RGE's latest mailing brought to my attention this earlier YouTube propaganda clip by the firm CITGO. It is of course owned by Venezuela's national oil firm, PDVSA. If you will recall, Hugo "Go to Hell, Gringos" Chavez made a PR stunt earlier in the year by using it to sell low-priced heating oil to poor Americans. The ploy supposedly demonstrated that Venezuela's leader cared more for America's poor than Bush did. (Among other things, Chavez has called Bush the devil.) It was a pretty good stunt if attracting attention was the goal. Will Chavez make CITGO do so again in 2008? Your guess is as good as mine. Goodness knows energy prices are even higher now.
Thursday, December 27, 2007
RGE's latest mailing brought to my attention this earlier YouTube propaganda clip by the firm CITGO. It is of course owned by Venezuela's national oil firm, PDVSA. If you will recall, Hugo "Go to Hell, Gringos" Chavez made a PR stunt earlier in the year by using it to sell low-priced heating oil to poor Americans. The ploy supposedly demonstrated that Venezuela's leader cared more for America's poor than Bush did. (Among other things, Chavez has called Bush the devil.) It was a pretty good stunt if attracting attention was the goal. Will Chavez make CITGO do so again in 2008? Your guess is as good as mine. Goodness knows energy prices are even higher now.
Wednesday, December 26, 2007
Securitization involves the packaging of various assets to be sold to other investors in the form of, well, securities. Most infamously, residential mortgage backed securities or RMBS have been in the limelight as the subprime mess has hit primetime and housing loans which should never have been granted in the first place have begun defaulting in ever higher numbers. Actually, I am not a hardened critic of the idea of securitization as it can serve as a worthwhile way for securing additional funding. However, there isn't much you can do when what is being securitized is garbage to begin with like in the case of the housing mortgage mess. Garbage in, garbage out--there is no such thing as financial alchemy that allows trash to end up golden. King Midas is not a mortgage broker.
I got a chuckle after visiting the American Securitization Forum website and seeing a notice that its 2008 annual conference will be held in Las Vegas for the second year in a row--at the Venetian, no less. If you're a hard boiled critic of the whole securitization mess, the choice of location is rich with irony. Las Vegas, the "ultimate boomtown," is now beset with the highest rates of foreclosure in the US as that market has cratered, to state things conservatively. Is securitization all smoke and mirrors, mere hocus-pocus, or both? And, is securitization a fancy word for gambling, oftentimes with the fortunes of others? You've got all the Star Wars droids being discussed at this event, that's for sure--CDOs, CLOs, RMBS, ABS, ABCPs, SIVs, etc. In particular, I am keen on the concept of "whole business securitization." While pretty much any asset which yields an income stream can be securitized, this kind of securitization involves what it says--securitizing an entire business operation. As the link above suggests, this kind of securitization is more worthwhile for firms that are rich in intellectual property--brands, patents, and trademarks. Given the current rate of financial innovation, maybe we'll see "whole country securitization" in a few years' time...
Relatively moribund financial markets in Japan have led the government to shake things up yet again to get more activity going. Time and again Japan has experimented with financial reforms to enliven this sector. However, many of these efforts have been piecemeal and have not really resulted in the intended improvements. With the likes of Sydney, Hong Kong, and Singapore becoming relatively more competitive than Tokyo in the Pacific Rim by offering lower taxes and regulation, Japan has little choice but to make more "market-friendly" reforms should it wish to remain a financial center worth its salt. Dare we say that it is becoming more (gasp) neoliberal? As with most reforms, it is good to ask whether they are culturally appropriate. Though it is not talked about all that much, the success of many reform programs is contingent on the goodness of fit of such efforts with prevailing socioeconomic institutions. From the Financial Times:
The Japanese government has agreed to a sweeping reform package designed to revitalise the country's financial markets, including eliminating the firewalls that keep a strict division between banks and securities companies.
The measures unveiled by the Financial Services Agency on Friday constitute the most comprehensive programme of financial sector reforms since Japan's Big Bang financial deregulation in 1996. The latest effort to boost the country's financial competitiveness comes amid concern that Tokyo, capital of the world's second-largest economy, is losing out to other regional financial centres due to problems ranging from outdated rules to high taxes.
A survey conducted this year by the Corporation of London ranked Tokyo 10th in the world in its competitiveness as a financial centre, below not only regional rivals Hong Kong and Singapore but also Frankfurt and Sydney. The FSA plan, which incorporates about 60 specific deregulation measures, has been welcomed by industry groups. "There is a lot that is good in there," said a representative for a foreign bank. "It's not the end of the story. They need to keep doing more to globalise Tokyo as a financial centre."
The FSA wants to promote the participation of foreign financial institutions, hedge funds and others in Japan's markets and encourage the shifting of household savings into investments [presumably away from the post office--the largest player in the industry]. Under the latest programme, the firewalls that separate banking and securities companies will be lowered to allow financial conglomerates that conduct banking, securities and other financial services businesses to operate more closely and share customer information. This step is particularly welcomed by foreign banks, which have complained the strict separation of banking and broking in Japan has added to costs, hampered operational efficiency and even jeopardised internal risk management.
Another key measure is the decision by the finance ministry to exempt offshore funds from permanent establishment taxation. Under existing rules, offshore funds that conduct business with an agent in Japan are potentially liable for Japanese taxes. The new measure would make it clear that offshore funds will not be subject to such taxation. Other measures include deregulation to allow a broader range of products to be traded on markets and to allow the establishment of markets for professional investors with less stringent rules than those that apply in other markets.
Sunday, December 23, 2007
For a bit of a change befitting the holiday season, here's some economic history about the city I am currently living in. Pictured is a scene from the annual Frankfurt Christmas Market in Birmingham. Markets go back a long way here in Birmingham. Since 1166, commerce has taken place in what has come to be known as the Bullring in the city center. Aside from being a "shopping center" for eight and a half centuries, Birmingham also played a key role in the industrial revolution. Brummie James Watt made crucial design enhancements to the steam engine. Soon, the output from Watt's brainchild became instrumental in powering factories, vessels, and trains. (The unit of measurement for electrical power is named in his honor.) The canal system that still wends its way through parts of the town is living testament to an age when steam-powered transport facilitated commerce. Long before China became the "workshop to the world," the city of Birmingham held that title. While no longer a manufacturing powerhouse, Birmingham retains a distinction of being the UK's second largest city.
In terms of culture, Birmingham has been at the forefront as well. From Black Sabbath to Duran Duran, the music scene here has not been wanting. Literature? Another favorite son of Birmingham is JRR Tolkien of video game and action figure fame [what can I say? It's commerce: Been there done that, saw the movie, bought the t-shirt.] Many of the places described in the Lord of the Rings cycle draw from old haunts of Tolkien in the city.
I originally came up with the IPE Zone so that I could place additional reading material for my students online, but it has since attracted a wider audience far beyond the boundaries of Birmingham. It is my modest contribution to keeping Birmingham in the consciousness of those interested in IPE as Birmingham's place in economic history is undoubtedly an important one. That history is still unfolding before our eyes. A Merry Christmas and Happy New Year to all!
In case you were wondering about the holiday reading backlog of an IPE grad student, wonder no more: above is the stack of library books lined up for me over the holidays. On the bright side, being an IPE student allows for a great variety of interesting reading. However, it is still a lot of reading. Unlike in the American system where doctoral students are given four years to complete a degree, they only have three here in the UK. Therefore, a compressed time schedule means that I must do more during the break other than watch reruns of Fawlty Towers, much as that would seem fun. But, it's a choice I've gladly make to save a year. Cheers!
What will the price of crude oil be in the coming year? The Wall Street Journal notes that prognosticators are now betting on the high side after incorrectly lowballing estimates for the past few years. One of the interesting indicators noted in the article is the use of Saudi Arabian benchmarks for the price of oil while making government budget forecasts. Usually, the Saudi government conservatively estimates the price of oil. Like many Middle East petrostates, Saudi Arabia does not collect income taxes; 90% of its revenues are from the black stuff. Hence, there is a strong incentive for the country to come up with accurate estimates. Adding a customary 30% to the conservative Saudi figure and you come up with about $75 a barrel for benchmark light sweet crude. While this figure comes in below most pundits' estimates, I would take it seriously with the US economy downshifting and all. Again, it goes back somewhat to just how much the rest of the world will "decouple" from the US; the pundits seem to say "not much, if at all":
Oil-price prognosticators, bruised after an unusually volatile spell in the oil patch, have reached a rough consensus on next year: Oil will be even costlier, even if the economy cools. Consumers are likely to pay a lot more at the pump, too. The Energy Department predicts that far higher average oil prices will force gasoline prices to even out at $3.11 next year, up 10% from the average price of $2.81 this year.
