Dissenting View on how Economic Turmoil will affect China

From Time Magazine:

"You can tell that the senior leaders know political change will come to China eventually and that the Party can't hang on indefinitely," says the diplomat. "That's why 90% of their children are in business, not working their way up the Communist Youth League or whatever. But that change is 15, 20 years down the road. That's not going to happen now, even if it is a very bad downturn. Change will come to China. But not yet. Not now."

I get the sense though that communications technologies are becoming increasingly difficult for the Party to monitor and control. The point about the kids of Senior Members is an interesting one however - and while it is an indication of how things have changed in where Party members see that they can accumulate the most wealth, money/prestige, it's also part of the problem. From China Digital Times, in 2006:

90 percent of China’s billionaires are children of senior officials. There are about 2,900 senior officials’ children in China, with total wealth amounting to two trillion yuan. Their businesses mainly cover 5 areas: finance, foreign trade, land development, large-scale projects, and bonds and securities. They either own their businesses or are senior managers in big companies.

What Not to Do

New Jersey (WSJ).

Like Shooting Fish in a Barrel

Johan Norberg debunking left-wing 'hero' Naomi Klein (via Instapundit):

Silver Lining: Why the Global Economy may Rebound Faster than Some Think

Amid all the doom and gloom mutterings, here's a somewhat refreshing and hopeful opinion from the Wall Street Journal on why we may experience a rebound faster than anticipated:

Consumers in many parts of the world are in relatively good shape. That statement might strike many as absurd, given the mantra of "consumers have been living beyond their means." But it's not just the third of American households that have no mortgage, or the 50% savings rate in China, or the still massive wealth accumulation in the Gulf region, Brazil and Russia. It's that the credit system, even at its most promiscuous, didn't allow consumers to take on the obscene leverage that financial institutions did. Millions of people who shouldn't have been lent money were, either in mortgages or through credit cards. But they couldn't be levered 40-to-1 as investment banks and funds were.

People have also reacted swiftly to the current problems, paying down debt and paring back purchases out of prudence or necessity. That's a short-term drag on economic activity, but it will leave consumer balance sheets in good shape going forward. Low energy prices and zero inflation will boost spending power. Even if unemployment reaches 9% or more, consumer reserves in the U.S. and world-wide are deeper than commentary would suggest. Household net worth in the U.S. is down from its highs but is still about $45 trillion. As the credit system eases, historically low interest rates also augur debt refinancing and constructive access to credit for those with good histories and for small business creation in the year ahead. Entrepreneurs often thrive when the system is cracking.

Chinese Corruption Meets the Internet

From the WSJ's China Journal:

China’s Internet vigilantes have been known to cost individuals their privacy, peace of mind, and jobs for engaging in anti-social behavior, animal cruelty, adultery or perceived slights towards China. This has led to some soul-searching about the appropriate limits of China’s free-wheeling Internet culture, with a couple of recent lawsuits pointing the way to greater regulation of netizen behavior.

Lately, though, the infamous ‘human flesh search engines’ seem to be setting their sights somewhat higher, as a string of recent high-profile cases involving officials attests.

More here (ChinaStakes). There's also a somewhat scary downside to how quickly Chinese netizens are being stirred to action. I have to imagine that at least some within the Party who are getting nervous about this - especially when there isn't an easy way that popular discontent gets managed as it does in democracies. Who knows if this will make a difference? My sense is that it will only drive the activity that is generally quite blatant, underground.

Idealists, Mercenaries and Commerce

Glenn Kelman, the CEO of Redfin writes it far better than I ever could (TechFlash):

Yes, money is the lifeblood of a startup, but in trying to convince us it is everything else too, the mercenaries are attacking what they've always hated most about us: our soul.

Read the whole thing. This also ties into the whole silly microfinance commercialization debate. Nick Kristof had a column in the NYT a few days ago asking "if a businessman rakes in a hefty profit while doing good works, is that charity or greed? Do we applaud or hiss?". What is it about businesses who profit in the process of doing good that brings out the nastiest in some people? Especially those who supposedly claim to do what they do for far purer motives (but in far less efficient and in thoroughly unprofitable ways?).

It's almost as if some people think that if you make money at it, regardless of how much good you do, it just doesn't count. Apparently being a bloodsucking profiteer is a far greater sin than being entirely (or perhaps just more) ineffective. The related issue that Kelman brings up, is that among profit motivated firms, firms with purpose often outperform (though admittedly the evidence seems more anecdotal than empirical). I totally agree (and want to believe), but then again, I'm an idealist.

Update: Forbes explores yet another related question - why Americans give so much to charity relative to the rest of the world: "The other cynical motive often attributed to givers is that they are building monuments to themselves: They desire to be remembered. But I can't see how this kind of self-interested giving is a bad thing. In some cultures, tradition dictates that the wealthy extend lavish hospitality in exchange for respect; this has the benefit of spreading food and resources around."

Chinese Food: As American as Motherhood and Apple Pie?

Another cool video from TED that reveals strange and interesting facts about Chinese food and its permutations in the US (many of which also apply to Canada):

Er, well, someone has to pay for it...

As governments bail out all these companies that are supposedly 'too big to fail' guess who ends up having to pay for it? (Five Million Dots) I'm surprised not more people get this idea that the money has to come from somewhere. They're going to have to tax someone. I guess for most people, they think it's going to be the other guy?

Blame China...

For having the temerity to save (NYT)? There are lots of reasons why you might criticize Chinese policies (that have also generated millions of jobs and brought millions of families out of poverty while improving the standards of living for hundreds of millions around the world), but this one being trotted out by the New York Times is pretty absurd.

The New Deal, Government Spending and Rent Seeking

The New Deal was "clean" and free of corruption, at least according to Paul Krugman? Perhaps not so much (EconLib). Does it really surprise anyone, particularly given how widespread earmarking is (PorkBusters), that individuals and companies would now seek to profit from the US government's new interest in spending trillions of dollars?

