Category: Economics

Understanding Europe!

A delightful tale sent to me by Richard Maugham.

Richard and I go back too many years!  He has been a dear friend despite the obvious hurdle that when we first met, he declared that he was a typewriter salesman for Olivetti in the UK with me admitting that I was a typewriter salesman for IBM UK!  Here’s the story.

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WHAT WENT WRONG IN EUROPE – SIMPLY EXPLAINED!

Not Helga’s Bar!!

Helga is the proprietor of a bar. She realizes that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronize her bar. To solve this problem she comes up with a new marketing plan that allows her customers to drink now, but pay later.

Helga keeps track of the drinks consumed on a ledger (thereby granting the customers’ loans).

Word gets around about Helga’s “drink now, pay later” marketing strategy and, as a result, increasing numbers of customers flood into Helga’s bar. Soon she has the largest sales volume for any bar in town.

By providing her customers freedom from immediate payment demands, Helga gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer – the most consumed beverages.

Consequently, Helga’s gross sales volumes and paper profits increase massively. A young and dynamic vice-president at the local bank recognises that these customer debts constitute valuable future assets and increases Helga’s borrowing limit. He sees no reason for any undue concern, since he has the debts of the unemployed alcoholics as collateral.

He is rewarded with a six figure bonus.

At the bank’s corporate headquarters, expert traders figure a way to make huge commissions, and transform these customer loans into DRINKBONDS. These “securities” are then bundled and traded on international securities markets.

Naive investors don’t really understand that the securities being sold to them as “AA Secured Bonds” are really debts of unemployed alcoholics. Nevertheless, the bond prices continue to climb and the securities soon become the hottest-selling items for some of the nation’s leading brokerage houses.

The traders all receive six figure bonuses.

One day, even though the bond prices are still climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Helga’s bar. He so informs Helga. Helga then demands payment from her alcoholic patrons but, being unemployed alcoholics, they cannot pay back their drinking debts. Since Helga cannot fulfil her loan obligations she is forced into bankruptcy. The bar closes and Helga’s 11 employees lose their jobs.

Overnight, DRINKBOND prices drop by 90%. The collapsed bond asset value destroys the bank’s liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community.

The suppliers of Helga’s bar had granted her generous payment extensions and had invested their firms’ pension funds in the BOND securities. They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds. Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations; her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.

Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multibillion dollar no-strings attached cash infusion from the government.

They all receive a six figure bonus.

The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who’ve never been in Helga’s bar……………………….!

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I can add not a single word to this!

YOU are responsible

An intriguing guest post from Schalk Cloete.

Introduction

Schalk is the author of the Blog One in a Billion which describes itself as ‘A DIY guide to saving our world while building a happy, healthy and wealthy life.‘  The Billion in the title refers to ‘the billion wealthiest world citizens, are creating serious global problems through our unsustainable consumption habits.’

As the Blog’s About page explains,

My name is Schalk Cloete, a South African research scientist currently living and working in Norway. Officially, my research is centered around the mathematical modelling of fluidized bed reactors; something which makes nice pictures, but which is not exactly the most brilliant blog material. I will therefore not bore you with further details about the kinetic theory of granular flows.

Nope, the material I write about here; building a happy, healthy, wealthy and sustainable life within our affluent modern society, should be much more interesting. I use the word “building” quite a lot because that is exactly what needs to be done. One literally needs to build the environment within which one functions from day to day with the same level of diligence and attention to detail one would use to build a house.

Anyway, with no further ado, let me go to Schalk’s guest post.

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YOU are responsible

Not so long ago, Paul left a very thought-provoking comment on my blog: the One in a Billion project, and suggested that my response to that comment was worth publishing as a guest post on Learning from Dogs. Needless to say, I gratefully accepted this generous offer!  Before we go any further though, I’d just like briefly to describe my blog so that the comment can be seen in perspective.

The principle objective of my blog is to advocate personal lifestyle change as a lasting solution to the pressing sustainability problems we are facing today.

The rationale behind this overall theme is threefold:

  1. Our current systems are fundamentally guaranteed to collapse (more about this here)
  2. A personal lifestyle change is the one and only sustainable solution to this impending crisis (further detail can be found here)
  3. Such personal lifestyle changes towards sustainable living are the one and only road to lasting health, wealth and happiness.

So, on that backdrop, here was Paul’s comment:

Any successful attempt at reversing and correcting the perilous journey humanity is on has to focus on the nature of change, how humans change, why the change required in this case is psychologically complex, and how the reward feedback process has to work. In my opinion these are the core issues to be tackled.

And my response:

Change is driven by a complex set of internal and external triggers that influence our consciousness every second of every day. If these triggers collectively indicate to a person (based on his or her unique subjective interpretations and subconscious filters) that some alternative is more attractive or that the current reality is unacceptable, motivation for change is granted. The exact nature of the change that this project requests is a change in day-to-day lifestyle choices which stems from shaping a person’s interpretation and filtering of the various internal and external triggers to accurately represent the reality that a lifestyle aimed at sustainable happiness is infinitely more attractive than one focused on consumerism.

This project tries to motivate people to take action by strongly emphasizing on the immediate personal benefits of making these lifestyle changes, the ease with which these changes can be made (and made permanent), the short and long term hazards of not making these changes and the moral obligation we have to the poor and to future generations to make these changes.

The change is psychologically complex because the entire environment we live in today just begs us to consume at ever increasing rates. This is the reason why this project repeatedly emphasizes on the construction of micro-environments to protect against this toxic macro-environment and make the correct actions natural and automatic. On a higher level, change is psychologically complex because we now have to abandon a system that has raised our standard of living tremendously while we still had abundant cheap fossil fuels and a limitless planet. Our most powerful weapon has turned into our greatest threat and it should come as no surprise that we seem totally unable to handle that.

