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Global Economy

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abhishek_sharma
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Re: Global Economy

Postby abhishek_sharma » 19 Apr 2011 08:49

We're saddled with a 20th Century trading system. We need new rules for tomorrow -- and we need them now.

http://www.foreignpolicy.com/articles/2011/04/18/system_upgrade

devesh
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Re: Global Economy

Postby devesh » 20 Apr 2011 09:45

Interesting that they are again talking of trying "getting rid" of credit cycles! A long time ago large scale macro models based on quantitative exchanges rather than "exchange prices" were tried out specifically to find a way out of cycles in the so-called "planned economies". It did not quite work out at the time primarily because of three reasons : (1) real life much greater diversity and complexity of products and exchanges impossible to model realistically (2) difficulty in incorporating market signaling (3) the linear terms even in SDE formulation gave "cycles". Another problem with most models is that people look at the "stationary" state or "near equilibrium" scenario but equilibrium is almost never reached in the short term and by the time we think it is being reached the parameters have changed leading to new potential equilibrium solutions.



brihaspatiji,

that's the basic conundrum of Central planning. easily laid out objectives on "White Papers" are rarely translated into reality. and as such, with the advent of "Mathematical Economics" starting in the 17th century, economic forecasting/modelling has become increasingly mathematical. while this is helpful in many areas, this is also a hindrance, when it comes to the modelling aspect. in mathematical analysis, "initial conditions" and integrating over a period of time become mandatory. but when applied to economics, the Differential Equations approach has a glaring flaw: the initial conditions can never be confidently ascertained to the extent required. and to make up for that, some basic assumptions are just assumed, and then analysis merrily begins from that point. problem is applying wishful assumptions to real life scenarios, which, of course will not yield "truthful" results.

a suitable alternative to this Differential method has yet to be developed for Economics and allied fields where reality is vastly more complex than lab/study models.

abhishek_sharma
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Re: Global Economy

Postby abhishek_sharma » 23 Apr 2011 08:45


Satya_anveshi
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Re: Global Economy

Postby Satya_anveshi » 02 May 2011 23:28

Guys...watch out how and when the US debt limit will be raised. Guess is it will be done quietly with nary a debate as people dancing on the streets celebrating bin laden's death. There is a temporary lull and focus away from the economic situation which only worsened in the recent months - increased activity globally away from $, lower local economic activity and lowering of GDP expectations, impending debt limit and loss of Obama credibility due to his earlier stand on it, increased inflation pressure due to Gas prices, and from execs at consumer goods companies such as Wal-Mart/J&J assessments etc.

svinayak
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Re: Global Economy

Postby svinayak » 02 May 2011 23:47

Satya_anveshi wrote:Guys...watch out how and when the US debt limit will be raised. Guess is it will be done quietly with nary a debate as people dancing on the streets celebrating bin laden's death. There is a temporary lull and focus away from the economic situation which only worsened in the recent months - increased activity globally away from $, lower local economic activity and lowering of GDP expectations, impending debt limit and loss of Obama credibility due to his earlier stand on it, increased inflation pressure due to Gas prices, and from execs at consumer goods companies such as Wal-Mart/J&J assessments etc.


What is final outcome of all these and for how long

Stagflation
High deficit

abhishek_sharma
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Re: Global Economy

Postby abhishek_sharma » 30 May 2011 11:33

Nobel winner on “The Next Convergence: The Future of Economic Growth in a Multi-Speed World” (Video)

http://www.charlierose.com/view/interview/11698

Neshant
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Re: Global Economy

Postby Neshant » 02 Jun 2011 21:24

the next crash which can't be far off is going to reveal the federal reserve, banking class and many economists to be a bunch of charlatans.

Neshant
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Re: Global Economy

Postby Neshant » 02 Jun 2011 23:06

We're saddled with a 20th Century trading system. We need new rules for tomorrow -- and we need them now.


no we don't.

we need :

1) an honest money system based on something tangible and not some central banking joker printing up paper when he feels like it.

2) everyone to eat their own gambling losses and not pass it on to suckers.

That would require the destruction of fiat money and the redundancy of a vast portion of banking, financing & paper shuffling, bonuses.. etc

Rules are useless as politicians are easily bribed. Goldman Sachs even managed to put an ex-employee at the SEC in charge of investigating financial fraud. You can be sure that guy will be abetting fraud not investigating it. Despite the rules not one CEO of a rating agency or a financial company has gone to jail in recent memory for mortgage related fraud. More rules are not going to do anything.

rohitvats
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Re: Global Economy

Postby rohitvats » 02 Jun 2011 23:34

Gaurav_S wrote:<SNIP> South China mall: http://en.wikipedia.org/wiki/New_South_China_Mall <SNIP>


From the above link:

The mall was formerly owned by Dongguan Sanyuan Yinghui Investment & Development , Hu Guirong's company, but a controlling interest in the mall has been sold to the Founders Group, a division of Beijing University.[3]


If universities starting investing in real estate assets, then if it not speculative market, what else is? Although, I'm sure, there was some high level 'advice' to the said fund of the university. But the biggest question is, with the mall 99%+ empty, why did the university buy it in the first place? All is maya onleeeee................

Prem
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Re: Global Economy

Postby Prem » 12 Jul 2011 09:40

http://www.medicalnewstoday.com/articles/230836.php
Emerging Nations BRICS Group Vow To Cheapen Meds And The Dollar
Brazil, Russia, India, China and South Africa, or the BRICS group of emerging countries, have promised this week to improve access to low cost and high quality medicine for their citizens and called on developed nations to shoulder responsibility in helping the poor. The groundbreaking announcement came at a first time event gathering in the Chinese capital that acted as the first health minister level meeting for the BRICS group of nations. It was also attended by UNAIDS and the World Health Organization. The five emerging countries together alone account for more than 40% of the world's population. The BRICS called on WHO members, especially developed countries, to boost funding for the organisation, while Brazilian health minister Alexandre Padilha told reporters that wealthier countries should "shoulder" responsibility.The BRICS group is also concerned about the dollar and have plans for a revamped global monetary system that relies less on the dollar and for a louder voice in international financial institutions, in addition to stronger regulation of commodity derivatives to dampen excessive volatility in food and energy prices, which they said posed new risks for the recovery of the world economy. The BRICS are worried that America's large trade and budget deficits will eventually debase the dollar. They also begrudge the financial and political privileges that come with being the leading reserve currency.
Chinese President Hu Jintao said in April: "The world economy is undergoing profound and complex changes. The era demands that the BRICS countries strengthen dialogue and cooperation."
Burdened by heavy debt, the United States, the Euro zone and Japan are struggling to shake off the lingering effects of the 2008 global financial crisis. Rich countries will grow 2.4% this year and 2.6% in 2012, accourding to the International Monetary fund forecast.
A group statement said regarding public health concerns:
"We are committed to continue to collaborate in order to advance access to public health services and... support other countries in their efforts to promote health for all."

