Sunday, September 18, 2011

World's Financial Woes Made Simple

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by Richard Crews
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I heard an economist from China speaking on TV recently. It was remarkable to hear her talk: she made simple sense in a few sentences of the overwhelmingly complex topics she addressed.

(I say "an economist from China" but, although in a position of high authority in China, she was surely the product of a leading American university graduate school, not only because she spoke American English fluently but also because the U.S. still has international hegemony in business and economics post-graduate education. Anyone who speaks on such matters with clarity and authority anywhere in the world probably has U.S.-graduate-school credentials.)

As she took on each topic, she stripped it to the core. When she spoke of the U.S.'s financial woes, for example, she said there were three parts: the large national debt, the annual budget deficits, and unemployment. As to Europe's difficulties, she identified two key factors: the sovereign debt crises, and the lack of confidence in the Eurozone's political stability. On China, she named the population problem presented by the rural poor and the need to expand consumerism of a middle class.

When I first heard her speak, I thought, "My gosh, what clarity! What analytic acumen--coupled with such a heroic willingness to be simple and direct." I wanted to hear her again--to use her simple and direct analyses to focus my understanding. But as I got to thinking about her presentation, I realized that she had left out, glossed over, or generalized a lot of important factors.

In discussing the U.S., for example, she did not mention--much less work into the puzzle--the paralyzing political gridlock and the parts that new IT, media revolutions, and large, unregulated political donations make to that. Nor did she mention our crumbling and archaic infrastructure, the burgeoning green awareness of our dirty energy and patchy environmental protections, nor our Rube-Goldberg tax structure, and our upper-class-versus-others income and wealth disparity.

The more I thought about it, the more I realized that the simplicity or her analysis was, in fact, a fault, not a virtue. It is the kind of simplistic thinking that the media--and politicians--put forth, and that distorts and biases public understanding of important issues.

It behooves us all, if we do not understand an issue or do not have time to address it fully, to allude to its complexities and take a humble "pass" on espousing vehement opinions about it.
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Saturday, September 10, 2011

World's Biggest Employers

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by Richard Crews
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The Economist magazine, Sept. 10-16, 2011, reported a survey by the IMF (International Monetary Fund): Who are the world's biggest employers?
#1. U.S. Department of Defense (3.2 million employees)
#2. Chinese Army (2.3 million)
#3. Walmart (2.1 million)
#4. McDonald's (1.7 million)
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For reference purposes:
There are 15 states in the U.S. that have less than 2.0 million population.
There are 45 countries in the U.N. that have less than 2.0 million population.
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Monday, September 5, 2011

Taxaholics in Washington

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by Richard Crews
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Warren Buffett paid over seven million dollars in income taxes last year; I paid zero.

In fact, the wealthiest 2% of Americans pay nearly 50% of the income taxes the federal government receives (and income taxes are the largest source of money the government runs on); 40% of the U.S. population pays no income taxes.

Does that seem fair? What on earth can those taxaholics in Washington be thinking of to want rich folks to pay an even greater part of the costs of running the government?

Let's look at this from another direction:
The average American household had--after taxes--about $100 per day to live on last year.
The wealthiest 2% had, on average--after taxes--about $1,000 per day.
Warren Buffett kept--after taxes--about $100,000 a day.

Get the picture?
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Is Unemployment Cyclical or Structural?

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by Richard Crews
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Business cycles come and go. This was called "irrational exuberance" by Alan Greenspan, the former chairman of the Federal Reserve Bank back in the days (or, rather, "the decades") when his ponderous, pedantic pronouncements were considered straight from Mt. Sinai--that was back before the Great Recession--before the collapse of housing markets and their equity derivatives and . . . and . . . pretty nearly the entire global financial system--before Alan Greenspan resigned and returned to the spotlight briefly to repudiate and apologize for a lifetime of flawed thinking.

"Business cycles come and go," the argument went. Whether it is bundling real estate for homes or commercial buildings; inventing electronic gadgetry for communications, factories, and space enterprises; funding high-speed mass-transit systems; developing off-shore tax dodges; out-sourcing clothing manufacturing, toxic recycling, and tech-support to the deprived masses of third-world countries; or any other business fad, a hands-off approach ("deregulation") was to be recommended. "Boys will be boys." If this or that corner of Wall Street makes obscene profits for a few years, never mind--the natural, healthy forces of a robust entrepreneurial capitalism will, pretty soon now, set things aright.

But that was back in "the good old days" when business and finance functioned in "the good old ways." When Darwinian "survival of the fittest" brought the best-managed and most attractive business ideas bubbling to the top; when investors studied the fundamental strengths and weaknesses of an industry; when it was government's job largely to stay out of the way.

Things have changed. Nowadays we have tens of millions of people out of work, and--thanks to automation, new technological demands, and new international market forces--many of their jobs are not coming back.

For sure, there are still cyclical elements--irrational exuberance--in the comings and goings of business ups and downs, but there are increasingly structural elements, too. There are traditional infrastructural needs--roads and bridges and tunnels to be repaired and maintained; pipelines and wires to be patched and mended; schools, hospitals, and fire houses to be fitted and retrofitted. But there are increasingly high-speed rail and mass transit systems to be constructed; fiber-optic cables and microwave towers to be installed; green energy sources and smart energy transmission grids to be designed and maintained. And these require different kinds or training and higher levels of skills. Millions--tens of millions--of the jobs that have been lost are not coming back. They have gone overseas or simply disappeared into the woodwork of the past.

Do not be deceived that the current recession is cyclical like the many that have preceded it. There are important structural changes afoot, and the government needs to fortify education (and retraining) and social safety nets (for the displaced, unemployed, infirm, and elderly), and government needs to keep a closer eye on the exuberances of Wall Street than it did in the past--in the days of Alan Greenspan--or the American Dream will fade into obsolescence.
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