Sometimes You Need to Take a Step Back Before You Move Forward

Or at least that's how I would prefer to think of some of events happening in the US and China. Here are a few developing stories:

• "Forget about a stock bubble, China's entire economy is about to burst" (FP). I think there's a bit of oversimplification here in terms of making broad generalizations about how easy it's been for China to stimulate its economy. I don't doubt however that the massive amounts of new credit will result in an equally massive amount of bad debt. Not helping things are the traditional levels of, er, inefficiencies in the economy as Victor Shih reminds us that 90 per cent of China's billionaires are the children of high-ranking officials.
  
  Update: China - Where wealth trickles up (WSJ): "Peasants and migrant workers, who compose more than 65% of China’s 1.3 billion people, aren’t benefiting much from this growth [...] according to official statistics, salaries and other income of workers and peasants as a percent of GDP declined to just 41.4% in 2006—the last year when data was available—from 53% in 1998; salaries typically are 50% to 60% of GDP in developed countries like the United States or Japan. "
  
  
• On the other side of the pacific, things don't seem that much better as a recent poll suggests that half of the American public believe that the American dream is dead (theAtlantic). While I have to imagine that today's economy has something to do with it, I also think that it may end up getting worse before it gets better as Irwin Steltzer observes that in the Times UK "Trouble ahead as politics replaced market forces."
  
  The problem is that recessions are supposed to be cleansing events, washing the bad away to make way for the good - but this one is different with governments around the world intervening in the process playing favorites amongst companies and industries and centralizing decision making. The one at the top of the agenda today is healthcare. As Greg Mankiw points out, there are good reasons we should be concerned:
  

  I tend to distrust power unchecked by competition. This makes me particularly suspicious of federal policies that take a strong role in directing private decisions. I am much more willing to have state and local governments exercise power in a variety of ways than for the federal government to undertake similar actions. I can more easily move to another state or town than to another nation. (I am not good with languages.)
  

  To say nothing of the key argument that medicare administrative costs are lower than that of private insurance is simply false (Heritage).
  

"Success" & Markets

An inspiring and short presentation as a reminder that success isn't so much a destination as it is an ongoing journey:

As a corollary, it's why markets are great and dynamic as they are exhausting. You're only as good as your last idea or your last achievement. Where these principles don't hold and where perhaps the opposite is true is government - or more accurately the civil service.

Environmentalism as Religion

This is a timely warning (Times UK) as new laws to curb greenhouse gases threaten to dramatically increase the cost of energy at a time that the economy is already suffering greatly.

Rethinking How we Rebuild Countries

A somewhat wonkish presentation from TED by Paul Collier, the author of The Bottom Billion. Why it matters - post conflict countries tend to fall back into civil war within a decade of their original conflicts.

He focuses on the inter-relationship between politics and economic development making the argument that there's too little emphasis on the latter rather than the former. Some interesting ideas including the importance of getting young men off the streets by getting them jobs through redevelopment of the construction industry by rebuilding skills, reinstituting property rights/legal foundation and encouraging the restart of firms.

'Is your iPod unpatriotic?'

That's an irrelevant question if you're a Canadian like I am (and obviously I have a bias as well given the line of work I'm in). I think the only mass consumer good that I can think of that is made here (and not even remotely in its entirety) is the Blackberry. Canadians have been far more tolerant with trade given how much we depend on it, but that's not to say that we haven't made some bizarre moves recently to stifle trade.

If you want to advertise your economic stupidity you can buy a bumper sticker (that seems to be increasingly popular even in Canada) that goes something along the lines of 'Out of a Job Yet? Keep Buying Foreign!'. The reality is somewhat different. Watch the video from Reason.tv that points out that the iPod is made in dozens of countries with many supposedly American and Canadian products only assembled here.

California: A Spending or Revenue Problem?

Unions make the argument that taxes are too low and higher taxes are required to pay for ever increasing salaries, benefits and their underfunded pensions (as a result of increased benefits during good years). The alternative to see the budget crisis as a spending problem and that government has grown significantly faster than the economy. What's happening in California is a scenario that may be played out across the US. The case that it's a spending problem (Philip Greenspun).

The good news, if you can call it that, is that while taxes and increased deficits may not crush the recovery, it will make it slower - at least according to Bill Conerly:

Tax hikes will have negative effects in the short run, but my reading of economic history is that they do not trash the economy in the short run. They will limit our growth by a bit, which will accumulate like compound interest (but with a negative effect rather than a positive effect) over time. I don't expect the deficit per se to have a big effect, except that it will trigger tax increases.

Science & Groupthink

TierneyLab profiles a researcher who 'condemns conformity amongst its peers.' Notes TierneyLab: "What’s wrong with consensuses is not the establishment of a majority view, which is necessary and legitimate, but the silencing of skeptics. 'We still have whole domains we can’t talk about,' Dr. Bouchard said, referring to the psychology of differences between races and sexes."

JS Logan, a B2B marketing blogger, talks about groupthink in marketing in a recent post and pulls from Wikipedia -

Janis listed eight symptoms that he said were indicative of groupthink:
1. Illusion of invulnerability
2. Unquestioned belief in the inherent morality of the group
3. Collective rationalization of group’s decisions
4. Shared stereotypes of outgroup, particularly opponents
5. Self-censorship; members withhold criticisms
6. Illusion of unanimity
7. Direct pressure on dissenters to conform
8. Self-appointed “mindguards” protect the group from negative information

Finally, the seven symptoms of decision affected by groupthink are:
1. Incomplete survey of alternatives
2. Incomplete survey of objectives
3. Failure to examine risks of preferred choice
4. Failure to re-appraise initially rejected alternatives
5. Poor information search
6. Selective bias in processing information at hand
7. Failure to work out contingency plans

The difference between marketing and science is that we're often told by politicians 'not to question the science' just before they cram down some policy. Given that laws aren't as easily reversed as a marketing campaign, should we be so willing to tolerate attempts to silence dissent and reduce freedoms for consumers?

One obvious example includes the banning of incandescents in favor of more expensive compact fluorescents that are dangerous to dispose of (John Stossel). This, while innovators are making progress with incandescents (FuturePundit) to say nothing of the fact this is a defacto tax on poor people who will end up spending more resources on what was a considerably cheaper product. Next up on the list? Restricting carbon dioxide emissions is next up (despite continuing dissenting views that question the link between CO2 and global warming, USAToday).

Update: More on the science of groupthink (TechnologyReview).

One Positive Outcome of Failed US 'Stimulus'

From Byron York in the Washington Examiner: Obamacare haunted by unkept promises of stimulus. At least stimulus spending is considered a one time event. Healthcare programs however are recurring entitlements that could end up being an albatross on future economic growth and innovation (IBD).

Rational Outcomes through Irrational Behaviour

There's been a considerable amount of research into behavioural economics, and I find it ironic that the results often seem to be the same - that no matter how messed up the players are, markets seem to find their way. William Easterly delves into a book by Vernon Smith on that subject and notes that we aren't as crazy as we might think:

Societies develop NOT through the conscious design of some experts (Smith uses the horrible jargon “constructivist” for the design view), but through the “ecological” survival of institutions, norms, rules, firms, and products in a society of freely choosing individuals.

[...] So players are behaving “irrationally,” yet Smith points out that they have managed to get a better outcome than what “rational” behavior would achieve. He argues that players have unconscious social norms of “fair” behavior (and also they may find ways of “socially” signaling to each other these norms, since one thing we know about humans is that their social skills are highly advanced). Unconscious sociability allows humans to realize gains from social exchange that cannot be captured by the explicit “rational decision” model. He finds more evidence for this idea by subtle variations in the social context of the experiment.