Prem
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Re: Global Economy

Postby Prem » 12 Jul 2011 09:44

Five-Year Itch for India and China
http://online.wsj.com/article/SB1000142 ... 32334.html
India needs to plan a little more, China a little less.

Asia's two emerging giants both rely on socialist-style blueprints as the organizing principle of growth. But while China's statist success has turned into something of a strait jacket, India's five-year plans continue to measure mainly its lack of achievement.In the early days of the reform era, the objectives for growth and investment in China's five-year plans were the bootstraps by which the mainland dragged itself out of poverty. More than 30 years on, achieving targets in the plans does not seem a problem. For example, annual gross domestic product growth averaging 11.2% in the period covered by the 11th five-year plan was way above the 7.5% target. Energy consumption per unit of GDP fell 19.1%, within spitting distance of the 20% target.The problem is that by denying space for consumers to flourish and the private sector to develop fully, the state-centric plans are now a hindrance rather than a help to achieving key objectives on rebalancing the economy. One key measure is the share of investment and consumption in GDP: In the period covered by the 11th five-year plan, investment increased as a driver of GDP, while the relative importance of consumption declined.In India, the problem is the reverse. It's not the success of the state in getting its way; it's the failure of the state to deliver what it promises. Inability to meet the Planning Commission's targets on everything from infrastructure investment to farming and health care undermines the credibility of the government and frustrates business and investors' attempts to plan for the future. One example: New Delhi will likely miss its target of investing $500 billion in infrastructure projects in the current five-year plan that ends in March 2012.

abhishek_sharma
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Re: Global Economy

Postby abhishek_sharma » 18 Aug 2011 08:01

The great failure of globalisation: By Jeffrey Sachs

A failure of economic strategy and leadership lies behind the near simultaneous collapse of market confidence in the eurozone and US economies. No need to blame the rating agencies: governments in Europe and America have been unable to cope with the realities of global capital markets and competition from Asia – and deserve the lion’s share of the blame.
I’ve watched dozens of financial crises up close, and know that success means showing the public a way out that is bold, technically sound and built on social values. Transatlantic leadership is falling short on all counts. Neither the US nor Europe has even properly diagnosed the core problem, namely that both regions are being whipsawed by globalisation.

Jobs for low-skilled workers in manufacturing, and new investments in large swaths of industry, have been lost to international competition. Employment in the US and Europe during the 2000s was held up only by housing construction stoked by low interest rates and reckless deregulation – until the construction bubble collapsed. The path to recovery now lies not in a new housing bubble, but in upgraded skills, increased exports and public investments in infrastructure and low-carbon energy. Instead, the US and Europe have veered between dead-end, consumption-oriented stimulus packages and austerity without a vision for investment.

Macroeconomic policy has not only failed to create jobs, but also to respond to basic social values too. Let me be clear: good social policy does not mean running big deficits. Public debts are already too large in both Europe and the US. But it does mean a completely different balance between cuts to social services and tax increases on the rich.

The simple fact is that globalisation has not only hit the unskilled hard but has also proved a bonanza for the global super-rich. They have been able to invest in new and highly profitable projects in emerging economies. Meanwhile, as Warren Buffett argued this week, they have been able to convince their home governments to cut tax rates on profits and high incomes in the name of global tax competition. Tax havens have proliferated even as the politicians have occasionally railed against them. In the end the poor are doubly hit, first by global market forces, then by the ability of the rich to park money at low taxes in hideaways around the world.

An improved fiscal policy in the transatlantic economies would therefore be based on three realities. First, it would expand investments in human and infrastructure capital. Second, it would cut wasteful spending, for instance in misguided military engagements in places such as Iraq, Afghanistan, and Yemen. Third, it would balance budgets in the medium term, in no small part through tax increases on high personal incomes and international corporate profits that are shielded by loopholes and overseas tax havens.

Infrastructure investment also need not increase deficits if any new projects pay their own way. Even if they require upfront borrowing, projects will not add to net financial liabilities if they are repaid through future revenues. Currently, budget accounting in the US and Europe generally fails to distinguish between these self-financing capital projects – such as bridges, which earn revenue through future tolls – and those financed by general revenues.

Export-led growth is the other under-explored channel of recovery. Part of this must be earned through better skills and technologies – another reason not to cut education. But another part can be earned through better financial policies. China, realising this, has sold Africa many billions of dollars per year of infrastructure export projects, financed by long-term Chinese loans. Yet the US and Europe have virtually ceded that market to China by the lack of financing to African and other fast-growing economies.

The last missing piece for any recovery, however, is clarity of purpose from the political class. In Europe, a coherent response led by the European Union has been sidelined to policymaking by national governments – the pact between France and Germany being only the latest example. For months, Europe’s fate has been decided by German state elections and small Finnish parties. The European Central Bank has been so divided that it too has neglected core functions of stabilising panicked markets. There is no way the euro can survive if European-wide institutions continue to be so weak, slow and divided.

The US has similarly devolved into a mélange of sector, class, and regional interests. President Barack Obama is the incredibly shrinking leader, waiting to see whether Congressional power barons will call. More generally, the US cannot prosper while its politicians go hat in hand to the vested interests that finance their nonstop campaigning.
The recent swoon in financial markets and the stalled recovery in the US and Europe reflect these fundamental shortcomings. There is no growth strategy, only the hope that scared and debt-burdened consumers will return to buying houses they don’t need and can’t afford. Sadly, these global economic currents will continue to claim jobs and drain capital until there is a revival of bold, concerted leadership. In the meantime, the markets will gyrate in pangs of uncertainty.