The reward-feedback process in the One in a Billion initiative is actually quite interesting. As stated before, a lot of emphasis is placed on the immediate rewards of making certain lifestyle choices, but the thing that makes it really interesting is the holistic and complementary nature of this plan. Because it covers such a broad spectrum of areas, one quickly finds that gains in one area start to enhance gains in other areas. From personal experience, this truly is an extremely exciting journey and even becomes addictive, thereby all but guaranteeing further lifestyle changes. As soon as this spiral is started, the mind becomes a lot more open to the wealth of information on sustainability out there and this understanding then stimulates further action. In the end, you end up with a completely self-sustaining upwards spiral towards happy, healthy, wealthy and sustainable living.

In closing, the change that is needed within the developed world today can basically be summarized as follows: hundreds of millions of people must be reconditioned away from a debilitating and self-destructive culture of consumerism and entitlement towards a healthy and fulfilling culture of contribution and personal responsibility. It is my sincere hope that the One in a Billion project can contribute to this change and help overcome the great challenges discussed above.

This really is a dream of mine which I have recently described in more detail under my Dream heading for anyone who might be interested. Please spend a minute or two to think about this philosophy and whether you might consider developing a similar dream of your own.

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Trust me, Schalk’s blog is full of very interesting propositions.  Yet another sign that opinions are changing across this great interconnected world.

Future of the car?

The mistake we all make is to look behind us and think the future will be the same.

Let me start with something that is not really news.  Not news in the sense that it has been very widely reported.  I’m speaking of the probability, the high probability, that this year’s summer ice area in the Arctic will be a record low, with all the implications that this carries.  Let me refer to a recent BBC news item that included a stunningly powerful chart.

Scientists at the US National Snow and Ice Data Center said data showed that the sea ice extent was tracking below the previous record low, set in 2007.

Latest figures show that on 13 August ice extent was 483,000 sq km (186,000 sq miles) below the previous record low for the same date five years ago.

The ice is expected to continue melting until mid- to late September.

“A new daily record… would be likely by the end of August,” the centre’s lead scientist, Ted Scambos, told Reuters.

“Chances are it will cross the previous record while we are still in ice retreat.”

The US National Snow and Ice Data Center may be found here.

So to the piece that generated the title of this post, the future of the car.

On the 17th August, I wrote an article highlighting the fact that the U.S. leads the world in cutting CO2 emissions.  That was endorsed by an item published on the U.S. Energy Information Administration’s (EIA) website, that said,

U.S. carbon dioxide (CO2) emissions resulting from energy use during the first quarter of 2012 were the lowest in two decades for any January-March period. Normally, CO2 emissions during the year are highest in the first quarter because of strong demand for heat produced by fossil fuels. However, CO2 emissions during January-March 2012 were low due to a combination of three factors:

  • A mild winter that reduced household heating demand and therefore energy use
  • A decline in coal-fired electricity generation, due largely to historically low natural gas prices
  • Reduced gasoline demand

It was the last item that caught my eye.  Because it resonated with an article on Chris Martensen’s Peak Prosperity blog just over a week ago.  That article, written by Gregor Macdonald, was called The Demise of the Car.

About a third of the way into the article, Gregor writes,

But it’s not just India that has incorrectly invested in automobile transport. The other giant of Asia, China, has also placed large resources into auto-highway infrastructure.

It appears that at least a decade ago, the developing world made the same assumption about future oil prices as was made in Western countries. The now infamous 1999 Economist cover, Drowning in Oil, reflected the pervasive, status-quo view that the global adoption of the car could continue indefinitely. A decade later, however, we find that after oil’s extraordinary price revolution, the global automobile industry is now starved for growth.

Then a little further down in this interesting article there is this,

More broadly, however, global governments are captured by sunk-cost decision making as the past 60-70 years of highway infrastructure investment is now a legacy just too painful to leave behind. Interestingly, whether citizens and governments want to face this reality or not, features of the oil economy are already going away as infrastructure is increasingly stranded. Moreover, there are cultural shifts now coming into play as young people are no longer buying cars – in the first instance because they can’t afford them, and in the second instance because it’s increasingly no longer necessary to own a car to be part of one’s group. See this piece from Atlantic Cities:

Young People Aren’t Buying Cars Because They’re Buying Smart Phones Instead

Youth culture was once car culture. Teens cruised their Thunderbirds to the local drive-in, Springsteen fantasized about racing down Thunder Road, and Ferris Bueller staged a jailbreak from the ‘burbs in a red Ferrari. Cars were Friday night. Cars were Hollywood. Yet these days, they can’t even compete with an iPhone – or so car makers, and the people who analyze them for a living, seem to fear. As Bloomberg reported this morning, many in the auto industry “are concerned that financially pressed young people who connect online instead of in person could hold down peak demand by 2 million units each year.” In other words, Generation Y may be happy to give up their wheels as long as they have the web. And in the long term, that could mean Americans will buy just 15 million cars and trucks each year, instead of around 17 million.

If future car sales in the US will be limited by the loss of 2 million purchases just from young people alone, then the US can hardly expect to return to even 15 million car and truck sales per year. US sales have only recovered to 14 million. (And that looks very much like the peak for the reflationary 2009-2012 period)

Indeed, the migration from suburbs back to the cities, the resurrection of rail, and the fact that oil will never be cheap again puts economies – and culture – on a newly defined path to other forms of transport and other ways of working.

It’s a long and interesting article that demonstrates an old truth, no better put than in this quotation reputed to have been said by John F. Kennedy,

Change is the law of life. And those who look only to the past or present are certain to miss the future.