Invesco's Views on China's Credit Powered Growth

I get the idea that history repeats. I just don't get how some people let it repeat so quickly and so soon. A quote from ChinaEconomicReview:

In order to generate the current revival they have had a huge fiscal boost and money and credit growth has exploded. This is fine for the short term but it is highly questionable whether this can be sustained without strong inflation. We have seen how quickly inflation in China can rise with overheated credit conditions… Unless we see some winding back of the credit expansion in China then there are going to be significant risks to the country in the mid-term.

Inspiring Kids

How a teacher used students' forged notes and developed them into a lesson plan (ReadersDigest). Meanwhile, in Baltimore, a teachers union forces a charter school to increase wages to teachers that they neither want nor that the school can afford (JohnStossel). I feel lucky to have as many great teachers as I did - but like most people, I also had my share of duds.

I just don't get how we allow a special interest group to put a strangle hold on the development of kids especially given how much we know we depend on innovation. The knee jerk reaction by many is that education is supposedly too important to be put in the hands of money grubbing capitalists, but I have to wonder if they're saying the alternative is better?

This Explains So Much

From the article "Why we say yes to drugs" at Salon.com:

Hadn't he ever worked for someone who'd gotten so tweaked on coke that he burned out his septum, emptied his bank account and triggered a heart attack? Hasn't every journalist worked with someone like that?

(emphasis mine - with due respect of course, to a good friend of mine who happens to be a journalist).

Productivity Bits: Men's Health Seems to be Reading GTD

From Men's Health - "5 Ways to Boost Productivity and Beat Stress". They're actually decent tips (as opposed to some of the financial advice they sometimes give). The basic ones: reduce interruptions, stop multitasking and don't be a perfectionist.

Yep, That'll End Well

How principled of them. Autoblog via Instapundit: "French workers vote against blowing up plant as long as their demands are met"

Skepticism of the Chinese Economy

Generally speaking, the global press seems to be rather optimistic about China's economy - one of the bright spots in a dismal world. The reality is considerably darker. Real estate prices (not to mention their stock markets) are reaching new frenzied levels, driven by unrestrained and cheap borrowing - especially by state owned enterprises. As Glenn Reynolds notes, "[China's] banking system isn’t sounder than ours. They’re just better at hiding problems."

A few choice quotes from a long but fascinating post by Michael Pettis at ChinaFinancialMarkets:

Observations by one of his readers: "What was most distressing was that the [real estate development in Guiyang, as an example of real estate development across China] has been totally uncoordinated – a project with 15 buildings here, in another field two miles away a project with one building, another mile in another direction three buildings, sprawled over what was easily over 30 square kms. of farmland well north of town. Every building we got close enough to see was either incomplete/under construction, or empty. Our tone gradually went from “Haha, another one!” to “Oh my God, another one.” We conservatively guesstimated that we saw US$10bn of NPLs in one afternoon. The only buildings that were occupied were six-storey towers built to accommodate the peasants who had been displaced by the construction."

His response:
Will we see a crash, or a steady slowdown? My guess is that there is significant and rising instability in the banking system’s liabilities, and far more government debt than we think, all of which should indicate a rising probability of a crash, but I think the ability of the government to control both the liquidity of liabilities (i.e. to slow them down, or to forcibly convert short-term obligations into longer-term ones) and the process of asset liquidation (at least within the formal banking system – I don’t know about the informal), suggests that if a serious problem emerges we will probably see more of a “Japanese-style” contraction: a long, drawn-out affair as bankrupt entities are merged into healthier ones, liquidations are stopped and selling pressure is taken off the market by providing cheap and easy financing, and so on.

This is a long way of saying what I have often argued – that what we should expect in China is not a financial collapse but rather a long period – maybe even a decade – of much slower growth rates than we have become used to. There are many reasons to expect a short, brutal collapse followed eventually by a healthy rebound, but government control of the banking system eliminates a lot of the inversion that in another country would force a rapid adjustment. This is not a note of optimism, by the way. As the case of Japan might suggest, the long, slow adjustment may be socially and politically more acceptable but it may also be economically more costly.

Accordingly, economists polled by the WSJ believe that China's economy will, euphemistically speaking, "slow":

But the extraordinary jump in growth in the second quarter as a massive fiscal and monetary stimulus took hold is unlikely to be sustained, most economists think. That’s not surprising since China is now much closer to a normal level of activity than it was six months ago. The forecasts of the economists in the poll center on the quarter-on-quarter expansion slowing to an annualized 9.8% in the third quarter and 9.0% in the fourth quarter. The range of forecasts is still very wide, and the consensus on at least some slowdown masks a continued debate over how much private-sector investment will kick in later this year to support the government’s stimulus.

Update: On China's recent stimulus spending (Victor Shih):

banks are asked to finance projects with dubious commercial viability [...] State Council researcher Wei Jianing estimates that at least 20% of the new credit has gone into the stock and real-estate markets instead of generating real benefits to the economy. [...] if inflation spikes next year, the central government will have to choose between shutting off credit, which will reveal a massive nonperforming loan problem currently obscured by a torrent of new loans, or an unprecedented level of inflation.

Governments & Scientific Research

From Reason.com - a recent Pew poll notes:

The general public endorses the idea that government outlays for research are necessary for scientific progress. Six-in-ten (60%) say “government investment in research is essential for scientific progress”; only about half as many (29%) say “private investment will ensure that enough scientific progress is made even without government investment.”

But what should the role of government grants and "investment" be? While government interventions elsewhere almost always result in unintended and undesirable consequences, the birth of the internet was the result of DARPA research. But who's the say that it wouldn't have been developed anyway? The reality of the returns to the economy (and to society) of government funded research is questionable as Ronald Bailey from Reason.com reports:

Government funded civilian research didn't appear to hurt the private sector but there was not much evidence that it helped, at least in the short term. The report concluded, "Research and development (R&D) activities undertaken by the business sector seem to have high social returns, while no clear-cut relationship could be established between non-business-oriented R&D activities and growth.

That said, if these interventions don't end up hurting the economy, that's a far better outcome than much of governments interventions - so if stimulus must be done for political expediency, despite not being as efficient or effective as private markets, surely this isn't a bad place to do it.

UN Millenium Goals: History Repeats. Bad Ideas Recycled.

Aid Watch critiques the UN Millenium goals by comparing them to the pressing problems of the past and their unchanging approach to solving them. While no one is making the argument that it's the problems that are in dispute, the approach to solving them clearly is in question.

The debate is complicated by the demagoguery of those who seek unsustainable funding for their sometimes bloated bureaucracies and who place the blame on that "small zone of freedom" (ie markets/market failure) when the opposite is true. Their approach lends credence to the idea that it's never been about sustainable solutions but about consolidating power and control.

Er, Another Approach to Living Longer...

via Instapundit: "Allingham, who was the world’s oldest man when he died Saturday at 113, attributed his remarkable longevity to ‘cigarettes, whisky and wild, wild women."

Not Just the Potato

The underlying theme is the importance of technology as a catalyst for population growth (New Scientist via Instapundit):

The advent of stone microblades set the stage for the subcontinent’s explosive population growth, new research suggests. The easy-to-manufacture tools – also known as microliths – were a vast improvement over larger stone flake tools used previously, says Michael Petraglia, an archaeologist at the University of Oxford, UK, who led the study. Because microblades could be cut from stone more quickly and in higher volumes than flakes, hunting probably became a vastly more efficient endeavour.

Meet Cody

There are some people who turn into incoherent and babbling idiots when presented with (small) kids or pets. I've come to the sad realization that I am one of those people. At the nagging of others, here are a few pics of the new kid who lives at our office in China. He's a border collie and his name's Cody.