World crude prices have long tracked the thirst for oil in the U.S., which consumes about a quarter of the world's oil output. But recent months have shown how decoupled the oil market is becoming from the economic ups and downs of the world's largest energy consumer. Even amid fears that the U.S. could slip into recession next year, world-wide consumption is expected to strengthen, driven mostly by more demand from Asia as well as from Middle Eastern economies awash in oil revenue. That, of course, will further tighten global supplies.
Forecasters are notching other lessons from 2007 in looking toward next year. One is that the almost irrational uncertainty that sent prices soaring to more than $98 in November from $69 in late August will last well into 2008. "If I had to describe  in one image, it would be dancing on thin ice," says Fatih Birol, chief economist at the International Energy Agency, which serves as an energy watchdog for rich countries. Global spare capacity is so thin, he says, "that any little thing now can influence price."
A year ago, almost no one in the oil business -- from producers and Energy Department analysts to Wall Street traders -- foresaw crude prices careening toward $100 a barrel this year. Some big investment houses, Morgan Stanley foremost among them, even predicted prices would fall. Instead, prices went on an unprecedented roller-coaster ride, rising to a nominal record of $98.18 last month from the low of roughly $50 a barrel in mid-January. Most of the industry's leading lights now are predicting the U.S. benchmark crude, as traded on the New York Mercantile Exchange, will average around $80 a barrel next year, up from $71.89 this year. The benchmark Friday closed at $93.31.
Extrapolating from forecasts underlying Saudi Arabia's own budget-revenue projections for next year, economists say Saudi Arabia, the world's largest oil producer, expects U.S. benchmark crude to average around $75 a barrel next year. Forecasters at Lehman Brothers Holdings Inc., who predict an average price of $84 a barrel, cite the market's own increasing opacity as one reason why prices will stay bullish.
Big producers from the Organization of Petroleum Exporting Countries are expected to gain an ever-larger share of the market next year, as exports wane from non-OPEC suppliers such as Mexico and Russia. More of that oil, meanwhile, will flow east to hungry Asian consumers. But neither OPEC nor China provides up-to-date or accurate data on their actions, making it difficult to determine the impact on world-wide demand. "We expect OPEC supply to increase by stealth as demand growth increasingly slips under the radar," says Lehman energy analyst Adam Robinson. That combination, he says, "will add an uncertainty premium to the price of oil."
The market has become so unpredictable lately that many forecasters are recalibrating their forecasts every few weeks -- and rarely are they lowering them. Goldman Sachs Group a month ago expected benchmark crude prices averaging $85 a barrel next year. Then economists there took note of some bullish trends, including signs of robust demand growth in much of the world, and this month raised their forecast to a startling $95 a barrel. For that price to hold, crude prices would have to spend much of the year above $100 a barrel.
Of course, forecasters haven't fared well during the oil-price run-up of the past seven years. More often than not, prognosticators have underestimated the forces that have ended up driving prices still higher. "The graveyard is littered with analysts who have tried and failed so far to call the top in this market," says Adam Sieminski, chief energy economist for Deutsche Bank.
A recent study by Roland Berger Strategy Consultants, of Munich, Germany, found that in making its annual price assumptions, the rich countries' own energy think tank, the IEA, of Paris, missed the actual price by 27% on average since 1999, mostly underestimating how high prices would go. The U.S. Energy Department's Energy Information Agency fared only slightly better, with forecasts that on average came in 22% off the actual price.
The best price predictors, the Roland Berger study found, have been the big oil-producing countries themselves. Saudi Arabia, the world's largest oil producer, always gives itself a wide margin when computing anticipated revenue for its annual budget, which is almost 90% reliant on oil revenue. Wim van Acker, one of the study's authors, says the Saudi government routinely underestimates by 30% what they expect to bring in from oil revenue so as to cushion against the risk of running a budget deficit. Once you add in that cushion, the study found that the Saudi government has been off only 12% on average since 1999.
So what is the world's biggest petro-power saying about 2008? Saudi Arabia's 2008 budget, released last week, is based on a price assumption of around $45 a barrel, according to economists who have crunched the numbers. So with the added margin, Riyadh's prediction for 2008 comes in at around $68 a barrel for Saudi oil -- or more like $75 a barrel for the higher-grade U.S. benchmark crude. That is lower than the analysts' consensus, but not by much.
Analysts agree that the one force that could clearly nudge oil prices lower next year would be a sharp decline in demand in the U.S. and China. So far there is little evidence of that happening. Demand is expected to rise by around 1.5 million barrels a day next year, with more than half of the growth coming from Asia and the Middle East. The top 30 industrialized countries will add only 300,000 barrels a day in extra demand. The world now consumes slightly more than 85 million barrels a day.
If prices do continue to climb, economists may finally get an answer to one the lingering riddles of the decade: At what price will oil consumers begin to recoil? Many thought it would happen at $50 a barrel, then $60, then $70. Until there is a clear answer, and demand begins to taper off, Deutsche Bank's Mr. Sieminski says the best forecasting method may be the one that's ruled for much of the decade. "Take the average of everyone's best guess," he says, "and add 30%."
Friday, December 21, 2007
Here are some excerpts from a speech on boosting home ownership made by the leader of the free world, George W. Bush, in 2002: But I believe owning something is a part of the American Dream, as well. I believe when somebody owns their own home, they're realizing the American Dream. They can say it's my home, it's nobody else's home. And we saw that yesterday in Atlanta, when we went to the new homes of the new homeowners. And I saw with pride firsthand, the man say, welcome to my home. He didn't say, welcome to government's home; he didn't say, welcome to my neighbor's home; he said, welcome to my home. I own the home, and you're welcome to come in the home, and I appreciate it. He was a proud man. He was proud that he owns the property. And I was proud for him. And I want that pride to extend all throughout our country...
The goal is, everybody who wants to own a home has got a shot at doing so. The problem is we have what we call a homeownership gap in America. Three-quarters of Anglos own their homes, and yet less than 50 percent of African Americans and Hispanics own homes. That ownership gap signals that something might be wrong in the land of plenty. And we need to do something about it.
Unfortunately, we now know how everyone who wanted to own a home got a shot at doing so in the wake of the subprime crisis. Several got loans they could not afford as many were granted on a NINJA basis--no income, no jobs or assets while the Bush administration trumpeted rising home ownership rates as an accomplishment. In many ways, this tent city described below is symbolic of what's happened to the (MIA/DOA) American dream under the term of Bush: foreclosed and forced to live out in a tent city. That this is happening not in some hollowed-out urban center but in SoCal's Inland Empire is indicative of the problem's magnitude. I remember one person speaking of the US as one big gated community: Bush and Co. live inside the gated community and the rest, well, live in a tent city by the looks of it. From Reuters:
Between railroad tracks and beneath the roar of departing planes sits "tent city," a terminus for homeless people. It is not, as might be expected, in a blighted city center, but in the once-booming suburbia of Southern California. The noisy, dusty camp sprang up in July with 20 residents and now numbers 200 people, including several children, growing as this region east of Los Angeles has been hit by the U.S. housing crisis.
The unraveling of the region known as the Inland Empire reads like a 21st century version of "The Grapes of Wrath," John Steinbeck's novel about families driven from their lands by the Great Depression. As more families throw in the towel and head to foreclosure here and across the nation, the social costs of collapse are adding up in the form of higher rates of homelessness, crime and even disease.
While no current residents claim to be victims of foreclosure, all agree that tent city is a symptom of the wider economic downturn. And it's just a matter of time before foreclosed families end up at tent city, local housing experts say. "They don't hit the streets immediately," said activist Jane Mercer. Most families can find transitional housing in a motel or with friends before turning to charity or the streets. "They only hit tent city when they really bottom out."
Steve, 50, who declined to give his last name, moved to tent city four months ago. He gets social security payments, but cannot work and said rents are too high. "House prices are going down, but the rentals are sky-high," said Steve. "If it wasn't for here, I wouldn't have a place to go."
Nationally, foreclosures are at an all-time high. Filings are up nearly 100 percent from a year ago, according to the data firm RealtyTrac. Officials say that as many as half a million people could lose their homes as adjustable mortgage rates rise over the next two years.
California ranks second in the nation for foreclosure filings -- one per 88 households last quarter. Within California, San Bernardino county in the Inland Empire is worse -- one filing for every 43 households, according to RealtyTrac.
