficit have been put at $1.6 trillion.  This means that Japan’s economic losses from the recent natural disaster amount to about 45% of February’s budget deficit, and 6.3% of the current year’s projected deficit.

Does this give some indication of the magnitude of the federal deficit?

Friday, March 11, 2011

Confucius Analect of the Week, March 11, 2011

Chapter X, Verse 8.  Rules of Confucius about his food.  (James Legge translation)

“....He did not eat rice which had been injured by heat or damp and turned sour, nor fish or flesh which was gone. He did not eat what was discolored, or what was of a bad flavor, nor anything which was ill-cooked, or was not in season. He did not eat meat which was not cut properly, nor what was served without its proper sauce. Though there might be a large quantity of meat, he would not allow what he took to exceed the due proportion for the rice. It was only in wine that he laid down no limit for himself, but he did not allow himself to be confused by it...He did not eat much....” (editing mine).

Confucius defined the essence of Chinese cuisine 2500 years ago.  Freshness is a must.  Meat must be cut properly (not in large chucks as in Western cuisine).  The proper sauce must accompany meat.  (The use of chopsticks allows each morsel of meat to be coated with the proper sauce.  Too much and the extra runs off; too little and the meat is not properly coated.)  The meal must have a proper balance of meat and rice.  (James R. Ware translates phrase as a proper balance of meat and vegetables.)

Drink wine to satiation but not to befuddlement.  Don’t overeat.

Small wonder that Chinese cuisine is the world’s best (sorry to Francophiles).  Its principles were laid down several millennia ago, and have withstood the test of time.

Tuesday, March 8, 2011

Declining Enrolment in the Humanities

Humanities scholars at leading universities decry declining enrolment in the humanities.  To address this concern, Stanford’s Faculty Senate heard a panel discussion of six humanities professors on March 3, 2011, on the difficulties facing 11 humanities departments.

The premise on which the discussion was based is that humanities have been a key part of a liberal arts education, which is being challenged by declining enrolments.  The panelists did not blame reduced financial support.  Indeed, 42% of the faculty in the School of Humanities and Science teach in the 11 humanities departments, even though enrolment is only 18% of undergraduate majors.

Explanations and solutions?  Tuition-paying parents (full fare exceeds $200,000 for four years) and students fear that the humanities do not provide employable skills compared with degrees in science and mathematics.  Career concerns are crowding out humanities majors.

Panelists suggested several remedies (although none addressed the basic question of the merits or relevance of the liberal arts education model in the twenty-first century).  One suggested recruiting more East Coast students that seem inclined towards the humanities.  Others suggested courses blending humanities with science and engineering.  And so on.

Analysis of political party registration reveals that over 90% of humanities professors at Stanford are Democrats.  Some departments have no registered Republicans at all.  Yet none of the six panelists breathed a word about intellectual diversity in the humanities, that is, more balance in courses offered.  (To the extent that left-leaning professors claim that their views do not influence their teaching, the same is surely true of avowed conservatives.)

Perhaps the most important factor is the changing ethnic/racial composition of the student body.  Each year Stanford publishes its Common Data Set, which includes information on the ethnic/racial composition of the student body, the percentage majoring in each field, (but not further divided by ethnicity/race), financial aid, and other data.  (Ethnic/racial enrolment data from 30-40 years ago are not available.)

For 2010-11, excluding the 1,129 from race/ethnicity that are unknown or are of two or more races (16.4%), the data reveal that of all enrolled undergraduates 17.8% are Asian, 7.2% nonresident aliens (most from Asia), 16.4% Hispanic, 7.3% Black or African American (non-Hispanic), and 34.1%  White (non-Hispanic).  Some fraction of the two-race students are part Asian.  Forty years ago, when I first set foot on campus, Asians were a much smaller share of undergraduate enrolment.

Degrees conferred in 2009-10 totaled 37.6% in the sciences and mathematics, of which a clear majority was earned by Asians.  Forty years ago, there was no Silicon Valley as we know it today.  The market has clearly shifted in favor of high-tech jobs.  Racial/ethnic enrolment reflects Asian emphasis in high-tech.  Barring a quota on or reduction in Asian enrolment, raising enrolment in the humanities at Stanford faces overwhelming odds.

Monday, March 7, 2011

Three Cheers for U.S. Public Debt

An increasing number of economists, historians, pundits, and politicians are expressing concern about rising U.S. public debt.  Either it will be inflationary, depreciate the dollar (and our living standards), or lead to large tax hikes.  None is a pretty picture.

But there is a bright side to large public debt, as expressed on CNBC on March 8, 2011, by Chicago Fed President Charles Evans.  The U.S. has the deepest and most liquid Treasury debt markets, which makes U.S. Treasuries a good choice for foreign governments and sovereign wealth funds to park money.  Other smaller foreign debt markets are less attractive.  This means we (the U.S. Treasury) will be able to sell debt as needed to fund the government and sustain economic activity (at least for the immediate future).

Good thing we didn’t pay off all our national debt during the Clinton budget surplus years, and we should thank President Bush and the Republican Congress for rebuilding the debt that makes U.S. Treasuries so deep and liquid.