More reflection on being human!

The voice of reason from James Howard Kunstler.

Yesterday, I published a Post that I called What it is to be human.  It was inspired and based on the compelling film ‘I AM‘ by Tom Shadyac.  As so often seems to happen, shortly after completing yesterday’s Post, an item from Chris Martensen’s Blog caught my eye.

Chris publishes the blog Peak Prosperity and on July 14th Chris had an item featuring James Howard Kunstler.

Let me give you an idea of that item from Chris.

Author and social critic James Howard Kunstler has been one of the earliest, most direct, and most articulate voices to warn of the consequences — economic and otherwise — of modern society’s profligate wasting of the resources that underlie its growth.

In his new book, Too Much Magic, Jim attacks the wishful thinking dominant today that with a little more growth, a little more energy, a little more technology — a little more magic — we’ll somehow sail past our current tribulations without having to change our behavior.

Such self-delusion is particularly dangerous because it is preventing us from taking intelligent, constructive action at the national level when the clock is fast ticking out of our favor. In fact, Jim claims that we are past the state where solutions are possible. Instead, we need a response plan to help us best brace for the impact of the coming consequences. And we need it fast.

 

James Howard Kunstler

Mr. Kunstler is the author of the very successful book The Long Emergency and his latest book, as mentioned above, Too Much Magic expands on his alarming argument that our oil-addicted, technology-dependent society is on the brink of collapse, ergo that the long emergency has already begun.  His website is here.

Anyway, back to the Chris Martenson’s piece.  Chris goes on to quote Mr. Kunstler, as follows:

[We now live in] this weird, peculiar period in American history when the delusional thinking has risen to astronomical levels — predictably, really — in response to the stress levels that our society feels. And it is expressing itself as sort of “waiting for Santa Claus and the Tooth Fairy” to deliver a set of rescue remedies to us so that we can continue running Wal-Mart, Walt Disney World, Suburbia, the U.S. Army, and the Interstate Highway System by other means. That is the great wish out there. It is kind of understandable, because that is the stuff that we have, and people tend to defend the stuff that they have in any given society and the systems and platforms that they run on. But it is probably a form of collective behavior that is not really going to benefit us very much and really amounts to simply wasting our time, and wasting our dwindling resources, and even our spiritual resources when we could be doing things that are a lot more intelligent.

Here is something I have detected as I travel around the country: There is a clamor for “solutions.” Everywhere I go, people say “Don’t be a doomer; give us solutions.” And I discovered that the subtext to all that is they really want solutions for allowing them to keep on living exactly the way they are living now. To keep on running Wal-Mart, and keep on running Suburbia, and keep on running the highway system, and the whole kit of parts. And what that really means is that they are looking for ways to add on additional complexity to a society that is already suffering from too much complexity.

(Read the full article here.)

There is a podcast of the interview with James Kunstler here and also on YouTube, as below.

My own reflection on this item, as with so many other articles, essays and items available to read online, is that the power of the Web is informing and educating millions of people around the world in a way that Governments and the media have failed to so do.

That promises change and, maybe, sooner than we might expect.

We are what we eat!

So why do we insist of manipulating the genetics of food!

I read somewhere recently, and of course now can’t find the reference, that the genetic modification of our food represents as big a danger to the long-term survival  of man as does the damage to our biosphere.

So a recent item on the blog Food Freedom News jumped out at me.  This was an item that was introduced as, “The author of Seeds of Destruction (about Monsanto) has a new piece out on pesticides and mass animal deaths… very sobering.”

Clicking on the ‘new piece’ link takes one to here, from which I quote the opening paragraphs,

Death of the Birds and the Bees Across America

By F. William Engdahl
Global Research

“A recent study showed that every human tested had the world’s best-selling pesticide, Roundup, detectable in their urine at concentrations between five and twenty times the level considered safe for drinking water.”

Birds and bees are something most of us take for granted as part of nature. The expression “teaching about the birds and the bees” to explain the process of human reproduction to young people is not an accidental expression. Bees and birds contribute to the essence of life on our planet. A study by the US Department of Agriculture estimated that “…perhaps one-third of our total diet is dependent, directly or indirectly, upon insect-pollinated plants.”

The honey bee, Apis mellifera, is the most important pollinator of agricultural crops. Honey bees pollinate over 70 out of 100 crops that in turn provide 90% of the world’s food. They pollinate most fruits and vegetables–including apples, oranges, strawberries, onions and carrots.  But while managed honey bee populations have increased over the last 50 years, bee colony populations have decreased significantly in many European and North American nations. Simultaneously, crops that are dependent on insects for pollination have increased. The phenomenon has received the curious designation of Colony Collapse Disorder (CCD), implying it could be caused by any number of factors. Serious recent scientific studies however point to a major cause: use of new highly toxic systemic pesticides in agriculture since about 2004.

That first paragraph alone made me sit up, “A recent study showed that every human tested had the world’s best-selling pesticide, Roundup, detectable in their urine at concentrations between five and twenty times the level considered safe for drinking water.”  What a strange race we are!

Wlliam F. Engdahl

Then it was easy to find out more information about the author of the book Seeds of Destruction, William F. Engdahl, including his website.  Mr. Engdahl is clearly no stranger to controversy as this YouTube video illustrates,

Back to that Food Freedom article.  Further on, there is evidence of the size of the problem in the UK,

Alarming UK results

A private UK research organization, Buglife and the Soil Association, undertook tests to try to determine cause of the bee death. They found that the decline was caused in part by a group of pesticides called neonicotinoids. Neonicotinoids are “systemic” chemicals that kill insects by getting into the cell of the plant. In Britain it’s widely used for crops like oilseed rape and for production of potted plants.