Maryanne Hernandez bought her dream house in San Bernardino in 2003 and now risks losing it after falling four months behind on mortgage payments. "It's not just us. It's all over," said Hernandez, who lives in a neighborhood where most families are struggling to meet payments and many have lost their homes. She has noticed an increase in crime since the foreclosures started. Her house was robbed, her kids' bikes were stolen and she worries about what type of message empty houses send. The pattern is cropping up in communities across the country, like Cleveland, Ohio, where Mark Wiseman, director of the Cuyahoga County Foreclosure Prevention Program, said there are entire blocks of homes in Cleveland where 60 or 70 percent of houses are boarded up.
"I don't think there are enough police to go after criminals holed up in those houses, squatting or doing drug deals or whatever," Wiseman said. "And it's not just a problem of a neighborhood filled with people squatting in the vacant houses, it's the people left behind, who have to worry about people taking siding off your home or breaking into your house while you're sleeping."
Health risks are also on the rise. All those empty swimming pools in California's Inland Empire have become breeding grounds for mosquitoes, which can transmit the sometimes deadly West Nile virus, Riverside County officials say.
But it is not just homeowners who are hit by the foreclosure wave. People who rent now find themselves in a tighter, more expensive market as demand rises from families who lost homes, said Jean Beil, senior vice president for programs and services at Catholic Charities USA. "Folks who would have been in a house before are now in an apartment and folks that would have been in an apartment, now can't afford it," said Beil. "It has a trickle-down effect."
For cities, foreclosures can trigger a range of short-term costs, like added policing, inspection and code enforcement. These expenses can be significant, said Lt. Scott Patterson with the San Bernardino Police Department, but the larger concern is that vacant properties lower home values and in the long-run, decrease tax revenues. And it all comes at a time when municipalities are ill-equipped to respond. High foreclosure rates and declining home values are sapping property tax revenues, a key source of local funding to tackle such problems.
Earlier this month, U.S. President George W. Bush rolled out a plan to slow foreclosures by freezing the interest rates on some loans. But for many in these parts, the intervention is too little and too late. Ken Sawa, CEO of Catholic Charities in San Bernardino and Riverside counties, said his organization is overwhelmed and ill-equipped to handle the volume of people seeking help. "We feel helpless," said Sawa. "Obviously, it's a local problem because it's in our backyard, but the solution is not local."
3/16/08 UPDATE: There is a new story on the infamous tent city in Ontario, CA.
Immigration is promising to be one of the more decisive--and divisive--issues of the 2008 US presidential election. I am sure you're all familiar with the one-note, single-issue focus of representative Tom Tancredo (R-CO) on the issue. While Tancredo has just given up his run at the Oval Office--no one expected him to be a serious contender anyway--the issue he championed has been brought into the limelight in a way it might not have had he not spoken up so much about it. The chart to the right depicts results from a recent US survey by the Economist. As you can see. there appears to be an emerging consensus that American workers at various skill levels are being harmed by migration, and that the American way of life is under threat from those dratted furriners. These results jibe with just how much mileage Tancredo actually got and what his pet issue continues to get. It's very much a classic political economy ploy: when times are bad, blame the furinners. Below is more from the Economist shortly before Tancredo's exit. Indeed, with most Republican candidates taking a tough stance on migration, there may be a backlash in key states with many Latino voters. Knowing my more, er, tolerant attitude towards migration, none of you should be surprised that I am keen on seeing anti-immigration candidates getting walloped by Latino voters at the polls. However, you can be sure that any candidate acting tough on migration will have carefully calculated the benefits of gaining the support of the anti-immigration crowd alongside those lost votes:
The mainstream Republican candidates are all on record as supporting fair-minded “comprehensive” immigration reform. John McCain sponsored a reform bill together with his Democratic colleague, Ted Kennedy. Mr Romney mocked the idea that you could deport 12m people. As mayor of New York, Mr Giuliani denounced federal immigration laws as harsh and unfair. As governor of Arkansas, Mike Huckabee supported allowing the children of illegal immigrants to claim cheap in-state tuition. As a senator for Tennessee, Fred Thompson supported an increase in the number of visas available for agricultural workers.
The most outspoken “restrictionist” on the platform is Tom Tancredo, an obscure Republican congressman from Colorado. Mr Tancredo has made immigration reform—which to him means sending the 12m back home—the centrepiece of his campaign. He has produced advertisements linking illegal immigrants to terrorism and gang violence.
Flaky stuff. But Mr Tancredo speaks for a sizeable portion of the Republican base. He helped to replace Mr McCain's immigration-reform bill with a harsher measure that authorised the building of a 700-mile (1,100km) fence along the Mexican border. And he—or at least Tancredoism—is having a remarkable influence on the Republican debate.
The most shameless flip-flopper on immigration is Mr Romney. He now echoes Mr Tancredo's talk of “amnesty” and criticises his rivals—particularly Messrs Giuliani and Huckabee—for being soft on immigration. But others have followed in his direction. Mr Giuliani emphasises border security. Mr Huckabee has produced a “secure America plan”. Mr Thompson threatens to “punish employers” who hire illegals. Even Mr McCain has hardened his line on immigration, though he continues to warn his party against demonising immigrants. Mr Tancredo now accuses his rivals of trying to “out-Tancredo Tancredo”.
This represents a repudiation of Mr Bush's strategy of welcoming Latinos into the Republican tent by supporting immigration reform. It also carries risks for the Republicans in the 2008 election—and indeed in future elections. Latinos are the fastest growing electoral block in the country. The Republicans could end up losing five Latino-rich states that Mr Bush won in 2004: Florida, Arizona, New Mexico, Nevada and Colorado.
The Democratic candidates have been much more consistent in their support for comprehensive immigration reform. Every senator on the platform supported Mr McCain's legislation, for example. But they are also aware that the subject is a bear trap. Only two mainstream candidates, Mr Obama and Bill Richardson, have come out in favour of allowing illegal immigrants to obtain driving licences (Mrs Clinton resolved her internal debate by deciding against the idea). The mainstream candidates have been careful to avoid calling illegals “undocumented workers”, the formulation favoured by pro-immigrant pressure groups in their party.
They are right to be nervous. Most Americans are ambivalent about illegal immigration—proud of America's history as an immigrant-friendly country but hostile to anything that sanctions breaking the law and worried about the economic impact of immigration. The latest Economist/YouGov poll (see chart) reveals a striking degree of concern about the threat that immigration poses both to “traditional American values” and economic well-being. Illegal immigrants also place huge burdens on America's hospitals, schools and prisons (there are, for instance, around 20,000 of them in California's jails).
Worries about globalisation are strong among two of the Democratic Party's core constituencies—blue-collar workers and blacks. Some working-class Americans must compete for jobs with people who are in the country illegally. In California, English-speakers are fleeing urban schools where more than 70% of the children are Hispanics, forking out for private schools or homes in the suburbs.
The driving-licence question is particularly dangerous for Democrats. Only 22% of the voters in a recent Los Angeles Times/Bloomberg poll supported allowing illegal immigrants to get licences. Eliot Spitzer, the governor of New York, saw his popularity collapse when he endorsed the idea. He has now retreated...
The problem of illegal immigration will continue to haunt the presidential race. Rightly so: no country should have 12m people living illegally within its borders. But awkwardly so from the perspective of the candidates: the issue pulls Americans in all sorts of contradictory directions. No wonder most politicians keep trying to duck the question—and no wonder the voters will not let them.
Tancredo was always a self-professed one-issue candidate. And far from being disappointed at his meager poll showings, Tancredo says he achieved more in this election cycle than he dreamt possible. In part due to his cage-rattling, immigration is one of the biggest issues in the race, on both sides of the aisle.
True to his single issue focus, Tancredo chose to throw his support behind former Massachusetts Governor Mitt Romney out of a mixture of agreement and spite. Romney, "has actually got a record," said Tancredo. "He was governor of a liberal state but opposed drivers licenses for illegal immigrants and instate tuition for illegal immigrants at a time when they weren't issues on the national scene." As for why the endorsement came now, Tancredo admitted he hoped to hurt the chances of rivals Mike Huckabee and John McCain — both of whom he views as weak on immigration. "It was the rise of Huckabee in Iowa, that's what really was disconcerting, and McCain in New Hampshire." (The McCain campaign declined comment, while Huckabee spokeswoman Charmaine Yoest replied: "The governor has a really strong and tough stand on immigration... and in the days ahead we're looking forward to talking with voters in Iowa about how he sees the need for change.")
Immigration was thrown into the spotlight last year when President George W. Bush moved to create a path to citizenship for the estimated 12 million illegal aliens living in the U.S. while shoring up border security and overhauling the naturalization and visa processes. House Republicans, with Tancredo leading the charge, blocked the plan. They accused Bush of seeking to grant sweeping amnesty. McCain, with a handful of Senate Republicans, backed the president's plan.