Bizarrely, despite the fact "the Federal Register, a list of regulations, reached an all-time high of nearly 79,000 regulations, up from nearly 64,000 in 2001; [and] new regulations have mounted rather than diminished under the Bush administration," (David Polanyi, RealClearPolitics via Forbes) there are those who think that "laissez faire economics is to blame" (Huffington Post). Quoting Polanyi, Forbes' Karlgaard notes:

Huffington argues, in effect, that communism and "laissez-faire" (minimal-intervention) capitalism are equivalent ideological extremes. Sure, one of these philosophies spurred the murder and misery of hundreds of millions worldwide; the other promotes liberty, innovation and welcomes foreigners to lounge around in expansive mansions paid for by their former oil baron husbands. [Note: Huffington, for those of us who aren't avid political buffs, happens to be such a foreigner]

Given the choices in the last US Presidential election, it's clear that opponents of markets have won a battle (I'm under no illusions that McCain would have done any better but possibly even worse given the most recent events). Bloomberg profiles the Chicago School of Economics in the midst of this mess (via Freakonomics):

At the University of Chicago, once ascendant free-market acolytes are finding themselves in an unusual role: They’re battling a wave of government intervention more sweeping than any since the Great Depression as the U.S. struggles with the worst recession in seven decades.

So what's the motive, for blaming markets/capitalism, if opponents are so wrong? Most importantly power with which they seek to profit (the Bailout of the UAW being a case in point, via Instapundit and IBD). According to Kargaard:

As you partake of the media, look for “the worse, the better” bias in everything you see or read. Know that the Manhattan media (what's left of it) and the Washington political establishment are itching to expand their influence and control over American life. They are at war with the entrepreneurs, small-business owners, libertarians and church-going families who donate the highest proportions of their income to charities.

For the media and political classes, it's "the worse the better," even if one must fudge the worse.

I'm all for Innovating but... "Bio-Hacking" in your Garage?

Not that I think we can or should do anything about this, but it's sort of cool (and downright scary) that it's now possible to 'tinker with the basic building blocks of life... in your garage' (Yahoo! via Instapundit):

Many of these amateurs may have studied biology in college but have no advanced degrees and are not earning a living in the biotechnology field. Some proudly call themselves "biohackers" — innovators who push technological boundaries and put the spread of knowledge before profits.

In Cambridge, Mass., a group called DIYbio is setting up a community lab where the public could use chemicals and lab equipment, including a used freezer, scored for free off Craigslist, that drops to 80 degrees below zero, the temperature needed to keep many kinds of bacteria alive.

(Beata, that may explain any odd looking animals lurking about your 'hood).

Not Sure How I Missed This...

But this is a Christmas everyone can celebrate! Just Lovin' It (via I Believe in Advertising):

Working Out When You're Sick

I wish I knew this (NYT) before I got my cold as I was coming home for Christmas.

More on Paul Ehrlich and John Holdren

From Ross Douthat (the Atlantic), via Instapundit:

It is, I suppose, possible to find a "key insight" about population growth in Ehrlich's book that's anodyne enough to qualify as "elementary" and irrefutable. But there's a pretty good reason that the book is remembered primarily for its mix of hysteria and moral idiocy: When you kick off your argument by predicting that "the battle to feed all of humanity is over," and that "in the 1970s and 1980s hundreds of millions of people will starve to death in spite of any crash programs embarked upon now," and then proceed to argue for mass sterilization programs, the quarantine and abandonment of countries too overpopulated to save from total collapse, and various other "triage" methods (honestly, The Population Bomb has to be read to be believed), you pretty much forfeit the right to be praised for your prescience forty years down the line.

Merry Christmas!

For many of us on the north eastern seaboard (in North America) it was as if Will Stanton joined the signs a day early - first it snowed like crazy and then it rained for a day. Hope you're having a Merry Christmas, find yourselves with close friends and family, and are enjoying holidays that haven't been too back breaking!

Technology Hacking for the Bottom of the Pyramid

Profiles of two cool ideas (yes, I'm in the process of clearing out my tabs):

1. Using a cheap camera phone to detect blood borne diseases (CrunchGear)
2. DIY adjustable glasses to help the world see better, at a target cost of a dollar each. (Guardian)
   

How Trade Affects Jobs

There have been lots of articles that have compared the profit margins of Apple versus those of some of their manufacturing partners, but what about American jobs? From the Economist Blog:

The authors found iPods employed 41,170 people worldwide. About 27,000 of those jobs went overseas, but most of those were the low-wage and low-skill jobs involved in production. Only 30 Americans had jobs involved in iPod production. But 13,890 jobs were created in the engineering or retail sector. These Americans earned $753m from iPods, while overeases employees earned $318m. Americans earned more because Apple kept the high-skill jobs (the R&D side) at home and sent its manufacturing abroad. But America's lower-skill workers also benefited, mainly in the retail, non-professional sector. These jobs earned American workers more than $220m.

As long as America has a labour force of competitive, skilled workers, it will still reap the benefits of innovation and benefit from trade. An interesting question is what wages and jobs would have been if more production had taken place in America. If that had been the case, iPods would have been more expensive. Apple would have faced less demand for the new models that are constantly being trotted out. This probably would have meant fewer well-paid skilled jobs.

Unfortunately as is usually the case in economic downturns, trade barriers are mounting (Washington Post) - this despite the overwhelming evidence that trade creates more jobs than it destroys, makes us wealthier and makes life more affordable for the poor. With China's rapid economic deterioration (Economist Blog reporting growth possibly dropping down to 0% from an originally forecast 5-8%), one possible silver lining is that it's not only China's leaders who are worried about social unrest.

Why Paul Ehrlich's Unsustainable Bet Still Matters

John P Holdren, the lesser known participant in the Julian Simon-Paul Ehrlich bet, has been appointed Science Advisor to Obama's Administration. As John Tierney points out on what the bet matters (NYT):

[The bet] was about a fundamental view of how adaptable and innovative humans are, and whether a rich modern society is “sustainable.” Dr. Holdren and his collaborator, Paul Ehrlich, were the pessimists.