From Monday - he's growing up into a bundle of energy:

Born on my birthday (Feb 6), makes it easier to remember how old he is. This is from a few days after we got him (about 2 months after he was born):

This is one of the last pictures we took right before I left the office for Canada (note the forced smile - his and mine):

And finally, capturing an intimate moment and (hopefully) the least professional photo you'll ever see of me (you can almost hear him quietly whimpering "help me..."):

I must be Pregnant and a few Non Sequiturs

...well, in an immaculate conception sort of way - I got back last night from China last night (which also reminded me why United Airlines is to be avoided at all costs). I woke up this morning at 5 am to catch up on the gazillion emails and blog posts and then had 3 runny eggs, pickles, craisins, and cashews and thought it was delicious.

This last trip was a bit of a sad one as I returned, at the beginning of the month, for the funeral of one of the last surviving uncle in HK (most of my relatives have moved to Canada) and had gotten to know him a lot better over the past several years. He died rather unexpectedly of a heart attack at home. It was a bit surreal never having been at a funeral on that side of the world before with such things as an open casket funeral a month after the death, dealing with a shortage in burial spaces for ashes (Time), and the difficulty in booking appropriate cremation times. The funeral itself however, was very well attended. He was a bon-vivant, loving great food, the company of friends and family and he will be deeply missed.

Quote of the Day - Sad but True

From TheFutureofFreedomFoundation (via Instapundit):

A rule we can rely on to be unfailingly applied is this: No matter how much the government controls the economic system, any problem will be blamed on whatever small zone of freedom that remains.

Best Way to Encourage Transparency and Accountability from Bureaucrats?

According to Laura Freschi from Aid Watch - Make them scared - and don't guarantee their funding:

The organization with the least vested interests supporting it may be the one that will perform the best. At least, they actually invite their critics to breakfast.

Productivity Bit - Fatigue: It's Only Your Imagination

I'd believe it (NYT). This is something that goes beyond "the placebo effect" that's been questioned in recent years (NYT). According to the NYT:

“Training is no longer simply an act of getting the muscles used to lactate or teaching the lungs how to breathe harder.” It’s also about getting your brain to accept new limits by pushing yourself, safely. “Once your brain recognizes that you’re not going to damage yourself,” Foster says, “it’ll be happy to let you go.”

A friend has been a personal trainer of mine over the past few years. I'm pleased to say that it's worked. She may be one of the craziest/intense people I know (at least when it comes to fitness), but one of the things she's been able to do is help me to find and (safely) push my limits. In doing so, according to my tailor in HK, I've lost over 2" off my waist and over 15 lbs to a healthier 160 lbs.

My trainer was right though. Even though there were times I wanted to die, by pushing forward, pushing my mental limits it's a conditioning that's extended beyond working out. I'm hopeful we'll see some fruits of those efforts soon despite the economic mess we collectively find ourselves in.

Mark Steyn: Demographic Deathwatch

Here's a little cheery note (NationalReview):

The transformation of developed societies - either into old folks' homes (like Japan) or semi-Islamized dystopias (like Amsterdam, Brussels, etc) - will lead, in fact, to emigration. A young German or Japanese circa 2040 will have no reason whatsoever to stay in his native land and have most of his income confiscated in a vain attempt to prop up an unsustainable geriatric welfare system. So many will leave. Where will they go?

Clearly Canada and Europe aren't going to be the only countries dealing the coming demographic crunch and the entitlement structures currently in place. China may ultimately have one of the biggest problems.

The Loaded Potato

Who knew the radical effect the humble potato had on development? As Paul Kedrosky quotes from a recent study, "the introduction of the potato explains 22% of the observed post-1700 increase in population growth."

The study goes on to state "According to our estimates, the introduction of the potato explains 47% of the post-1700 increase in the average urbanization rate. Our estimates suggest that increased agricultural productivity can play a significant part in promoting the rise of urban centers, industry, and economic development."

Celebrate by making potato skins (TheComfortisAlwaysHere, a recent submission to FoodGawker).

China's New Burgeoning Bubble

In a true sign that the end of the world is nigh, I'm starting to notice everyone and their brother start to talk excitedly about stocks again - the most recent of whom are coworkers and a gym trainer who exchange gossip over what they've heard - no joke - by other people off the Internet. The Shanghai Stock Exchange's composite index has nearly doubled (YahooFinance) since the lows it hit in November 2008.

I question the reliability pundits who extol the wonders of the Chinese economy without talking about the risks. In point of fact, China's recent economic growth has been driven by a massive influx of capital and credit (ChinaStakes):

Bank lending in the first half of 2009 reached 7.37 trillion yuan, while the total credit growth in 2007 was 3.6 trillion yuan, and in 2008 4.9 trillion yuan. As 2007 and 2008 GDP grew 11.4% and 9%, respectively, then with the nearly 7.4 trillion yuan of credit GDP growth in the first half of this year should be over 15%.

Without efficient demand, China’s too rapid credit growth puts great pressure on the fiscal and monetary policies. Lu Lei, an economist, comments, “Why do we need these investments? If the government hopes to increase resident’s disposable income, it can transfer these investments into fiscal subsidy. And if it aims to increase employment, it should adjust the economic structure, especially focusing on increasing the income of hundreds of millions of farmers, instead of reinforcing the existing structure. If the government can’t stand the temporary economic growth decline and allocate financial resources to structure adjustment, China’s road to economic rebound will be tougher and tougher.”

I can't imagine how this possibly will end well especially as China will not be able to rely on a foreign recovery to pick up the slack (especially ironic as much of the rest of the world hopes demand in China will help lead the recovery).

For those Days When You Want to Cook Up Something Fancy

Brilliant on so many levels: a new blog devoted to reconstituting fast food into something fancy... or something like that (fancyfastfood).

Cursed at only 5'10" (or 5'9" depending on the time of the day)

From peHub:

• Tall people make an average of $789 per inch per year (for every inch above a person of average height), according to 50 years of salary surveys.
• According to numerous studies, when an employer is given the real and fictitious resume of two similarly competent employees, the tall employee will be chosen for the job 70 percent of the time.
• Thirty percent of American CEOs are 6’ 3” or taller(!).
• When friends talk, they do so at an average distance of 18 inches apart. When an employee talks with his or her boss, they typically stand four feet apart. When a tall person talks with anyone, he or she is given four feet.
• Over half of all U.S. senators are over 6′ tall.
• Over the last century, the average American president has measured in at 6’1”.
• Tall men are also the most successful dating population on earth, says Cohen. In an interview with Maclean’s magazine, she says that in her research, she found that most heterosexual people date within an 8 percent height difference, which she says is roughly five inches. “Tall men are the only ones who don’t do this,” she adds. “Tall men date whoever the hell they want.”

For those of you out there who are redistributionists, surely, taxing tall people is more efficient than taxing the most productive in society (Greg Mankiw) - after all, tall people have an unfair advantage!

Can't Stop the Signal: China's 338 Million Internet Users

That China has significantly more internet users now than the US has people (WSJ) is encouraging. While 'you can't stop the signal, Mel' (imdb), it doesn't mean they won't try. Currently, I'm guessing because of issues in Urumqi, Facebook is blocked as is Twitter, among others (especially after Iran's experience with Twitter, Washington Times). Even prior to this, YouTube has been blocked for a while now, as have most blog sites.

While I think China's media restrictions have a direct impact on its ability to innovate, this also bodes well for future political change.

Update: More on that signal in China (Instapundit)

Make Discrimination Pay

As a libertarian, I figure that as long as people aren't actively attacking visible minorities they should have a right to hold their views. It's not as if government can force them to think a certain way anyway. As an employer and wayward value investor, I've always figured that so long as I'm not doing it, discrimination works to my benefit in creating undervalued assets - not to mention the idea that a company that actively values ideas and openness over 'what's on the outside' will tend to do better than those who don't.