In debates, forums and in his own campaigning, Tancredo kept pressure on the issue, railing against Republicans and Democrats alike for not doing enough to secure U.S. borders, even after Congress passed legislation to build a 700-mile border fence that some experts say could cost as much as $50 billion. (So far, less than $5 billion has actually been appropriated for the project).
Tancredo said he surpassed his own goals of raising awareness on the issue, "frankly to an extent that was beyond my greatest expectations." Every Republican candidate — even John McCain is now saying he was on the wrong side issue — has got the basics. You've got Rudy Giuliani running ads talking about securing the border. On the basics we've got 'em."
By basics Tancredo means forcing all illegal immigrants to go home and reapply to enter the country legally if they want to return, making English the national language and denying municipal services for illegal aliens such as driver's licenses, Social Security benefits and state-subsidized education. Huckabee has come under particular fire for backing college-level grants for the children of illegal immigrants in Arkansas. "We are a better country than to punish children for what their parents did," said Huckabee, defending his stance, in a Florida debate last month.
Thursday, December 20, 2007
Here is the latest ruling on the long-running cotton subsidies case filed by Brazil against the US in the WTO's dispute settlement mechanism (case DS 267). Brazil had previously won the case as American cotton subsidies were deemed illegal for they were granted on the basis of export performance. Still, Brazil has not been pleased with America's record in complying with this ruling and subsequently launched an Article 21.5 panel investigating US compliance. The DSM has once again found the US in breach of its WTO obligations due to its limited efforts at complying with the WTO ruling. This finding paves the way for Brazil applying sanctions against the US for non-compliance. Worse yet, the US Congress has just passed a farm bill larded up with similar subsidies! Some people never learn, I guess. Roll on the pork barrel [oink, oink] for the political importance of cotton-growing states is considerable. Is it any wonder that the WTO Doha round is in deadlock over agricultural subsidies? From the Associated Press:
The United States has failed to scrap a series of illegal subsidies paid to American cotton growers, the World Trade Organization declared Tuesday in a ruling that could open the door to Brazilian trade sanctions worth billions of dollars.The formal release of the ruling is a significant victory for Brazil's cotton industry and for West African countries that have claimed to have been harmed by the American payments. "The United States has failed to comply," the three-member WTO compliance panel said. Details of the 188-page decision have been known since July, when the panel delivered its interim findings confidentially to the U.S. and Brazil.
The two nations confirmed at that time, and again in October, that the panel found that export credit guarantees and U.S. subsidies under the 2002 Farm Bill unfairly helped American cotton farmers undersell foreign competitors. Brazil has reserved the right to impose annual sanctions of up to $4 billion on the United States, but would probably seek less in retaliatory measures because the U.S. has removed some of the offending subsidies.The United States has failed to scrap a series of illegal subsidies paid to American cotton growers, the World Trade Organization declared Tuesday in a ruling that could open the door to Brazilian trade sanctions worth billions of dollars.
The office of the U.S. trade representative in Washington said it was considering a final appeal. "We are very disappointed with the compliance panel's findings," said spokeswoman Gretchen Hamel. "We continue to believe that support payments and export credit guarantees under our programs are fully consistent with our WTO obligations."
Despite repeated legal setbacks, Washington appears set to continue the payments. President Bush has threatened to veto the legislation, saying it costs too much and it should instead be cutting subsidies at a time of record-high crop prices. Hamel said the office of the U.S. trade representative would be "working closely with members of Congress and the agricultural community as we move forward."
The United States had argued that it sufficiently overhauled its cotton program when it scrapped two export credit guarantee programs and last year repealed a cotton-marketing program that made compensation payments to exporters and domestic mill users for buying higher-priced American cotton. But Brazil said Washington's continued support for American cotton producers ensured artificially high production and export levels, hurting Brazilian and African producers. The Brazilian government claims the U.S. retained its place as the world's second-largest cotton grower by paying $12.5 billion in government subsidies to American farmers between August 1999 and July 2003. China is the largest exporter of cotton, while Brazil is fifth.
If the U.S. fails to comply with the WTO ruling, Brazil has said it would target American goods, as well as trademarks, patents and commercial services, for retaliation. A WTO-proposed draft released in July calls on the U.S. to make an 82 percent cut in trade-distorting handouts to American cotton farmers as part of a new global trade pact.appears set to continue the payments. Friday, the U.S. Senate joined the House in approving a new $286 billion farm bill that would leave cotton programs largely intact for the next five years.
As I noted a few posts ago, the international shipping industry has entered the crosshairs of environmentalists because many of its vessels rely on bunker fuel, an inexpensive but highly polluting energy source. With the growing amount of shipping in the wake of international trade's continuous expansion, this problem is only set to grow. However, some shipping companies are now addressing this problem like the German firm Beluga in partnership with SkySails which has developed a novel propulsion technology. In a slight return to a bygone era, Beluga has just christened a new vessel which relies on sails for about a fifth of its propulsion using an intriguing looking "kite." While the thingamajig is still a bit experimental, potential savings garnered in use should provide demonstration effects to other shipping firms also keen on cutting fuel costs and emissions. The Beluga website has a blurb on the MV Beluga SkySails while Reuters has both a video clip and the write-up below. I am sailing, I am sailing, home again...'cross the sea...
Turning ocean winds into gold while cutting greenhouse emissions in the process might sound like some sort of alchemy for the 21st century. But unlike futile earlier efforts to convert ordinary metals to gold, two fast-growing German companies have worked together developing a high-tech kite system to pull enormous ships across the oceans -- and save enormous amounts of money.
The 132 meter (433 ft) long MV "Beluga SkySails" will make its maiden voyage in January across the Atlantic to Venezuela, up to Boston and back to Europe. It will be pulled by a giant computer-guided 500,000-euro ($725,000) kite tethered to a 15-metre high mast. It is a throwback to an earlier maritime age, harnessing the winds that fell out of favor over a century ago when sailing lost the battle for merchant shipping to modern steam power because it was seen then as primitive and unpredictable.
But now, in the age of climate change, wind power is making a remarkable comeback thanks to modern technology. "This is the start of a revolution for the way ships are powered," Beluga chief executive Niels Stolberg said in an interview with Reuters on the windswept deck of his new ship MV Beluga SkySails. "It's a small but crucial step for the future."
To latch onto the powerful winds prevailing well above the surface, the kite attached to the high-tech steerage unit flies up to 300 meters high to tug the 10,000-tonne ship forward, supporting its diesel engines and cutting fuel consumption. Under favorable wind conditions, the 160-square meter kite shaped like a paraglider is expected to reduce fuel costs by up to 20 percent or more ($1,600 per day) and cut, by a similarly significant amount, its carbon dioxide emissions. Burning fossil fuels cause CO2 blamed for climate change.
A driving force for Beluga -- and other shippers already lining up to buy the system if it delivers on its promise -- is the fuel price, which has tripled for shippers in recent years. While it might seem almost too simple -- or too good -- to be true, SkySails inventor Stephan Wrage and German engineers have spent more than five years perfecting the system and they will tell you that it is anything but pie-in-the sky technology. "At the heart of this all for me, the real motivating factor is to get to the crossroads of ecology and economics -- and to prove it pays to protect the environment," Wrage said in an interview on the ship so new it still smells of fresh paint.
While some political and industry leaders complain about the financial burdens of fighting climate change and cite costs in resisting CO2 reduction efforts, Wrage said SkySails is proof that the opposite can be true: there's money to be made. "If our calculations are right, our clients will not only have considerably greater earnings but also substantially reduce their CO2 output as well," the 35-year-old added after a ceremony to christen the new ship in Hamburg port on Saturday. "To be able to make a contribution to fighting climate change makes us all proud," the SkySails managing director said as the sail made of ultralight synthetic fibre and as big as a medium-sized passenger jet unfurled in a breeze above the deck.
SkySails developed the kite propulsion system that Beluga Shipping only just finished installing on the new cargo ship. Both firms aim to prove on a commercial scale what years of testing on smaller vessels showed: you can turn wind into cash. Wrage, who got the idea as a 16-year-old while flying kites and wishing he could tap their power to make a small sail boat go faster, is optimistic even greater savings can be achieved. He said larger kites should cut fuel usage by 30 to 50 percent. Two 320-square meter kites will pull two more Beluga ships by 2009 and after that 600-square meter kites will be added. "That's where the savings get really interesting," he said.
But the immediate impact on cutting CO2 caused by ships will be limited. Shipping carries more than 90 percent of the world's traded goods. There are more than 50,000 merchant ships carrying everything from oil, gas, coal, and grains to electronic goods. They emit 800 million tonnes of CO2 each year -- 5 percent of the world's total. They emit high levels of sulphur dioxide. Yet Wrage is confident the demand will take off. There are three orders in hand and if the savings achieved on a smaller 55-metre long prototype are confirmed by the "Beluga SkySails", he said others were lined up to buy systems.