The world's problems will be dealt with in two ways:

1. With a raft of regulations to restrain behaviour, by so doing, doubting the the ability of humanity to adapt and assuming humanity to be limited to the imaginations of regulators or,
   
2. Ensuring incentives exist that allow society to adapt and innovate as they have since the dawn of time.
   

Dr. Holdren's past choices and published views leave little doubt of how he views the world. Despite Obama's his otherwise moderate appointments in key areas of Defense and Treasury thus far, appointments like these make me think that Holman Jenkins' predictions will hold true: Get ready for a Lost Decade (WSJ).

Best Description I've Seen for What's Happening in the Capital Markets

From Rich Karlgaard at Forbes:

Capital is on strike now. It is one of the causes of the crash of 2008 and the fourth-quarter mini-depression. [...] It goes on strike when it is attacked or when the rules are unclear.

The solution? Make it more worthwhile to invest money by cutting capital gains. Heritage Institute excerpts from Clive Crook in the FT, Michael Malone in the WSJ and Frederick Smith from FedEx writing in the FT:

• From Clive Crook:
  

  It also requires an investment of political capital and a willingness to advocate open domestic markets as the best way to secure long-term US prosperity. The new president has plenty of capital, and if anybody can persuade the public of the virtues of liberal trade, it is Mr Obama. But this is a message that much of the country and most of his political allies are in no mood to hear.

• From Michael Malone:
  

  From the beginning of this decade, the process of new company creation has been under assault by legislators and regulators [...] The new laws and regulations have neither prevented frauds nor instituted fairness. But they have managed to kill the creation of new public companies in the U.S., cripple the venture capital business, and damage entrepreneurship. [...] If Mr. Obama is serious about getting the country out of this recession using something more than public make-work projects, he should restore the integrity of the new company creation cycle: rewrite full disclosure, throw out options expensing, make compliance with Sarbanes-Oxley rules voluntary, and if he won't cut it, then at least leave the capital gains tax rate alone.

• From Frederick Smith:
  

  Our tax system is particularly onerous for asset-intensive, industrial businesses such as manufacturers and transport companies. For example, Caterpillar, Boeing, FedEx, commercial airlines and carmakers produce goods and services and provide jobs for millions. But to maintain or increase jobs and compete globally, these companies must be able earn an acceptable return on capital expenditure.

  How can we make US companies more competitive and increase their ability to offer good jobs? Two things: accelerate the expensing of capital investment; and reduce the corporate income tax rate.

Of course, not to be outdone, the New York Times has (to put it charitably), misquoted an academic on why capital gains should be taxed (Donald Luskin). Perhaps sadly, the coming administration appears to have little interest in ensuring that dissenting views on a massive spending package for stimulus are heard (Greg Mankiw) though the empirical data suggests that in the very least tax cuts should be considered (Marginal Revolution). In the very least, a more considered approach rather than what appears (at least from a distance) to be absolute panic spending hundreds of billions of dollars in hopes that the carnage will stop, would appear to be too much to hope for. I just hope Americans are prepared for the risk of massive inflation and higher taxes in years to come.

What China Fears Most

The reason democracies are considered one of the most stable forms of government is that people have an outlet for discontent beyond a violent overthrow. As the economy was rising people in China ignored the technocrats and their suspect gains because everyone was getting wealthier (or at least the opportunities were abundant to do so). With the economy collapsing, people won't nearly be as forgiving.

While there has always been sporadic labour unrest at any number of private factories, strikes have become increasingly frequent and it would appear the legions of cabbies going on strike is just the beginning (WSJ). My guess is that the government will become increasingly desperate to respond - and if their fiscal stimulus proves to be insufficient (given their inability to change the structure of their economy fast enough), they will increasingly rely on scapegoating foreigners (China Law Blog) and seek populist measures (too bad they can't blame Canada (Metacafe)). More inconveniently, I worry they'll blame Japan and Taiwan (and unlike South Park, they may actually mean it). It's just beginning.

Fear is indeed the Mind Killer...

Not to mention a killer of businesses. Good albeit somewhat rambling post on TechCrunch with advice on how to prepare both yourself and your business to grow. Also, on a somewhat related note, I like Seth Godin's blog posts for his ability to distill ideas into action - a case in point is his latest post, which for some, works out into being an effective kick in the pants to do what you already know should be done to move yourself and/your business forward.

Be Prepared for Long Chinese New Year Factory Closures

Well it would seem that the economic slowdown has finally hit our vendors. What had turned from a steady flow of orders has turned into a trickle and threatens to turn into a full stop.

I've just been advised that a number of our vendors are going to begin the CNY shut down up to 2 weeks early and possibly not reopen until March 1st - and this of course doesn't include the estimated thousands of factories that some believe won't even reopen. While some recommend checking your factories now for closure dates (Quality Wars), I suggest checking weekly until they do as these things are sometimes fluid and often dependent on the order book (having a few mobile phone numbers don't hurt either). Sentiment appears to be quickly shifting to the negative and I'm sure doesn't help that China's only monoline credit insurer Sinosure has also been downgrading US credit risks (via Paul Kedrosky, along with European ones, and everywhere else it would seem).

"Everything's Amazing, Nobody's Happy"

For some of you who get stuck during what the Weather Channel is calling "snowmageddon" this year (and incidentally, anyone who talks about their concern over global warming during this time should rightfully be smacked), here's a pretty funny vid from Louis CK on Conan O'Brien (via CrunchGear). I think while impatience drives progress, it is pretty amazing to sit back and realize how far we've come:

For those Charitably Inclined

I'm not against charity - far from it, I think we should all give freely and hopefully abundantly. However, after a certain level of experience most people come to recognize that not all charities are created equal and further, some charities end up doing more harm towards the people they claim they help. Greg Mankiw has a post where he passes on worthy (US) recommendations from a colleague, a development economist (read the whole thing):

• Tam Tam Africa (distributing free mosquito nets)
• Deworm the World and Innovations for Poverty Action (deworming kids can end up costing as little as $0.25 per kid)

To which I'd add three:

• TheWaterSchool.org (ensuring sustainable access to clean water and run by two good friends I first met in Nairobi, Kenya)
• Acumen Fund ("building transformative businesses to solve the problems of poverty" - they have an excellent blog I follow here)
• and Accion (supporting microfinance - from what I've seen this organization is the least of all evils and pushes for sustainability more than the others)

And as another reminder, though I think we want to believe that we're doing good in charitable giving, it's probably not a bad thing to think of your charitable giving like a financial portfolio and target your giving appropriately. For those who don't agree with my views or picks, good places to investigate whether your charity is a good steward of its mission are here:

• Guidestar, BBB's Give.org, and Charity Navigator. For Canadian charities, you can access tax returns at Revenue Canada.
  