It's why I find stories like this to be pretty cool - about a business that actively seeks autistic employees for the specific characteristics of their disability (BBC):

He has a form of autism called Asperger's Syndrome.

It gives him focus and persistence - traits which have helped him become a champion weight-lifter. [...] Given the right conditions, they excel at technical tasks. [...]

The experience in Denmark shows autistic workers are an untapped resource.

While the article itself goes on to support a number of legislative measures to encourage the practice, it is useful to note that this business has grown without it. Indeed, there are those who have pointed out that anti-discrimination legislation like affirmative action merely lead to the soft bigotry of low expectations not to mention the further resentment of employers who never liked the idea to begin with forcing any feelings to go unstated rather than be actively debated.

Why it Pays to Find Communities with Bohemians and Gay People

If you're a real estate investor - or even an employer that depends on innovation for that matter, it may pay to locate your business in communities where artists and gay people congregate. At least that's according to McKinsey Digital:

We found that the presence of these populations had direct effects on housing values as well as other locational variables (like income and human capital), making these places more attractive to other populations and demographics. In other words, the presence of these groups not only made housing values rise, it made incomes rise as well.

Why would this be? Our theory is that bohemian and gay populations capitalize on two distinct factors of high-value housing. The first is an aesthetic–amenity premium. Artists and bohemians not only produce amenities but are attracted to places that have them. As selective buyers with eyes for amenity, authenticity, and aesthetics, they tend to concentrate in places where these things abound. The second is a tolerance or open-culture premium. Regions with large bohemian and gay populations possess low cultural barriers to entry, allowing them to attract talent and human capital across racial, ethnic, and other lines. Artistic and gay populations also cluster in communities that value open-mindedness and self-expression.

If their thesis bears true, it also suggests that markets take care of their own. Discrimination doesn't pay. Setting aside the fact it's impossible to legislate everyone getting along, this thesis should also extend to corporate cultures where populations that "possess low cultural barriers to entry" as evidenced by their demographic diversity are also ones that can create the most value. On a somewhat related note, Andrew Breitbart notes how markets can have a far greater effect than legislation in combating racism (Washington Times via Instapundit).

Why Mr. Zhang Saves and Why He's About to Stop

Hint - a Confucian work ethic has nothing to do with it. An perspective on savings in China from the Wilson Center. If they're right, this will ultimately spark radical changes in the world economy in the next few years as some of these trends start to reverse themselves. A few highlights:

• "China’s Joe Sixpack—call him Mr. Zhang—earns tiny returns on his savings. Demand deposits are currently capped at 0.36 percent a year, while three-month CDs return a measly 1.71 percent... even as inflation peaked at more than eight percent. [...] in China and many other Asian countries, low rates seem to have the opposite effect. One reason is that few Chinese have the financial wherewithal to make stock or real estate investments (and the Chinese stock market is minuscule relative to the economy), and so most people must keep their savings in bank accounts, where they eke out meager gains. Low interest rates don’t simply make Chinese savers feel poorer; given the large amount of bank savings, interest income is a significant fraction of total household income, so low or even negative real interest rates (after the effect of inflation is deducted) make them poorer in fact. Thus, even as low-interest-rate policies slow consumption growth, they boost production by subsidizing loans to manufacturers. The result: a burgeoning trade surplus and soaring ­savings.
  
  
• "It is also often said that the Chinese save so much because a big bank account is the only insurance they have against medical disasters, periods of unemployment, and retirement needs. The government has publicly stated its urgent desire to provide a medical safety net, but for now Chinese families are on their own when it comes to covering medical bills, and the popular press is full of horror stories of ­bedridden patients forced to leave hospitals when their payment accounts, which patients typically must open at hospitals before being admitted, run out of money. But there are limits to this explanation. Many other developing countries with spindly social safety nets have low savings rates, while Japan in the 1980s had strong supports and very high savings rates at the same time."
  
  
• "Since the mid-1970s, China’s ­working-­age population has grown at a much faster pace than its population as a whole. In effect, this at least partially explains why production has increased faster than Chinese society’s ability to absorb what it produces. The result: The savings rate has in­creased. But this demographic trend will reverse in the next four or five years, as the smaller cohorts created by China’s one-child policy come to the fore and the country’s ­work­ing-­age population begins to contract much more rapidly than the total population. As this happens, Chinese consumption should begin to catch up with and perhaps even outpace Chinese ­production."
  

Deals in China Going South

China Law Blog points to a pretty thorough backgrounder on what's happened to a KKR's investment in a concrete business in China (Forbes), which is to say, nothing good. I think it's typical of a lot of private companies here - where you have relatively unsophisticated managers who build businesses and who are used to solving problems, er, extra-legally. The idea of accountability to others is often a foreign one.

Take the disaster that's Asia Aluminum for instance, particularly after foreign bond holders realized that they had very little recourse to force management to do much of anything under Chinese law (WSJ). That said, as China Law Blog points out, these aren't issues unique to China but any developing country where property rights laws aren't as mature with local business people having a political advantage over foreign investors:

Let's just say one of my favorite joint venture stories involved a client who after being hung head first outside a high floor window in Russia he decided he would gladly relinquish his controlling interest after all.

On the other hand as the Forbes article points out, KKR is undeterred - "it disclosed a $150 million investment in Chinese milk supplier Ma Anshan Modern Farming, another closely held enterprise. That marked the buyout firm's second announced investment in China."

James Dyson: We Can All Be Inventors Now

A fascinating look at one of Britain's most innovative firms (NewScientist). There are a few points I'd highlight - while software and online services are often the best example of how innovating has gotten cheaper and faster to do (all it takes is a cheap computer, computer programming skills and a few good ideas), costs have been dropping in product development as well.

As Dyson points out, the tools for developing new products, inventing and ultimately making products market ready like rapid prototyping machines and simulators are now within reach to practically everyone. That, is a good thing given that economies primarily grow, not because governments decide to spend more, but either because people get faster at doing work (productivity), or they're able to find new ways to solve problems others are willing to pay for (innovation).

"Confessions of a Sweat Shop Inspector"

I'm not sure I'm comfortable with the term sweat shop as it could liberally apply as much to domestic Western factories as those overseas. There has been a push - particularly in consumer based industries (so I haven't seen as much of it as a requirement personally), to impose Western values and standards on vendors in Asia. This is an excellent article on both the benefits and disadvantages of doing so (Washington Monthly via Club for Growth) - with many similar experiences I've had over here. Here are a few highlights:

I don't pretend that everything monitoring brings about is for the best. An example: Mattel's factories in China are superb, but workers there often earn less than their peers in shadier factories because their employers confine them to shorter workweeks to avoid paying overtime. Another: You may rightly hate the idea of child labor, but firing a fourteen-year-old in Indonesia from a factory job because she is fourteen does nothing but deprive her of income she is understandably desperate to keep. (She'll find worse work elsewhere, most likely, or simply go hungry.) [...]

That's why monitoring and enforcement have such an important role to play. We don't expect developing nations to match us in what their workers earn. (A few dollars a day is a fortune in many nations.) But when a Chinese factory saves money by making its employees breathe hazardous fumes and, by doing so, closes down a U.S. factory that spends money on proper ventilation and masks, that's wrong. It's wrong by any measure. And that's what we can do something about if we try.

Given the increasing difficulty that most factories find in hiring and keeping good workers, I'd suggest that the lack of regulatory health controls is a self regulating condition that's already happening. That said, with still a fairly weak level of legal rights for workers, I also can't disagree with the idea that outsiders should exercise their power on a moral basis to ensure the health and safety of the workers that make their products.