"We're planning to equip four to eight ships next year, provided the first voyage turns out as well as the trials did," he said. "In 2009 we expect to sell at least 35 systems. After that, we want to at least double every year." The target is 1,500 vessels equipped by 2015. "I've had a lot of meetings where shippers have said to me 'If it works out on the Beluga SkySails we're going to buy one, two, four or 10 systems'," Wrage said. "Believe me. If we're successful now, it won't be hard to find buyers."
Wednesday, December 19, 2007
OK, that title is somewhat misleading. There are many things the World Bank stands accused of, but being able to shrink the Chinese economy by 40% is certainly not within its capabilities. Rather, what we have here is a change in the way that the World Bank measures economic activity that has resulted in drastic changes in the estimated size of the Chinese as well as the Indian economy. As you probably now, there are two main ways of measuring national income for the purposes of international comparison. First, you can convert the national income of various countries into dollar terms by using market exchange rates. However, this tends to ignore quantitative differences in the amount that citizens of various countries can actually buy at home. Hence, the World Bank and other institutions often use purchasing power parity (PPP) terms to estimate what can actually be purchased at home. The Economist's "Big Mac Index" is a well-known application of PPP. After all, isn't your standard of living determined by what you can actually buy? Improvements in measuring the actual purchasing power of those in China and India have resulted in the World Bank greatly reducing the estimated size of those economies on a PPP basis.
The upcoming report by the World Bank on this topic should be eagerly awaited by many interested in development for it can hopefully shed more light on the progress made by China and India by using a more accurate set of indicators from those two large emerging economies. Also, more robust measures ought to give a better picture of just how many Chinese and Indians fall under the poverty line. The latter consideration is an important one as the combined weight of 2.3 billion persons should be a major factor in determining the progress made--or lack thereof--in combating poverty. Important and intriguing stuff:
The economies of China and India are 40 per cent smaller than previously thought, according to new estimates published by the World Bank this week. The ranking of 146 economies by buying power in US dollars was based on the prices of 1,000 goods and services in what the World Bank described as “the most extensive and thorough effort ever to measure purchasing power parity across countries”. PPP, rather than market exchange rates, is regarded as a better measure of the relative cost of living, since it is based on goods and services households can buy with their domestic currency.
The new PPP estimates show a 40 per cent drop in the wealth of the Chinese people to $5.3bn, accounting for nearly 10 per cent of world output. China remains the world’s second-largest economy but, in terms of per capita gross domestic product, it is only 9.8 per cent of the size of the US, according to the research. Robert Zoellick, the World Bank’s president said he was “not drawing any policy conclusions” about the new estimates, which suggest that there are hundreds of millions more Chinese living on the World’s Bank’s poverty line of less than $1 a day. ”We must be careful about drawing conclusions about poverty from these statistics”, he said but added that the figures ”could help Chinese leaders refine their development work.”
Nevertheless, if China is less wealthy than previously thought, it could mean that those US policymakers who regard it as a political and economic threat, can relax. For example, the US Government Accountability Office, using the old estimates, reported this year that China’s economy in PPP terms would be larger than the US by 2012. The recalibration of China’s economy suggests it will be many more years yet before China can rival the US in military or economic terms. The World Bank said the shrinking of China’s economy was due to exaggerated estimates based on less reliable data in the past.
It was the first time that China had participated in the World Bank’s International Comparison Program and the first time since 1985 that India had participated. India’s economy also shrank by 40 per cent, according to the the tables, which ranked it the world’s fourth largest economy, accounting for 4 per cent of output. The world economy is also smaller than previously thought.
The Financial Times sheds more light on this important change and its potential consequences:
China and India are poorer than we thought; rich countries produce even more than we realised. Those are the obvious conclusions from an unprecedented exercise, carried out by a World Bank-led coalition. The “International Comparison Program” attempts to compare the size of the world’s disparate economies on the basis of purchasing power. On this basis, China’s output is just 9 per cent of global gross domestic product, down by more than a third from the previous estimate of 14 per cent. India’s share of global GDP is down from 6 per cent to 4 per cent. The total output share of developing economies is down by a sixth. These are huge revisions to the figures.
The obvious questions are: how could the old figures be so wrong? And can we trust the new figures? The simple answer is that calculating purchasing power is hard even in principle. The Economist’s famous “Big Mac” index captures the theory but not the slog: if a Big Mac costs $4 in the US and 12 yuan in China, then the purchasing power of the yuan is 3 per dollar – but only if you are buying hamburgers. Statisticians cannot stop at the Big Mac but must work out both the contents and the price of a representative basket of goods. With populations of more than a billion, being truly representative is almost impossible.
China has never participated in an exercise on remotely this scale before. India has not done so since 1985. Small wonder that the facts have changed substantially. So while the new figures can never be more than statistical estimates, they are far more credible than the finger-in-the-wind guesses that preceded them.
I'm of two minds about this particular question concerning whether high commodity prices are here to stay or if they'll soon be a thing of the past. True, there have been many previous periods when commodity prices were elevated and many pundits spoke of permanently higher commodity prices. Yet, these prices came down eventually, and the same may happen again. In a nutshell, the yea and nay arguments go something like this:
(1) Yes, high commodity prices are here to stay. We are reaching Malthusian limits to resource supplies that weren't approached in the past. These constraints are fast approaching because the two largest countries in the world with a combined population of 2.3 billion persons, China and India, are now quickly moving up the income and, consequently, the consumption ladder. With so many people clamoring for a higher standard of living, there is a "demand pull" effect as folks fight over the same finite resources.
(2) No, each time commodity prices have been elevated in the past they've always gone down eventually. Currently, we are at the peak of a cycle led by US consumer demand. As the US economy slows down because overstretched American consumers can no longer drive global demand, things will cascade down the supply chain. Manufacturers will have less need for the commodities necessary in producing exports to America. This will eventually result in lowered commodity prices. Besides, technology and preferences have a way of changing patterns of demand in the long run so a plateau of higher commodity prices is far from given.
Which version do you find more realistic? I actually lean more towards (1)--2.3B people need to be fed, clothed, housed, cooled, heated, entertained, transported, etc. to a higher standard as industrialization takes place in China and India. For a take that is more like (2), however, the Daily Telegraph has one that is worth contemplating. Note that I am not a "peak oil" believer. There are ample supplies, but there are also serious political-economic impediments to accessing these supplies in totalitarian regimes. More often than not. multinationals which possess the expertise to extract these supplies more efficiently are being given the cold shoulder (viva la revolucion Bolivariana!):
Peak oil, peak metals, and this year peak food. Every bookshop has a corner warning that mankind will soon outrun the basic resources of the globe.
It was ever thus. Variants of the theme emerge at the top of each commodity super-cycle, only to be deferred for another 20 years or so as new supply comes on-stream and technology outwits the pessimists. Shortage can turn to glut very fast once inflation forces central banks to hit the brakes. Some will remember Limits to Growth, published by the Club of Rome in the 1970s. It said the world's oil reserves would run dry in 30 years. Gold supply would last nine years. The report spoke of the "sudden and uncontrollable collapse" of economic life. What in fact collapsed were oil and gold prices. We can see now that the 1970s was a central bank monetary bubble.
The question for investors who have sunk $150bn into commodity index funds - and trillions in mining and energy stocks - is whether the roaring boom of the last five years is another bubble, or whether the Malthusians are closer to the mark this time.
Has the Asian renaissance - the "Great Doubling" of the world's consumer base - changed the balance for ever? The jury is out.
Charles Dumas, global strategist for Lombard Street Research, says the bulls are deluding themselves. "The long-run real return on commodities is negative, except for oil where it has been nil for one and a half centuries.
"Smart investors have made huge profits at various times trading commodities. The price cycles can be violent. But it is a tough, cyclical game, fraught with risk. Portfolio positions can't just be comfortably locked away," he said.
Base metals are creatures of the industrial cycle. The
is already in the grip of the worst housing crash since the Slump. It is exporting a manufacturing crunch to US Europethrough the dollar slide and the banking crisis. is slipping into recession, says Morgan Stanley. No surprise that copper is down 23 per cent since early October after quadrupling in five years. Lead is off 42 per cent. Nickel has dropped 53 per cent since May. Japan
What is striking is that long-term futures contracts continue to set all-time highs, a sharp break with earlier patterns. "The message is simple: markets are looking past the short-term," said Barclays Capital.
