EclectEcon

Eliminating one-cent and two-cent coins in Ireland

Former colleague Brian Ferguson sent me this link from the Irish Times several months ago. He wondered whether EclectEcon's influence [see the links here] has gone global. 

Prices in shops should be rounded up or down in an effort to do away one and two cent coins, a report recommends today.

... The Central Bank found that one and two cent coins are not actively used by consumers and are expensive to mint. In many countries, including the Netherlands and Finland, low denomination coins have effectively been removed from circulation through the use of the rounding rule. [EE: also Canada, Australia, and New Zealand]

With this rule, goods and services are still priced in multiples of one or two cent but are rounded up at the till. For expample [sic] a bill of €56.21 is rounded down to €56.20 while a bill of €56.23 is rounded up to €56.25.

The NPP says a pilot should be run in a mid-sized Irish town to investigate consumer and merchant reaction to the use of a rounding rule in Ireland. Bray, Co Wicklow, and Drogheda and Dundalk in Co Louth are in the running to be chosen to pilot the scheme.

Do a pilot study? why? They've done the reading and the research, and eliminating the low-value coins is a plan whose time has come. Just do it. The entire Euro block should do it. 

If they have some doubts, they should hire EclectEcon as a special consultant!

Brian also wondered if there is any symbolic meaning in the photo that accompanied the article. It is from a mint in Athens, Greece:

For my testimony before the Senate Finance Committee, see this. 

Addendum: For considerable precedent in many other countries, see this section at Wikipaedia.

Related articles

Plan could see one and two cent coins phased out

Rounding up? That makes cents!

European Commission outlines options for future of 1 and 2 euro cent coins

Never Again! this frightening nonsense needs to be countered constantly

A blatantly anti-semitic rally took place in Hungary [h/t Tom Palmer].

Several hundred supporters took part, despite attempts by the government to prevent it going ahead.

Jobbik said the rally was a protest against what it said was a Jewish attempt to buy up Hungary.

The party, which says it aims to protect Hungarian values and interests, is the third largest in parliament.

It regularly issues anti-Semitic statements.

It is maddening and frightening that this party is the third largest in Hungarian Parliament. Also be sure to check out the links along side that story.

"Mischievous Children on Their Way to School..." have a modern-day counterpart

In Cabaret, Herr Schultz, a Jewish owner of a fruit shop has his window smashed when a brick is thrown through it. He tries to minimize what others see as a determined Nazi attack on all Jews by saying,

They're just children. Mischievous children on their way to school.

But he was clearly wrong. The Nazis gained power and slowly began their programmes to exerminate Jews, gays, gypsies, etc.

Sadly, these "mischievous children" have many counterparts today. From the NYTimes Sunday Review,

Far-right ultranationalist groups are exploiting old enmities and new fears across the Continent. Although this is not the Europe of the 1930s, the disillusioned citizens of countries like Greece and Hungary have turned increasingly to simple answers, electing parties that blame familiar scapegoats — Jews, Gypsies, gays and foreigners — for their ills.

What’s at stake is the health of European democracy, and the values and institutions on which it rests. But while the euro crisis touched off a scramble to halt a financial meltdown, European leaders have done virtually nothing to reverse the union’s dangerous political trends.

These are not just mischievous children. These are racists, bigots, vandals, and killers. This time they must be stopped.

Addendum: I also intended to include a link to this article, which describes the rise of anti-semitism and neo-nazism in Hungary. Two items that stand out in Hungary are 

• attempts to identify and label Jewish students at university.
• placing stickers on the doors of Jewish professors telling them "the university belongs to us, not the Jews."

Related articles

Is Anti-Semitism on the Rise in The Netherlands?

Incidents make Jews wary, 75 years after Hitler annexed Austria

Cabaret: Berlin in the late 1920s, early 1930s

Cabaret, the Musical: 3.5/4 stars in a review of last night's performance at McManus Studio Theatre, London, Ontario

Cabaret, the Musical: March 22-30 McManus Studio Theatre, London, Ontario

Neo-Nazi Golden Dawn party targets schools

Is Anti-Semitism on the Rise in The Netherlands?

It sure looks that way. See this (via MA). An excerpt:

Teenage Turkish Muslim immigrants to the Netherlands expressed their admiration for Nazism and hatred of Jews during a recent interview on Dutch TV, saying Hitler “should have killed all Jews.”

In a clip from the program, which was aired in February, a Dutch researcher can be seen talking to a group of teens and asking them to express their opinion on issues related to the Holocaust and World War II. The four explain that anyone killed by Hitler was probably guilty of something, and he “didn’t kill Jews for no reason.”

This is just plain wrong and frightening.

Undoubtedly, much of the rise of anti-semitism in The Netherlands is from recent Muslim immigrants, especially Palestinian arabs. But the strength of the anti-semitism in the country has been there for quite some time and seems to be growing. And it certainly isn't all Palestinian arabs. See this.

"The study’s authors asked people if they believe that Israel is conducting an extermination war against the Palestinian Arabs. About 39% of the Dutch polled answered in the affirmative.

"Already in 2003 in a Euro barometer study, it was asked which countries are dangers to world peace. Israel came in second place after Iran. This was the opinion held by 59% of the Europeans. In the Netherlands, the percentage was the highest at 74%.”

Gerstenfeld added: “With such a diabolical opinion of the Jewish state, millions of Dutchmen are thus back in the Middle Ages mentally. Today, there are more Dutchmen with this insane viewpoint than the number of Nazis in the Netherlands during the Second World War.

" At present these views are largely latent, as were Dutch Nazi views before the war. Today there is actually more hostility against Jews than before the Second World War in the Netherlands. But if the atmosphere is ripe, violence can increase, as has happened in the past.”

Horrifying and amazing. A country which wouldn't have had to fight any wars if its neighbours had accepted the initial 1947 United Nations' creation of Israel but which must constantly defend itself, even after having withdrawn from Gaza -- and it is under attack everywhere and Jews are threatened everywhere.