The Most Important Characteristic in an Entrepreneur

At least according to the legendary VC investor Arthur Rock who financed Intel, Apple and Fairchild Semiconductor (Creative Capital):

Intellectual honesty. Rock knew that a new business would face many challenges and that in order to succeed entrepreneurs needed to be honest about the state of their business. Or as Rock rhetorically asked: “Do they see things the way they are, and not they way they want them to be?”

I'd humbly add that this doesn't seem to be a bad hiring criteria for managers either.

Asia as Center of Innovation in 21st Century?

An interesting debate over at McKinsey Digital though I'm not sure they had sufficiently polarizing opinions particularly on the disagreement side. The comments offer some of the more interesting insights. My two (libertarian) cents? Government doesn't need to enact an "innovation policy". Government needs to get out of the way. Americans are already the world's biggest innovators but the idea that taxing them, burdening them with regulations and making it more difficult for them to finance their ideas will help them innovate is, quite simply, crazy.

On the other side of the equation, if necessity is the mother of all invention, China's going to need a lot of it just to keep up with its demographics problem of its own making. Historically, let's also not forget China and India were the world's economic powers.

While there's no doubt that India and China are catching up - they're doing just that - they're playing catch up. While the US has its own problems, to say that US dominance as innovators is a position that's theirs to lose, grossly understates the problems both India and China face.

Good News: We're Killing Each Other Less

The next time someone reminisces about the way things (never) were, just remember Hobbes was right: "Life in a state of nature is nasty, brutish, and short" (Greater Good).

According to psychologist Steven Pinker (via Paul Kedrosky), "If death rate of early human tribal warfare had continued in 20th century, there would have been two billion deaths rather than 100 million." He goes on to ask "Why is there peace?" Personally, I blame capitalism. Markets provide incentives for cooperation and good governance - and this might be a useful reminder as we watch the regulatory and taxation disaster (Economist) in the making being created by US legislators.

Productivity Bit: Tell Yourself You Suck

This is sort of cool that one of the authors of the study is from my home town - apparently those with low self esteem shouldn't bother trying to fight it - they should embrace it (Time):

A study just published in the journal Psychological Science says trying to get people to think more positively can actually have the opposite effect: it can simply highlight how unhappy they are. [...]

Wood, Lee and Perunovic conclude that unfavorable thoughts about ourselves intrude very easily, especially among those of us with low self-esteem — so easily and so persistently that even when a positive alternative is presented, it just underlines how awful we believe we are.

The solution? "Mindfulness and meditation techniques, in contrast, can teach people to put their shortcomings into a larger, more realistic perspective. Call it the power of negative thinking."

Electroshock as Cure for Internet Addition

One of those Made in China moments:

The Ministry of Health ordered that the clinic in Shandong province stop using electroshock as a form of punishment, according to Chinese media. [...] In what might be an indication of the clinic’s effectiveness, its practices came to light when former patients went online to complain.

How not to Stimulate an Economy

From the WSJ (via Greg Mankiw):

House Democrats on Tuesday unveiled sweeping health-care legislation that would hit all but the smallest businesses with a penalty equal to 8% of payroll if they fail to provide health insurance to workers. [...]

The House bill would place new taxes on the wealthiest people to help expand insurance coverage to the nation's 46 million uninsured people. The legislation calls for a 5.4% surtax on those with annual gross incomes exceeding $1 million.

As Glenn Reynolds highlights (also from the WSJ): "A new study by the Kaufman Foundation finds that small business entrepreneurs have led America out of its last seven post-World War II recessions. They also generate about two of every three new jobs during a recovery."

It defies reason as to how some people sincerely believe that disproportionately increasing taxes on some of the most productive members of society will result in those same people being even more productive. As Greg Mankiw notes, after you factor in sales taxes, this means that 55 cents for every additional dollar earned would go just to pay taxes - nevermind that new taxes rarely result in the level of new revenues politicians project and nevermind President Obama claims that public funding of healthcare will improve the economy.

Things unfortunately begin to make sense if you assume that these people are less interested in the health of the overall economy and more with catering to their donors - ie public unions. Meanwhile, a poll by CBS News shows "75% believe Obama's stimulus plan has had "no impact" or a "worse" effect on the economy so far" (via Club for Growth). That should be enough to make anyone "go Galt" (DrHelen).

Is the "Cheap China Price" Gone?

According to Businessweek, after "the added challenges of quality, logistics, and engineering changes", Mexico's apparently cheaper. While I'd agree up to a point - those who initially seek to outsource usually ignore the risks - I've got a boatload of horror stories clients have told me.

Frankly I like hearing that clients have been burned before we work with them because it means they recognize the value we provide after we do deliver. For us, we're not the cheapest price but we're not the most expensive either. On the other hand, in my experience, many of these risks carry over to both the US and Mexico. The proximity/clustering of some services makes the production of more complex parts often less expensive than Mexico - so long as quality can be managed.

That said, I wonder how one can make such a broad assessment of a swath of manufacturing services based on one indicative part alone that BusinessWeek cites. Here comes my cheap shot - maybe that's why Businessweek may only fetch $1 (FT). More seriously, I think these things have to be evaluated on a case by case basis with even service providers resulting in massive range of variance in both quality and price - especially over here in China.

Productivity Tip: Be Brilliant - Daydream.

In the past I've wondered if we make more out of "Eureka" moments because we just notice them more as they appear out of the blue rather than when we seek them out. Apparently, however, brilliance can come with daydreaming - as a recent studies of volunteers given problems to solve showed (WSJ):

In those cases, the EEG recordings revealed a distinctive flash of gamma waves emanating from the brain's right hemisphere, which is involved in handling associations and assembling elements of a problem. The brain broadcast that signal one-third of a second before a volunteer experienced their conscious moment of insight -- an eternity at the speed of thought. [...]

By monitoring their brain waves, he saw a pattern of high frequency neural activity in the right frontal cortex that identified in advance who would solve a puzzle through insight and who would not. It appeared up to eight seconds before the answer to a problem dawned on the test subject, Dr. Bhattacharya reported in the current edition of the Journal of Cognitive Neuroscience.

Though it's probably something that's best not to do while your client/boss/wife/gf is talking to you...

Yet Even More on the Logic of the Minimum Wage

I'm a bit of a sadist in that I find the minimum wage fascinating. That it's an idea that persists suggests where we are in the fight between dead ideas, demagoguery and economic enlightenment. From Peter Schiff (via Club for Growth) who is now running to replace Senator Christopher Dodd, Chairman of the Senate Finance Committee:

The only way to increase wages is to increase worker productivity. If wages could be raised simply by government mandate, we could set the minimum wage at $100 per hour and solve all problems. It should be clear that, at that level, most of the population would lose their jobs, and the remaining labor would be so expensive that prices for goods and services would skyrocket. That's the exact burden the minimum wage places on our poor and low-skilled workers, and ultimately every American consumer.

Since our leaders cannot even grasp this simple economic concept, how can we expect them to deal with the more complicated problems that currently confront us?

Heh. Profanity as a Pain Management Tool

From the Scientific American: "According to neuroscientists from Britain’s Keele University, dropping the f-bomb can actually relieve physical pain."

This Probably Won't End Well for the Obama Administration

I don't really want to talk specifically about politics here, but given the massive heaps of uncontrolled spending, it's difficult not to. The level of admiration accorded to President Obama has far exceeded the level of his achievements but this has been helped, in no small part, by the media who seem to fawn at his every move and defend what little there is of his record to the point of absurdity (TheVirginian) .