Gao Xiqing, CIC and Scary "Derivatives"

There's a soft interview in The Atlantic Monthly that provides a (nearly) unfiltered soapbox for Gao Xiqing, the president of the $200b China Investment Corporation. It's disappointing, given Fallows' unique position that he doesn't seem to ask Xiqing about the backroom rivalry between CIC and China's SAFE Fund but instead focuses on what's become fairly standard and elitist foreign schadenfreude over the collapse of US financial markets.

Xiqing appears to put the blame squarely on American profligacy - particularly in his criticism of financial innovation to the point it harkens the days of communist rhetoric over 'western decadence'. Xiqing however is hardly alone. Even Warren Buffett in 2003 began calling complex financial derivatives "weapons of mass financial destruction" (BBC). After regulators stepped in and formed a central clearinghouse following the collapse of Lehman Brothers, it has become quickly apparent this view is wrong.

The reality is that despite the initial hysteria over credit default swaps, it turns out that the exposure ended up being limited. According to Bank of America, because of compound counting (double counting, multi-fold), the real exposure to the entire collapse of CDS is really only around 3.2 trillion dolllars (and in FT Alphaville's terms, this would require absolute and total financial armageddon far worse than the Great Depression and require practically every major company with any debt to go bankrupt). While 3.2 trillion is not a small number by any means, it's hardly the 576 trillion-1.14 Quadrilliion the Bank of International Settlements (BIS) had ridiculously and previously estimated (Jutia Group). Indeed, it makes them more "weapons of mass innocuousness" (Over the Counter).

Regulators appear to be positioning themselves to respond to the previously held and hysterical view - my guess is because they for some reason believe the markets are truly beyond reason and it was in theory a credible disaster and in response to public pressure (or more cynically, out of ideological convenience). We fear what we don't understand and in these remarkable times, if there's anything that journalists have proven, it is that they seem to understand very little. As Paul Kedrosky points out, even common publicly traded shares fit the definition of the "scary derivatives" that are supposed to keep us awake at night. It may be useful to remember, as regulators rush to protect the markets from themselves, that innovation is the golden goose from which the US draws its economic power.

Xiqing points out that there are many betting against the US, and if regulators move to crowd out private investment and make it costlier to raise and find capital, regulators will make those like Xiqing right.

Development Bytes

If you missed these tidbits in the news, I'd recommend having a read:

• A malaria vaccine shows significant promise (WSJ). Developed by GlaxoSmithKline in partnership with the Bill and Melinda Foundation, it deals with a disease that kills up to a million kids in Africa a year not to mention an incredibly obstacle to productivity for everyone else. This in my mind is fantastic news though the sad thing is that many of those annual deaths could have been prevented through DDT that has been blocked for decades by overzealous environmentalists (NPR) who do not view human life to be paramount.
  
  
• via Instapundit: Iain Murray (National Review) - "Not only would successful completion of the Doha round bring great benefit to the US, it would be the single best thing Obama could do for international development."
  
  
• An inspiring story on efforts to build a baby incubator for the developing world for $1k USD (3% of cost of top of the line incubators currently) using locally available parts (NYT via Core77). While I suspect regulation plays a role, my question would be if these things are so cheap and so great, why can't we use them directly in the developed world?

Pictures - Year In Review

A compendium of pretty amazing pictures from Boston.com' s Big Picture (via Paul Kedrosky) - Divided into 3 sets:

• First Set, Second Set, Third Set
  

Why Chinese People Save?

Apparently it's cuz they're scared and don't have reliable alternatives (NYT Economix). I think it explains only part of it - as the Economist points out that this isn't consistent with data after Chinese people emigrate to the West, but it helps to think in first principle terms - that is, all finance is directly related - insurance, savings, lending, investing.

It's a singular continuum - having a wide breadth of finance products available means that you manage risk appropriate to you and your situation. Beyond the things that we plan for, we all have to deal with unanticipated events - if you don't have insurance, you use cash and if not that, loans and credit cards and if you don't have that, well, you're just out of luck. From what I've seen, usually the availability of these products happens with the increased sophistication of a given country's financial services sector: savings/lending, insurance then investments.

While Hung Huang at Economix attributes savings for dealing with unanticipated events to a "dilapidated social welfare system" and therefore a need for self reliance, I suspect that the lack of regulatory stability has something to do with it otherwise there would be more and better private sector options (though given the continuum, time may also have something to do with it as well). This being said, if you look at China's history particularly over the last say 50 years, with massive political unrest, economic uncertainties, is it little wonder that Chinese people often horde gold and are so focused on education (which is not as depreciable and cannot be taken away)?

Of course the question as to why some Chinese people (not just managers) turn into degenerate gamblers is a different one altogether. As for managers, after a massive oversight on myself that's led to a fairly significant fraud (possibly more on this later), I am thinking it's at least in small part a lack of sophistication/experience and not understanding the risks/returns.

Pursuing Ideology with the Government Purse

The problem with a new "New Deal" is that the old "New Deal" was an abject failure. From Reason.tv:

via Samizdata, Climate Change is another "priority" the new US Administration intends to spend billions on but why when dealing with its effects would be far cheaper than spending ridiculous multiples on barely moving the scale? A highly worthwhile video also from Reason.tv:

A Great Leap Backwards?