The writer is director of The Earth Institute at Columbia University

abhishek_sharma
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Re: Global Economy

Postby abhishek_sharma » 19 Aug 2011 06:03

Globalization and Unemployment

By Michael Spence (Nobel Prize in Economics, 2001)

The Downside of Integrating Markets

GLOBALIZATION IS the process by which markets integrate worldwide. Over the past 60 years, it has accelerated steadily as new technologies and management expertise have reduced transportation and transaction costs and as tariffs and other man-made barriers to international trade have been lowered. The impact has been stunning. More and more developing countries have been experiencing sustained growth rates of 7-10 percent; 13 countries, including China, have grown by more than 7 percent per year for 25 years or more. Although this was unclear at the outset, the world now finds itself just past the midpoint in a century-long process in which income levels in developing countries have been converging toward those in developed countries. Now, the emerging economies' impact on the global economy and the advanced economies is rising rapidly.

Until about a decade ago, the effects of globalization on the distribution of wealth and jobs were largely benign. On average, advanced economies were growing at a respectable rate of 2.5 percent, and in most of them, the breadth and variety of employment opportunities at various levels of education seemed to be increasing. With external help, even the countries ravaged by World War II recovered. Imported goods became cheaper as emerging markets engaged with the global economy, benefiting consumers in both developed and developing countries.

But as the developing countries became larger and richer, their economic structures changed in response to the forces of comparative advantage: they moved up the value-added chain. Now, developing countries increasingly produce the kind of high-value-added components that 30 years ago were the exclusive purview of advanced economies. This climb is a permanent, irreversible change. With China and India--which together account for almost 40 percent of the world's population--resolutely moving up this ladder, structural economic changes in emerging countries will only have more impact on the rest of the world in the future.

By relocating some parts of international supply chains, globalization has been affecting the price of goods, job patterns, and wages almost everywhere. It is changing the structure of individual economies in ways that affect different groups within those countries differently. In the advanced economies, it is redistributing employment opportunities and incomes.
For most of the postwar period, U.S. policymakers assumed that growth and employment went hand in hand, and the U.S. economy's performance largely confirmed that assumption. But the structural evolution of the global economy today and its effects on the U.S. economy mean that, for the first time, growth and employment in the United States are starting to diverge. The major emerging economies are becoming more competitive in areas in which the U.S. economy has historically been dominant, such as the design and manufacture of semiconductors, pharmaceuticals, and information technology services.

At the same time, many job opportunities in the United States are shifting away from the sectors that are experiencing the most growth and to those that are experiencing less. The result is growing disparities in income and employment across the U.S. economy, with highly educated workers enjoying more opportunities and workers with less education facing declining employment prospects and stagnant incomes. The U.S. government must urgently develop a long-term policy to address these distributional effects and their structural underpinnings and restore competitiveness and growth to the U.S. economy.

JOBLESS IN THE U.S.

BETWEEN 1990 and 2008, the number of employed workers in the United States grew from about 122 million to about 149 million. Of the roughly 27 million jobs created during that period, 98 percent were in the so-called nontradable sector of the economy, the sector that produces goods and services that must be consumed domestically. The largest employers in the U.S. nontradable sector were the government (with 22 million jobs in 2008) and the health-care industry (with 16 million jobs in 2008). Together, the two industries created ten million new jobs between 1990 and 2008, or just under 40 percent of total additions. (The retail, construction, and hotel and restaurant industries also contributed significantly to job growth.) Meanwhile, employment barely grew in the tradable sector of the U.S. economy, the sector that produces goods and services that can be consumed anywhere, such as manufactured products, engineering, and consulting services. That sector, which accounted for more than 34 million jobs in 1990, grew by a negligible 600,000 jobs between 1990 and 2008.

Dramatic, new labor-saving technologies in information services eliminated some jobs across the whole U.S. economy. But employment in the United States has been affected even more by the fact that many manufacturing activities, principally their lower-value-added components, have been moving to emerging economies. This trend is causing employment to fall in virtually all of the U.S. manufacturing sector, except at the high end of the value-added chain. Employment is growing, however, in other parts of the tradable sector--most prominently, finance, computer design and engineering, and top management at multinational enterprises. Like the top end of the manufacturing chain, these expanding industries and positions generally employ highly educated people, and they are the areas in which the U.S. economy continues to have a comparative advantage and can successfully compete in the global economy.

In other words, the employment structure of the U.S. economy has been shifting away from the tradable sector, except for the upper end of the value-added chain, and toward the nontradable sector. This is a problem, because the nontradable sector is likely to generate fewer jobs than is expected of it in the future. Moreover, the range of employment opportunities available in the tradable sector is declining, which is limiting choices for U.S. workers in the middle-income bracket. It would be unwise to assume that under present circumstances, employment in the government and health care in the United States will continue to grow as much as it had been growing before the recent economic crisis. If anything, it is remarkable that the U.S. economy did not have much of an employment problem until the recent economic crisis. If the nontradable sector continues to lose its capacity to absorb labor, as it has in recent years, and the tradable sector does not become an employment engine, the United States should brace itself for a long period of high unemployment.

FOR WHAT IT'S WORTH

ONE WAY to measure the size of a company, industry, or economy is to determine its output. But a better way is to determine its added value--namely, the difference between the value of its outputs, that is, the goods and services it produces, and the costs of its inputs, such as the raw materials and energy it consumes. (Value added comes from the capital and labor that turn the inputs into outputs.) Goods and services themselves are often purchased as intermediate inputs by other companies or industries, legal services purchased by a corporation being one example. The value added produced by all the industries in all the sectors of an economy adds up to that country's GDP.

Unlike employment, value added in the tradable and nontradable parts of the U.S. economy has increased at a similar rate since 1990. In the nontradable sector, which experienced rapid employment growth, this means that value added grew slightly faster than employment: value added per employee increased modestly, by an annual average of 0.7 percent since 1990. On the tradable side of the U.S. economy, where employment levels barely increased, both value added overall and value added per employee rose very swiftly as the U.S. tradable sector moved up the value-added chain and grew in sync with the global economy. Whereas in the nontradable sector, value added per employee grew from $72,000 to over $80,000 between 1990 and 2008, in the tradable sector it grew from $79,000 to $120,000--in other words, it grew by just about 12 percent in the nontradable sector but by close to 52 percent in the tradable sector.

Most striking are the trends within the tradable sector. Value added rose across that sector, including in finance, where employment increased, and in manufacturing industries, where employment mostly declined. In fact, at the upper end of the manufacturing chain, value added increased so much that it outweighed the losses at the lower end caused by the movement of economic activity from the United States to other countries.