The neonicotinoids are found in the UK in products including Chinook, used on oilseed rape and Bayer UK 720, used in the production of potted plants which then ends up in gardens and homes around the country. The new study examined in detail the most comprehensive array of peer-reviewed research into possible long-term effects of neonicotinoid use. Their conclusion was that neonicotinoid pesticides damage the health and life cycle of bees over the long term by affecting the nervous system. The report noted, “Neonicotinoids may be a significant factor contributing to current bee declines and could also contribute to declines in other non-target invertebrate species.” The organization called for a total ban on pesticides containing any neonicotinoids.

The president of the UK Soil Association, Peter Melchett, told the press that pesticides were causing a continued decline in pollinating insects, risking a multimillion pound farming industry. “The UK is notorious for taking the most relaxed approach to pesticide safety in the EU; Buglife’s report shows that this puts at risk pollination services vital for UK agriculture,” he said.

Indeed in March 2012 Sir Robert Watson, Chief Scientist at the British Government’s Department of Environment announced that his government was reconsidering its allowance of neonicotinoid use in the UK. Watson told a British newspaper, “We will absolutely look at the University of Stirling work, the French work, and the American work that came out a couple of months ago. We must look at this in real detail to see whether or not the current British position is correct or is incorrect. I want this all reassessed, very, very carefully.”  To date no policy change has ensued however. Given the seriousness of the scientific studies and of the claims of danger, a prudent policy would have been to provisionally suspend further uise of neonicotinoids pending further research. No such luck.

And if the harm to bees wasn’t serious enough, try this extract,

Effect on Human Brain?

But most alarming of all is the evidence that exposure to neonicotinides has horrific possible effects on humans as well as on birds and bees.

Professor Henk Tennekes describes the effects:

“Today the major illnesses confronting children in the United States include a number of psychosocial and behavioral conditions. Neurodevelopmental disorders, including learning disabilities, dyslexia, mental retardation, attention deficit disorder, and autism – occurrence is more prevalent than previously thought, affecting 5 percent to 10 percent of the 4 million children born in the United States annually. Beyond childhood, incidence rates of chronic neurodegenerative diseases of adult life such as Parkinson’s disease and dementia have increased markedly. These trends raise the possibility that exposures in early life act as triggers of later illness, perhaps by reducing the numbers of cells in essential regions of the brain to below the level needed to maintain function in the face of advancing age. Prenatal and childhood exposures to pesticides have emerged as a significant risk factor explaining impacts on brain structure and health that can increase the risk of neurological disease later in life.”

There is also growing evidence suggesting persistent exposure to plants sprayed with neonicotinoids could be responsible for damage to the human brain, including the recent sharp rise in incidents of autism in children.

This really is an article that you should read in full, which also includes a full bibliography and notes section.  Plus you can leave your responses as a comment – go for it!

Apis mellifera – the honey bee (family Apidae)

Economics making sense?

Why economists seems just as confused as me.

(A republication of a post first shown on the 8th August, 2009, still seems pretty relevant)

We live in a world where finance and money play a hugely more important role in our everyday lives than, say, 25 years ago.  Well that’s how it seems.  Our energy costs don’t seem to be connected to supply and demand but more in the hands of the speculators.  Our house values have been greatly influenced, perhaps misaligned is a better word, by the availability of too easy money, resulting from exotic financial leveraging. Commodities are, like energy, traded for their own sake rather than to provide an efficient process of linking the grower with the consumer.  And more.

So it comes as a bit of a shock to read in a recent copy of The Economist that most of the theories and economic models are being ‘re-examined’ in the light of the current global crisis.  These theories and models are not esoteric ideas kept

The Economist July 18th 2009
The Economist July 18th 2009

within the scholarly walls of universities but used by Governments, investment institutions and banks so they affect you and I in the real world, big time!

They ought to work a great deal better than they do because they have the capability to harm, as millions have found out in the last 2 years.

Anyway, The Economist, July 18th-July 24th has a lengthy briefing: The state of economics, comprised of two articles. To me it makes very sobering reading.  Unless you have a subscription there is no web access to the articles so here are a few extracts to give you a flavour.  The first article is about turmoil among macro-economists.

In the last of his Lionel Robbins lectures at the LSE on June 10th, Mr Krugman [Paul Krugman of Princeton and the New York Times] feared that most macroeconomics of the past 30 years was “spectacularly useless at best, and positively harmful at worst”.

These internal critics argue that economists missed the origins of the crisis; failed to appreciate its worst symptoms; and cannot now agree about the cure. In other words, economists misread the economy on the way up, misread it on the way down and now mistake the right way out.

Nor can economists now agree on the best way to resolve the crisis. They mostly overestimated the power of routine monetary policy (ie, central-bank purchases of government bills) to restore prosperity. Some now dismiss the power of fiscal policy (ie, government sales of its securities) to do the same.

Towards the end of this first article in the Briefing, there is this:

In the first months of the crisis, macroeconomists reposed great faith in the powers of the Fed and other central banks. In the summer of 2007, a few weeks after the August liquidity crisis began, Frederic Mishkin, a distinguished academic economist and then a governor of the Fed, gave a reassuring talk at the

Frederick Mishkin
Frederick Mishkin

Federal Reserve Bank of Kansas City’s annual symposium in Jackson Hole, Wyoming. He presented the results of simulations from the Fed’s FRB/US model. Even if house prices fell by a fifth in the next two years, the slump would knock only 0.25% off GDP, according to his benchmark model, and add only a tenth of a percentage point to the unemployment rate. The reason was that the Fed would respond “aggressively”, by which he meant a cut in the federal funds rate of just one percentage point. He concluded that the central bank had the tools to contain the damage at a “manageable level”.