As Rex Murphy puts it "Mr. Obama has taken the real crisis of the U.S. (and world) economy and used it as the screen and lever for a massive agenda of transformation, a transformation that calls for expenditures on a scale never before seen in the history of government on this planet" (Globe and Mail). Keith Hennessey makes a similar point in critiquing Mr. Obama's Op-Ed that Obama ironically chose to publish in the Washington Post (Politico). Mr. Obama has chosen to use this crisis to spend trillions of dollars on an ideological agenda to expand the size of government. As Victor Hanson points out, in what he calls The War Against The Producers (via Instapundit), this can't possibly be sustainable:

Ponder a simple fact: The Obama administration is dispersing income lavishly to those who do not pay taxes and it will have to be paid for by those who do. For all the talk of that awful percentile who make over $200,000, this administration has not distinguished the hyper-rich 1% that make untold money (e.g., the Buffets, Soroses, Turners, Gateses, Kerrys, Gores, etc), from the much more demonized, larger 5% of the population whose income does not come from investments and insider influence and deal-making, but rather from providing more tangible goods and services–the family doctor, the plumbing contractor, the small lumber company owner, the car dealer, the local family-held insurance company, the airline pilot, the car-leasing firm, the patent attorney, etc.

I do believe one thing is for certain - if the 'stimulus' doesn't end up working as planned (and there's unfortunately very little reason to believe that it has or that it will), and as Americans begin having to pay off their new gargantuan debt loads that have been accumulated, Obama could end up even less popular with history far less kind than even the previous Bush Administration.

Programming Linear Thinkers

A piece of software from Microsoft that I'm actually a little excited about. Their new game Kodu seems to be getting some rave reviews teaching kids to program without actually telling them it's programming. As Slate calls it (for those like me who actually remember LOGO), it's LOGO on steroids - and that's pretty cool.

As one pundit argues, the best value in the market today is engineers whose gains on productivity outstrip pay increases (TechCrunch). Despite fears that we'll be outsourcing all our programmers to India or whatever farflung place, this is like saying that we'll outsource all of our problem solving and thinking. Learning the basics of programming is learning the basics of structured problem solving - and for this reason should be considered a universal skill. For as much as pundits complain about the education system, it's obvious that because of teachers unions, change ain't coming anytime soon. It's going to be technology and solutions like this that bridge the gap.

Food Isn't Bad for You After All

Not really directly relevant to much except for the fact I love good food, recent media claims that a calorie restrictive diet leads to a longer life is bunk (JunkFoodScience) based on a rather selective culling of the data. Despite my recent stint as a workout fanatic, this is fantastic news given that I'd probably trade off having a longer life for consistently good food.

Productivity Tip: Early Risers, Eat Your Hearts Out

For some reason this study reminds me of the 'definition of an accountant' (or economist depending on the variation) - "Early to bed, early to rise work like , and economize" (though I think this applies generally more to entrepreneurs more than the accountants and economists I know). There's a new study that suggests "night owls have more mental stamina than early birds" (Globe and Mail):

“The results suggest that night owls generally outlast early birds in the length of time they can be awake without becoming mentally fatigued,” the study concluded.

This is particularly good news for my brother (and sister for that matter) but since he doesn't read my blog he probably won't learn of it and I'm guessing my parents probably won't clue him in on it either.

The Chicken and the Egg Conundrum of Capitalism and Startups

On whether the heart of capitalism is greed or the desire to solve great problems (TechFlash):

I feel like every time I see people who are trying to come up with a business that they can monetize, instead of trying to think of a problem that they really want to solve, that they really care about solving, they just get it ass-backward, and they don't build a good product - Glenn Kelman, the founder of RedFin

Redfin's changing the way real estate is and will be sold. A pretty cool company, I should add, that just turned profitable (TechCrunch).

Personally, I've thought for quite some time that it's trust that bridges the gap. Customers have to believe that you'll solve their problems before they'll fork over the money. How big of a problem they feel it is and how well they think you'll solve it becomes directly related to the amount they'll pay.

Asia's Rise? Maybe not so much.

I wonder if I'm a contrarian to gravitate to stories like this and whether my skepticism for the faddish is what makes me conservative. Either way, "Think Again: Asia's Rise" from Foreign Policy, (via Paul Kedrosky) makes the cut:

Don't believe the hype about the decline of America and the dawn of a new Asian age. It will be many decades before China, India, and the rest of the region take over the world, if they ever do.

First and foremost, while I think there are some fears in the US over China's rise, the reality is that even if they're able to overcome the small problem with its demographics, China's neighbours will end up keeping it in check.

China's Aging Dependents Problem

The unintended consequences of prematurely curtailing population growth are often not obviously apparent at the beginning. Normally a developing society begins with larger families to smaller ones as the cost of having and raising kids moves higher.

China, on the other hand, has had an aggressive one child policy that it has only relatively recently relaxed. Whether the relaxation is a recognition of the crisis that's building or simply political pressure, this graph says it all (the Economist via Paul Kedrosky):


It's useful to remember that China's fears of population growth are a direct result of the belief that more people consume resources. The contrarian, cornucopian view of those like the late economist Julian Simon, is that people are the only finite resource. People create resources by innovating which in turn literally creates wealth where none existed before. If India finally gets its act together I get the sense that they will end up pulling well ahead of China on the development tables in the future. It's also why short term protectionism against China, brought on in part by a bad recession, are rather silly given what's to come.

Update - as one of the commenters notes at Paul Kedrosky's blog, is it little wonder that they have such a high savings rate? Personally, the theory I like best is that people in China save because they have to plan for the unexpected particularly as they may not trust insurers or that insurance products may not exist.

Update #2 - also via Paul Kedrosky, Foreign Policy makes the argument that population control is necessary for development to happen using such stunningly great examples of governance like Pakistan and the booming mecca of Iran. Sorry, I just don't buy it.

Africa Isn't Poor Because of a Lack of Resources

Africa can feed the world according to the (New Scientist via Instapundit). But as Glenn Reynolds notes - "But it never will, so long as it’s run by inept kleptocrats." Of course this isn't earth shattering. Uganda has one of the most fertile lands in the world because of its volcanic soil. Zimbabwe used to be the breadbasket to Africa until Mugabe and his enablers ran it into the ground and where millions now live in hunger.

I had an interesting meeting, albeit a bit too brief, with folks at an international microfinance agency last week. I think I came away with the reminder that it's tough for those in development not to gravitate to places in the world with the greatest suffering. It's a difficult line in the sand to draw but I think the line between aid and development must first be drawn by donors recognizing that without cooperative governments, the choice must be made to abandon or substantially curtail programs with resources focused where a greater difference (measured in several orders of magnitude) can be made.

Update: Foreign Policy has an interesting overview of its Failed States Index and attempts to explore some of the reasons that lead to what they call failed states. Interestingly, China is considered "borderline" with most of the African continent and Asia fluctuating between "borderline" and "critical". It'd be interesting to overlay this with development indices as this almost seems like a guide to regional development where the more developed you are, the less risk that you'll fail.

You Mean They Didn't Just Surrender?

Yeah, yeah, low blow, but still, a fantastic marketing story for those of us who are interested in that sort of thing about one of my favoritest restaurants in the whole wide world (Slate): How McDonald's Conquered France.

Update (7/3/09): Ha. Eating in France, dying inside (Macho Response via Instapundit)

The Problem with Regulations that Rely on "Smart" Regulators

I'm worried about the new interventions being placed on markets in the US. The genius of American growth has been its ability to match innovation with markets - but the growth of government means that barriers are rising - barriers similar to those of chronically stagnant Europe.

What makes it more irritating is the demagoguery blaming the crash on supposed "laissez-faire" and to top it all off, these new regulatory and tax interventions may end up making the situation worse (or create yet new bubbles that will burst even more spectacularly). It's almost inevitable at this point that there will be higher taxes necessary to pay for the plethora of spending and on top of that, politicians are starting to roll out "smart" regulations that will supposedly moderate the excesses of the market (ignoring the bad regulation and interventions that got us into this mess in the first place).