Also, re: The Netherlands and persistent anti-semitism, see this: WARTIME AND POSTWAR DUTCH ATTITUDES TOWARD THE JEWS: MYTH AND TRUTH

Geert Wilders has his work cut out for him and deserves more support.

Related articles

If Being Anti-Israel Isn't Anti-Semitic, It's Mighty Close

Muslim teens in Holland applaud Hitler and the Holocaust in a shocking TV interview

Dutch Turkish youths probed for anti-Semitic statements

Italy kingmaker's anti-Jewish views under scrutiny

Is Chuck Hagel an Anti-Semite?

Probably. My internet correspondent MA sent me this link. Here is an excerpt:

[T]o my knowledge, no one has ever argued that anyone who criticizes Israel, for its foreign policies or otherwise, is an anti-Semite. Similarly, no one argues that anyone who criticizes the government of Poland, say, must be bigoted against Poles.

This red herring is used to obscure what really does happen: there are a considerable number of people, of whom Hagel appears to be one, who are obsessed with Israel, and not in a good way. Against all evidence, they assert that Israel’s accommodating the Palestinians is the key to peace in the entire Middle Eastern region if not the whole Arab world. History tells us that the supposed centrality of Israeli-Palestinian relations to everything that goes on within 2,000 miles is a fantasy, yet the fantasy persists in men like Chuck Hagel. If only Israel would yield to the Palestinians, then everything else would fall into place.

This obsession with Israel is usually combined with a hyper-critical attitude toward its conduct. The Tutus can slaughter a million Hutsis–or was it the other way around?–and hardly anyone appears to care. If Chuck Hagel ever commented on that particular bloodbath, or if he was especially bothered when a million people were killed in the Iran-Iraq war, I never heard about it. But let Israel defend itself against thousands of rocket attacks and assorted other terrorist threats, and let an Israeli bomb fall near a school because that’s where the terrorists locate their rocket launchers, and my Lord! You would think the world is coming to an end. This strange imbalance, which we see in people like Chuck Hagel, must have a cause somewhere.

 

Related articles

If Being Anti-Israel Isn't Anti-Semitic, It's Mighty Close

The Holocaust: Polish Guilt. Polish Sorrow

Thoughts On Anti-Semitism, Prompted by Hagel and Others

Chuck Hagel, anti-Semite?

Jewish Groups Must End Silence on Hagel

Colin Powell: It's 'disgraceful' to play anti-Semitic card against Hagel

A Desert Between Us and Them: a documentary about the war of 1812 as it took place in SW Ontario

I had a minor role in this. So minor, in fact, that I don't appear in this trailer:

Who really won the war of 1812? I was taught as a kid, growing up in the US, that the US won the war. Then when I moved to Canada, I was told that Canada (aka the Brits) won the war. From everything I've read, one thing emerged:

Much of the anatagonism between the the US and the Brits was that the Brits turned a blind eye to the Indians use of Canada as a haven from which they launched repeated attacks, and the US was trying to expand into the Northwest Territories (now the midwestern US). One important outcome of the war was that the Brits sold out Tecumseh and the Indians. Pretty much everything else (oh yeah, there was also the Brit impression of US sailors that was halted) didn't change much.

But no matter what history you read or how it is interpreted, this documentary brings to life a whole lot of action that we never heard much about. It was extremely well-researched and probably did about as good a job as possible in capturing the essence of the era in this area.

Canadian Humour

Shortly after I moved to Canada in 1971, someone from the US asked me, "How big a city IS Canada?"

A couple of years later, I was awarded a prize for having come the farthest to an event because I was from Canada (I'd traveled maybe 900 miles) when there was someone else there from Hawaii (what? a couple of thousand miles?).

Canadians, in general, know a lot more about the US than people from there know about Canada. When I first took my job in Canada, I read a short history book about Canada only to be aghast that

• maybe the US didn't win the War of 1812; 
• after reading that book, I knew a LOT more Canadian history than many Canadian residents.

What all this is leading up to is this article in the Washington Post about Canadian humour and the fuller article in Vanity Fair mentioned there.

From the WaPo piece:

There’s an American joke that Canada is like a loft apartment over the world’s greatest party. It turns out, judging from McCall’s history of Canadian humor, that they might all be chuckling at us up there. The unique national brand of humor is, he writes, a response to — and way of coping with — the oppressive weight of American culture.

Regardless of whether this perception of culture is correct, it is widely held, especially by producers of cultural events in Canada who resent the competition in Canada from the US. But Canadians have been wildly successful in the US entertainment business. The article lists many Canadian comedians:

The list of famous Canadian comedians is long – really long: John Candy, Dan Aykroyd, Phil Hartman (all of whom, like many others, came through the famous Toronto branch of Chicago’s Second City improv club), Leslie Nielsen, Jim Carrey, Rick Moranis, Seth Rogen, Eugene Levy, Samantha Bee, Mike Myers, Mort Sahl, and on and on.

and the list includes only comedians. Canadians are quite proud of other entertainers who also got their start in Canada.

It makes sense that Canadian entertainers would head south... that's where the big market is.

Are Jews a National Security Risk in Hungary?anti-semitism, pure and simple

Despicable.

A Hungarian far-right politician urged the government to draw up lists of Jews who pose a “national security risk”, stirring outrage among Jewish leaders who saw echoes of fascist policies that led to the Holocaust.

And yet nowhere in the article did I see any concern on the part of Jobbik or anyone else about any other group (Palestinians, Arabs, Islamists, etc) whom they might also have included. No matter how they try to dress it up, this is pure and simple anti-semitism.

 

Related articles

Hungarian Parliamentarian Wants Government to Draw up List of Dangerous Jews

Hungary: Far-right leader demands lists of Jews who pose risk to national security

Anger as Hungary far-right leader demands lists of Jews

Hungarian Government Condemns Calls for List of Jews

Hungarian Politician Denounced for Anti-Semitism

Hope and Change? Let's All Hope Melanie Phillips is Wrong

Melanie Phillips, writing after the US elections, said,

It is said that, with likely gridlock in Congress over domestic issues, Obama will concentrate on foreign policy. We should all shudder. So far, Obama has empowered Iran to destabilise the region; supported Islamist takeovers in Egypt and Libya; is backing al Qaeda affiliates in Syria; refused to come to the aid of Americans being attacked by al Qaeda in Benghazi as a result of which four American officials were murdered; and hung Israel out to dry against its genocidal Palestinian attackers. ....