Victor Shih, a prof at Northwestern in Chinese Politics, is worried about the new Chinese stimulus plan. His basic concern is this: over the past decade there have been substantial regulatory reforms that have divorced bank lending decisions from political influence resulting in a drop in non-performing loans (though I wonder if the stats he quotes are 'real'). With the massive new injections of capital and political pressure on banks to lend, and authoritarian governments being the way they are, Shih worries that this will be a return to the past - in both practice and culture erasing a decade of hard fought gains.

With the West in the midst of the wholesale restructuring of their own financial services sectors, any criticsm is bound to fall on deaf ears. Of course one hopes the rest of the world isn't in the process of following China's lead.

What Turns (some) Chinese Managers into Degenerate Gamblers?

As if trying to do business focusing on your core isn't difficult enough. Maybe that's the problem? It's too boring? It turns out that COSCO, the shipping giant, may have lost 4B RMB by betting wrong on an obscure shipping derivative (ChinaStakes). Not so long ago there was Citic Pacific gambling on the Australian dollar (China Daily), I can count no less than three direct competitors in our aluminum extrusions business that are now undergoing liquidation or are under bank control.

Putting corporate assets into any number unrelated commodities and investments like real estate (China Law Blog) seems to be a bit of a pervasive practice and it seems sometimes unique to China. Maybe it's something in the (bottled) water?

The Momentum Builds for Walmart

Will the Nobel Prize heed the people's pleas (Britannica)? (Magic 8 ball says... "my sources say no." Shoot.)

Why I Don't Read the Economist Anymore

They're no longer the reliable champions of free markets and individual liberty they used to be to the point that their some of their articles stoop to a level that would barely pass as commentary in the New York Times. Their recent snotty post "Americans are shoddy Keynesians" is a case in point. While being a shoddy Keynesian (in favor of significant deficit spending in economic recessions in attempts to smooth out business cycles) might otherwise be something to be proud of (if not disavowing the dubious practice (Realclearmarkets.com) altogether), the Economist goes on to say "And why are Americans so concerned about government borrowing? In their own households they love debt."

Does the Economist seriously not differentiate between private sector debt and spending and that of government? So because it's a feature in the private sector, we should have no problems whatsoever with government doing the same? The US government looks like it's going to expand faster than at any point since the New Deal into goodness knows what and they're going to do it with massive amounts of debt. Does anyone remember (and does the Economist care) what happened the last time (New York Times)? Sheesh.

Update. Further Proof. Remarkably, the Economist criticizes Greg Mankiw for ignoring context when that is precisely what they do when they ignore his larger underlying argument that there's no more rare or mythical a beast than a temporary government program.

Cruel and Unusual Punishment?

via TechCrunch - First Round Capital's holiday card - the words that come to mind are cruel but also nutty, fun and in Michael Arrington's words, "awesome" (and for people who care about such things, the music is "Praan" available on Amazon):

Another cute-ish card via swissmiss from the folks at AKQA (a bit slow to start, but worth watching to the end):

The Banana Republic of Newfoundland

Newfoundland expropriates/steals assets from AbitibiBowater (Globe and Mail) after Abitibi decides to shut down a paper mill. Perhaps equally shocking is that it seems that the Globe and Mail gets it - "If the government rips up duly negotiated agreements just when it feels like it, what's the point in signing them in the first place?" Unsurprisingly, markets require first and foremost, rule of law and property rights and for now, Newfoundland appears to have little of either.

It hasn't been easy for smaller, sparsely (by comparison) populated provinces to get the attention of businesses (if only be sheer virtue of geography) - now Newfoundland's made it a quantum leap harder for themselves. The federal government should tell them to shove it the next time Newfoundland asks for help or attempts to negotiate. Canadians should not pay for the stupendous stupidity and disaster that was of Newfoundland's own making.

Is Capitalism Dying?

The author of Dilbert, Scott Adams', predicts the "End of Capitalism". I don't agree, but I was surprised because he believes the debacle in the housing and credit markets are the result of a crime by "suits" and crooks enabled by technology. I hesitate to use the words "losing faith" in markets, because I don't think it's historically accurate or even true as it implies some religious inference to a singular beast.

Markets exist in the vacuum - we have seen ever greater freedom in markets not because governments have allowed them to exist but because governments have retreated. This has been a direct result of their own incompetence and inability to meet the needs of their constituents. 'Unintended consequences' are the words that habitually follow new government regulations and programs. While Adams labels socialism as too costly, he predicts greater regulations and controls - as if that won't be too expensive? This also requires a massive leap to believe that regulation and government policy didn't play a major role in the best case and was in fact the cause, in the worst case scenario of this market mayhem.

Scott Adams' mistake is in misdiagnosing the cause of this mess. And little wonder, with the current US administration flailing to maintain some semblance of control, throwing money anywhere and everywhere with the most vocal pundits cheering them on if not too stunned to object. Try reconciling Joseph Stiglitz attack on "capitalist fools" (Vanity Fair) - an attack fraught with ontradictions as John Tamny in RealClearMarkets.com points out. It's frustrating to watch the government response pointing stubby little fingers at "Wall Street Greed" despite the volumes of evidence to the contrary (Reason.com).

Blame Capitalism? Only if we really had it in the first place (PJMedia). But with the stated intentions of the coming Congress and US Administration, it would seem that Capitalism's about to take a break - and that's bad news for everyone.

Web Resources for Startups

It's never been easier to start a business - with some of the services available over the web, you need less money to be more productive, appear more professional and established than ever before. Here's a small list of web services I've come across - let me know if there are any others you'd recommend.

My suggestion to you: grab a large cup of joe and browse through some of these services. I'm going to bet at least a few of these companies will blow your socks off. Sometimes knowing that they exist are enough to realize that you could grow or develop faster than you ever imagined possible.

Manage contacts & develop new ones.

Email. First, setting it up. Google Apps (*$), Yahoo SmallBusiness (*$), and Zimbra. Use it Productively. Xobni (*), Google Desktop (*). Track & Build Effective Email Campaigns (not to be confused with spam). MailChimp ($), CampaignMonitor ($), Industry Mailout ($), StreamSend ($), GoogleMail's Guidelines, YahooMail's Guidelines. Online CRM. ZohoCRM ($, but first 3 users are free), Highrise ($). Other. MyPunchBowl, Anyvite, Proof Email Designs.