Since his presentation, the Fed has cut its key rate by five percentage points to a mere 0-0.25%. Its conventional weapons have proved insufficient to the task. This has shaken economists’ faith in monetary policy. Unfortunately, they are also horribly divided about what comes next.

The second article explores the way that the efficient-markets hypothesis has underpinned many of the financial industry models.

IN 1978 Michael Jensen, an American economist, boldly declared that “there is no other proposition in economics which has more solid empirical evidence supporting it than the efficient-markets hypothesis”

Michael Jensen
Michael Jensen

(EMH).

Eugene Fama, of the University of Chicago, defined its essence: that the price of a financial asset reflects all available information that is relevant to its value.

Eugene Fama
Eugene Fama

Even as financial engineers were designing all sorts of clever products on the assumption that markets were efficient, academic economists were focusing more on how markets fall short. Even before the 1987 stockmarket crash gave them their first real-world reminder of markets’ capriciousness, some of them were examining the flaws in the theory.

However, a second branch of financial economics is far more sceptical about markets’ inherent rationality. Behavioural economics, which applies the insights of psychology to finance, has boomed in the past decade.

Behavioural economists were among the first to sound the alarm about trouble in the markets. Notably, Robert Shiller of Yale gave an early warning that America’s housing market was dangerously overvalued. This was his second prescient call. In the 1990s his concerns about the bubbliness of the stockmarket had prompted Alan Greenspan, then chairman of the Federal Reserve, to wonder if the heady share prices of the day were the result of investors’ “irrational exuberance”.

One task, also of interest to macroeconomists, is to work out what central bankers should do about bubbles—now that it is plain that they do occur and can cause great damage when they burst.

Another priority is to get a better understanding of systemic risk, which Messrs Scholes [Myron Scholes]

M Scoles
Myron Scholes
Richard Thaler
Richard Thaler

and Thaler [Richard Thaler of the University of Chicago] agree has been seriously underestimated.

Several countries now expect to introduce a systemic-risk regulator. Financial economists may have useful advice to offer.

Financial economists also need better theories of why liquid markets suddenly become illiquid and of how to manage the risk of “moral hazard”—the danger that the existence of government regulation and safety nets encourages market participants to take bigger risks than they might otherwise have done. The sorry consequences of letting Lehman Brothers fail, which was intended to discourage moral hazard, showed that the middle of a crisis is not the time to get tough. But when is?

Mr Lo [Andrew Lo of the Massachusetts Institute of Technology] has a novel idea for future crises: creating a financial equivalent of the National Transport Safety Board, which investigates every civil-aviation crash in America. He would like similar independent, after-the-fact scrutiny of every financial

Andew Lo
Andew Lo

failure, to see what caused it and what lessons could be learned. Not the least of the difficulties in the continuing crisis is working out exactly what went wrong and why—and who, including financial economists, should take the blame.

Mr Lo’s idea of treating financial failures in the same way as civil aviation accidents might be a brilliant idea.  After all economics is a behavioural science just like the ‘science’ of air traffic controllers and air crew.  Seems to me that keeping my money as safe as my body in a civil airliner isn’t a bad goal.

If you can, do get hold of a copy of the briefing, if only to arrive at the same conclusion as me.  In terms of future personal financial planning, a pair of dice may be just as accurate as economists.dice

In praise of fairness.

An original idea that shouldn’t be regarded as innovative.

We live in interesting times!  Whenever I use that phrase, and it seems to slip from my lips too often these days, I am reminded of the ancient Chinese curse, “May you live in interesting times!”

There are a goodly number of countries that have legislation that ‘impose’ a minimum wage for employees.  Here in the USA, the Federal level for 2012 is $7.25 per hour but it isn’t necessarily the same across all States.  Based on a 40-hour working week, 50 weeks a year, that comes to a gross of $14,500 for the full year.

Let’s contrast that with a person who has been in the news recently, Mr. Bob Diamond, Chief Executive of Barclays.

As the BBC reported on the 2nd July,

Mr Diamond has said he will not take a bonus for this year as a result of the scandal.

It is not the first time the 60-year-old Boston-born former academic – he began his career as a university lecturer – has made the headlines.

Mr Diamond was previously best-known for his huge wealth: last year he topped the list of the highest-paid chief executives in the FTSE 100.

‘Unacceptable face’

In 2011 Mr Diamond earned £20.9m, comprising salary, bonuses and share options, and he is reported to have a personal wealth of £105m.

There has long been controversy about the amount he earns.

In 2010, Lord Mandelson described him as the “unacceptable face of banking”, saying he had taken a £63m salary for “deal-making and shuffling paper around”.

Barclays dismissed the figure as “total fiction” saying that his salary as head of Barclays Capital was actually £250,000.

BBC business editor Robert Peston said he believed Mr Diamond had earned £6m in 2009 from a long-term incentive scheme and £27m from selling his stake in a Barclays-owned business that had been sold.

So whether he earns £20.9m, £6m or even £250,000 frankly makes no difference to the fact that the gap between what the poorest may earn and the sorts of monies that are given to Mr. Diamond and his like is just plain wrong.  [And since writing this on Monday, the news broke on Tuesday morning that Mr. Diamond is now unemployed.]  Don’t often quote the bible in Learning from Dogs but 2 Corinthians 8:13-15 is irresistible (King James Version),

Our desire is not that others might be relieved while you are hard pressed, but that there might be equality.  At the present time your plenty will supply what they need, so that in turn their plenty will supply what you need. The goal is equality, as it is written: “The one who gathered much did not have too much, and the one who gathered little did not have too little.” [my emphasis]

I subscribe to Naked Capitalism and the other day there was a deeply interesting article about France pushing for a maximum wage.  Let me take the liberty of quoting all of it,

SUNDAY, JULY 1, 2012

France Pushing for a Maximum Wage; Will Others Follow?

