Food for Thought at Thanksgiving (Two Servings)

First Course: Gratitude
A Serving of Gratitude May Save the Day by John Tierney from the New York Times Nov 22, 2011


Second Course: Open-mindedness
Levy's Nine Laws of the Disillusionment of the True Liberal By Marion J. Levy, Jr.*  Professor of Sociology and International Affairs, Woodrow Wilson School, Princeton University. His books include The Structure of Society and Modernization and the Structure of Societies. His 'Laws' numbered six when first formulated in 1966 and later grew to nine.

1. Large numbers of things are determined, and therefore not subject to change.
2. Anticipated events never live up to expectations.
3. That segment of the community with which one has the greatest sympathy as a liberal inevitably turns out to be one of the most narrow-minded and bigoted segments of the community. (Stanley Kelley, Jr.'s Reformulation: Last guys don't finish nice.)
4. Always pray that your opposition be wicked. In wickedness there is a strong strain toward rationality. Therefore there is always the possibility, in theory, of handling the wicked by outthinking them.
     Corollary One: Good intentions randomize behavior.
          Subcorollary One: Good intentions are far more difficult to cope with than malicious behavior.
     Corollary Two: If good intentions are combined with stupidity, it is impossible to outthink them.
5. In unanimity there is cowardice and uncritical thinking.
6. To have a sense of humor is to be a tragic figure.
7. To know thyself is the ultimate form of aggression.
8. No amount of genius can overcome a preoccupation with detail.
9. Only God can make a random selection.
* Marion Levy was a much loved member of the Woodrow Wilson School faculty while I was a graduate student there 1969-71.  I never took a course from him but often joined him and fellow students for lunch in the school's cafeteria.  He was chair of the East Asian Studies Department while my  wife was on the faculty 1973-76.

Communists Spawn Culinary Revolution!!

Subtitle: Foodies of the World Unite.  You have nothing to lose but your waistlines.

My old buddy and China hand Scott Seligman and his good friend and collaborator Sasha Gong have co-authored a new cookbook. Called The Cultural Revolution Cookbook, it comes out December 1. Lisa and I are ordering a few copies as Christmas gifts for family and friends.

I have had a look at the book which is a feast for the eyes with not only the usual photos of the dishes but also attractive reproductions of socialist artworks typical of the Cultural Revolution era. I have also sampled several of the dishes prepared by Chef Sasha herself and they were very tasty. This home-style cuisine appeals to me much more than elaborate banquet cooking that many people associate with Chinese food.

I hope that you will consider a copy of the book for you own kitchen and for holiday gifting, too.  You can purchase it here.

In Scott's own words:

The cookbook has the unlikely theme of China’s Great Proletarian Cultural Revolution (1966-1976), of which Sasha was a veteran. On the surface it sounds like an absurd proposition, because food was anything but plentiful during the Cultural Revolution and some people were reduced to eating tree bark and insects to survive. The 17 million young people whom Chairman Mao ordered to the countryside in 1968 by and large felt that leaving their education behind to work side by side with the peasants was a tragic waste of their productive years.

Our thesis, however, is that one of the things that they actually did learn from the peasants was how to make do with what there was. They learned to cook with fresh, wholesome foods that were in season, to conserve scarce fuel and to prepare remarkably tasty and healthful dishes with enough nourishment to get them through long, arduous days in the fields. We think the book will resonate not only with people interested in China, but also those committed to eating locally grown, preservative-free, unprocessed food. In addition to dozens of recipes, the book contains some history, a chronology of the Cultural Revolution, some personal stories and a slew of anecdotes relating to food and ingredients used during that era. It’s also profusely illustrated with socialist realist art from the period –those colorful propaganda posters showing Chinese peasants building socialism. The recipes include few prepared ingredients and pretty much everything needed is available at a well-stocked grocery store.