Obama’s agenda has been crystal clear from the get-go: to increase the power of the state over the citizen at home, and to neutralise American power abroad. Four more years of this and he’ll almost certainly have succeeded.  The impact upon western security could be cataclysmic.

Britain and the Europeans love Obama because they think he will end American exceptionalism and turn the US into a pale shadow of themselves. What they don’t realise is that, all but lobotomised by consumerist rights, state dependency, victim culture, sentimentality, post-religion, post-nationalism and post-Holocaust and Empire guilt, Britain and Europe are themselves fast going down the civilisational tubes. (emphasis added)

If you want to see some more serious causes for concern, read the whole thing.

Six Steps to Inoculate Canada's Economy from the Likely Economic Problems that Will Soon Face the US

Ezra Levant recently wrote this article. Here I'm reproducing the important points he makes about Canada's economy. The Canadian economy is strong, partly because of its resource base, partly because of its comparatively low gubmnt debt and low gubmnt deficits, and partly because of the stability it provides for entrepreneurial decision-making. 

Note that Levant is only pointing out possible areas where private investors might pursue economic activity. He is NOT saying the gubmnt should invest in those areas; he is NOT saying the gubmnt should provide incentives in those areas. He is saying the gubmnt SHOULD implement policies that facilitate private decisions and private risk-taking. Unfortunately, though, that doesn't carry over to oil pipelines completely, and he still talks about oil as if "we" own it, whatever that means; that's dicey (see his point 6).

What should Canada do to protect ourselves from America’s continuing economic decline? Here are eight things:

1. Pay down Canada’s government debt. The U.S. is $16 trillion in debt, and is racking up another trillion a year. Its credit rating has been downgraded, and surely will be again. That means interest rates will rise and borrowing will be more expensive. It’s a vicious circle. We’ve got to get out of that whirlpool ourselves. Our deficit is on track to be eliminated by next year. We’ve got to keep running a surplus, and retire our debt.

2. Obama ran a class warfare campaign to soak the rich. Too bad, because the rich are the ones starting businesses and paying the lion’s share of taxes. More practically, as both John F. Kennedy and Ronald Reagan proved, lower tax rates actually increase tax revenues, as economic activity booms. Canada already has lower corporate tax rates than America. We need to keep taxes low to stimulate economic activity.

3. Low taxes could also start a northward “brain drain.” Let’s recruit the best and brightest from America to immigrate to Canada. Immigration Minister Jason Kenney recently returned from a similar trip to Ireland. Why not add on new recruiting trips to Silicon Valley, the Boston-area universities, New York and other pools of talent who might prefer our stronger economy and quality of life?

4. As a country of just 34 million people, we need more human capital. But we need more financial capital, too. Just to develop our oilsands could require $100 billion — more than Canadians could invest. What a perfect time to steer foreign investors away from riskier

U.S. assets and into Canada. We need to immediately modernize our foreign investment review rules, to avoid the confusion and uncertainty arising from our delays of $21 billion in proposed Petronas and CNOOC investments.

5. We need trade agreements with those parts of the world that are actually growing — especially Asia. The Conservatives are currently negotiating more trade treaties than ever before. Some, like with Panama, are small. Some, like with China, are rudimentary. But a few billion here and there starts to add up — and we need it all to offset our dependence on the U.S.

6. One of our biggest exports to the U.S. is oil — about 2.2 million barrels a day. But there are two problems with that: Because all of our oil is sold to the U.S., our oil sells for $25 per barrel less than if we could sell it to other customers at world prices. And there’s another risk: In his election night speech, Obama talked about “global warming” again — signaling that he may permanently block the Keystone XL pipeline to the U.S., or add a new carbon tax, or both.

That means it’s more important than ever to build new pipelines to the Pacific — not just the proposed Northern Gateway Pipeline, but the doubling of the existing Transmountain pipeline that already goes to Vancouver.

 

Antisemitism in Malaysia:Fulford Takes on Simpson and Burman

Robert Fulford, writing in the National Post, itemizes the antisemitism extant in Malaysia and in the process criticizes columnists Jeffrey Simpson of the Globe and Burman of the Star. 

It’s only when we grasp the unremitting and mindless hostility of countries such as Malaysia that we begin to understand the pain and difficulty of Israel’s place in the world. This is the context in which we should think about the Harper government’s pro-Israel policy. Israel faces automatic enmity from all the Arab nations, most other Muslim-dominated states and the many organizations in democratic countries that dedicate themselves to showering abuse on Israel (and no one else) in the name of human rights....

Yet many Canadians apparently believe that there is something unfair in this situation, not in the invective heaped on Israel but in Canada’s habit of friendship with the only democracy in the Middle East. It’s argued that this policy has done harm to Canada. Jeffrey Simpson of The Globe and Mail says that because of our attitude to Israel, “Canada’s reputation in the Arab world is mud.” Tony Burman, of the Toronto Star, former head of Al Jazeera English, and now a journalism teacher at Ryerson University, says that our government’s “passionate pro-Israeli stance” has damaged Canada’s reputation throughout the Middle East “after decades of being one of the world’s respected ‘honest brokers’ on Mideast issues.”

Of course there are many reasons for Canada's pro-Israel stances: democracy, constant threats of annhilation, and expulsion of Jews from so many arab and other Muslim countries to name three important ones.