A reader pointed out a news item we missed, namely, that the new government in France is trying to implement a maximum wage for the employees of state-owned companies. From the Financial Times:

France’s new socialist government has launched a crackdown on excessive corporate pay by promising to slash the wages of chief executives at companies in which it owns a controlling stake, including EDF, the nuclear power group.

In a departure from the more boardroom-friendly approach of the previous right-of-centre administration, newly elected president François Hollande wants to cap the salary of company leaders at 20 times that of their lowest-paid worker.

According to Jean-Marc Ayrault, prime minister, the measure would be imposed on chief executives at groups such as EDF’s Henri Proglio and Luc Oursel at Areva, the nuclear engineering group. Their pay would fall about 70 per cent and 50 per cent respectively should the plan be cleared by lawyers and implemented in full…

France is unusual in that it still owns large stakes in many of its biggest global companies, ranging from GDF Suez, the gas utility; to Renault, the carmaker; and EADS, parent group of passenger jet maker Airbus.

Of course, in the US, we have companies feeding so heavily at the government trough that they hardly deserve the label of being private, but the idea that the public might legitimately have reason to want to rein in ever-rising executive pay is treated as a rabid radical idea.

From Doug’s post:

For those, however, receiving bailouts, deposit insurance, government guarantees, tax breaks, tax credits, other forms of public financing, government contracts of any sort – and so on – the top paid person cannot receive more than twenty-five times the bottom paid person. This ratio, by the way, is what business visionary Peter Drucker recommended as most effective for organization performance as well as society. It also echoes Jim Collins who, in his book Good To Great, found that the most effective top leaders are paid more modestly than unsuccessful ones. And, critically, it is a ratio that is in line with various European and other nations that have dramatically lower income inequality than the United States.

In other words, the French proposal isn’t that big a change from existing norms, at least in most other advanced economics (ex the UK, which has also moved strongly in the direction of US top level pay). But despite the overwhelming evidence that corporate performance is if anything negatively correlated with CEO pay, the myth of the superstar CEO and the practical obstacles to shareholder intervention (too fragmented; too many built in protections for incumbent management, like staggered director terms; major free rider problems if any investor tries to discipline extractive CEO and C level pay, which means it’s easier to sell than protest) means ideas like this are unlikely to get even a hearing in the US.  Let the looting continue!

As Patrice Ayme commented on that Naked Capitalism article, “France will pass the 20 to 1 law, as the socialists control the entire state, senate, National Assembly, Regions, big cities, etc. Only the French Constitutional Court could stop it.  That’s unlikely, why?  Because one cannot have a minimum wage, without a maximum wage. It’s not a question of philosophy, but of mathematics.”

Let me go back and requote this,

 …. the top paid person cannot receive more than twenty-five times the bottom paid person. This ratio, by the way, is what business visionary Peter Drucker recommended as most effective for organization performance as well as society. It also echoes Jim Collins who, in his book Good To Great, found that the most effective top leaders are paid more modestly than unsuccessful ones. And, critically, it is a ratio that is in line with various European and other nations that have dramatically lower income inequality than the United States.

Thus if society was to embrace this approach to fairness, in America the top paid person in 2012 in the USA would be on 25 times the minimum wage level of $14,500 a year or, in other words, $362,500 a year.

I’m not a raving liberal but I am bound to say that this sits pretty well with me.  How about you?

As I opened, an original idea that shouldn’t be regarded as innovative.

End Fossil Fuel Subsidies NOW!

It’s rare for me to post a second item on the same day but this warrants it!

The full copy of this recently issued Press Release now available on the End Fossil Fuels Subsidies website is republished in full below.

PASS IT ON!

oooOOOooo

PRESS RELEASES

MIDDAY TWITTERSTORM REPORT
June 18, 2012

Call to #EndFossilFuelSubsidies at Rio+20 Tops Twitter

EU Commissioner for Climate Action Connie Hedegaard, celebrities Mark Ruffalo,
Stephen Fry, and Robert Redford, journalist Nicholas Kristof, and more join global push

RIO DE JANEIRO — The push to end fossil fuel subsidies at Rio+20 became the #2 most talked about topic worldwide on Twitter this morning.

The social networking site, which has 100 million active users, tracks discussions by hashtag and #endfossilfuelsubsidies ranked #2 globally and #2 in United States and Australia. 350.org, the global climate campaign coordinating the effort, estimated that the hashtag was being tweeted at least once a second, reaching millions of people around the world.

A number of politicians, journalists, celebrities, and high-profile activists joined in the campaign, helping catapult it into the spotlight:

British actor Stephen Fry tweeted, “Let’s green $1 trillion with a plan to save the planet. Sign the petition & RT: http://j.mp/endFFS #endfossilfuelsubsidies #G20 #RioPlus20.”

American actor Mark Ruffalo, who recently played the Hulk in the box-office sensation The Avengers, tweeted, “Good Morn! Can you help us end fossil fuel subsidies? Pls tweet #endfossilfuelsubsidies TODAY to help us send a msg & spread the word.!!!”

The EU Commissioner for Climate Action Connie Hedegaard, who is expected to play a key role at the Rio+20 negotiations,tweeted, “Fossil fuels subsidies have no place in today’s world . They must be phased out as the G20 pledged. #EndFossilFuelSubsidies #Rioplus20.”