 

 

 This example from the book should whet your appetite for more-

Stir-Fried Corn and Pine Nuts
Ingredients
2 ears of corn on the cob (or 2 cups of canned or frozen corn kernels)
1 scallion
Ω cup pine nuts
2 Tbsp. cooking oil
Pinch of salt

Recipe
Corn was considered low-class, coarse food during the Cultural Revolution, in large part because Chinese corn was far less sweet than today's American variety. The occasional ear of sweet corn that appeared was highly prized and used in dishes like this.
Place the two ears of corn in their husks in a microwave oven. If the corn has already been husked, wrap it in a wet paper towel first. Microwave for three minutes on high. Remove the husks and silk, or the paper towel, and allow to cool. Then cut the kernels off of the cobs. (If you are using frozen corn, just let it thaw until it is at room temperature; canned corn may be used right out of the can).
Slice the scallion on the bias into small pieces about the same size as the corn kernels.
Place a wok over medium flame and add pine nuts without using any oil. Stir-fry them for a minute until they turn slightly brownish, then remove them from the wok and set them aside.
Add oil to the wok and heat it until it just begins to smoke. Add the scallion pieces and stir-fry very briefly, 10 seconds is enough. Then add the corn and stir-fry for 30 seconds more, Add salt and then return the pine nuts to the wok. Make sure the ingredients are well-mixed and warm. Remove and serve.

Happy Birthday to Bryan Zhi-hui Davis October 20, 2011

Bryan Zhi-hui Davis was born Oct 20th at 12:10 pm in Huntington hospital, Pasadena  CA. 6lbs 13ozs, 21 inches.

Mom, Jessica Ahnert Davis, father Scott Bryan Davis and baby Bryan are doing well.

Primal Scream of Democracy

"Primal Scream of Democracy" is the phrase that Al Gore reportedly used to describe the Occupy Wall Street Crowd in Zuccotti Park. I can't find an authoritative confirmation of Gore's remark but I'll give him the benefit of the doubt and congratulate him on capturing the essence of the protest--at least as I see it from half way around the world.

Another thing that makes me want to scream is the whinny, self righteous, condescending, arrogant and scornful reaction to the OWL participants by many businesses and their hired spokespersons.  Take for example this blog post from a Corporate Social Responsibility (CSR) consultant.  He pleads for more understanding but his subliminal message is that the protesters, not the business leaders, don't understand.  They ought to recognize the blessings of capitalism and abandon their vigil.

I would ask "What is it about the OWL protesters that captains of industry, their chief sustainability officers and Washington politicos don't understand?"  Sure, the protesters don't have talking points; they haven't been media trained and they don't stay 'on message'. They are inchoate, but they understand that Goldman Sachs, AIG, Citi, Moody's, Fannie etc and Washington regulators who were sleeping with Ayn Rand have enriched themselves while robbing millions of Americans of their homes, jobs and dreams. These millions understand that none of the pirates and their accomplices are likely to spend time in prisons. Who would argue with the victims of the biggest heist of all time that capitalism isn't broken?

Those that still have cushy jobs should stop scolding the protesters and get busy fixing what remains of capitalism. Suggestion: start by breaking up the financial institutions which are even larger today than they were in 2008 when they were too big to fail. 

More on the Trade War

Thanks to Scott B Davis for his vote of support for my last post about the insanity of threats against China on account of its exchange rate policies. (See comments on last post.)

If you want more credible views on the same subject to cite at the next cocktail party, see this recent  Bloomberg editorial and today's Tom Friedman pronouncement in the NYT.  There's a more scholarly interview with Nicholas Lardy here.

Insanity:Threats of Trade War with China

Last week via the miracle of streaming video on the internet I watched the Republican presidential candidates debate.  There were many aspects of the discussion that were comment-worthy , one of which was Romney's belligerent remarks about trade relations with China.  Certainly, the central government of China has managed or 'manipulated' the exchange rate of its currency against the dollar for many years, but the overall impact of the Chinese exchange rate policy on the US economy and standard of living has not been as catastrophic as the candidates portray it.  Incidentally, such exaggeration is not limited to the Republicans, indeed Democrats in their heart-of-hearts are more natural China bashers than the Rs.  They just haven't had the opportunity to mouth off in a series of globally televised candidate debates.

Yes, there have been many US manufacturing jobs lost to China in the last two decades or more.  But one must ask several questions:

1. Hasn't the cost of the lost jobs been less than the benefits to the nation of the lower cost goods imported from China?
2. If China had allowed its exchange rate to float would the exodus of US factory jobs have been less, or would the jobs have been lost to competitors in other nations?
3. Was China's exchange rate policy a major cause of the bursting of the housing/financial bubble in 2007-08 and the agonizing deleveraging that still plagues the US and Euro economies?
4. Was the melt down that began in the housing industry in 2007 and quickly spread to the financial industry caused by a transfer of jobs from the US to China?

Bashing China for its trade and exchange rate policies scores points with US voters and distracts them from the domestic failures that certainly are more responsible for America's current economic woes.  However, such tactics risk further shocks to the already vulnerable global economy with potentially more harm to the US.