Venezuela: Demagoguery that Doesn't Help the Poor

One reason I wish the world price of oil would fall is that it might speed the departure of this autocrat. From the NYTimes,

 Venezuela’s traditional dependence on oil exports has deepened, with 96 percent of export revenue now coming from the oil industry, up from 67 percent just before Mr. Chávez took office. Nationalized steel mills produce a fraction of the steel they’re designed for, forcing the state to import the difference. And nationalized electric utilities plunge most of the country into darkness several times a week. The contrast with Brazil’s high-tech, entrepreneurial, export-oriented economy couldn’t be more stark....

With oversight institutions neutered, the president now runs the country as a personal fief: expropriating businesses on a whim and deciding who goes to jail. Judges who rule against the government’s wishes are routinely fired, and one has even been jailed. Chávez-style socialism looks like the worst of both worlds: both more authoritarian and less effective at reducing poverty than the Brazilian alternative. 

Queues for all the products for which Chavez has instituted price controls speak loudly to his failed economic policies. How is it that economists have done such a poor job of educating both voters and politicians about how badly price controls distort the economy and make so many people so much worse off?

Why SouthWestern Ontario Should Receive Aid from the Rest of the World

I live in the Southwestern portion of the Province of Ontario, Canada. This geographic region has never been a recognized distinct political entity. But it should be, and it should receive aid from everyone else in the world as we continue our struggle for independence and recognition.

Early in the history of this region there were warring tribes, including the Neutrals, the Huron, the Chippewa (Ojibwa?), et al. Later, as other tribes fled the invasions of white settlers, they, too settled in the area, and these newcomers fought murderous wars with the earlier tribes. Then as the British settled the area, there were new various local settlements, all under the rubric of "Upper Canada".

But we never had our own, distinct government in Southwestern Ontario. 

Then, as Quebec passed its onerous language and signage laws, many Anglophones moved to Ontario, especially southwestern Ontario. The influx of people to southwestern Ontario means that we are now a people.

We are not just Ontarians; we have a special identity and we have needs that differ from those in other parts of Ontario specifically and North America in general. We have never been fully assimilated into the rest of Ontario. We are a unique people, and we deserve support and recognition as such.

To that end, I propose the creation of an organization: The Ontario Liberation Authority. The OLA must continue the struggle for our own nationhood and freedom from the rest of Ontario and Canada. 

More Toothless Treaties from the EU

Once again European leaders have announced a treaty to deal with the sovereign debt crisis in Europe, most notably resulting from fiscal profligacy in Greece, Portugal, and Italy. These agreements are toothless. They have no enforcement mechanism, and they do nothing different from what the initial EU and Euro treaties did: they extract promises from all parties that they will act to reduce their annual deficits and, if they do, then other countries might help them through the difficult periods. From WaPo:

European leaders adopted a groundbreaking new treaty Monday that binds them to imposing caps on deficits and government debts to combat the painful financial crisis that has sabotaged prosperity across the continent and left it slipping toward recession.

The treaty, endorsed by 25 of the 27 European Union governments, was intended as a gesture to show skeptical financial markets that European governments are at last committed to gaining control over lax borrowing habits that over the last four decades have helped create dangerously high debts.

I nearly lost my coffee onto the computer screen when I read that. As the article further notes,

... [A] chorus of European officials and economists have questioned the wisdom of the treaty in the first place. The pact was unnecessary, they contend, because European rules — merrily ignored over the years — already forbid excessive government deficits ...

These promises might sound nice politically. But unless they can be enforced (how?), they merely prolong the agony and open the door for protracted gamesmanship. 

What will Germany (and France? others?) do if Greece (along with Italy and Portugal?) does not get its fiscal house in order? 

• Invasion and conquest are not likely options.
• Tell them they must try harder.
• And we really mean it this time.
• Kick them out of the EU and the Euro pact? 

The last option is the only realistic one. The only question is, how long before it happens, before Greece de facto defaults even more on its debt by abandoning the Euro, and consequently many financial institutions, counting on bailouts from the IMF and their own gubmnts, lose buckets of money? Or will the taxpayers of these countries hosting these banks once again be required to bail out the stockholders and creditors of those financial institutions? 

This is moral hazard, writ large on an international scale.

- - - -

Addendum: Stratfor points out that a variant of the first option listed above is not beyond the realm of possibility:

The German government proposed last week that a European commissioner be appointed to supplant the Greek government. While phrasing the German proposal this way might seem extreme, it is not unreasonable. Under the German proposal, this commissioner would hold power over the Greek national budget and taxation. Since the European Central Bank already controls the Greek currency, the euro, this would effectively transfer control of the Greek government to the European Union, since whoever controls a country's government expenditures, tax rates and monetary policy effectively controls that country. The German proposal therefore would suspend Greek sovereignty and the democratic process as the price of financial aid to Greece.

Though the European Commission rejected the proposal, the concept is far from dead, as it flows directly from the logic of the situation.

 The EU rejected this proposal. Understandably. How might the EU enforce it if Greece, at the last minute, refuses to hand over the controls to their gubmnt?

 

High School "Economics"? A tragedy in so many cases

A Facebook friend who is in high school wrote, 

Was just exposed to the most patronising, liberally biased video in class, which is being taught as fact. How is this allowed?

It was a 45 minute video about how we should feel bad for having more than third world countries and should therefore stop buying and producing things for ourselves until others have the same stuff as we do. I wasn't allowed to suggest alternatives. I was also told I was out of line for suggesting that perhaps this wasn't the best source we could have used.

To every student who faces this situation, and to every teacher who wants to consider alternatives, I have two recommendations.

First, read the famous Krugman piece about third-world labour, In Praise of Cheap Labour. It is a classic, very readable piece that points out how much better off workers are in the third world because we buy stuff that they manufacture.

Second, look for some Free to Choose videos by Milton Friedman. These are some of the best analyses, again at an accessible level, of policy formation that does and does not help poor people. 

 

The Flight to Safety?