Calls & voicemail. Asterisk, GotVmail ($), FonGenie ($), Twilio ($), Grand Central, Ringcentral ($), GotVoice (*$), Skype (*$), Jajah (*$). Call center services. Live Ops ($), Alpine Access ($), Convergys ($), Weavepartners ($). Other. Slydial.

Web. Balsamiq ($), Amazon Web Services (*$), FeedbackArmy ($), Wufoo ($), Kampyle, Animoto (*$), UserVoice, CrowdSound ($), Google Website Optimizer, CrossbrowserTesting, and Other Web Design Analytics Tools. PSD to HTML sites. HTMLmafia ($), P2H ($) and Codemyconcept ($)

Blog. PCWorld's '07 Comparison of Blogging Platforms.

Develop new leads. LeadVine ($), Sales Genie ($).

Tell the world

Print Layouts. Branddoozie ($), Inkd ($), Stocklayouts ($).

Microstockphotography. iStockphoto (*$), SnapVillage ($), SnapVillage ($), BigStockPhoto (*$), ShutterStock ($), Fotolia, Dreamstime ($), and StockXpert ($).

Website Templates. TemplateMonster (*$), ThemeForest ($)

Manage projects and files.

FolderShare (*), Unison File Synchronizer, Basecamp ($), Huddle ($), Project Pier, Callanos, Streamfocus, Redmine ($), Trac, Syncplicity, LiquidPlanner ($) and Groove (*$). Specifically for webapps: ProductPlanner.

Collaborate & share.

Delicious (*), Twiddla (*), Smugmug (for pics $*), Scribd (*), Nosco's IdeaExchange ($), Kluster, Issuu, Slide Rocket, Zapproved ($), Prezi ($), Review Basics, Conceptshare ($), Octopz ($), Cozimo ($), ProofHQ ($), Thinkature, DimDim ($), MindMeister ($) and a compilation from FreelanceSwitch

Figure out what you do well, Outsource the rest.

Elance (*$), Guru ($), oDesk ($), Redesignme ($), Ask Sunday ($), Get Friday ($), Mechanical Turk($), Spudaroo ($), 99 Designs ($), Crowdspring ($), vWorker ($), ScriptLance ($) and Freelancer ($). For product/process development: InnovationExchange ($) or OneBillionMinds ($). For content/knowledge: GenApple ($).

Manage accounting and finances.

Corduroy ($), Freshbooks ($), Quickbooks Online ($), Xpenser (*). Collecting payment. Google Checkout ($), Paypal (*$), Noca ($), and Credit Card Processing Reviews. Sell your receivables @ ReceivablesXchange.com (you need to be based in the US, at least 2 years old, have minimum 1.5M in revenues in last 12 months)

Track Time/Productivity/Reminders.

Jotlet, Clockspot, Flexlists, GetHarvest, TimeBridge, Jiffle, GTDInbox, Jott, RemembertheMilk, 30boxes, CulturedCode's Things for Mac, IDidWork, JoesGoals, Evernote and TSheets ($).

Travel.

ExpertFlyer, FlyerTalk (*), TripIt (*), ParkingSpots, Yapta, Farecast, 2itch.

Legal paperwork (Great for ideas but I'd still get a lawyer to review any important agreements! But it's generally far cheaper to have a lawyer review your draft than to start from scratch).

RocketLawyer (*), Startupcompanylawyer, FreeLegalForms, LegalRiver ($), MyCorporation ($), MyLLC ($), YCombinator's Legal Templates (*), Orick's Startup Forms Library, theFunded.com's Founder friendly Legal Docs.

Other.

Don't learn that you need to backup your stuff the hard way. Carbonite ($), JungleDisk ($), Mozy ($), Backblaze ($) and Dropbox ($).

Finding new digs. SuiteMatch, ZoomProspector, Regus.

People & HR. Spokeo ($), EHealthinsurance, Healthinsuranceinfo.

Shipping & fulfillment. TrackMyShipments, Amazon Fulfillment Services ($).

Starting a business can be a lonely experience. Consider networking online. Sta.rtup.biz, StartupNation, Biznik, Micromentor, IdeaCrossing, PartnerUp and GoBigNetwork.

Other. Google Translation Center (*), myGengo ($). Find a name: Wordoid. Finding the best ideas in your organization. Kindling ($). Charts. LovelyCharts. Research and innovate. US Patent and Trademark Office and Trademarkia.

($) denotes if you need to pay in order to get anything useful out of the service (*) services I've used and recommend.

China's 30th Year of Economic Reforms

This week is the 30th Anniversary of China's march towards freer markets. And how far they've come: Photo Essay from Foreign Policy (h/t Paul Kedrosky).

Update: A look back by the editor of the Far Eastern Economic Review (WSJ).

Why Walmart Deserves a Nobel Peace Prize

From Carpe Diem via Club for Growth. It would seem they're far more deserving than some of the past recipients (but maybe that's the problem?). I suspect the people who would go into apoplectic shock over the idea would be the same ones who decide on the prize so this may be a (small) barrier to overcome (yes, we can?).

Now's Not the Time to Stop Innovating

From McKinsey.com: "History suggests that even the deepest downturns can create huge opportunities for companies with money and ideas." McKinsey looks back at ideas that were nurtured during the Great Depression providing the foundations of growth to such storied companies as DuPont, Hewlett Packard (a start-up at the time), and Polaroid.

A further point worthy of remembering:

Although deep downturns are destructive, they can also have an upside. The Depression-era economist Joseph Schumpeter emphasized the positive consequences of downturns: the destruction of underperforming companies, the release of capital from dying sectors to new industries, and the movement of high-quality, skilled workers toward stronger employers. For companies with cash and ideas, history shows that downturns can provide enormous strategic opportunities.