The article below from the South China Morning Post, Hong Kong's leading English language newspaper, explains the competitive problems that China's manufacturers are having.  It notes that the Chinese currency has appreciated against the US$ by 7.02% since June last year.  But the effective appreciation was actually much more than that: probably more like 11% (7.02% plus the amount by which Chinese inflation exceeded US inflation over the same period). 

China's manufacturing exodus
Relentless rises in production costs and wages are forcing
mainland manufacturers - and product buyers - to the cheaper
markets of Southeast Asia
Denise Tsang in Guangzhou
Updated on Oct 17, 2011
    As overseas buyers flood China's largest and most established trade show,
the Canton Fair, change is afoot in the world's largest exporter.
    Relentless inflation in production costs and wages had forced many
manufacturers to relocate production from the Pearl River Delta or
Yangtze River Delta to Southeast Asian countries such as Vietnam and
Indonesia, some buyers said at the 110th China Import and Export Fair at
the weekend.
    They said moving offered a solution for manufacturers, who had limited
room to raise costs for buyers at a time of a possible double-dip recession
in the United States and European Union, China's largest trading partners.
It also came at a time when Beijing's policy was to force factories to
upgrade or migrate.
    Despite the economic turmoil abroad, the trade fair, held each spring and
autumn in Guangzhou since 1957, was packed with visitors from across
the globe on Saturday, the first day of a 15-day show.
    A bellwether of trade, the show runs across three weeks. This week, it
centres on home appliances, electronic goods, construction materials and
machinery, switching to gifts and home decoration next week, with
garments, shoes and food the theme for the final week.
    "One in every four of my Chinese suppliers have moved to Vietnam and
another 20 per cent will be moving before the Chinese New Year [in
January]," said a Hong Kong-based Canadian trader of home electrical
appliances named Richard, a fair regular for the past 40 years.
    "Labour cost inflation in China is not going away," he said, adding that
inflation was stable relatively in Vietnam and Indonesia. He expected 60
per cent of his company's products to be sourced from Southeast Asian
countries by 2013, but China was now the group's dominant source,
supplying 80 per cent of products.
    Guangzhou-based Lebanese Farhad Ziad, who sources consumer goods
from the mainland for retailers in Lebanon, said he was planning to move
to lower-cost Vietnam next year. "Commodities are too expensive here,"
he said. "Business is tougher and tougher, particularly [now that] there is
political unrest at home in Lebanon."
    He said political turmoil in eastern Europe and North Africa meant that only
about 20 of his customers showed up at the trade show, compared with
more than 50 at the spring fair in April.
    Inflation is also spreading across the supply chain as costs rise for raw
materials, rent, utility bills and labour, while the yuan keeps hitting new
highs against the US dollar.
    Premier Wen Jiabao, who officiated at the fair on Friday and toured
Guangzhou at the weekend, promised to keep the yuan's value stable to
protect exporters.
    The yuan was at 6.378 per US dollar on Friday. It has gained 3.31 per cent
this year, and 7.02 per cent since it was delinked from the dollar in June
last year. Economists expect it to hit 6.25 or 6.20 per dollar by December
31.
    The persistent inflation and the strong currency effectively means China's
days as a low-cost producer are numbered, particularly in the Pearl River
Delta. Shenzhen, for example, recently raised the minimum wage 16.6 per
cent to 1,320 yuan (HK$1,600) a month, the highest in China, and
surpassing the average 1,310 yuan in Zhejiang province in the Yangtze
River Delta.
    Average wages for one exhibitor, Gusto of Zhejiang, which makes
thermoelectrically controlled cooling and warming containers for food and
beverages, jumped 20 per cent this year but it only raised factory-gate
prices by about 10 per cent, marketing manager Jerry Cheng Bangjie said.
This was still not enough to cover a 15 per cent rise in overall cost, he
said. "Buyers bargain very hard and they don't want to swallow the price
increase," he said. "But we swallowed some already."
    Suzhou-based exhibitor TEK Electrical chose to focus on high-end
products by improving functions of its robotic vacuum cleaner. A
spokeswoman said the company kept factory-gate prices the same, but
expanded distribution channels through selling in Hong Kong and
emerging markets like Brazil.
    Yves Renaud, a vice-president of Planterra in Quebec, Canada, which
puts on Christmas decorations for hotels and office buildings, flew to the
mainland for the second time to look for suppliers instead of through
resellers in the US to cut cost.
    "Corporate clients are more careful in spending, but demand is still good,"
he said. "The Chinese suppliers have not given me good deals so far. The
negotiation will be tough."
    The fair attracted a growing crowd of buyers from Latin America countries
such as Brazil and Chile.
    Brazilian trader Ricardo Santana Alves, a fair regular, led a delegation of
eight entrepreneurs, who had come to China for the first time.
    "Many Brazilian traders are coming to China even though it's getting more
expensive," he said in Putonghua. "I may have to learn other languages as
some factories are moving to Southeast Asia."
denise.tsang@scmp.com
Copyright © 2011 South China Morning Post Publishers Ltd. All right reserved