According Bloomberg, US 90-day T-bills are pay zero interest right now. That's right, zero:

BONDS

U.S. 3-month	0.000%
U.S. 2-year	0.198%
U.S. 10-year	1.713%

Why on earth would people pay a dealer's commission to buy something with a zero interest rate for the next 90 days? Here are some possible explanations:

• The US economy may be in serious trouble, but for the next 90 days (even 2 years or 10 years, judging from these interest rates) people think the US is far less likely to default on its debt (or experience rampant inflation) than any other country. This is a flight to safety.
• Further, people expect that even though the US economy is in trouble, other economies (especially those using the Euro) are likely to inflate much more rapidly over the next 2 - 10 years. If their own currency suffers from inflation, then holding assets in US bonds will net them major gains in terms of, say, the Euro. If the Euro inflates more rapidly than the US$, then the US price of Euros will continue to drop over time. Shifting 100 Euros to the US might (according some people's expectations) lead to a return of 110 Euros two years from now if this happens, even if the funds in US$ earn nothing!
• Another possibility: some people think there has been a gold bubble. If so, they would rather earn zero (or very low returns) rather than suffer a capital loss from holding gold or other commodities. [think of the folks who lost small fortunes in the late 1970s when the price of gold dropped from $900/oz to $300/oz]
• Maybe I misread the Bloomberg charts. I admit to this possibility.

Nevertheless, my best guess is that people really are at their wits' ends and have no idea what might happen over the next 90 days, 2 years, or even 10 years. If the Euro crashes or if the Middle East erupts, in either case, US t-bills look comparatively safe. Note my emphasis on the word "comparatively".

So why don't more people put their money in Cdn T-bills, Aussie T-bills, etc.? 

My friend, King Banaian (presently a representative in the Minnesota house, and a fine economist) says it's because there aren't enough of these other T-bills for any of them to form a strong alternative to US T-bills. 

But I certainly would expect more positive action for Canadian currency and Canadian T-bills. As I wrote to my friend, Romero, this morning, I expect the price of the Canuck buck to rise to $1.10US eventually. But when and how long it will take to get there is way up for grabs. And meanwhile other things can change to affect this exchange rate.

Addendum: For more on the problems (and flight from) the Euro, see this. Excerpt:

Another current of gloom, slower-moving than the debt crisis but just as ominous, is also in full flow. The outlook for the euro-area economy is deteriorating fast, which augurs ill for attempts to wrest the finances of indebted countries under control. At best there will be a wrenching slowdown; at worst, a relapse into recession.

Put differently, if you are CFO for a major international firm, would you rather place some short-term funds in banks that might be in big trouble any day now because of their holdings of risky sovereign debt? Or would you rather just park the funds in US gubmnt t-bills. I can understand why lots of CFOs would take the latter option.

People Respond to Incentives: Divorce and Real Estate Speculation in China

Whenever people are rewarded for being single, there is an incentive for at least some of them to remain single or even fake divorces. The latest evidence comes from China, where couples fake a divorce so that each of them can legally buy more homes, in hopes of cashing in on China's real estate bubble that is being fueled, in part, by the growing wealth in China [h/t Jack].

[G]overnment initiatives to curb a housing bubble are behind the trend. China has raised the down payment for second mortgages, and about 40 Chinese cities have begun to limit apartment purchases to two per family, or one for non-locals. The government has also asked commercial banks to stop offering loans to third-home buyers.

To get around the restrictions, Chinese couples are flocking to so-called fake-certificate companies, which sell phony divorce papers for 300 yuan, or about $45. Getting “divorced” allows couples to register properties under separate names.

Of course the total transaction costs are higher than just $45 [US]. There are also the emotional costs of even faking a divorce. These can arise from the fakery of it all and/or from the uncertainty it might create about the longevity of the marriage. And I'm sure there are others, too.

But the point is: when incentives are provided, people respond to those incentives. An equally important point is that human ingenuity finds creative ways around gubmnt regulations, something we must keep in mind when trying to interfere with market forces.

 

China to US: "If you aren't nice, we won't be your friend any more."

China warns the US gubmnt to shape up or else. Or else what? [From WaPo, h/t Jack]

“China, the largest creditor of the world’s sole superpower, has every right now to demand the United States to address its structural debt problems and ensure the safety of China’s dollar assets,” Xinhua said. 

The US is now in a position of being a recalcitrant teenager who sullenly sits through lectures from its parents but doesn't change its behaviour, knowing full well that the parents will do nothing to punish them if they don't change their behaviour.

What's China gonna do? Sell US t-bills and buy what? There aren't enough t-bills in existence from stable economies. In fact, compared with many Euro economies, US t-bills are looking pretty darned marketable.

So for the next five years, China (and others) may buy minisculely more Canadian or Australian or maybe even Japanese t-bills, but the demand for US t-bills is going to remain quite high (barring major fiscal fiascos). As a result, the US can continue its policy of debt-ceiling creep, and China will have little option.

For more on the US dollar as a reserve currency, see this. Look carefully at the graph there (reproduced below) and provide a better answer to what currency might serve as an international reserve currency. And note carefully that the Canuck buck doesn't even make the list.

 Update: For more along the lines of what I've said, see this in Bloomberg:

Asian states are likely to retain their U.S. Treasury holdings for now and European governments have expressed confidence in the world’s largest economy after Standard & Poor’s cut the U.S.’s sovereign credit rating to AA+.

South Korea affirmed confidence in Treasuries after an emergency meeting of officials yesterday to prepare for any financial market fallout. Russia said the one-step cut “can be ignored,” and France questioned S&P’s reasoning. China’s official Xinhua news service said in a commentary that the U.S. must cure its “addiction” to borrowing.

For all the angst, policy makers across Asia are lured to Treasuries as a result of efforts to stem gains in their currencies against the dollar, which would impair export competitiveness. 

As some of my former students asked in email and FaceBook, this response implies that the interest elasticity of demand for US t-bills is mighty low in this range.

 

The Spiraling Euro

When the Euro was created, I was one of the skeptics who wondered how long it would survive. As the Euro flourished and gained strength on international markets, I figured there must be something about it that I just didn't understand.

And now I think maybe I understood it pretty well in general but didn't (and still don't) understand the time lags and dimensions.