Oil refuses to buckle at all. Brent crude is hovering near $93 a barrel despite a shock report by the
USintelligence concluding that halted nuclear weapons work in 2003. It has left White House hawks beakless. The alleged war premium on oil has vanished, yet prices have barely flinched. "Will oil get to $100 a barrel? Yes, it's a done deal," says Paul Horsnell, commodities chief at Barclays Capital. Goldman Sachs have raised their forecast to $105 by the end of 2008, citing a chronic lack on investment. Who would want to invest in Iran Russia, Venezuela, or the "Stans" if expropriation were on the menu? Ecuador
Oil output has been flat for two years, with the non-Opec trio of
Britain, Norway, and in relentless decline. "Even at this price the oil companies still can't find any supply, which tells you that they are catching a serious crab," says Horsnell. "Oil has been going up a dollar a month for four years. It's a gradual upping of the pressure and I don't see anything to stop it," he says. The peak oil theory claims that the world is depleting crude at 30bn barrels each year, but adding just 10bn in discoveries. Depletion is running at 4 per cent a year (official) or 6 per cent (peakists). "A supply-side crunch in the period to 2015, involving an abrupt escalation in oil prices, cannot be ruled out," said the International Energy Agency in its Outlook report. Mexico
's annual demand is growing at 0.4m barrels per day (bpd). It may reach 8m next year, or 9 per cent of world output. Global needs are expected to rise 50 per cent to 130m barrels by 2030, yet the heads of both Total and Conoco doubt whether output will ever reach 100m barrels before tipping over in 12 years or so. "Peak oil is the secret that everybody knows in the oil industry but has refused to talk about until now," says Chris Skrebowski, editor of Petroleum Review. China
"If you look at all the big projects out there, oil output will peak in three years before gently declining thereafter. If there is any slippage, we may have reached the peak already," he says. The counter view is that there are vast reserves of oil sand or shale in
Canada, Colorado, and worth extracting at $60 prices and above. BP says it has used 3D seismic imaging and other tricks to raise extraction from its Prudhoe Bay field in Venezuela from 40pc to 60pc of reserves. If replicated across the world's reserve base, it could add 1.4 trillion barrels, or 45 years' global supply at current demand. Alaska
Big if. For now, soaring prices are spilling over into food. Grains stocks are at their lowest in 60 years. Wheat prices have risen by 145 per cent since April. The culprits are biofuel crops, expected to take 12 per cent of global arable cropland within 12 years, according to Credit Suisse. The UN says the amount of ethanol - or "dethanol" to critics - needed to fill a medium car tank can feed a child for a year. Those driving Chelsea Tractors or over-powered BMWs are directly causing hunger - or worse - in poor food-importing countries. The UN food rapporteur Jean Ziegler has called for a five-year ban on ethanol. "It's a total disaster for those who are starving," he says.
The big unknown for commodities in 2008 is whether the supply crunch will eclipse a likely
recession and all its knock-on effects. Rate cuts in the US UShave caused a fresh surge of liquidity in East Asia and the Mid-East, flooding those countries with dollar pegs or semi-pegs - led by . Inflation has reached 6.9pc in China China, 9.5pc in , and risks spiralling out of control in the Gulf. All will have to ration credit or break their pegs. Either way, the game is nearly up. Vietnam
Once the emerging market boil is lanced we will find out where the core equilibrium price for oil, coal, iron, zinc, and soya beans really lies. Then we can strap up for the second leg super-cycle. Next time to the peaks.
Tuesday, December 18, 2007
Here is an unspoken challenge for foreign investors looking to put their money into Dubai and other emerging Middle East investment destinations: Given that transparency in these locales is low to non-existent, what's the likelihood that you're going to get repaid if push comes to shove? Quite often the answer may be "it's all up in the air." Credit rating agencies are unable to give reliable data on the soundness of various institutions. For instance, the vast real-estate boom in Dubai is increasingly being funded by borrowing through state entities in spite of Dubai not even having a sovereign debt rating. Think of it as borrowing without even having a credit rating. It's something to think about if and when the current mania in Dubai abates. Just how good is the implicit guarantee that Sheikh Mohammed bin Rashid al-Maktoum stands by these projects? That's a good question that surely few would like to test. From the Wall Street Journal:
Dubai is on a spending spree, and financial analysts are starting to wonder about the amount of debt the city-state is racking up. Its oil production is dwindling, and its debt load is four times the average among other Persian Gulf states. Credit-rating companies are asking for more information to determine how sound the government really is. "From published documents, it is difficult to get a picture of the complete financial situation," said Standard & Poor's analyst Farouk Soussa. "The transparency isn't good."
One of seven emirates making up the United Arab Emirates, Dubai, like other Middle East governments, has been on a deal-making binge. Companies owned or backed by the government have signed agreements or made plays for billions of dollars in assets this year, including stakes in American and European stock exchanges, a Las Vegas casino operator and, most recently, a chunk of Sony Corp. Part of Dubai's deal-making is financed by debt.
At the same time, other Dubai entities have launched expansion plans relying on public borrowing. Nakheel, a government-controlled company building a giant, palm-tree-shaped island development, placed $750 million in bonds this month to finance its plans. Government-owned Jebel Ali Free Zone recently listed 7.5 billion dirham ($2 billion) of bonds.
Moody's Investors Service, Fitch Ratings and Standard & Poor's Ratings Services are handing out credit ratings to many of these government-backed companies, and they are starting to ask for more disclosure from the emirate, which they assume will bail out the companies if they get into a jam.
"The rapid economic development of Dubai is certainly being accompanied by increased levels of leverage from companies that are closely associated with the government," said Tristan Cooper, a Moody's analyst in Dubai. "Without a clearer picture of the overall financial position of the central government and the broader public sector," investors could become more cautious.
The situation highlights a broader issue. Many of the world's governments and the companies they control are notoriously opaque, especially in the Middle East. But big regional investors like Qatar, Kuwait and Abu Dhabi (also part of the U.A.E.) have big hydrocarbon reserves to back up their deals. Production can be relatively easy to estimate from public figures. Dubai's reserves have been shrinking for years.
Dubai also has taken a more-complex approach to investing overseas. Most other deal-making countries have used massive investment authorities to pursue their deals. The Abu Dhabi Investment Authority, for instance, bought a $7.5 billion stake in Citigroup Inc. last month. In contrast, Dubai's ruler, Sheikh Mohammed bin Rashid al-Maktoum, has entrusted a cadre of lieutenants to run his own and his government's business interests. They often compete with one another and hunt for deals independently, but they all ultimately answer to Sheik Mohammed.
The government association has helped a handful of Dubai corporate entities get high credit ratings. The assumption is that Sheikh Mohammed or his government will come to the rescue in a pinch. And if Dubai gets overextended, analysts expect the emirate's much-richer cousins in Abu Dhabi will lend a hand. Abu Dhabi is the capital of the U.A.E., and its ruler is the country's president. Sheikh Mohammed is prime minister.
Moody's recently gave one of its highest corporate ratings, A1, to government-controlled DIFC Investments LLC. DIFC owns a stake in Borse Dubai, the holding company that recently agreed to acquire Nordic exchange OMX AB for some $4.9 billion. The complex deal aims to eventually give Dubai a stake of nearly 20% in Nasdaq Stock Market Inc. In a ratings note, Moody's said the rating reflects "the credit support the Government of Dubai is likely to provide in a distress situation."
This year, S&P rated Dubai Holding Commercial Operations Group LLC single-A-plus, citing "strong implicit support from the Emirate of Dubai." Sheikh Mohammed owns the entity's parent, Dubai Holding. A Dubai Holding subsidiary recently bought the Sony stake.
The trouble with these corporate ratings is that without more disclosure, it is difficult to evaluate the financial soundness of these entities and the government backing them. As its oil supplies dwindle, Dubai has diversified its economy into financial services, tourism and real-estate development, among other pursuits. Those revenue streams and their underlying assets are difficult to pin down without access to government books.
In an emailed response to questions, a Dubai government spokesman said the emirate's debt load is "very moderate" by international standards, and the debt raised by Dubai entities "has all been in their capacity as leading international players that are successfully expanding in a number of profitable markets." He said Dubai is in the process of obtaining a rating on its sovereign, or government, debt. Such a rating gauges a government's ability to pay back its borrowing, and it is used to price publicly sold debt.
S&P credit analysts estimate Dubai's debt, relative to gross domestic product, is about 42%. Compared with the U.S., where gross debt stands at more than 60% of GDP, according to the International Monetary Fund, that isn't bad. But in Abu Dhabi, debt is equal to just 2.9% of GDP. Analysts think Dubai's assets, including real estate, aviation and tourism interests and taxes, far outweigh its debt, but they would like to know more. Of course, credit-rating companies have another motivation: In most cases, they are paid to rate the creditworthiness of firms and governments, and the big three firms are eager for clients like the government of Dubai.