In centralizing power, for the current batch of new regulations to work relies on the discretion of regulators who are hardly infallible. As pulled by the WSJ's Deal Journal:

We regulate because financial systems are fragile, prone to booms and busts that can have harmful effects on the real economy. But regulators aren’t immune to the boom-bust cycle. They have an understandable habit of easing up when times are good and cracking down when they’re not. In doing so, they often amplify the ups and downs of markets rather than modulate them.

Instapundit: "Like Alien vs Predator, Only Different"

Why should the Transformers get all the fun? (Amazon.com via Instapundit):

Ever wonder what would happen if Care Bears and My Little Ponies clashed? If the Smurfs rose up and fought Gargamel? If Teddy Ruxpin had his own Wes Anderson movie?

Funny Videos | Funny Cartoons | More Video Clips

Airport Olympics

My return to Canada has been more frazzling than usual. I suppose someone who travels as many miles as I do should have things figured out by now but my past travels have typically been more prolonged versus the quick day trips from one venue to another. My current trip back has been so short that I have barely recovered from jetlag as I'm about to return to China again. Anyway, this is to say that I'm sorry I haven't had a chance to post more lately.

My sister says that I need to make my blog more personal, fun and readable and I'm sure I'll take that under advisement - but realistically, she's my sister and won't be unsubscribing to me anytime soon either.

One of the brief trips while I've been back has reminded me of my resigned dislike of both United and O'Hare but also the benefits of having priority boarding given the lack of on-board compartment space on regional aircraft, and the benefits that intense interval training provides particularly when you realize you only have 15 minutes to make a connection before they close a gate that's two terminals over. I've been fairly productive and having finally landed a large, rather hard fought client, I'm going back to monitor production progress which is on a fairly tight schedule so I'm not exactly sure how much I'll be posting over the next week.

A Lesson Oft Forgotten

Politicians and pundits often like to target profitable firms but the reality is this - as an article on airline pilot pay notes (WSJ):

A profitable company, whether FedEx or Southwest, can pay its workers more.

Differentiating between Aid and Development

Easterly's blog is quickly becoming a favorite of mine because of the excellent back and forth debates but also because of his views that challenge development orthodoxy. Whether or not one differentiates between aid and development marks is a basic acid test for me in terms of how someone would approach development. Easterly considers the blurring distinctions at USAID - which to be frank, I found to be one of the better agencies while I was in Uganda (but this was a number of years ago).

WWF: Accountability vs Sustainability

As a matter of disclosure - it's been quite a while since I've been a fan of organizations like World Wildlife Fund (WWF). When it comes to priorities, I believe human life and development takes precedence over some mythical idea of what the world was like / should be like - a preference that often involves doing away with humans. One of the hazards of following design and trend blogs is that you run into drivel like this from Trendhunter:

Step by step we (the world) continue to slowly but surely jump onto the eco-train. As much as it’s a personal change that members of society need to think about, it is always a good sign when a major contributor makes a statement.

Since 2006, the WWF (World Wildlife Fund) has been operating in the Netherlands out of their own personal statement.

The WWF Netherlands Headquarters is a carbon neutral office. Designed by AUR Architects, the old headquarters were used as a starting point (instead of demolishing it) in order to create the fully sustainable structure.

Of course, what they don't want to tell you is the cost. For all the fawning, what they don't mention is that it was at a cost of 4M Euros (2006) - for a renovation (MIMOA) - not a new building no less. Well, at least the employees have a nice building to work in and at least WWF can claim they're "carbon neutral". For the money they spent, at least someone's happy even if it's not the wildlife I'm assuming the funds were supposed to be directed towards.

Raising Money for Charity & Selling T-Mobile

The common variable for success? Hot women (this important PSA brought to you from Freakonomics Blog). Here's T-Mobile's take on it:

Here's the academic literature (MIT Quarterly Journal of Economics):

in terms of both maximizing current contributions and inducing participation, we find that a one-standard deviation increase in female solicitor physical attractiveness is similar to that of the lottery incentive.

China's "China’s brutally long" standardized college entrance exam questions

I've never really understood the level of importance placed by some schools on standardized tests - particularly on kids. I think college entrance exams might be a bit different as you do need some type of standard measure but I can only imagine how unbearable the pressure is on some of these people. If you thought that writing the SATs was rough, think of something about 10x worse given the importance Chinese universities place on them. Check out some of the essay questions here (ChinaGeeks).

Quote of the Day: On Working in China

I agree wholeheartedly. It's amazing what you learn to brush off as being normal/acceptable/uncontrollable before long. From Silk Road China:

"... almost as difficult as dealing with all the unknowns and changes in China is convincing Americans that have not been to China in his company that China really is that irrational and difficult to deal with."

Productivity Bit: Finding the Hooray! in your Life and Business

This Venn diagram seems to not only a great diagnostic tool but a great prescriptive one as well (Lifehacker):

This will end well... Government Motors

... because politicians are renowned for their business acumen. From the Boston Globe, via Greg Mankiw:

Frank intervention extends life of GM's Norton center

General Motors Corp. will delay the closing of a Norton parts distribution center it planned to shutter by the end of the year, according to US Representative Barney Frank. The extension will temporarily preserve about 80 jobs....

The plant manager received word yesterday that Frank had successfully lobbied GM chief executive Fritz Henderson to delay the closing, according to Ridenour....

Frank, whose district includes Norton, said he told Henderson, "Look, I understand that these things have to happen but they don't have to happen in the midst of the worst recession in years."

Is Poverty a Human Rights Violation?

Another interesting point and counterpoint over at William Easterly's Aid Watch. Easterly points to Amnesty International's recent report that calls for getting people out of poverty, people apparently put there because of "entrenched interests", but saying the distinctions should not be blurred, poverty itself is not a human rights violation:

Poverty does not fit this definition of rights. Who is depriving the poor of their right to an adequate income? There are many theories of poverty, but few of them lead to a clear identification of the Violator of this right. Moreover, human rights are a clear dichotomy – someone violates your rights or they do not. But the line between poor and not-poor is arbitrary – it is different in different countries, and on a global scale, many still argue what is the right dividing line that constitutes poverty. So calling poverty a “human rights violation” does not point to any concrete actions that the “violator” must stop in order to restore rights to the “violated.”

Amnesty International counters, also clarifying that what they're talking about is absolute poverty (not relative poverty that amn:

It’s true that lack of income, in and of itself, isn’t a human rights violation. But poverty is about a lot more than just income. As Easterly knows, those who live on less than a dollar a day are poor not just because they lack income; the lack of income implies lack of access to services, clean drinking water, adequate education, housing, employment and so on. All of these are violations of the Universal Declaration of Human Rights and the International Covenant on Economic, Social and Cultural rights. To give just one of many possible examples, estimates indicate that as many as 8,000 children die daily in Africa alone from preventable diseases such as cholera and dysentery. It’s certainly true to say that these are diseases of poverty – the rich can ensure that their water is not contaminated and can seek treatment at private hospitals as opposed to understaffed government clinics – but they are more than that. They are violations of the right to health and the right to clean water.

And people living in poverty are vulnerable to violations of their civil and political rights as well. In the Favelas (shanty towns) of Sao Paolo in Brazil, police and gangs are in daily conflict. There are allegations of human rights abuse on all sides, and the government feels little pressure to respect due process in large part because this violence is taking place in an extremely poor part of the city. Ordinary people are in danger from gangs on the one hand and from a state takes their rights less seriously because they live in a poor community.