Journalist and New York Times columnist Nicholas Kristof tweeted, “A twitterstorm underway calling on leaders to #EndFossilFuelSubsidies at Rio summit: http://yfrog.com/1qamv1j.”

350.org founder Bill McKibben tweeted, “$1 trilllion is a lot of money–tired of the fossil fuel industry laughing at us, so joining the twitterstorm #endfossilfuelsubsidies.”

Activists with 350.org are projecting tweets in cities around the world, including Sydney, London, New Delhi, and New York, as well as inside the Rio+20 negotations.

Yesterday, 350.org and Avaaz unfurled a giant $1 trillion bill on the Copacabana beach in Rio, producing some spectacular photos. The global campaign Avaaz.org is delivering a petition with 750,000 signatures calling for an end to fossil fuel subsidies to G20 leaders in Los Cabos, Mexico this afternoon. Over a million people have signed different petitions calling for action on subsidies in the last two weeks.

The current draft of the Rio+20 agreement released on Saturday includes a paragraph on ending fossil fuel subsidies, but negotiations now hang in the balance as oil exporting countries led by Saudi Arabia and Venezuela attempt to delete any references to the proposal. The final decision is likely to come down to Brazil, who hold sway as the host country.

The Twitterstorm can be tracked at endfossilfuelsubsidies.org. Supporting organizations for endfossilfuelsubsidies.org include: 350.org, Avaaz, Climate Reality Project, Earth Day Network, Friends of the Earth International, Global Exchange, Green For All, Greenpeace International, Greenpeace New Zealand, Natural Resource Defense Council, Oil Change International, Quercus, SumOfUs, Wild Aid, WWF

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CONTACT: In the US, Daniel Kessler, dk@350.org, +1 510-501-1779; In Rio, Jamie Henn, jamie@350.org, +55(0)2181061948

NOTE TO EDITORS:

1. Information on the $1 Trillion in fossil fuel subsidies: http://priceofoil.org/wp-content/uploads/2012/05/1TFSFIN.pdf

##

PRESS ADVISORY/PHOTO CALL

‘Twitterstorm’ gathers speed before Monday’s Global Cyberaction to #EndFossilFuelSubsidies at Rio+20

RIO, 15 June 2012 — Momentum is building for this Monday’s 24-hour “Twitterstorm,” a massive international online action to increase pressure on world leaders to cut nearly $1 trillion in fossil fuel subsidies at the upcoming Rio+20 Earth Summit.

For 24 hours between June 18th and 19th, as world leaders gather at the G20 summit and prepare for Rio+20, hundreds of thousands of people around the world will tweet with the same hashtag — #EndFossilFuelSubsidies — at celebrities and politicians, flooding the popular social network with their demand. Over 1 million people have already signed a petition calling on leaders to act.

Recent developments on the Twitterstorm include:

• Confirmation of tweet projections in Sydney, London, New Dehli, and Rio (see Notes section for times and locations) (1)
• A new website with fact sheets, a tool to tweet at celebrities and Heads of State, and more resources for activists: http://www.endfossilfuelsubsidies.org
• A new Facebook event that has registered over two thousand “Tweet Team” members to recruit participants for the day of action. (2)
• Support from over a dozen civil society groups, including 350.org, Greenpeace International, Oil Change International and WWF. (3)

WHAT: A 24-hour Twitterstorm to #EndFossilFuelSubsidies at Rio+20

WHEN: The 24-hour clock will begin at 8:00 UTC (6 PM local time in Sydney) when activists will flock to Twitter with messages that will be projected in iconic locations in Sydney, New Delhi, London, and Rio. In recent weeks campaigning groups have collected over 1 million signatures demanding that leaders act now.

WHY: According to figures compiled by Oil Change International, countries are spending as much as $1 trillion USD combined annually on fossil fuel subsidies. (4) The International Energy Agency estimates that by cutting these subsidies, the world can cut global warming causing emissions in half and significantly contribute to preventing a 2 degree temperature rise, the limit most scientists say we need to stay under to prevent runaway climate change. (5)

In May, leaders of the G20 again pledged to eliminate fossil fuel subsidies. They first made the commitment in 2009 but have yet to implement the policy change at the country level.

While global warming emissions rise and gas prices spike, fossil fuel companies continue to make massive profits, which brings into doubt the need for subsidies. ExxonMobil, for example, made $41.1 billion USD in profit in 2011.

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CONTACT: In the US, Daniel Kessler, 350.org, dk@350.org, +1 510-501-1779; In Rio, Jamie Henn, jamie@350.org, +55(0)2181061948

NOTE TO EDITORS:

1. June 18 projection events

• Sydney
◦ Summary: Sydney will launch the Twitter Storm from the Sydney Opera House.  Local supporters are invited to send a photo or video message to world leaders with the Sydney Opera House and Sydney Harbour Bridge as a backdrop.  Projection of the Twitter feed will continue late at night around Sydney’s CBD.
◦ 6 PM (UTC+10) Sydney Opera House Boardwalks
◦ 9 PM (UTC+10) Sydney CBD
◦ CONTACT: Abi Jamines abigail@350.org, +61 403278621

• New Delhi
◦ Summary: There will be two projections in New Delhi.
◦ Projection 1: 6 PM – 9 PM, Moonlighting, An indoor projection while the Twitter feed is projected to an invited audience along with a speaker to discuss the issue of fossil fuel subsidies in the Indian context. (Will share speaker details soon, yet to be confirmed).
◦ Projection 2: 6PM – 11 PM An outdoor projection at a local mall called DLF Saket.
◦ CONTACT: Chaitanya Kumar, chaitanya@350.org, +91-9849016371