Value added represents income for someone. For employed people, it means personal income; for shareholders and other owners of capital, profit or returns on investment; for the government, tax revenues. Generally, the incomes of workers are closely correlated with value added per employee (this is not the case in the mining industry and utilities, however, where value added per employee is much higher than wages because these activities are very capital intensive and most value added is a return on capital). Since value added in the nontradable part of the U.S. economy did not rise much, neither did average incomes in that sector. In the tradable sector, on the other hand, incomes rose rapidly along with value added per employee thanks both to rising productivity gains in some industries and the movement of lower-income jobs to other countries. And since most new jobs were created in the nontradable part of the economy, in which wages grew little, the distribution of income in the U.S. economy became more uneven.

The overall picture is clear: employment opportunities and incomes are high, and rising, for the highly educated people at the upper end of the tradable sector of the U.S. economy, but they are diminishing at the lower end. And there is every reason to believe that these trends will continue. As emerging economies continue to move up the value-added chain--and they must in order to keep growing--the tradable sectors of advanced economies will require less labor and the more labor-intensive tasks will shift to emerging economies.

Highly educated U.S. workers are already gravitating toward the high-value-added parts of the U.S. economy, particularly in the tradable sector. As labor economists have noted, the return on education is rising. The highly educated, and only them, are enjoying more job opportunities and higher incomes. Competition for highly educated workers in the tradable sector spills over to the nontradable sector, raising incomes in the high-value-added part of that sector as well. But with fewer jobs in the lower-value-added part of the tradable sector, competition for similar jobs in the nontradable sector is increasing. This, in turn, further depresses income growth in the lower-value-added part of the nontradable sector.

Thus, the evolving structure of the global economy has diverse effects on different groups of people in the United States. Opportunities are expanding for the highly educated throughout the economy: they are expanding in the tradable sector because the global economy is growing and in the nontradable sector because that job market must remain competitive with the tradable sector. But opportunities are shrinking for the less well educated.

Faced with an undesirable economic outcome, economists tend to assume that its cause is a market failure. Market failures come in many forms, from inefficiencies caused by information gaps to the unpriced impacts of externalities such as the environment. But the effects on the U.S. economy of the global economy's structural evolution is not a market failure: it is not an economically inefficient outcome. (If anything, the global economy is generally becoming more efficient.) But it is nonetheless a cause for concern in that it is creating a distributional problem in the advanced economies. Not everyone is gaining in those countries, and some may be losing.

Although everyone does benefit from lower-priced goods and services, people also care greatly about the chance to be productively employed and the quality of their work. Declining employment opportunities feel real and immediate; the rise in real incomes brought by lower prices does not. For example, according to recent surveys, a substantial number of Americans believe that their children will have fewer opportunities than they have had. The slow recovery from the recent economic crisis may be affecting these perceptions, which means that they might dissipate as the situation improves and growth returns. But the long-term structural evolution of the U.S. and global economies suggests that distributional issues will remain. These must be taken seriously.

MAKING IT WORK

ANALYSTS HAVE been quick to point out that not all the structural changes under way in the U.S. economy should be attributed to greater openness in the global economy. Some important changes in employment patterns and income distribution are the result of labor-saving information technology and the automation of transactions. Automation has undoubtedly cut jobs in the information- and transaction-intensive parts of value-added chains throughout the U.S. economy, in both the tradable and the nontradable sectors. But if that were the only trend, why would employment decline so much more in manufacturing than in other industries?

One answer might be that information processing and automation occupy a more significant fraction of the value-added chain in manufacturing. But this is not true. Information-processing technology, for example, has eliminated jobs throughout the U.S. economy, including in finance, retail, and the government--all areas in which employment has grown. The structural trends affecting the U.S. economy cannot be explained by changes in technology alone. To think otherwise tends to yield the misleading conclusions that technology, not the global economy, is the principal cause of the United States' employment challenge and that the most important forces operating on the structure of the U.S. economy are internal, not external. In fact, all these factors are relevant, with some more significant in some sectors of the economy than in others.

If giving technology as the preferred explanation for the U.S. economy's distributional problems is a way to ignore the structural changes of the global economy, invoking multinational companies (MNCs) as the preferred explanation is a way to overstate their impact. MNCs are said to underpay and otherwise exploit poor people in developing countries, exporting jobs that should have stayed in the United States.

MNCs do, indeed, play a central role in managing the evolution of the global economy. They are the principal architects of global supply chains, and they move the production of goods and services around the world in response to supply-chain and market opportunities that are constantly changing. MNCs have generated growth and jobs in developing countries, and by moving to those countries some lower-value-added parts of their supply chains, they have increased growth and competitiveness in advanced economies such as the United States. A June 2010 report by the McKinsey Global Institute estimated that U.S.-based MNCs accounted for 31 percent of GDP growth in the United States since 1990.

With ample labor available in various skill and educational categories throughout the tradable sector globally, companies have little incentive to invest in technologies that save on labor or otherwise increase the competitiveness of the labor-intensive value-added activities in advanced economies. In short, companies' private interest (profit) and the public's interest (employment) do not align perfectly. These conditions might not last: if growth continues to be high in emerging economies, in two or three decades there will be less cheap labor available there. But two or three decades is a long time. In the meantime, even though public and private interests are not perfectly aligned today, they are not perfectly opposed either. Relatively modest shifts at the margin could bring them back in sync. Given the enormous size of the global labor force, the dial would not need to be moved very much to restore employment growth in the tradable sector of the U.S. economy. Specifically, the right combination of productivity-enhancing technology and competitive wage levels could keep some manufacturing industries, or at least some value-added pieces of their production chains, in the United States and other advanced countries. But accomplishing this will require more than a decision from the market; it must also involve labor, business, and governments. Germany, for one, has managed to retain its advanced manufacturing activities in industrial machinery by removing rigidities in the labor market and making a conscious effort to privilege employment over rapid rises in incomes. Wages may have increased only modestly in Germany over the past decade, but income inequality is markedly flatter there than in the United States, where it is higher than in most other industrial countries and rising steadily.

Conditioning access to the domestic market on domestic production is a form of protectionism and a way to try to limit the movement out of the country of jobs and of value-added components in the supply chain. This is more common than might be supposed. It exists in the aerospace industry; and in the 1970s and 1980s, in the car industry, quotas on Japanese imports to the United States led to an expansion of the manufacture of Japanese cars in the United States. However, if the large economies--such as China, the European Union, Japan, or the United States--pursue protectionist measures on a broad front, the global economy will be undermined. Yet that may be exactly what happens if employment challenges such as the ones affecting the United States are not tackled differently. With pressure on government budgets at all levels, rapidly rising health-care costs, a fragile housing market, the postcrisis effort to curb excess consumption and boost savings, and the risk of a second economic downturn, it is highly unlikely that net employment in the nontradable sector of the U.S. economy will continue to grow as rapidly as it has been.