"The emperor and his homeys were quite a crew"

Nathan Mhyrvold's impressions of Beijing at Freakonomics Blog. Second part of his trip to China. Worth the read despite its length.

The Quarterback Problem

Malcolm Gladwell has a new piece out in the New Yorker: "Annals of Education - Most Likely to Succeed". Gladwell explores how good teachers are distinguished from bad ones comparing it to picking quarterbacks. Gladwell focuses on the records of promising players when they actually make it to the NFL. He finds out, not surprisingly, that many flop.

I like that he pointed out the distinction of evaluating and managing quarterbacks versus others/followers. I think this just reinforces my developing view that the nature of the job necessarily influences how those performing the task should be managed - ie that repetitive tasks/positions are easier to staff and should be more finely controlled than ones that require more creativity/flexibility. It's probably something that I should have recognized a lot earlier but the egalitarian in me wants to believe different - besides, most management books don't seem to make the distinction (not that ought to be an excuse).

The primary lesson though, is that what makes good teacher and quarterbacks may often have very little to do with how they were chosen to begin with. Put another way, the signals/characteristics on which teachers/quarterbacks are chosen have nothing to do with how they will ultimately perform - this is scary because while quarterbacks do not have tenure, teachers do. Why do teachers matter?

If you rank the countries of the world in terms of the academic performance of their schoolchildren, the U.S. is just below average, half a standard deviation below a clump of relatively high-performing countries like Canada and Belgium. According to Hanushek, the U.S. could close that gap simply by replacing the bottom six per cent to ten per cent of public-school teachers with teachers of average quality.

This has wider implications to all hiring of any type of position that requires leadership/creativity, but perhaps especially so for education as the new US administration now plans to "fix" problems by throwing money at it and also expanding its scope through universal primary education (Reason.tv).

Speaking of Malcolm Gladwell, if you've enjoyed his books (as I confess I greatly enjoyed Tipping Point) you may also be interested a less flattering view of his work (The Register).

(The Economy's) Getting Cold Out Here...

A small compendium of recent news related to China's fast sinking economy:

• Global trade is falling fast, points out Brad Setser.
• China appears to be looking at allowing its currency to depreciate and increasing VAT refunds to cope (James Fallows).
  
• Frankly, if they really wanted to make a bigger impact they'd let oil prices float (as of last week they still hadn't let gas prices fall since oil prices globally have been plummeting) - instead of simply adding gas taxes moving away from pay per use on highways (China Economic Review).
  
• A few notes of advice from China Business & Management Solutions on companies that depend on China.
  
• Like Asiabizblog, while I'm hopeful, I don't see how they doesn't turn into pressure globally for more trade protectionism making us all poorer off.

One More Link

A particularly useful link even if you only find one idea that makes sense to you : 50 ways to Increase your Productivity (Life Hack); (I would highly recommend David Allen's Getting Things Done (Amazon)).

Do Markets Corrupt?

Not when compared with the alternatives (ASI). There's been a great deal of hand wringing lately - particularly in light of the spectacular collapses of any number of formerly seemingly great financial institutions but there's a bit of a problem with this thesis - the root cause of this "market failure" (Cato) was created by bad government policies. Capitalism is getting a bum rap and it's a bit irritating. Even in the Wall Street Journal - the top headline today is "Blaogojevich Thrived by Capitalizing on Connections", a none-too-subtle jab at crony capitalism and political corruption which is hardly natural outcome of real capitalism that's brought billions out of starvation and poverty. Enough ranting for now, there's real work to be done to make the world a bit more efficient :).

Update (08.12.13): A far more comprehensive look at the John Templeton sponsored Conversation.

Another Good Reason to Eat at McDonald's

(Other than, of course, the really delicious food - though, to be honest I'm a bit torn since I have lost close to 20 lbs in the last 3-4 months with a brutal work out program that I've been on; then again, if you can't what what you want is there really any point to working out?). McDonald's is opposed to the rather cynically named US "Employee Free Choice Act" that denies workers the right to secret ballots when voting for/against unionizing.

Think about that for a sec. Unions today depend on coercion to achieve their often specious demands that have little to do with reality - picket lines are meant first and foremost to keep union members in line. Unions made it illegal for employers to target organizers (which I think is a good thing), but they expect us to believe that there would be no retaliation against those who didn't vote union? Of course this comes to us, in part, courtesy of the SEIU - yes the same SEIU that's "caught up in Illinois bribe case". Because of course, only Corporations and Republicans, apparently can be corrupt?

So strike a blow against tyranny. Eat at McDonald's and revel in their scrumptious and mouth watering options (though you may want to hold the fries since those are particularly calorie laden).

China Public Holidays Announced

Quite useful - particularly as I tend to sometimes forget myself when these days are - from CNReviews:

New Year - Jan 1-2
Chinese New Year - Jan 25-30
Qingming Holiday - Apr 4-6
Labor’s Day - May 1
Duanwu Holiday - May 28-29
National Day - Oct 1-8

Chinese New Year's is January 26th and it's the Year of the Ox. According to CNReviews: "We have a special new year greeting mixing English with Chinese: Happy Niu (牛) Year this time as Ox (牛) is pronounced the same as “New” in Chinese." Yes, very punny.

Yay for Che? (and Mao)

There's nothing quite like wearing a Che Guevera or Mao t-shirt to proclaim one's ignorance of history to the world. That is of course, unless one wants to be associated with the things Che was actually known for. Che was a blatant racist and executed gay people amongst countless others - and while I suppose he killed fewer people than Hitler, that's hardly a record one wants to be wearing on a t-shirt.

Now Mao on the other hand killed anywhere between 20-70 million people depending who you ask but apparently that record isn't worth remembering. But that doesn't proclude him from being a pop culture icon either. It is a strange strange world in which we live. I have heard from one of my colleagues that there is a prevailing view that without Mao China would be a "messy" place but that seems to be a distinction without a difference.

Reason.tv has an episode on Hollywood's sick love affair with Che Guevera:

Update: Oh the idiocy. "Aye caramba. Yes, the real lesson to be drawn from a man who oversaw summary executions and ran Cuba's economy 20,000 leagues under the sea is that profits and capitalism are evil."