 (I am aware that I am treading on the SCMP's copyright by reprinting the complete article here. Their website has a high paywall which does not permit purchase of individual articles.)

Autumn Photos

They are not mine, but they are beautiful. Follow this link.

Good-bye, Steve Jobs

Worth watching now even if you've seen it before:
http://www.youtube.com/watch?v=UF8uR6Z6KLc&feature=player_embedded

Good Government v Big Money

A year ago in a blog post I argued that there should be limits on corporate speech.  Events since then convince me that the Supreme Court's January 2010 evisceration of the McCain-Feingold campaign finance reform legislation is an assault on the foundations of our democracy.  If you still have doubts about the damage you need to know how one North Carolina billionaire has bought the North Carolina legislature.  See Jane Mayer's article in this week's New Yorker. (And if you missed it, read an article about the Koch brothers by Mayer from August 2010.)

Now fund raising organizations called Super PACs are vacuuming up unlimited contributions to support the campaigns of the Republican presidential candidates and of President Obama.  See this recent AP article.  The article fails to point out that the first reporting deadline for these Super PACs is January 31, 2012. Only then will concerned citizens be able to see who has given to which candidates, and remember that there is no limit on the amounts.  However, more and more states are advancing their primaries into January--so citizens of those states will be in the dark about campaign donor identity when they vote in the early primaries.

Libertarian billionaires such as the Koch brothers and Art Pope (the fellow who owns the North Carolina legislature) often defend their shenanigans with references to philosophers of the British Enlightenment, particularly Jon Locke and Adam Smith.  For what Smith really thought about businessmen in government see my post  from Christmas last year.

What's happening in China?

That's a question my friend in Houston often asks when we have our weekly telephone conversations.  Readers of this blog have asked why I haven't written more about China recently. So here are 2.5 items about China.

Item 1. This blog is blocked in China, so my old Danish friend Sven living in Chengdu in Sichuan can't read it unless I cut and past the posts into a normal email.  I don't think the Chinese government has identified me as a threat to their harmonious society. They tend to block almost all of Google's services other than regular Gmail and the blogger.com service I use is a Google platform. Perhaps I could try another blog host but it would likely be blocked as well.  The Great Firewall has meant that I can't use Google Groups and Google Docs to communicate with by Business School students,  some of whom live and work in "mainland"" China.  This is inconvenient as the university platform, which is not blocked, is not as user friendly.

Item 2. The Chinese economy.  I don't feel qualified to pontificate in writing on this topic so let me quote in full an op-ed piece from today's South China Morning Post, Hong Kong's major English language daily newspaper which is not subject to censorship by the Chinese government:

China's real worry is not the growth rate, but the structure of its economy

Hu Shuli says the widely acknowledged distortions of its
development model cannot be corrected without the political
will to go beyond pledges - and act
Updated on Sep 22, 2011
Once again, forecasts of gloom in the Chinese economy are doing the
rounds amid the continuing turbulence elsewhere. Premier Wen Jiabao's
assessment, made last week at the "Summer Davos" in Dalian , was timely.
He said the pace of China's economic growth had slowed after the second
quarter, as expected, and largely as a result of the government's cooling
measures.
Recent economic data confirms the slower pace of growth. If China is
making progress towards reducing its over reliance on policy stimulus for
growth, then less spectacular gross domestic product figures should not
unduly worry us. The real concern is with economic restructuring.
Shaken by the earthquake in Japan and power shortages on the mainland,
the Chinese economy experienced some unexpected fluctuations after the
second quarter. But GDP growth for the full year is still expected to top 9
per cent, so a slowdown is not a worry. What is causing the pace of
growth to ease? Instead of focusing on the short-term challenges, China
should worry about its longer-term risks, and whether the economy is
restructuring as planned.
In the 30 years since market reforms began, the Chinese economy has
capitalised on its triple advantages of low capital costs, low energy prices
and cheap labour, growing - through exports and investments - to become
the world's second-largest economy last year. But this development
model is flawed and cannot be sustained. To ensure steady future growth,
China must propel its economy onto another level. It must revamp its
economic structure.
It's easier said than done. The central government has promoted
economic restructuring since 1996, at the start of its ninth five-year plan.
Yet, it has little to show for its efforts. In its 12th five-year plan, unveiled
this year, it again stressed the need to transform our model of economic
development. But not all analysts are optimistic about its implementation.
China's current development model is the main reason progress on
restructuring is slow. With its control over a substantial amount of
resources, the Chinese government can react more quickly to a crisis
than other similarly large economies. However, the model impedes efforts
to restructure it.
In the wake of the global financial crisis, local governments have made
use of Beijing's 4 trillion yuan (HK$4.5 trillion at exchange rates then)
stimulus package to extend loans and provide land to boost state-owned
enterprises and build infrastructure. Private-sector industries could not
compete in the face of such resource distortion and monopolistic
practices. The "de-industrialisation" of capital is becoming a serious risk.
The government-led allocation of resources has other unintended
consequences. By following the central authorities' directive to develop the
economy in prescribed ways, local governments are in fact homogenising
their economies. Not only will they have lost their own comparative
advantages, they will also find themselves fighting one another for a
shrinking market share. And, while China's real economy is in decline, the
country's demographic dividend is also coming to an end. So, a major test
for China's restructuring is how to improve factory productivity and build
comparative advantages.
First, the government should be clear about its function. It should ease
itself out of its role as resource allocator, and instead focus on creating a
fair environment for business. It should provide equal opportunities for
education, employment, entrepreneurship and innovation, and build a
social safety net commensurate with the country's development.
In his speech in Dalian, the premier spoke of the need to "uphold and
improve the basic economic system, speed up fiscal, taxation and
financial reform, reform of the prices of factors of production, reform of
monopoly sectors and other important fields". These are precisely the
areas where reform has stalled.
The example of rationalising resource prices is typical. China's export oriented
economic model has meant that a substantial share of its price
subsidies in fact flows out of the country. This not only means a net loss
of national welfare; it also places a heavy burden on our resources and
environment. Hence, factor price reform and a plan to introduce
environmental charges have been high on China's to-do list for a long
time, but they have been pushed back repeatedly because of worries over
inflation and the moribund global economy.
The State Council's guidelines on private sector investments - released
last year as a follow-up to its policy set in 2005 - made clear the principles
of equal access and fair treatment. But, in practice, such guidelines are
easily "neutralised" by department documents, and state-owned
enterprises continue to monopolise their sector and influence decision making.
Private enterprises are effectively shut out.
For economic restructuring to succeed, China must be clear about its
own strengths and weaknesses, and not let talk of the "Chinese model" go
to its head. Its structural problems aren't new, and there's even agreement
on some of the solutions. What's worrying is that the over emphasis on
"maintaining stability" is putting a veneer of untouchability on the status quo. In the end, it's political will that will determine whether reforms are used, as the premier has pledged, to solve China's development problems.

This article is provided by Caixin Media, and the Chinese version of
it was first published in Century Weekly magazine. www.caing.com

Item 2.5 Hu Shuli, the author of the piece above is the most courageous and influential economics journalist in China.  You can learn more about her from this fascinating article in the New Yorker two years ago. After the New Yorker article was published the fat cats in Beijing who controlled the publishing company for which Hu Shuli worked decided that it was too risky to provide her a pulpit.  She and her team of investigative journalists didn't miss a beat. They relocated to a base in Guangdong province just north of Hong Kong.  You can read her work in English here--http://english.caixin.cn/.

A Reader and Friend Comments on the Sept 19 Post

This was too long to go into a "comment"

President Obama’s deficit cutting plan (including its exclusion of a Social Security component) can be interpreted in a number of ways.  Let me offer three possible ones here.  One interpretation is that the plan is designed to be mainly a starting point for what could be very contentious negotiations with congressional Republicans this fall in a context shaped by the recent debt ceiling negotiations in which the Republicans repeatedly escalated their demands.  In that regard, the Republican approach was so tough that you characterized it as terrorism and Steve Arbogast referred to it as brinksmanship (with a fair number of Republicans in the House evidently prepared to go over the brink). Regardless of how one characterizes their approach, the President’s recent experience dealing with the Republicans might reasonably have led him to alter his negotiating strategy this time around.  One change might have been to keep at least one big item off the table initially, because there are so many large items to contend with.  After all, he could put Social Security on the table at some point if it looked like it would help reach a good agreement from his perspective.