The drop in domestic consumption in the United States has left the country with a shortage of aggregate demand. More public-sector investment would help, but the fiscal consolidation currently under way may make expanding government investment difficult. Meanwhile, because private-sector investment responds to demand and currently there is a shortfall in demand caused by the economic crisis and increased savings by households, such investment will not return until domestic consumption or exports increase. Therefore, the United States will need to focus on increasing job growth in the tradable sector. Some growth will naturally come from the high-value-added part of that sector. The question is whether there will be enough growth and whether the educational attainment of U.S. workers will keep pace with rising job requirements at that level. There are reasons to be skeptical.

THE BIG TRADEOFF

IT IS a common view that the market will solve the disparities in employment and incomes once the economic crisis recedes and growth is restored. Warren Buffet and other very smart, experienced, and influential opinion-makers say so clearly. But as this analysis suggests, they may not be right. And as long as their view dominates U.S. public policy and opinion, it will be difficult to address the issues related to structural change and employment in the United States in a systematic way.
What is needed instead of benign neglect is, first, an agreement that restoring rewarding employment opportunities for a full spectrum of Americans should be a fundamental goal. With that objective as a starting point, it will then be necessary to develop ways to increase both the competitiveness and the inclusiveness of the U.S. economy. This is largely uncharted territory: distributional issues are difficult to solve because they require correcting outcomes on the global market without doing too much damage to its efficiency and openness. But admitting that not all the answers are known is a good place to begin.

With considerable uncertainty about the efficacy of various policy options, a multistakeholder, multipronged approach to addressing these distributional problems is best. The relevant knowledge about promising new technologies and market opportunities is dispersed among business, the government, labor, and universities, and it needs to be assembled and turned into initiatives. President Barack Obama has already appointed a commission, led by Jeffrey Immelt, the CEO of General Electric, to focus on competitiveness and employment issues in the U.S. economy. This is an important step forward. But it will be hugely difficult to invest in human capital, technology, and infrastructure as much as is necessary at a time of fiscal distress and declining government employment. And yet restoring opportunities for future generations requires making sacrifices in the present.

Given the structural changes under way in the U.S. economy--especially the growing premium on highly educated workers at the top end of the value-added chain--education should be boosted. As many people as possible should be able to compete in that part of the economy. But if this goal is clear, the ways to achieve it are less so. Improving the performance of the educational system has been a priority for some years, yet the results are in doubt. For example, the Organization for Economic Cooperation and Development administers a set of standardized tests, the Program for International Student Assessment, across more than 60 countries, advanced and developing, to measure the cognitive skills of teenage students. The United States ranks close to the average in reading and science and well behind most countries in math.
The problems in the quality and effectiveness of parts of the U.S. educational system have been recognized for some time. Numerous attempts to improve matters, including administering national standardized tests and providing merit-based compensation, have thus far yielded inconclusive results. And the problem extends beyond the school system. A lack of commitment to education in families and in communities makes the entire field of education seem unattractive, demoralizing dedicated teachers and turning off talented students from teaching. That, in turn, reduces the incentives of communities to value the primacy of education. To break this pattern, it will be necessary to shift communities'--and the country's--values about education through moral leadership, at both the community and the national levels. Creating attractive employment opportunities conditional on educational success is another important incentive. One comes full circle, in other words: increased educational effectiveness is needed for the United States to be competitive, and the promise of rewarding employment is a necessary incentive for committing to improving education.

As important as education is, it cannot be the whole solution; the United States will not educate its way out of its problems. Both the federal and state governments must pursue complementary lines of attack. They should invest in infrastructure, which would create jobs in the short term and raise the return on private-sector investment in the medium to longer term. They should also invest in technologies that could expand employment opportunities in the tradable sector of the U.S. economy at income levels other than the very top. The private sector will have to help guide these investments because it has much of the relevant knowledge about where these opportunities might lie. But this effort will also require the participation of the public sector. The U.S. government already invests heavily in science and technology but not with job creation as its primary focus; that has generally been viewed only as a beneficial side effect. It is time to devote public funding to developing infrastructure and the technological base of the U.S. economy with the specific goal of restoring competitiveness and expanding employment in the tradable sector.

The tax structure also needs to be reformed. It should be simplified and reconfigured to promote competitiveness, investment, and employment. And both loopholes and distorting incentives should be eliminated. For example, corporate tax rates and tax rates on investment returns should be lowered in order to make the United States more attractive for business and investment. MNCs with earnings outside the United States currently have a strong incentive to keep their earnings abroad and reinvest them abroad because earnings are taxed both where they are earned and also in the United States if they are repatriated. Lower tax rates would mean a loss in revenue for the U.S. government, but that could be replaced by taxes on consumption, which would have the added benefit of helping shift the composition of demand from domestic to foreign--a necessary move if the United States wants to avoid high unemployment and an unsustainable current account deficit.

But even these measures may not be sufficient. Globalization has redefined the competition for employment and incomes in the United States. Tradeoffs will have to be made between the two. Germany clearly chose to protect employment in the industries of its tradable sector that came under competitive threat. Now, U.S. policymakers must choose, too. Some will argue that global market forces should simply be allowed to operate without interference. Tampering with market outcomes, the argument goes, risks distorting incentives and reducing efficiency and innovation. But this is not the only approach, nor is it the best one. The distribution of income across many advanced economies (and major emerging economies) differs markedly. For example, the ratio of the average income of the top 20 percent of the population to the average income of the bottom 20 percent is four to one in Germany and eight to one in the United States. Many other advanced countries have flatter income distributions than the United States, suggesting that tradeoffs between market forces and equity are possible. The U.S. government needs to face up to them.

EXPERIMENTING THE WAY FORWARD

THE MASSIVE changes in the global economy since World War II have had overwhelmingly positive effects. Hundreds of millions of people in the developing world have escaped poverty, and more will in the future. The global economy will continue to grow--probably at least threefold over the next 30 years. One person's gain is not necessarily another's loss; global growth is not even close to a zero-sum game. But globalization hurts some subgroups within some countries, including the advanced economies.