Friday, March 4, 2011

Confucius Analect of the Week, March 4, 2011

“It is hard to find a man who will study for three years without thinking of a post in government.”  (James R. Ware, Chapter VIII, Verse 12)

This should come as no surprise.  Who wouldn’t. given the compensation and benefits packages secured by unionized public sector workers?

Thursday, March 3, 2011

Aristotle Liveblogging the Arab Street, March 3, 2011

A wave of democratic euphoria is washing over North Africa and the Middle East.  Tyrants are being overthrown and corrupt governments are being replaced.  What does the long run hold?

Democratic reformers would do well to read Book III of my Politics:  Chapter 7 appears below.

“Having determined these points, we have next to consider how many forms of government there are, and what they are; and in the first place what are the true forms, for when they are determined the perversions of them will at once be apparent. The words constitution and government have the same meaning, and the government, which is the supreme authority in states, must be in the hands of one, or of a few, or of the many. The true forms of government, therefore, are those in which the one, or the few, or the many, govern with a view to the common interest; but governments which rule with a view to the private interest, whether of the one or of the few, or of the many, are perversions. For the members of a state, if they are truly citizens, ought to participate in its advantages. Of forms of government in which one rules, we call that which regards the common interests, kingship or royalty; that in which more than one, but not many, rule, aristocracy; and it is so called, either because the rulers are the best men, or because they have at heart the best interests of the state and of the citizens. But when the citizens at large administer the state for the common interest, the government is called by the generic name -- a constitution. And there is a reason for this use of language. One man or a few may excel in virtue; but as the number increases it becomes more difficult for them to attain perfection in every kind of virtue, though they may in military virtue, for this is found in the masses. Hence in a constitutional government the fighting-men have the supreme power, and those who possess arms are the citizens.

“Of the above-mentioned forms, the perversions are as follows: of royalty, tyranny; of aristocracy, oligarchy; of constitutional government, democracy. For tyranny is a kind of monarchy which has in view the interest of the monarch only; oligarchy has in view the interest of the wealthy; democracy, of the needy: none of them the common good of all.”

To summarize, constitutional government (limited government) serves the common interest.  Democracy, its perverse form, serves the needy, not the common good..

The Arab street may be ridding themselves of tyrants, but constitutional government has yet to prove itself in the Arab world.

Friday, February 25, 2011

Confucius Analect of the Week, February 25, 2011

“The Chis were richer than the Duke of Chou had ever been, yet Jan Ch’iu, by accumulating taxes for them, [further] increased their wealth.  Therefore, the Master declared, 'He is no pupil of mine!  Pupils, you have my permission to attack him with your drums rolling.'”  (James R. Ware, Chapter II, Verse 17)

Confucius demands a limit on taxes to those accumulated under the Duke of Chou, the most virtuous of rulers.  Any additional taxation merits a violent tax revolt

Thursday, February 24, 2011

Libya, Gaddafi, and Human Rights

Western leaders are rightly appalled at Libyan leader Colonel Gaddafi’s vicious crackdown on peaceful protesters.  U.S. Secretary of State Hillary Clinton has strongly condemned his actions, along with Britain’s David Cameron, France’s Nicholas Sarkozy, and others.

Funny.  That Gaddafi is killing his fellow Libyans countrymen.  After all, it was only eight years ago, in January 2003, that Libya’s ambassador to the United Nations was elected chairman of the UN Commission on Human Rights by a resounding vote of 33 in favor to 3 against, with 17 abstaining.

Apart from criticizing Libya’s chairmanship, the U.S. took no action against the UN.  It did not reduce its financial contribution.

Readers may wish to click on Google Images and search “Gaddafi meeting X, Y, Z.”  For X, Y, and Z insert the names of a U.S. president and several secretaries of state, a British prime minister, a French president, an Italian president, and other political luminaries.  From posing with Gaddafi to strongly condemning him a few years later is a remarkable turn of events.

Wednesday, February 23, 2011

Forecasting Political Events: Mao Zedong and the Middle East

The inland Chinese city of Chongqing will be selecting ten outstanding youth to serve as interns in the White House for five weeks.  This is the first year that mainland students will be able to participate along with students from Taiwan and Hong Kong.

In return, perhaps the U.S. government should select ten outstanding intelligence personnel from the State Department and U.S. embassies in the Middle East to serve as interns in the Chinese Communist Party Central School in Beijing.  There they might immerse themselves in the writings of Chairman Mao.

In March 1927 Mao wrote “Report on an Investigation of the Peasant Movement in Hunan.”  This was perhaps the seminal event in the Communist Party movement that incorporated peasants into Mao’s Revolutionary Movement.  Mao followed this essay in January 1930 with a defining essay that is especially appropriate for understanding the eruptions spreading throughout the Middle East:  “A Singe Spark can Start a Prairie Fire.”

It appears evident that the intelligence services in the State Department and its embassies, the Military, the CIA, FBI, and other services in the Department of Homeland Security missed the great uprising.  With total budgets in the tens of billions of dollars, how can this be?

Inability to see outside the box?  Holding to a conservative view of autocratic rule, especially on behalf of Sunni regimes, in anticipation of post-government employment as a lobbyist for Saudi Arabia?