Monday, December 17, 2007
I have used the term "growth lubber" to put down those who make economic growth (as exemplified by measures such as GDP) their principal measure of human well-being. Few will argue that economic growth is a necessary but not a sufficient condition for human well-being. While GDP and other income-based measures of human progress have been criticized for being highly imperfect indicators of human progress, not much progress has been made either on establishing alternate criteria.
It's not that folks haven't tried to come up with better criteria for measuring progress than income-based measures like GDP. For instance, the UN Development Program (UNDP) uses the Human Development Index (HDI) which combines measures of income, health, and education to gauge, well, human development. The tiny state of Bhutan prefers to use Gross National Happiness as an indicator of progress. Even China monkeyed around with "Green GDP" for a while until local officials complained that these statistics painted a grim picture of China's growth as being at the expense of the environment. I myself am partial to Amartya Sen's Capabilities Approach which is more concerned with what people are capable of doing or being instead of just having.
Earlier this year, the OECD held a forum on "Measuring the Progress of Human Societies" together with the EU, UNDP, and World Bank that seeks to come up with a better, and more importantly, standardized measure of progress. As you can imagine, there is still much that is up in the air. For starters, how do environmental considerations figure into measuring progress? Or, what are we to make of things that may make some happy which give rise to others' misery? These are classic social justice and political theory questions that need to be ironed out in coming up with measures of human progress. It's certainly a difficult task, but if it gets peoples' minds off GDP-itis, it will be worth the effort. In the same way that the world looks like a nail if you're a hammer, the world looks a certain--and rather undesirable--way if viewed through the prism of GDP-itis. Above is the first film clip about the OECD's search for alternative measures; the second one is available on YouTube. Below are some excerpts as well from the Istanbul Declaration which came out of the event:
We, the representatives of the European Commission, the Organisation for Economic Cooperation and Development, the Organisation of the Islamic Conference, the United Nations, the United Nations Development Programme and the World Bank, recognise that while our societies have become more complex, they are more closely linked than ever. Yet they retain differences in history, culture, and in economic and social development.
We are encouraged that initiatives to measure societal progress through statistical indicators have been launched in several countries and on all continents. Although these initiatives are based on different methodologies, cultural and intellectual paradigms, and degrees of involvement of key stakeholders, they reveal an emerging consensus on the need to undertake the measurement of societal progress in every country, going beyond conventional economic measures such as GDP per capita. Indeed, the United Nation’s system of indicators to measure progress towards the Millennium Development Goals (MDGs) is a step in that direction.
A culture of evidence-based decision making has to be promoted at all levels, to increase the welfare of societies. And in the “information age,” welfare depends in part on transparent and accountable public policy making. The availability of statistical indicators of economic, social, and environmental outcomes and their dissemination to citizens can contribute to promoting good governance and the improvement of democratic processes. It can strengthen citizens’ capacity to influence the goals of the societies they live in through debate and consensus building, and increase the accountability of public policies.
We affirm our commitment to measuring and fostering the progress of societies in all their dimensions and to supporting initiatives at the country level. We urge statistical offices, public and private organisations, and academic experts to work alongside representatives of their communities to produce high-quality, facts-based information that can be used by all of society to form a shared view of societal well-being and its evolution over time.
Official statistics are a key “public good” that foster the progress of societies. The development of indicators of societal progress offers an opportunity to reinforce the role of national statistical authorities as key providers of relevant, reliable, timely and comparable data and the indicators required for national and international reporting. We encourage governments to invest resources to develop reliable data and indicators according to the “Fundamental Principles of Official Statistics” adopted by the United Nations in 1994.
To take this work forward we need to:
- encourage communities to consider for themselves what “progress” means in the 21st century;
- share best practices on the measurement of societal progress and increase the awareness of the need to do so using sound and reliable methodologies;
- stimulate international debate, based on solid statistical data and indicators, on both global issues of societal progress and comparisons of such progress;
- produce a broader, shared, public understanding of changing conditions, while highlighting areas of significant change or inadequate knowledge;
- advocate appropriate investment in building statistical capacity, especially in developing countries, to improve the availability of data and indicators needed to guide development programs and report on progress toward international goals, such as the Millennium Development Goals.
Much work remains to be done, and the commitment of all partners is essential if we are to meet the demand that is emerging from our societies. We recognise that efforts will be commensurate with the capacity of countries at different levels of development. We invite both public and private organisations to contribute to this ambitious effort to foster the world’s progress and we welcome initiatives at the local, regional, national and international levels.
While preparing material for the post above on measuring the progress of societies, Google pointed me in the direction of a recent post made by Richard Posner on the popular Becker-Posner blog which features his thoughts as well as those of Nobel laureate Gary Becker. Judge Posner makes it amply clear that he does not think much of the United Nations Development Program's Human Development Index (HDI). What follows are a few excerpts from his post in which he accuses the HDI of being "dubious" and "senseless":
I cannot myself see the value of the Human Development Index. Not that per capita income, life expectancy at birth, and level of education as proxied by adult literacy and school enrollments are unimportant; a ranking of each of these aspects of human development might be a good first step in identifying areas of weakness that a society might wish to devote additional resources to improving. It is the combining of the indexes and announcing that the combination offers a ranking of nations by the degree of their "human" as distinct from narrowly defined "economic" development that strikes me as dubious, and indeed as senseless. The obvious objection is to the equal weighting of the three indexes, and to the omission of a host of other important dimensions of development, such as housing quality, pollution, tax rates, adult life expectancy, crime rates, unemployment, inflation, quality and variety of goods and services, economic growth, and quality of education--though including them would exacerbate the weighting problem, and some involve serious measurement problems...These criticisms are relatively easy to address. Three things immediately occur to me. First, Posner has taken the HDI out of context. Second, he says there is "ranking mania" at play which is at variance with the UNDP's attempts to come up with more sensible measures of human development. Third, he implies that HDI is a slight to the economic approach (as exemplified by the Chicago School which he is a part of). Let me expand on these three points:
The Human Development Index is an example of ranking mania that has the United States tightly in its grip, so maybe Americans shouldn't complain about the Index. One cannot generalize about the value of rankings. There are pluses and minuses. The major plus is that a ranking is an economical method of presenting information. The related minus is that it often presents it in a misleading way--that is my earlier point that the distance between ranks is more important than the number of ranks that separates the persons (nations, etc.) being ranked. The more compressed a distribution--of ability, health, income, etc.--the less meaningful rank ordering is.
(1) While Posner does identify the UN as the main sponsor of this report, he does not specifically say that the UN Development Program is the agency responsible for it. This distinction is important for the main purpose of the HDI is to provide an admittedly rough comparison of the developmental progress of various countries, especially less-developed ones. Another Nobel Prize winner in economics, Amartya Sen, helped create the index together with the late Mahbub ul-Haq. In fact, Sen admits that HDI, an intellectual brainchild of his, is a "vulgar measure." This paper sponsored by the EU adds more color and highlights why the HDI is, again, not really as well suited for comparing developed countries as that was not its original intent:
HDI is a composite measure of life expectancy, literacy & education, and GDP per capita. The index was developed in 1990 again by Amartya Sen (initially as a spin-off of the capability approach) and Mahbub ul Haq. HDI is mainly used in a development context, to verify progress on key indicators of developing countries. It is used by the World Bank and the UN.Posner notes that the HDI would be more informative than it is if it included several other measures which have some bearing on well-being. Nobody will disagree with him. Given the HDI's emphasis on developing countries, however, another important consideration is whether this rich data is as plentiful in impoverished developing countries where governments have limited means for collecting such data as it is in the United States. It probably is not. Again, it is important to take the context of this measure into account outside of an Amerocentric point of view.
The trade-off that we have sketched above, namely between simplicity and accuracy shows up nicely here. Sen even calls his child a "vulgar measure", since it is a simple average between life expectancy at birth, knowledge (2/3 literacy, 1/3 education) and GDP per capita. The 'vulgar' quote can be explained by the fact that HDI is more suited for developing countries (hence the 2/3 weight on literacy in the knowledge pillar), the weights are totally ad hoc and HDI does not contain many aspects that would be part of well-being. One (not easy to avoid) consequence is that if literacy shoots up but life expectancy goes down there could still be measured progress, but the same numerical result might be obtained if both go up a bit, arguably to be preferred. Yet it has a lot of merits in its simplicity and applicability. Certainly for developing countries it is a more useful way of assessing progress than just GDP per capita. For Europe the HDI is not that useful, since all European countries are in the top group. Also, the challenges that Europe faces are not well picked up by HDI.
(2) The analogy to American "ranking mania" is false, and worse yet, harmful. Unlike rankings such as those for colleges which Posner compares them to, the HDI by the UNDP is not out to sell a product. The UNDP is a non-profit international organization, not US News & World Report or Forbes which put out rankings to help attract advertisers or sell print and online subscriptions.