My early concern was the same as my ongoing concern about the Euro: How can a central monetary union survive if the members of the union cannot discipline or force fiscal responsibility upon its more profligate members? 

Der Spiegel has an excellent 5-part series about the Euro crisis [h/t MA] that seems pretty comprehensive. Some highlights:

The monetary union is a fair-weather construct, as a number of economists said from the beginning. American economist Milton Friedman, for example, predicted that the euro would not survive its first major crisis, and later, in 2002, he added: "Euroland will collapse in five to 15 years."

The reason for the skepticism by Friedman and others was that the monetary union has little or no way to force countries to adopt fiscally responsible policies. Countries like Greece (though I confess I expected Italy to be the most flagrant borrower) can run up massive debts and play "chicken" with the rest of the members of the union. At that point, the solid members must decide what will hurt worse, bailing out Greece (and others to follow) or watching the disruptions emerge as Greece (and others?) default and/or withdraw from the currency union.

 In the end, a country with a large deficit has three options. First, it can declare itself insolvent and, after restructuring its debt, attempt to rebuild its economy. Second, it can also withdraw from the monetary union and reintroduce its national currency. Third, it can convince the creditor countries to keep issuing new loans, thereby providing it with permanent financing.

For more than a year now, European governments have been trying out a fourth option: muddling through.

And I fear that "muddling through" will do little more than make the agony worse in the future.

I might be wrong. Politicians in Greece, Spain, and Portugal might eventually be able to use enough force to implement the requisite austerity programmes. Voters in those countries might eventually come to recognize that their politicians and financial managers had (mis)led them down a path that was unsustainable. 

For the sake of the people holding Greek bonds, I hope these "muddling through" scenarios can work. But meanwhile, I have little interest in holding the debt or equity of financial institutions heavily invested in Greek, Spanish, or Portuguese gubmnt bonds.

In the case of Greece, it looks as if many financial institutions are bailing out.... themselves:

German banks and insurance companies have systematically reduced their holdings of Greek government bonds. Since the beginning of 2010, they have reduced their total exposure from €34.8 billion to €17.3 billion, not including debt held by the state-owned development bank KfW. Insurance companies have reduced their investment in Greek bonds from €5.8 billion to only €2.8 billion in the last year.

This seems like a sensible strategy. What surprises me, though, is that many financial institutions have not unloaded all their potentially bad debt. I suspect there are two (and probably many more) types of explanations for holding onto the Greek and other debt:

• The firms that continue to hold Greek debt expect the taxpayers of other countries to bail out Greece....again. They are betting that Greece will be deemed "too large to fail" in the eyes and wallets of many European politicians and bankers.
• The firms that continue to hold Greek debt are under immense political pressure to sacrifice potential soundness of their investments for the sake of possibly holding the Euro together.

Part 5 of the article sets out some possible outcomes:

[W]hat happens if a country can no longer meet its payment obligations or if a member leaves the monetary union? And how can imbalances in a common currency zone be averted?

There are essentially two alternatives. The first is a radical one, in which the governments pull the plug and leave the beleaguered countries to fend for themselves. The second, more pragmatic solution is to continue muddling along, though somewhat more efficiently, and to hope that things improve. Neither option will be cheap.

 

 

Ann Coulter on Mob Riots versus Political Movements

From a Townhall article, quoting Ann Coulter,

The high-water mark of mob behavior, she believes, was the French Revolution. "The American Revolution was a revolution of ideas," she explains. "The idea of a constitutional, representative democracy, based on the consent of the governed, in the form of three competing branches, was revolutionary. The French Revolution -- which hardly deserves to be mentioned in the same breath as the American Revolution! -- was a protracted mob action, which mostly consisted of some French people mindlessly beheading other French people. The French Revolution was not inspired by some groundbreaking political manifesto like the Declaration of Independence. It was more like a street riot that got out of control and went on for years because they let it.

This distinction is probably important for understanding the Arab Spring. On the one hand, the revolution of ideas might help many protestors win support from the West; on the other hand, much of the protest action seems more like mob rule, an attempt by a different gang to wrest control from the encumbent gang. I would like to think the US State Department is at least considering this distinction.

Differential Treatments for Different Arab Leaders by Western Leaders

This column by Khaled Abu Toameh highlights what looks like quite different treatment of Arab leaders by the West. 

It took President Barack Obama nine days to condemn Col. Muammar Gaddafi's massacres in Libya as "outrageous" and "unacceptable."

It took the UN Security Council more than a week to hold a closed-door meeting and issue a tempered statement condemning the violence in Libya and calling for its immediate end and for those responsible to be held accountable.

This is the same Libya that was elected to UN Human Rights Council less than a year ago. To be honest, I know of no one who could justify that election. Toameh continues:

But both Obama and the Security Council stopped short of calling for Gaddafi's removal from power for perpetrating atrocities against his own people.

The Europeans have also been cautious in their response to the carnage in Libya. They too have refrained from calling for regime change in Libya.

One can understand why Americans and Europeans are worried about their economic interests in Libya, especially with regard to oil. It is also likely that the West is embarrassed about its relationship with the Libyan dictator who, despite his crimes, was welcomed back into the international community in 2003.

Then, Gaddafi was apparently forgiven for his role in the Lockerbie plane explosion and support for countless terror groups in the Arab and Islamic world. Gaddafi was forgiven because he had agreed to abandon his nuclear ambitions and promised to be good.

... Obama and US Secretary of State Hillary Clinton seem to be more troubled by the death of 300 Egyptians than the brutal massacring of thousands of Libyans. Obama and Clinton seem to be more worried about construction in Jewish settlements than war crimes and serious human rights violations in the Arab world.

The US Administration and the rest of the international community have once again sent a message to the Arabs that they do not really care about human rights and democracy and that they are ready to sacrifice thousands of Arabs to keep the oil prices as low as ever. Mubarak was unfortunate because his country does not have oil.

Now at least the Arab people know that they can no longer rely on Obama and Clinton to support any of their pro-democracy movements.