 

A second way to interpret President Obama’s plan is that it is designed mainly as a political document for next year’s election.  As you know, many liberal Democrats were unhappy with reports that the President’s efforts to reach a “grand bargain” in his private debt ceiling negotiations with Speaker Boehner earlier this year included tentative offers to make large cuts in both Social Security and Medicare that evidently would have included raising eligibility ages for each program. Public opinion polls also show considerable opposition among older voters to such changes.  By excluding Social Security and not including an increase in the eligibility age for Medicare in his deficit reduction plan, President Obama may be reasoning that he can strengthen his standing with his Democratic base and win points with some elderly independent voters.  A variation of this interpretation is that it demonstrates a good faith starting point for the negotiations to his Democratic base.

 

A third way to interpret the plan is that President Obama wants to maximize the chances of reaching an agreement with Republicans that includes substantial real cuts in the component of domestic spending—Medicare—that is projected to have the largest impact on the deficit in the future.  As you know, that is a complicated agenda because our nation needs not only to reduce the growth of Medicare spending over the next 10-20 years, it also needs to slow the growth of our nation’s overall per capita health care spending and (preferably) reduce the percentage of our nation’s GDP spent on health care as well.  Raising the age of eligibility for Medicare by, say, 2-to-4 years would reduce the cost of the program.  But, without other actions, that might have relatively little impact on the per capita and GDP spending problems.  That is because most people who would have to delay enrolling in Medicare would want to get health insurance elsewhere if possible.  Assuming that the quasi-universal health insurance legislation passed last year is not repealed and the Supreme Court does not strike down the individual purchase mandate in that law, we would expect that many if not most of the people impacted by a raise in the Medicare eligibility age would be able to get a health insurance policy (or keep a policy that they already have)—and in some cases it would be subsidized by the government.

 

As you know, with the exception of the United States, all high income democracies have some form of universal health care system while spending much less than the United States in both per capita and percentage of GDP terms. For example, in the years leading up to the Great Recession, the United States was spending about twice as much per capita as Germany and about 50% more as a percentage of GDP even though about one-sixth of our population didn’t have health insurance and another one-sixth was estimated to be significantly underinsured.  (Regarding GDP, Germans were spending 10-11% of their GDP while we Americans were spending about 16% of ours.  In the most recent year for which I have seen data for the United States, which was for 2009 or 2010, we spent over 17% of our GDP on health care, although some of the increase was related to the slow economic recovery in a context in which health care costs continued to rise.)

 

As you also know, Germany and other high income democracies with universal health care accomplish these results in large measure by regulating the costs and coverage (therapies, procedures, etc.) of their health care systems much more than is the case in the United States. I doubt that Republicans will be willing to move in the direction of much greater regulation along those lines any time soon, especially since one of their major themes is to cut regulations in almost every area, not just health care.  Consequently, they might decide to focus a lot on raising the eligibility age of Medicare in the negotiations this fall.   If so, that may make President Obama reluctant to put Social Security on the table because it probably does require an eligibility age increase. Negotiating an increase in the eligibility age for Social Security, while trying to resist such an increase for Medicare as long as European-style cost and coverage regulation approaches are off the table, might be very difficult for President Obama to undertake.  Moreover, because making changes in Social Security is not as pressing, he might reserve those negotiations for another day.

 

By the way, President Obama’s proposal to cut $320 million from Medicare (and Medicaid) includes a lot of things that will probably be challenged by powerful interests, regardless of what Republicans do.  For example, the drug companies will undoubtedly strongly oppose the proposal to lower drug costs.  Organizations representing senior citizens will be out in force opposing the several ways in which Medicare recipients would pay more of the costs of the program under the President’s plan.

 

The upcoming deficit negotiations might be much uglier than most of the recent legislative sausage-making on Capitol Hill, which is saying something.  It could be much more akin to making hash.       

 

Scott Miller

Separating Sense From Nonsense

There's plenty of nonsense and some sense filling the airwaves about the Federal budget deficit, national debt, etc.  A good place to keep up with the discussion is the website (especially the blog) of The  Committee for a Responsible Federal Budget.  I agree with CRFB that Obama's plan is seriously flawed in ignoring reform of social security.  As a number of moderate groups are advocating, now is the time to think BIG and incorporate spending cuts including entitlement reform with changes in the tax code that simplify it, raise additional revenue and provide incentives for savings and growth.