The late American economist Paul Samuelson once said, "Every good cause is worth some inefficiency." Surely, equity and social cohesion are among them. The challenge for the U.S. economy will be to find a place in the rapidly evolving global economy that retains its dynamism and openness while providing all Americans with rewarding employment opportunities and a reasonable degree of equity. This is not a problem to which there are easy answers. As the issue becomes more pressing, ideology and orthodoxy must be set aside, and creativity, flexibility, and pragmatism must be encouraged. The United States will not be able to deduce its way toward the solutions; it will have to experiment its way forward.

~~~~~~~~

By Michael Spence
MICHAEL SPENCE is Distinguished Visiting Fellow at the Council on Foreign Relations and the author of The Next Convergence: The Future of Economic Growth in a Multispeed World. He received the Nobel Prize in Economics in 2001.

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Re: Global Economy

Postby abhischekcc » 19 Aug 2011 15:01

There is a philosophical flaw in Spence's arguments. He says that "The tax structure also needs to be reformed. It should be simplified and reconfigured to promote competitiveness, investment, and employment."

But the real problem is the rise of inequality, which is still ongoing despite (or perhaps because) of the economic crisis.

This has created a leisure class within the united states (as it was in Britain before the World Wars) which has nothing to do but speculate and manipulate the government. This was one of the leading reasons why the slow descent into anarchy and world wars was not arrested in Europe - because there was a class of people completely isolated from the consequences of their actions.

America needs to make its people more able to control their lives, rather than try to create a modern day slavery.

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Re: Global Economy

Postby Satya_anveshi » 20 Aug 2011 05:51

Acharya wrote:
Satya_anveshi wrote:Guys...watch out how and when the US debt limit will be raised. Guess is it will be done quietly with nary a debate as people dancing on the streets celebrating bin laden's death. There is a temporary lull and focus away from the economic situation which only worsened in the recent months - increased activity globally away from $, lower local economic activity and lowering of GDP expectations, impending debt limit and loss of Obama credibility due to his earlier stand on it, increased inflation pressure due to Gas prices, and from execs at consumer goods companies such as Wal-Mart/J&J assessments etc.


What is final outcome of all these and for how long

Stagflation
High deficit


Just visited this thread and saw my own post. well it is time to admit that I was wrong in my guess. There was indeed debate during the debt/deficit deal...and boy that was some debate nay arguments nay better yet fist fight and what not. We got another extreme. Well..some times super chankian and other times total paki - not that I regret the overall outcome.

and Acharya ji..how can the final outcome be just "high deficit" - that is not an end in itself. The final outcome has to be reverse globalization or even more very unholy outcome.

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Re: Global Economy

Postby svinayak » 20 Aug 2011 09:08

Satya_anveshi wrote:

Just visited this thread and saw my own post. well it is time to admit that I was wrong in my guess. There was indeed debate during the debt/deficit deal...and boy that was some debate nay arguments nay better yet fist fight and what not. We got another extreme. Well..some times super chankian and other times total paki - not that I regret the overall outcome.

and Acharya ji..how can the final outcome be just "high deficit" - that is not an end in itself. The final outcome has to be reverse globalization or even more very unholy outcome.

Previous history tells us that new population and growth in population usually helps in paying back the high deficit and leverage.. But this time it is different since the large baby boomers who will reduce spending worldwide and next gen population does not have the income.

This is uniqe in history and never happened. So this is an accounting depression and some countries will sacrifice by cutting down their loss and bringing back the assets price to reality.

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Re: Global Economy

Postby abhishek_sharma » 02 Sep 2011 11:16


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Re: Global Economy

Postby Airavat » 09 Sep 2011 05:48

Obama Unveils $447 Billion "American Jobs Act"

More than half of the plan is tax cuts for working Americans and small businesses. It also includes spending initiatives in areas like infrastructure. The president's plan is also includes requests for a tax write-off for business investments, tax credits for businesses that hire veterans, and a $4,000 tax credit for businesses that hire anyone who has spent more than six months looking for a job. Mr. Obama is also asking for an extension of the payroll tax cut set to expire at the end of the year, at an expected cost of about $120 billion. "Pass this jobs bill, and starting tomorrow, small businesses will get a tax cut if they hire new workers or raise workers' wages," he said. "Pass this jobs bill, and all small business owners will also see their payroll taxes cut in half next year."

Furthermore, the president insisted every idea in his bill will be paid for. He gave no specific price tag for his proposals, but CBS News has learned it is expected to cost nearly $450 billion. "There are schools throughout this country that desperately need renovating," Mr. Obama said. "How can we expect our kids to do their best in places that are literally falling apart? This is America. Every child deserves a great school - and we can give it to them, if we act now."

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Re: Global Economy

Postby Singha » 09 Sep 2011 07:42

>> get out from under crushing debts, including the pensions they have promised to retired
>> public workers.

US life expectancy is long and retirees vote in high numbers. would this not be politically risky for gotus?

I wonder what other debts are being mentioned...veterans benefits? debts to federal agencies?

pvt contractors will not work for the states unless they are paid reasonably on time...this covers vital stuff like roads, bridges :oops:


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Re: Global Economy

Postby Neshant » 10 Sep 2011 14:06

Obama Unveils $447 Billion "American Jobs Act"


Its a huge waste of money.

What is needed is the rise of new productive industries from the private sector that can create jobs on a vast scale. Only that will cure unemployment.

Running up the debt in wreckless & wasteful spending, stock market rigging, printing money, scamming investors goldman sachs style and offloading losses of the useless middleman industry onto the public... does just the opposite.

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Re: Global Economy

Postby suryag » 10 Sep 2011 14:52

Neshant sir ji - i am no econ guru, but here is what i see the intended end results of Shri Obama's plan are
1. Repair 35k schools - generates employment for un-skilled/semi-skilled labourers, which means lots of them would be employed and they will spend on products which will allow the industries manufacturing consummable products the freedom to employ more
2. Decrease in SS tax from 4.3 -> 3.1(dont think i am right on the %ages) - more money for people to spend hence the industries will grow and therefore generate employment
3. Spending X billion on infrastructure - will again lead to employment of people from the lower strata of the pyramid and hence generate more spending and therefore greater consumption, consequently leading to more employment by those industries.

Looks like a win-win situation right but

am an SrDrRE (shorter darker ... yeah am from the south of the vindhyas), if am a worker i will try and save more and make the best out of given opportunities. I wont spend and will instead save for my kid's education, so how will this bill help.. it definitely is not going to help those small industries in my neighbourhood because i will save money in my credit union. In essence, it might help the CU but not the industries because i dont know when i will lose my job...