For more on the situation in Libya, see this (h/t JY). Now just imagine if, say, in 2003, the US had invaded Libya to "make it safe for democracy and to promote human rights." I doubt the rest of the world would have supported US (and ally) efforts back then.

Alternatively, imagine if the US had invaded Libya instead of Iraq. Do you think the US would have gotten away with doing so and had support from other countries? I doubt it. People would have said the US was after Libya's oil. In that respect, the US was damned if they did, damned if they didn't.

So even though Libya and Gadaffi have perpetrated massive human rights violations, it is perhaps unrealistic to put too much responsibility on the West. 

Facebook, Networking, and the World

An amazing map, showing Facebook friend links and patterns of the links around the world [h/t BS]

From this site, 

It looks like a view of the world taken from space, with major cities glowing with electric lights.

But this remarkable picture is actually a visualisation of millions of Facebook friendships between cities around the world

The Importance of Well-Defined Legal Rights (and low transaction costs): the long-term problems facing Haiti

Most economists acknowledge that specialization, exchange, economic growth, and poverty alleviation depend on the two conditions set out in The Coase Theorem:

• If there are well-defined and well-enforced property rights, and
• If transaction costs are low, then
• scarce resources would tend to move toward their most highly valued use (i.e be allocated efficiently).

Without these conditions being met, people are reluctant to sign contracts, make deals, and invest for the future. And without investment for the future, the economy is unlikely to grow and people are likely to remain poor.

In a column for the National Post, Lorne Gunter points out that these conditions for exchange, investment, and growth are far from being met in Haiti, and have been for decades:

Because Haiti was then (and remains) without an impartial court system for defending property rights and had no means of registering title in land or buildings, banks were unable to lend money using property and possessions as collateral. By de Soto’s calculations, Haitians owned, in real estate alone, more than 150 times the value of all direct investment made by foreigners in the country’s history, but it was what he termed “dead capital.” Because they could not be used to acquire loans to open new businesses, build new buildings, buy new machinery, all these assets were “dead” to the people who owned them.

It’s easy to see how this lack of a functioning banking and land titles system has crippled Haiti’s recovery. While as many as 150,000 homes were destroyed in and around the capital, Port-au-Prince, alone — and 250,000 nationwide — only about 5% of Haitians had clear enough title their homes to obtain insurance. If you put everything you have into building a house that is then wiped out, but you lack insurance to rebuild it, it might take years to save up enough cash to start over — and years longer, still, if you have no work and have to pay to clean up the rubble of the old house, too.

If there were well-defined and well-enforced property rights (vs. the kleptocracies of so many developing countries), then people would have more of an incentive to invest for the future. This is a necessary condition for economic growth and the alleviation of such horrible poverty in Haiti. 

But I despair about how long it might take for such conditions to evolve. Meanwhile, we try to help, we send resources (capital, skilled labour, food, clothing), and while our doing so helps keep many people from starving or dying of diseases, our doing so also does nothing to help promote economic growth and development.

Addendum: Ronald Coase recently turned 100 years old. His writing and his thinking have had big impacts on the economics profession. He was a deserved winner of the Nobel Prize in Economics.

The Dwindling Voices of Moderate Muslims

My friend and colleague, Salim Mansur, writes a weekly column for the Sun chain (& others). His latest column decries the attacks on Muslims who speak with moderate and moderating voices (as he does). His concluding paragraph is both accurate and depressing:

 I witnessed that genocide first-hand [in Pakistan/Bangladesh in 1971]. And now I watch from some distance the predictable implosion of a nuclear weapon state and the slide of a whole region into the dark bowels of barbarism.

It is even more than depressing; it is frightening. And there is no easy solution. 

As he says in the column,

A few days after the church bombing [of the coptic Christian church in Egypt], Salman Taseer, governor of Punjab, Pakistan’s most populous province, was gunned down by a member of his elite security detail in Islamabad, the country’s capital.

Taseer represented the rapidly dwindling number of Pakistanis who may publicly describe themselves as “liberal” or “secular” Muslims.

Taseer’s crime — according to the accused killer and the majority of Pakistanis who likely approve of the murder — was his request for presidential clemency for a Christian woman, Asia Bibi, detained on death row under the country’s blasphemy law, and his effort to repeal this reprehensible statute.

 The accused murderer of Taseer, when brought to court for indictment, was greeted with a shower of rose petals, and by several hundred lawyers prepared to defend him at no cost.

U.S. aid (bribes) has clearly not been an overwhelming success in Pakistan. 

Some Interesting Comparisons between China and the US

A few of my favourites from this list:

• China's economy grew 7 times as fast as America's over the past decade (316% growth vs. 43%) [and yet:]
• China's GDP per capita is the 91st-lowest in the world, below Bosnia & Herzegovina.
• The world's biggest mall is in China... but it has been 99% empty since 2005.

WikiLeaks and the Economics of Property and Information

Let's get one thing clear: WikiLeaks is not entirely about freedom of expression. It is also about publishing stolen information. It does, however, raise an interesting question about who should have what legal entitlements to do what with intercepted or stolen diplomatic communications. This point is made quite forcefully by Janet Daley in The Telegraph.

In its self-contradictory maintenance of its own untraceable operations, it [WikiLeaks] effectively declares itself to be the only agency in the world that is entitled to secrecy. Its insistence that it is somehow a voice of open and transparent “freedom of expression” is simply absurd: there is no issue here of any individual or group openly expressing an opinion that would otherwise have been suppressed. The only opinion that is implicitly conveyed by WikiLeaks’ exposures is the boringly prosaic anti-Americanism of the average Guardian comment writer.

All that WikiLeaks has done, as its name suggests, is to publish stolen documents that were purloined by a malcontent within the US defence network. As it happens, the leaked material has been almost entirely unsurprising, apart from one rather spectacular own goal in WikiLeaks terms: it turns out that a number of Gulf states have been urging the US to strike at Iran before it succeeds in producing nuclear weapons, and that the US has been resisting this pressure. This tends to undermine both the image of America as trigger-happy warmonger and the idea that the entire Muslim world is united in hatred and distrust of the Great Satan.