I'm sympathetic to the Amnesty International argument. Absolute poverty/hunger is generally not a question of a lack of resources - it's a question of government policies - which can range from crony capitalism (not to be confused with capitalism) to straight despotism. But on the other hand, surely there are enough violations there to attack the violations themselves instead of seeing an effect and concluding a violation must have taken place. I wonder if this also means that if countries aren't developed they're automatically violating their citizens' rights? Amnesty International has been increasingly political in the last few decades and I think lost its moral legitimacy particularly when it came to Iraq and I wonder if that like this - expanding human rights to include economic welfare - is merely another effort in their search for relevance or just more simply a question of mission overreach?

More Cause and Effect

What I don't get is that obviously President Obama isn't stupid. He also has some bright lights advising him on the economics front. So the question is doesn't he think that the trillions of spending will have longer term consequences? Or does he believe his priorities in changing how government work supercede what those might might be? Or perhaps most arrogantly he believes he knows better than the markets and that what he is doing will in fact strengthen them?

I don't know - what I do know is this: the further this drags on, the more obvious it becomes the stimulus wasn't about stimulus at all. Further, evidence mounts that the stimulus will end up weighing down the economy in the long run with permanently higher interest rates as the US dollar loses its relevance as a reserve currency. From Glenn Reynolds:

TREASURIES: Exit The Safe Haven. “The 10-year Treasury bond paid a 3.83% yield Friday afternoon, up from 3.6% in the last week of May and a 52-week low of 2.07%. One worry is that higher yields on benchmark government bonds will translate into steeper borrowing costs for home buyers and businesses, besides making the U.S. government’s deficit spending more expensive.”

Related: Interest rates soar on jobs data, putting housing at risk. “The Treasury bond market is in cardiac arrest today over the May employment report: Yields are soaring, dealing another blow to investors who’ve been hiding out in government bonds — and threatening another big jump in mortgage rates.”

Remembering that Thing That Happened 20 Years Ago

From Radley Balko (via Megan McArdle):

It was 20 years ago today that the Chinese government killed 2,000 to 3,000 of its own citizens for the crime of demanding their own liberty. This iconic photo is about all that’s left of them.

George Orwell said, “If you want a vision of the future, imagine a boot stamping on a human face—forever.” He’s all too right. Last century, an estimated 262 million people were murdered by their own government . That doesn’t include the hundreds of millions more killed by opposing governments during war.

Today ought to be a day to celebrate and promote human liberty, and to remember the abuses governments have heaped upon their subjects over the centuries.

So go find your own metaphor for the government tank pictured above.

Then put yourself in front of it.

China "Not the Next Silicon Valley"... It's Much, Much More?

That's according to Sarah Lacy who just got back from a trip profiling startups in China for TechCrunch:

What makes China so staggering is that everything that happened to corporate America over decades—think the television and media studios build out of the 1950s, the greed of the 1980s, the dot com bubble, the build out of physical and IT infrastructure, current Web 2.0 and CleanTech innovation—is all happening to China at once. [...]

And while China gets a rap for ripping off U.S. Web start-ups now, I think we’re going to start seeing U.S. start-ups copying a lot of elements of Chinese entrepreneurs’ business plans, whether it’s unlocking the value in virtual goods, experimenting with alternative online payment methods or developing more social forms of e-commerce, where like-minded friends shop together.

You always find the best ideas within atmospheres of constraints. It’s why some of the best companies are started during recessions. It’s why Israel was such a surprising hot-bed for Nasdaq IPOs in the late 1990s. And it’s why Chinese Web companies have come up with other ways of making money than just slapping ads on a site, because they had to.

While I think her optimism might be a bit overdone, I'd agree with her that the development of China is pretty amazing to see - and it is developing "all at once" which creates a great deal of opportunity but also spectacular collapses. Read the whole thing. Some of the comments are pretty interest as well.

Standardized Testing, Education & Aid

William Easterly is no fan of standardized testing:

The US already has RBM [results based management] in the form of the No Child Left Behind Act, which rewards public schoolteachers when their students score high on standardized tests. Some of the pitfalls were revealed when I interviewed one of the customers --a 12 year old rising 8th grader in an average public school -- about how this was working out. She said “Teachers remind us everyday about the test, and they spend more time teaching us how to phrase answers to test questions than actually teaching us facts.” Finally, the nightmare was over: “And then after the tests were over and taken, they stopped teaching, and the rest of the year we watched stupid movies.” (Less anecdotally, academic evaluations find this Act to have had some payoffs for the worst schools, but note the idiocy of applying it universally to previously well-performing or even average schools.)

I get the issues, but I have to wonder if the problem is standardized testing, the tests or the management of the organizations being tested. I just don't see how having a baseline of information to compare can be a bad thing.

Granted, the question of whether or not we're measuring the right things is obviously a valid one - e.g. creativity and problem solving. But maybe such things can't be measured - which is an explanation that strikes me as a cop out by those who don't want to be compared/measured.

Perhaps I lean towards agreeing with standardized testing because education doesn't allow for choice - in a marketplace of ideas, bad schools are subjected to the harsh realities of not achieving a willing market. So at least given a public school's captive audience, there is baseline information on both good and bad schools with standardized testing. In private markets, there is value for useful information and private enterprises are often better at filtering out gaming in the system when their own reputations/livelihoods are on the line - e.g. Zagat's for restaurants. Where public schools are subject to private markets is in real estate markets. The rich (or even the better off) have the option of moving to a new school district. The rest get 'left behind'.

LA Times profiles the American Indian Public Charter schools (via Donald Luskin):

School administrators take pride in their record of frequently firing teachers they consider to be underperforming. Unions are embraced with the same warmth accorded "self-esteem experts, panhandlers, drug dealers and those snapping turtles who refuse to put forth their best effort," to quote the school's website. [...] Not surprisingly, many Bay Area liberals have a hard time embracing an educational philosophy that proudly proclaims that it "does not preach or subscribe to the demagoguery of tolerance."

It would be easy to dismiss American Indian as one of the nuttier offshoots of the fast-growing charter school movement, which allows schools to receive public funding but operate outside of day-to-day district oversight. But the schools command attention for one very simple reason: By standard measures, they are among the very best in California.

Most of the kids who go there are poor. But what are they doing that's so different?

The short answer is that American Indian attracts academically motivated students, relentlessly (and unapologetically) teaches to the test, wrings more seat time out of every school day, hires smart young teachers, demands near-perfect attendance, piles on the homework, refuses to promote struggling students to the next grade and keeps discipline so tight that there are no distractions or disruptions. Summer school is required.

Back to basics, squared.

Of course if you read on (and I would highly recommend that you do), you realize just how draconian some of their policies are but at the same time they clearly promote a culture of excellence. While I might personally think that they go too far, it's also hard not to see that they at least provide an excellent foundation with high expectations to students who would otherwise not get it. But are they preparing students with the creativity and problem solving skills to succeed? The article doesn't say. On the other hand, should we also be worried that such paternalism results in workforce workers who are governed like those at Canon (Danny Choo)?

According to his book, employees can concentrate on the meeting at hand without chairs and they have been able to half the number of meetings each year. [...]Also in the photo you can see a blue sign on the floor. When Nikkei went to interview the president, while walking in the corridor a siren and flashing lights went off. The corridor was designed to detect whether employees were walking at least 5 meters for every 3.6 seconds.

While Easterly notes how aid agencies can game the system to skew results to profit, I figure that it's much like markets and profitability. Companies may choose to pursue profitability for its own sake while offering a given service or seek to be an innovative service provider and profit by design and as a byproduct. While I might make the argument that the latter is more sustainable and productive, won't both organizations being governed and subject to the accountability of consumers create value to those consumers? In the same way, while (often) subjective measures might be useful to organizations who don't rely on their users for sustainability, isn't it at least a useful starting point?