Sept 3 Editorial from Bloomberg--Social Security Is No Ponzi Scheme (Note to Rick Perry)

I find the Bloomberg editorials the sanest of the business publications.  Just below I have reprinted the full text of one from Sept 3 about fixing Social Security.  This topic is especially relevant right now as I turned 65 yesterday (ouch!).  Discussions about Social Security and Medicare usually take place in fact free space. It's refreshing to find a clear headed exposition.  You can read the original here.

As Rick Perry campaigned in Iowa late last month, he made it clear that he doesn’t have much faith in Social Security, one of the most popular U.S. government programs.

“It is a Ponzi scheme for these young people,” Perry said. “The idea that they’re working and paying into Social Security today, that the current program is going to be there for them, is a lie. It is a monstrous lie on this generation, and we can’t do that to them.”

As we celebrate a holiday devoted to American workers, it’s worth asking whether, as the Texas governor and leader of the Republican pack claims, the retirement program created for those very workers is at risk.

The answer, as we have argued in this space, is yes … and no. Social Security’s finances need shoring up. But there is nothing wrong with the program that Congress couldn’t fix in a week. Gradually raising the retirement age to 69, changing the formula for cost-of-living increases, and raising the cap on wages subject to the payroll tax would close most of Social Security’s funding gap for the next 75 years.

Such changes would rely about 60 percent on tax increases and 40 percent on benefit cuts, and would mainly affect the wealthiest Americans by asking them to pay more and get less in return. In the end, Social Security would be more progressive and benefits for the very oldest and the very poorest retirees would be enhanced.

Ticking Clock

In May, the Social Security trustees reported that the government pension system will run dry in 2036. That means payroll taxes levied on workers in 25 years will cover only three-fourths of benefits. The program by law can’t borrow money to pay retirees, so recipients will face immediate across-the- board cuts unless something is done.

That something can only take two forms -- raising taxes or reducing benefits. Fortunately, there are many options within those broad categories that spread the burden widely.

We don’t think private accounts should be among them. If workers divert some of their payroll taxes to an investment account, that would decrease the flow of money into Social Security and deprive retirees of benefits of equal value. Bad investment choices, or bear markets that lower returns on stocks and bonds, could add to their woes. In other words, private accounts would only make matters worse.

Instead, a very gradual rise in the standard retirement age would be the fairest solution. When President Franklin D. Roosevelt signed the Social Security law in 1935, average life expectancywas 64 and the official retirement age was set at 65. As life spans have increased, the retirement age hasn’t kept up.

The official age of retirement -- when full benefits are paid -- is now 66 (due to rise to 67 by 2027), well below the average life expectancy of 78 years and four months. The gap is even wider for the 40 percent of Americans who opt for early retirement and start collecting benefits at age 62, albeit at a lower rate.

President Barack Obama’s bipartisan deficit commission was correct to recommended indexing the retirement age to longevity by adding one month every two years, until 2075. That year, standard retirement would begin at 69 and early retirement at 64. Those who physically can’t work beyond 62 could apply for hardship exemptions. Adjusting retirement ages alone would erase about 21 percent of the 75-year Social Security shortfall.

Adopting a more accurate measure of inflation to calculate cost-of-living adjustments is the next best method for closing the Social Security funding gap. The government now uses the standard Consumer Price Index. But the Bureau of Labor Statistics and many economists say the CPI overstates inflation because it fails to account for the product substitutions people make when prices rise.

Switching to Apples

A better index, called the “chained CPI,” models actual consumer behavior. Most consumers, for example, switch to apples when the cost of oranges goes up, and thus keep household expenses steady. Using the chained CPI would close an additional 25 percent of the funding shortfall.

With those two changes -- raising the retirement age and measuring inflation better -- we’re almost halfway toward the goal. To close much of the remaining gap, the best choice involves raising taxes on those in high wage brackets, thus making the system more progressive.

Currently, Social Security taxes are paid on wages up to $106,800, at a rate of 12.4 percent -- half paid by the employer and half by the employee. (The self-employed must pay the entire 12.4 percent.) Earnings above $106,800 are exempt, yet that’s where most of the wage growth has been in the past few decades. In the early 1980s, payroll taxes covered 90 percent of wages; today they reach only 85 percent.