• London
◦ Summary: There will be 3 events in London–a petition delivery at 10 Downing Street in the morning, followed by two projections.
◦ Petition delivery: 10:30am GMT+1, Number 10 Downing Street, London.
◦ Projection 1: 1:30pm GMT+1, Houses of Parliament, London
◦ Projection 2: Approximately midnight GMT+1 (Tuesday 19th June), Nelson’s Column, Trafalgar Square, London
◦ CONTACT: Emma Biermann, emma@350.org, +44 (0) 78 3500 4720,

• Rio
◦ Summary: Tweets will be displayed in the Rio Centro conference center all day.
◦ CONTACT: Jamie Henn, jamie@350.org, +55(0)2181061948

2.  https://www.facebook.com/events/304496622975461/

3. Supporting organizations include: 350.org, Avaaz, Climate Reality Project, Earth Day Network, Friends of the Earth International, Global Exchange, Green For All, Greenpeace International, Greenpeace Australia, and Greenpeace New Zealand, League of Conservation Voters, Natural Resource Defense Council, Oil Change International, Oxfam, Quercus, SumOfUs, Wild Aid, World Wildlife Fund

4. http://priceofoil.org/wp-content/uploads/2012/05/1TFSFIN.pdf

5. http://www.iea.org/files/energy_subsidies_slides.pdf

##

‘Twitter Storm’ Planned to Pressure Leaders to End Fossil Fuel Subsidies at Rio+20

Environmental conference ideal place to end wasteful giveaways to corporate polluters, says civil society groups

Oakland, 7 June 2012 — Campaigning organizations from around the world will join forces on June 18 for a 24-hour ‘Twitter storm’ in which tens of thousands of messages will be posted on the social networking site demanding that world leaders use Rio+20 to agree to end fossil fuel subsidies.

The 24 hour clock will start at 6PM local time in Sydney (8AM UTC), when activists will begin to flock to Twitter with messages that will also be projected in iconic spots in Sydney, New Delhi, London, Rio, and other locations. In recent weeks campaigning groups have collected over 1 million signatures demanding that leaders act now to end subsidies and start to invest in clean energy solutions. (1)

According to figures compiled by Oil Change International, countries together are spending as much as $1 trillion dollars annually on fossil fuel subsidies. (2) The International Energy Agency estimates that by cutting these subsidies, the world can cut global warming causing emissions in half and significantly contribute to preventing a 2 degree temperature rise, the number most scientists say we need to stay under to prevent runaway climate change. (3)

“We are giving twelve times as much in subsidies to fossil fuels as we are providing to clean energy, like wind and solar. World leaders shouldn’t be subsidizing the destruction of our planet, especially since these subsidies are cooking our planet,” said Jake Schmidt, International Climate Policy Director at the Natural Resources Defense Council.

In May, leaders of the G20 again pledged to eliminate fossil fuel subsidies. They first made the commitment in 2009 but have yet to implement the policy change at the country level.

While global warming emissions rise and gas prices spike, fossil fuel companies continue to make massive profits, which brings into doubt the need for subsidies. ExxonMobil, for example, paid an effective US federal tax rate in 2010 of 17.2 percent, while the average American paid 28 percent.

Participating organizations include 350.org, Avaaz, Greenpeace. Oil Change International, Natural Resources Defense Council, and others.

###

CONTACT: In the US, Daniel Kessler, 350.org, +1 510 501 1779, daniel@350.org

NOTE TO EDITORS:

1.http://endfossilfuelsubsidies.org/

2. http://priceofoil.org/wp-content/uploads/2012/05/1TFSFIN.pdf

3. http://www.iea.org/files/energy_subsidies_slides.pdf

Planet Earth is just one world!

A very simple, fundamental message to the G20+ Conference in Rio.

We live on one planet.  It is the solemn duty of everyone living on this planet to protect it from harm.  So to all those at Rio claiming to represent a Nation, or more accurately the people living in that Nation, act not only on behalf of that Nation but on behalf of the planet, the only planet, we all live on.

The only life-sustaining planet we have!

Civilisations do fail!

Any lessons for today from the Valley of the Pyramids at Tucume in Peru?

The view of Huaca Larga (Photo: Heinz Plege/PromPerú)

Let’s set the scene,

It’s amazing to think that anyone lived here, that this valley was once green. Now it is sun-blasted, scorching hot, and the only life is the circling vultures and the rainbow-colored iguanas, like something out of a desert hallucination, skittering across the rocks.

The reminders of past life rise up around me, however, eroded to look more like drip castles than the pyramids they once were. I am in Túcume, the once-grand capital of the Sican culture, Peru’s mythical Valley of the Pyramids.

I am not far from Chiclayo, and even closer to the city of Lambayeque, where the Royal Tombs of Sipán Museum serves as one of the major tourist attractions on the north coast. Here at Túcume however, there are few visitors.

It is not hard to get to the site. Combis leave regularly from Chiclayo and Lambayeque, dropping passengers in the modern village of Túcume, from which an quick mototaxi ride leads to the ruins. By car or taxi, it is about a 30 minute ride from Chiclayo.

There are two main trails marked out across the desert plain in Túcume. One leads to Cerro Purgatorio, a craggy hill overlooking the 26 pyramids that comprise the site. The trail winds across the scorched valley, between several of the pyramids, before arriving at a staircase leading to different scenic overlooks on the face of Purgatorio.

WikiPedia, too, has a short reference.

Then there’s a long and revealing article on the InkaNatura Travel Site, which I recommend you go to.

So what happened at Túcume to cause the civilisation to fail?  Maybe this 10-minute film gives the answers, but just a note to say that there are some potentially upsetting scenes for the younger or more sensitive among us.

So anyone sufficiently brave to say that history won’t repeat itself.

Wonder which would be the ‘cursed cities’?