Now am pretty sure not many are SrDrRE like me but there are a number of co-workers who are TrFrTrAr than me and also share my views

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Re: Global Economy

Postby gakakkad » 10 Sep 2011 16:51

^^^ IMHO this is khanland equivalent of NREGA.

Most doomsdayers are turning out to be right .... But I doubt republicans will allow everything... they ll surely allow tax cuts...

High inflation is round the corner...

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Re: Global Economy

Postby vishvak » 10 Sep 2011 18:01

suryag wrote:...because i will save money in my credit union. In essence, it might help the CU but not the industries because i dont know when i will lose my job...


Just my 2 paise here, wasn't it so the last time that money was made available to frozen credit situation, and the profitable commodities market got all the loans and returns of Investments, while adding to the inflation?

So this time commodities won't make money but credit lines will become a little more liquid, only in a relative manner.

Can someone point out contradiction in this idea from my side please?

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Re: Global Economy

Postby Vipul » 10 Sep 2011 19:15

Reduction in SS tax from 6.2 to 3.1

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Re: Global Economy

Postby abhishek_sharma » 19 Sep 2011 07:54


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Re: Global Economy

Postby devesh » 30 Sep 2011 08:02

Reagan's dream is turning into a nightmare. when he came on the scene, situation was completely different. but since then, Tax Cuts have become the mantra of Republicans. even this bill is the same. America needs to invest in infrastructure.

the highway system redefined American economy and also changed the paradigm of industrial economies. that system is now crumbling. the next phase is Smart Infrastructure.

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Re: Global Economy

Postby Singha » 30 Sep 2011 09:09

smart infra is not selling much. Netzilla wiped off its BU dealing with smart buildings per some reports.

most people are happy with just a basic power, water, phone and fiber connection. nobody is in a mood to put in huge capex for trickle savings that take years to break even on investment.

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Re: Global Economy

Postby Neshant » 01 Oct 2011 06:10

There is already too much infrastructure. A good deal of which is eating up capital just to maintain with less and less return on investment coming from that infrastructure.

What's needed is just the opposite - tearing down infrastructure.

That will save on upkeep costs if nothing else.

By its very definition a recession means a country uses less of everything. less usage of ports, less usage of roads, less usage of bridges, less usage of rail, less usage of power, less usage of gasoline, less..... So whats the need to spend more & build more when the existing capacity is going idle?

I must be the first guy in history who's advocating the destruction of infrastructure as a means of "stimulating" the economy. Unfortunately the useless middleman economy has brought things to such a sorry state. By far the best economic stimulus would be destroying the parasitic useless middleman industry known as banking & financing.

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Re: Global Economy

Postby Singha » 01 Oct 2011 07:02

yes none of the banks are considering demolishing the lakhs of empty houses they are stuck with. still trying to wait for better times and in the meantime sinking $$ into keeping up appearances and spray painting the lawns with a green biodegradeable paint.

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Re: Global Economy

Postby Neshant » 02 Oct 2011 10:01

I would say that destruction of capital is never a good thing in general.

This is after all useful, productive capital the right circumstance.

I'd rather see banks & financial companies being demolished as they are largely useless and worse yet parasitic on society.

The only way to remedy things is a return to honest money and a system of competing local currencies free from monopolistic control by banking goons.

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Re: Global Economy

Postby devesh » 02 Oct 2011 22:38

when I said infra, i didn't mean housing. bull dozing all the communities where vacancy has been >30% for a year or more should become official policy. that might be the only way to recuperate some lost "savings" by getting house owners our of red ink.

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Re: Global Economy

Postby Neshant » 03 Oct 2011 03:44

Its always a sad day when useful capital has to be torn down on account of scams from the useless middleman sector.

A better idea might be to offer anyone in the world permanent residence in the US (minus govt benefits) if they can buy a house outright with cash in such neighbourhoods and have decent education & job related skills.

But what's wrong with letting housing prices fall so people who are currently renting can afford to buy those shacks. Its only crooked bankers who have a vested stake in keeping people enslaved for 30 years paying off an overpriced house that stands in the way.

The more I look at it, the more I realise what a disasterous effect central banking has on productive society.

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Re: Global Economy

Postby abhischekcc » 03 Oct 2011 14:16

There has always been a struggle between producers and parasites in any society/system. Do you remember the story of the ants and the cricket?

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Re: Global Economy

Postby Singha » 03 Oct 2011 14:38

in terms of housing districts americans have a chini mentality in saving "face".
a couple houses in a area is foreclosed and price drops
a bunch of blacks move in and price drops, and goras start to vacate
a alligator was passing by (or even a alligator garfish) and price drops
a coyote was seen 30 miles away in a wooded ravine 5 hrs march from the road and price drops
a house crime occurs and price drops
someone hangs out his undies to dry in his yard and price drops (and unlawful in many towns!)
someone remodels quixotically or breaks down his house and price drops
someone farts and 10 people fall dead
everything trackable is tracked, compared, sorted, ranted about.

why are any of these problems? in any place in india houses are constantly being remodelled, torn down, added to, constructed..there's always sand and rocks and steel lying on any interior road. leopards roam around and steal idlis from the darshini or monkeys steel maruti altos and life goes on.

this quest for textbook perfection and "face" prevents them from responsible plans like tearing down selectively those homes which have no hope of resale in hands of banks and letting the rest of population just carry on in same area - cant do that because prices might drop!

the whole playing the shell game of buying avg 7 houses in a lifetime, each time making some profit to buy bigger, peridocally cashing out home equity, in effect treating a home purchase like a piggy bank is a flaw in the american psyche ruthlessly exploited by the bankers and retailers.

they do not want to pay more wages, just get people to buy stuff they dont need based on "free" money like constantly increasing home prices.


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Re: Global Economy

Postby shaardula » 21 Oct 2011 04:21

oh one of the things about houses that banks hold is that most them are thrashed. people who's houses are foreclosed gut the house from inside. hum to doobe ge sanam, tum ko bhi ...

anyways saving face thingie is true. and i logged in to ask a question related to that.

immediately north of downtown is area M, full of mexican, middle eastern and african migrants, north of area M, is area T transitional area working class whites and blacks, north of that is area W, chichi whites.

Area M has small shops, used cars, tires, handymen, mac-d,taco ghanta, mexican, middle eastern food marts, etc...