Indeed, if the UNDP is promoting a form of "ranking mania" with the HDI, then the organization would not be looking for ways to improve on this admittedly rough measure. As I have noted, however, the UNDP is one of the organizations working on the "Measuring Progress in Societies" project which seeks to come up with a better measure of well-being. Shouldn't the UNDP be protecting its sole status as the leading purveyor of alternatives to income-based measures if its interest was in capturing rents from "ranking mania" spawned by the HDI?
(3) To imply that the HDI is a slight to economists because it emphasizes "human" instead of "economic" development is hard to justify. Who came up with the HDI in the first place? Those who are in the least bit familiar with the HDI know that the late economist Mahbub ul-Haq did together with Nobel Prize winner in economics Amartya Sen. As such, it is hard to argue that there was a slight intended when these well-respected economists came up with the HDI.
In conclusion, I would say that the HDI is neither dubious nor senseless. It is a compromised indicator of well-being and even its creators would not argue otherwise. Yet, the measure has done a number of things whose value is not controversial. Highlighting the multifaceted nature of human well-being at the international level is one. Even Posner admits, by using economic parlance, that income is not the only determinant of a person's utility function. (Money isn't everything.) The HDI should be seen in light of what it aims to do--quantify well-being even in less data rich developing countries--instead of just what it actually does. It is a stepping stone to more elaborate and hopefully more informative measures that Posner would like to see. as with what the OECD is working on in conjunction with the UNDP and others. Given this context, it does little good to knock well-intentioned initial attempts at developing more holistic measures of well-being. The HDI has been a legitimate and sensible step in the right direction.
As an expert in the field of law, Judge Posner should be exceedingly familiar with the importance of being well-briefed on the case at hand before making a judgment. Unfortunately, he seems not to have done simple research on the HDI which could have easily addressed his points on its acknowledged shortcomings. In light of the evidence, HDI is acquitted from charges that it is "dubious" and "senseless."
I made a double take at the title of this International Herald Tribune piece, but no, it is for real. We've all heard of the term "eco-tourism" for supposedly environmentally sound travel in an industry dominated by resource hogging hotels, cruise ships, and other touristy accouterments. With all the attention being placed on likely irreversible climate change, however, a new tourist promotion has sprung up: "doom tourism." No, it has nothing to do with blasting evil alien species to kingdom come. Rather, it concerns visiting places on our environmentally Bush-whacked earth that may soon be unrecognizable from their current state. Gone too soon and lost forever like the dodo. In the meantime, though, debate rages over whether tourism to these places on the brink of succumbing to enviro-jihad should be sites for tourism in the first place. You have the classic question of eco-tourism at play here as well: do these tourists do more good than harm? Or, is tourism hastening the very process of climate change?
Dennis and Stacie Woods, a married couple from Seattle, choose their vacation destinations based on what they fear is fated to destruction. This month it was a camping and kayaking trip around the Galápagos Islands. Last year, it was a stay at a remote lodge in the Amazon, and before that, an ascent of Mount Kilimanjaro. "We wanted to see the islands this year," Dennis Woods, a lawyer, said last week in a hotel lobby here, "because we figured they're only going to get worse."
The visit to the Amazon was "to try to see it in its natural state before it was turned into a cattle ranch or logged or burned to the ground," he said. Kilimanjaro was about seeing the sunrise on the highest peak in Africa before the ice cap melts, as some forecasters say it will within the next dozen years. Next on their list: the Arctic before the ice is gone.
The Woodses are part of a travel trend that Ken Shapiro, the editor in chief of TravelAge West, a magazine for travel agents, calls "the Tourism of Doom." "It's not just about going to an exotic place," Shapiro said. It's about going someplace they expect will be gone in a generation."
From the tropics to the ice fields, doom is big business. Quark Expeditions, a leader in Arctic travel, doubled capacity for its 2008 season of trips to the northern and southernmost reaches of the planet. Travel agents report clients are increasingly requesting trips to see the melting glaciers of Patagonia, the threatened coral of the Great Barrier Reef and the eroding atolls of the Maldives, Shapiro said.
Even the sinking of the Antarctic cruise ship Explorer, which hit an iceberg last month, has not cooled interest. Other Antarctic tour operators say they have received frantic calls asking for last-minute berths from those who had been scheduled to take future Explorer voyages. Since most trips are already full, would-be customers are being turned away. What these travelers are chasing may be a modern-day version of an old human impulse - to behold an untrammeled frontier. Except this time around, instead of being the first to climb a mountain or behold a glacier-fed lake, voyagers like the Woodses are eager to be the ones to see things last.
Almost all these trips are marketed as environmentally aware and eco-sensitive - they are, after all, a grand tour of the devastating effects of global warming. But the travel industry, some environmentalists say, is preying on the frenzy. This kind of travel, they argue, is hardly green. It's greedy, requiring airplanes and boats as well as new hotels. However well intentioned, these trip takers may hasten the destruction of the very places they are trying to see. But the environmental debate is hardly settled. What is clear is that appealing to the human ego remains a terrific sales tool for almost any product.
"Doom tourism has been with us for a long time indeed," Jonathan Raban, the travel writer, said by phone from Seattle, his home. "It's about the world being spoiled, and the impulse of the tourist industry to sell us on getting there before it is too late, before other people spoil it. "I'm thinking of the opening up of the West by the railroads aided by unforgivable painters like Albert Bierstadt, who sold that idyllic version of the pristine West populated only by deer and their fauns and picturesque Indians. There was a rush from the East to get there one step before the miners, who were going to spoil it, and before other tourists started trampling it."
Back then, the images were of geysers and antelope-dotted Rocky Mountain sunsets. Now the worried traveler, motivated by promotional Web sites showing images of smiling natives in face paint and flocks of colorful exotic birds, hastens to the vulnerable Amazon. Not that this tourist will be roughing it: bamboo-floored lodges await, where hot showers come courtesy of solar power and squawking toucans can be viewed from laddered observation towers.
At hundreds of dollars or more a night, people do expect hot water and other comforts. In November, Travel & Leisure magazine published a "responsible travel" issue and listed on its cover: "13 guilt-free travel deals," No. 5 being an Inkaterra Rain Forest package. For $497 a person, it included a three-night stay in a cabana on stilts, an excursion to the hotel's private ecological reserve, a boat trip to a native farm and a 30-minute massage at the hotel spa.
A "Green Serengeti package" in Tanzania started at $836 a night a person, with all drinks "excluding Champagne." This is all a ruse, said John Stetson, a spokesman for the Will Steger Foundation, an environmental education organization in Minnesota. "Eco-tourism is more of a term for the marketer," he said. "Many people want to do what's right, so when something is marketed as the right thing, they tend to do that."
But, he says, traveling by jet to see the icebergs contributes to global warming, which makes the icebergs melt faster. "It's hard to fault somebody who wants to see something before it disappears, but it's unfortunate that in their pursuit of doing that, they contribute to the problem," he said.
Advocates of green tourism counter that even carbon-consuming travel can help preserve destinations, as local people learn that there is more economic value in preserving nature for tourists than in farming or timber harvesting, said Lene Oestergaard, the executive director of the Rainforest Foundation. "There are environmentally friendly resorts,"' she said. "This is possible."
Some travel companies have tried to reconcile the conflicting ideas of seeing the planet while also somehow saving it. Abercrombie & Kent, a luxury travel company, is offering "mission trips" to environmentally fragile locales. For the Antarctica mission under way now, the 22 participants, who paid $6,190 each for a 13-day tour, gave an additional $500 each to Friends of Conservation. Some of that money helped buy a high-definition video camera, which the tourists will deliver to Palmer Station, an American ecological research center on the Antarctic Peninsula, said Pamela Lassers, a spokeswoman for the tour operator. The camera will be used to record the behavior of krill, she said.
Each tourist receives a certificate of participation and a Climate Change Challenge Mission patch. "For their expedition parka," publicity materials instruct. In a way, these earnest expeditions say much about how the very idea of adventure has changed. Once naturalists like Darwin made sense of a wild world. Explorers like Lewis and Clark sought to map what seemed limitless wilderness. Adventurers like Livingstone and Scott sought to conquer the earth's natural challenges and sometimes died trying.
Over the past half-century, backpackers and other adventurers beat new paths across Asia, South America and other locales - only to discover years later that some paths had been clear-cut into highways fit for Holiday Inns. "From where I sit," said Nancy Novograd, the editor of Travel & Leisure, "traveling to Mongolia now is almost cliché. Last summer, it seemed like everybody was going to Mongolia. The bar keeps getting higher."