 There are, of course, at least two parties involved in the WikiLeaks: those who "stole" the documents and provided them to WikiLeaks; and WikiLeaks itself. WikiLeaks is probably more like a publisher than anything else and will quite possibly be protected under freedom of the press. At the same time, I'm not sure that freedom of the press protects disclosure of "official secrets"; my recollection from The Pentagon Papers escapade of 1971 is that it does in at least some instances (for example, see this); but even if it doesn't, if the only relief is injunctive, it's too late now -- the cat's already out of the bag.

Update: George Friedman of Stratfor has pretty similar views.

US Liquidity and China's Accumulation of Dollars

As the Fed creates more money, the Chinese gubmnt seems to be soaking up the extra liquidity by holding more US dollars. This phenomenon is a far cry from the liquidity trap that Keynes, Hicks, Hanson, Ackley, et al used to describe. As John Lott points out, the US is trying to cause a bit of inflation to stimulate their economy, but China has been thwarting these attempts by simultaneously increasing its demand for US dollars (to hold).

It may seem like a pretty good deal for Americans. We give the Chinese pieces of paper (or their equivalent) and they give us goods. But no one, not even the Chinese, are [sic] going to be willing to do this forever. It would be great for us if they would let this go on, but at some point just piling up dollars and giving us products is going to be too costly for them. And when they dump all those dollars, the real problem starts. All that pent up inflation is going to be released. 

 Indeed, the process may be starting. Just this last Wednesday, the Chinese and Russians announced that they would quit using the dollar for trade between their two countries.

 The U.S. is playing a high stakes game of chicken. Will the Chinese want to hoard more dollars as the U.S. government prints up nearly a trillion more dollars? Money that will just sit around and not even earn interest? The irony is that despite the Federal Reserve and the Obama administration attacking the Chinese propping up the value of the dollar, we must hope that they continue doing just that. If the Chinese start dumping dollars, not only will the $880 billion come back, but so might all the other money that the Chinese have been absorbing over the years.

Short the US dollar. And I certainly would not want to hold any long-term bonds denominated in US dollars. What astounds me is that more people don't have similar expectations. If they did, US interest rates would be creeping upward. 

 

The US State Department and Israel: getting it right

I am on a very interesting e-mail list called "Daily Alert" which provides news about Israel and the Middle East. This item appeared today, and I was delighted to see the US's continued strong support for Israel along with its growing concern about the increasing virulent forms of antisemitism that are emerging.

• U.S. Denounces "Obsession with Condemning Israel"
  Hannah Rosenthal, U.S. Special Envoy to Monitor and Combat Anti-Semitism, told a conference on "Combating Anti-Semitism" in Ottawa, Canada, on Nov. 8: "Opposition to a policy by the State of Israel morphs into anti-Semitism easily and often. We record huge increases in anti-Semitism whenever there is activity in the Middle East. This form of anti-Semitism is more difficult for many to identify - but if all Jews are held responsible for the decisions of the sovereign State of Israel, when governments call upon and intimidate their Jewish communities to condemn Israeli actions, when academics from Israel are boycotted - this is not objecting to a policy - this is anti-Semitism."
      "Our State Department uses Natan Sharansky's framework for identifying when someone or a government crosses the line - when Israel is demonized, when Israel is held to different standards than the rest of the countries, and when Israel is delegitimized. These cases are not disagreements with a policy of Israel, this is anti-Semitism. The U.S. is often the only "no" vote in international bodies who seem to have an obsession with condemning Israel."  (U.S. State Department) 

 

PM Harper on Anti-Semitism and Israel

An excellent summary of Canada's position. Here are some excerpts:

In Canada, we have taken a number of steps to assess and combat anti-Semitism in our own country. But of course we must also combat anti-Semitism beyond our borders, - an evolving, global phenomenon. And we must recognize, that while its substance is as crude as ever, its method is now more sophisticated.

Harnessing disparate anti-Semitic, anti-American and anti-Western ideologies, it targets the Jewish people by targeting the Jewish homeland, Israel, as the source of injustice and conflict in the world, and uses, perversely, the language of human rights to do so.

We must be relentless in exposing this new anti-Semitism for what it is. Of course, like any country, Israel may be subjected to fair criticism. And like any free country, Israel subjects itself to such criticism – healthy, necessary, democratic debate. But when Israel, the only country in the world whose very existence is under attack – Is consistently and conspicuously singled out for condemnation, I believe we are morally obligated to take a stand. Demonization, double standards, delegitimization, the 3 D’s, it is a responsibility, to stand up to them.

Where Are Arab-Islamic Leaders on This? the church bombing in Baghdad

Salim Mansur asks pointed questions about leaders in the Arab-Islamic world in his most recent column:

... [I]f such an atrocity was not just another criminal event in a "normal" day across the Arab-Muslim world, then we should have heard of a special meeting being called at the UN, or in one of the capitals of member states of the Organization of the Islamic Conference, to express outrage against those who killed innocent worshippers inside Our Lady of Deliverance Syriac Catholic Church in Baghdad.

We then should have heard of Muslim political and religious leaders expressing their grief over the dead and wounded — there were some 120 Iraqi Christians in attendance at the Sunday evening mass when Muslim terrorists attacked the church and left 58 dead with only a dozen escaping unhurt.

Instead, we have deathly silence of the Muslim leadership as non-Muslim minorities inside the Arab-Muslim world are routinely abused, their homes and places of worship under daily duress, and their hearts filled with fear of violent death in the hands of Muslim jihadis.

The silence signifies the abdication of any responsibility by governments of the Arab-Muslim world to protect non-Muslims in their countries, and severely punish those who target them.

... The simple truth is Muslims are among the worst perpetrators of crimes against non-Muslims, and penalties based on obsolete jurisprudence of Shariah implemented in Muslim states violate the UN Charter and the Declaration of Human Rights, to which they are signatories.

Query: when will the fatwa be issued against Salim Mansur? Or has one already been issued?