Area W no such thing, only cafes, high end steak houses, whole foods and starbucks and Audi/Benz showroom such.
Area T had mall, new japanese cars, ameerkhan groceries, pharmacy etc.

over the last two years nothing has changed in area W, and area M is thriving. but area T is taking a major hit. house prices are falling and businesses are closing. i discovered today that an entire mall has closed. ads on tv suggest that furniture dealerships are closing too.

malls are non-essential. but i was wondering what happens if the grocery store closes? in real terms, given the choices only the food marts of area M seem robust to such shocks. am i wrong?

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Re: Global Economy

Postby Neshant » 21 Oct 2011 05:21

abhischekcc wrote:There has always been a struggle between producers and parasites in any society/system. Do you remember the story of the ants and the cricket?


Which one, the old version or the new :rotfl:

OLD VERSION
The ant works hard in the withering heat all summer long, building his house and laying up supplies for the winter. The grasshopper thinks the ant is a fool and laughs and dances and plays the summer away.

Come winter, the ant is warm and well fed. The grasshopper has no food or shelter, so he dies out in the cold.

MORAL OF THE STORY:
Be responsible for yourself!

MODERN VERSION
The ant works hard in the withering heat all summer long, building his house and laying up supplies for the winter.The grasshopper thinks the ant is a fool and laughs and dances and plays the summer away. Come winter, the shivering grasshopper calls a press conference and demands to know why the ant should be allowed to be warm and well fed while others are cold and starving. CBS, NBC, PBS, CNN, and ABC show up to provide pictures of the shivering grasshopper next to a video of the ant in his comfortable home with a table filled with food. America is stunned by the sharp contrast. How can this be, that in a country of such wealth, this poor grasshopper is allowed to suffer so?

Kermit the Frog appears on prime time with the grasshopper, and everybody cries when they sing, It’s Not Easy Being Green. Others exclaim in interviews that the ant has gotten rich off the back of the grasshopper and call for an immediate tax hike on the ant to make him pay his fair share.

Finally, there is drafted the Economic Equity & Anti-Grasshopper Act retroactive to the beginning of the summer. The ant is fined for failing to hire a proportionate number of green bugs and, having nothing left to pay his retroactive taxes, his home is confiscated by the government.

A law firm represents the grasshopper in a defamation suit against the ant, and the case is tried before a panel of judges. The ant loses the case.

The story ends as we see the grasshopper finishing up the last bits of the ant’s food while the government house he is in, which just happens to be the ant’s old house, crumbles around him because he doesn’t maintain it. The ant has disappeared in the snow. The grasshopper is found dead in a drug related incident and the house, now abandoned, is taken over by a gang of spiders who terrorize the once peaceful neighborhood.

MORAL OF THE STORY:
Morals? We don’t need any morals!

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Re: Global Economy

Postby Prem » 08 Nov 2011 09:53

Russia
has opened up a new trade route that cuts the distance between Europe and Asia in half.
The Northern Sea Route goes round the top of the Eurasian continent, rather than the traditional route via the Suez Canal, passing India and China. The only problem is that the sea along Russia's Artic coastline freezes solid in the winter which has made the passage impractical for commercial traffic. However, as Russia expands its fleet of nuclear powered icebreakers, the volume of traffic through the icy northern waters has started to soar. The Northern Passage was first conquered in 1879 by Finnish-Swedish explorer Adolf Erik Nordenskiöld and making the journey was a perilous dice with death. But the same trip is becoming increasingly humdrum as Russia looks for ways to boost trade between the developed and developing worlds. The number of ships using the route has already tripled this year to 33 from only 10 in all of 2010, and cargo shipments via the Russian part of the Northern Sea Route are expected to rocket to 800,000 tonnes in 2011 from 145,000 tonnes in 2010, Vladimir Mikhailichenko, executive director of the public partnership on coordination and operation of the route, said in October.The explosion in traffic is partly due to the Kremlin's decision to slash transport duties, which were from four to six times higher than that of the Suez Canal last year.Oddly one of the most important cargos is fish being shipped by the Northern Sea Route from Russia's Far East to the Russian city of St Petersburg, as "transporting fish by sea is more efficient than by railway," Mikhailichenko deadpanned


http://www.bne.eu/storyf3002/Russias_No ... z1d5IFgAm5

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Re: Global Economy

Postby svinayak » 20 Nov 2011 23:20

http://www.economist.com/node/21538742
The world economy
The magic of diasporas
Immigrant networks are a rare bright spark in the world economy. Rich countries should welcome them
Nov 19th 2011 | from the print edition


THIS is not a good time to be foreign. Anti-immigrant parties are gaining ground in Europe. Britain has been fretting this week over lapses in its border controls (see article). In America Barack Obama has failed to deliver the immigration reform he promised (see article), and Republican presidential candidates would rather electrify the border fence with Mexico than educate the children of illegal aliens. America educates foreign scientists in its universities and then expels them, a policy the mayor of New York calls “national suicide”.


This illiberal turn in attitudes to migration is no surprise. It is the result of cyclical economic gloom combined with a secular rise in pressure on rich countries’ borders. But governments now weighing up whether or not to try to slam the door should consider another factor: the growing economic importance of diasporas, and the contribution they can make to a country’s economic growth.

Old networks, new communications

Diaspora networks—of Huguenots, Scots, Jews and many others—have always been a potent economic force, but the cheapness and ease of modern travel has made them larger and more numerous than ever before. There are now 215m first-generation migrants around the world: that’s 3% of the world’s population. If they were a nation, it would be a little larger than Brazil. There are more Chinese people living outside China than there are French people in France. Some 22m Indians are scattered all over the globe. Small concentrations of ethnic and linguistic groups have always been found in surprising places—Lebanese in west Africa, Japanese in Brazil and Welsh in Patagonia, for instance—but they have been joined by newer ones, such as west Africans in southern China.

These networks of kinship and language make it easier to do business across borders (see article). They speed the flow of information: a Chinese trader in Indonesia who spots a gap in the market for cheap umbrellas will alert his cousin in Shenzhen who knows someone who runs an umbrella factory. Kinship ties foster trust, so they can seal the deal and get the umbrellas to Jakarta before the rainy season ends. Trust matters, especially in emerging markets where the rule of law is weak. So does a knowledge of the local culture. That is why so much foreign direct investment in China still passes through the Chinese diaspora. And modern communications make these networks an even more powerful tool of business.

Diasporas also help spread ideas. Many of the emerging world’s brightest minds are educated at Western universities. An increasing number go home, taking with them both knowledge and contacts. Indian computer scientists in Bangalore bounce ideas constantly off their Indian friends in Silicon Valley. China’s technology industry is dominated by “sea turtles” (Chinese who have lived abroad and returned).



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