Oops

From one of Europe's "most prestigious scientific research institutes" (h/t Conspiracy):

It's sort of like those nonsensical tattoos that invariably (some) white people get to look cool. Of course in this case, I wonder what they're trying to say about china... :).

Nathan Mhyrvold on Shanghai: "How real is this?"

Mhyrvold, former CTO at Microsoft and otherwise supposedly all 'round brilliant guy writes about his impressions of Shanghai (Freakonomics) and questions how sustainable its growth is. My first impressions weren't dissimilar in thinking that Shanghai felt artificial. Southern China feels more "real"/comfortable by comparison - and Guangzhou, in particular, as a city.

Why Cost doesn't matter in Finance/Microfinance

Fascinating article here (Financial Times). Marginal Revolution highlights this passage:

Karlan and Zinman wanted to know what value there might be in expanding access to credit. ZaFinCo was no dewy-eyed social business, but a hard-nosed, profit-minded company, charging 11.75 per cent per month on a four-month loan, or 200 per cent APR, much more than Compartamos was generally judged to have been charging.

Despite the high rates, the results were astonishing. "We expected to see some good effects and some bad," explained Karlan, who checked in with the experiment's participants six to 12 months after they had filed their initial loan applications. "But we basically only saw good effects."

Most strikingly, those "treated" by the experiment - that is, those for whom the computer requested a second chance at a loan - were much more likely to have kept their jobs than the control group. They were also much less likely to have dropped below the poverty line or to have gone hungry. All these outcomes were recorded well after the loan had been taken out and (usually) repaid, so this was not measuring a temporary debt-funded binge.

More here (WSJ). There's a great deal of posturing going on in the microfinance world with the grand daddy of microfinance, Mohummad Yunus, opposed to blatent commercialization and claims he wants to "fight" the trend and anyone who supports it. Nevermind of course the empirical data that suggests not only is he wrong but he'd be hurting the very people who he claims he supports.

However, the same FT.com article quotes Dean Karlan, "a microfinance economist from Yale" who notes: "If you're trying to make the world a better place but you're not, that's bad. If you're trying to make profits and don't care about people, but make them better off anyway, that's good." My middle ground? Profit oriented microfinance practitioners both maximize profits and care about people. I really don't understand why the two are presumed to be mutually exclusive. Fortunately, the cat is out of the bag and commercialisation has proven potential. Even if those like Compartamos do not ultimately succeed it's too late for Pharisees like Yunus to stop commercial microfinance from succeeding on a far greater scale than inefficient and supposedly more altruistic firms.

Quote of the Week

A somewhat amusing/sad comparison from Jay Leno (via ASI):

Little bit of history trivia. It was this week, actually yesterday, in 1961, Fidel Castro announced that he was a Marxist and would turn Cuba into a Communist country, where the government would take over all the major industries. Or as we call that today, a bailout.

Pessimism over Legal Reforms in China

A broad look at recent high profile legal issues (China Economic Review) that face/will be brought before China's judiciary. The biggest problem according to Jerome Cohen? Judges answer to the Communist Party.

Beyond the more obvious reasons why this is problematic as it relates to commercial disputes, there is a recognition in China that "reform is required to ease increasing public dissatisfaction with the government, which is seen as a threat to social stability." Which in turn is a threat to the Party though problematically, the Party has seemingly few intentions to relinquish power. It will be interesting/scary to watch how these two tensions play out over the next few years particularly as the economic situation gets worse and in turn resulting a more difficult to manage populace.

Giggle of the Day

For quite some time, I've been sorely tempted to get a Wii for our office in China. Because of the frequency of travel between China, the US and Canada, I've had several clients ask for help in buying Wii's in HK - particularly modded ones because of their scarcity and "hassle" in buying on ebay. I can't say I've ever minded either as these client gifts are the ones clients remember (Highbeam).

Anyway, for anyone who's ever played Mario Kart or any type of mario game for that matter, you'll probably find this funny - it's called the Mario Kart Love Song (h/t Amazon's Game Room Blog - and according to them, it's the way to bring gaming into your significant other's heart or in the very least "not remain in single player mode for long"):

Why (Some) China Vendors insist on Cash

According to China Law Blog, it's because even the ones that do offer cash, don't like to pay to collect. And with the margins they/we generally make, it's little wonder why. This being said, of the firms that I have seen that do offer credit, many were built on cheap government cash (to build factories, borrowed against land, etc. coming from all levels of government) - and with export sales generally far more lucrative than domestic sales, maybe it's not so surprising why they do (though unfortunately that cheap cash availability isn't true for us).

Is China Inc. one Big Fannie Mae?

Jonah Goldberg seems to think so (National Review). While I'd be hesitant to predict that China's GDP will never become larger than the US, it doesn't take much to recognize that China has significant challenges ahead - some of which I don't know have adequately anticipated. As one example, valuations in China may still be suspect despite rapidly falling p/e ratios - after all, what if the "e's" never existed to begin with?

That being said, if China's economy grows to be larger than the US, it will be a return to a historical norm rather than something particularly remarkable. But it comes back to economic first principles, GDP is an indicator in the incremental wealth created by a country. Wealth in the long run is the direct result of innovation. The US remains, despite this bailout free for all, the most innovative place in the world though regulatory and fiscal policies could change that.

You Don't Say...

WSJ: "Economists have abandoned Principle". It continues to frustrate me that the crisis is being pinned on "wall street greed" when at its core, the mispriced risk of subprime mortgages (courtesy of government backed Fannie Mae and Freddie Mac / Revision to the Community Reinvestment Act) and unsustainably low interest rates (also courtesy of the US government in part due to the Fed and in part due to Fannie Mae and Freddie Mac) begat inflated asset values and a loss of confidence in credit markets that begat a forced deleveraging.

Now the US and much of governments the world over are spending bewildering amounts of money to save unsustainable businesses. Ironically, the folks at Reason, think that this could be a Libertarian moment? I remain hopeful but skeptical.