To restore the 90 percent standard, Congress could raise the payroll-tax cap to $180,000. Such a change would hit high- income Americans whose savings, private pensions and tax- protected 401(k) retirement plans provide nest eggs far beyond what Social Security provides. This would take care of 38 percent of the shortfall.

An additional 14 percent could be raised by taxing Social Security benefits the same way that private pension income is now taxed -- that is, on the portion of the pension contributed by the employer -- phased in over 20 years. The employee portion would not be taxed because it was already subject to income tax. Yes, this would result in a tax increase for future beneficiaries, but those in lower-income brackets could be exempted to keep the payroll tax progressive.

Now we are just 9 percent short of our goal. We can close that gap -- with room to spare -- by requiring newly hired state and local government workers to pay into the federal system. About 5.7 million public-sector workers don’t pay Social Security taxes because they are covered by state and local government pension plans.

Helping the Poorest

We’ve now closed 107 percent of the 75-year shortfall. That leaves enough wiggle room to add benefits for the oldest and poorest retirees, who are often one and the same. By 2050, there will be 19 million Americans, up from 6 million now, over 85. Octogenarians often outlive their personal savings just as their health is deteriorating. To keep them from falling into poverty, lawmakers could create a minimum benefit of 125 percent of the federal poverty level (now about $1,100 a month), adding about 6 percentage points to the Social Security deficit.

The final tally? These changes would close 101 percent of the funding gap. Each of these suggestions, moreover, has been endorsed or included as part of a menu of options by the president’s deficit commission and other economic research groups. The savings and cost estimates come from the Social Security chief actuary, the independent official who has analyzed the financial effects of dozens of proposals, all available at www.ssa.gov/oact/.

More than 50 million people now receive a Social Security check. It’s the main income source for more than half of all elderly households. It’s the core of the compact working Americans have with their government. And though it’s increasingly unstable, it can be fixed.

More on Strong Language and Political Hair Loss

Joe Nocera has a worthwhile article in the NYT that addresses some issues related to my post of Sept 6.

I have had numerous comments on my use in that post of the term "terrorist tactics" to describe how Republicans caused a crisis around raising the debt ceiling. Most of those comments, but by no means all, agreed in principal with the criticism that I reported in my Sept 7 post "Strong Language". However, only one of the respondents, Stephen, submitted his thoughts via the comments feature of the blog. Thank you, Stephen! I urge you to follow his example as this makes it easier to share your thoughts and keep the discussion going.

Ed

Strong Language

In yesterday's post I used the term "terrorist tactics" to describe how Republicans engineered the debt ceiling crisis.

A very dear and respected friend reprimanded me with a note that said " That's a very disappointing comment that not only ignores what happened but uses a term that when properly applied conveys horrible physical outcomes for innocent people.... please be more careful with your choice of words than the people you criticize."

What do you think? Does organized and irresponsible behavior have to result in burning buildings, pools of blood and severed limbs before it can be called terrorism? Millions of Americans have already suffered horrible outcomes due to the calamities that began in 2007, reached a crescendo in the autumn of 2008 and still continue. Now, I don't blame this mess we are in solely on the Republicans. There is plenty of blame to apportion to both political parties, to unethical businesses, etc. And I would not use the T-word generally to apply to the actions that contributed to the mess.

But some of the Tea Party legislators were ready to push the country into default to get their way even though they are a minority. Such zealotry, had it been successful, would have dealt a serious blow to the government's ability to meet its obligations not just to its creditors but also to the general citizenry. It would surely would have amplified greatly the suffering so many of our neighbors are already experiencing. Terrorism or not? You be the judge.

I'm Surprised I Still Have Hair

I began this blog in October 2010 during the Congressional election campaigns.  The first few posts dealt with the abysmal quality of political speech in the USA and with the threat that it posed to democracy.  I also wrote briefly about the need to consider both limitations on corporate speech and changes in the way state and federal level government was organized.

Over the last three months I have been pulling my hair as Republicans resorted to terrorist tactics on the debt ceiling and President Obama helplessly sulked in the dog White House.  I know that many of my friends, Republicans and Democrats alike, suffered from the same political alopecia.

The antics of both parties have left me mad, deeply disappointed with the President's failure to lead and with grave doubts about the future of the country.

If you share this anguish, I highly recommend that you set aside some time and read

"Can the Middle Class Be Saved", Don Peck's thoughtful (and long) analysis of the impoverishment of the middle class in American and of what can be done about it in The Atlantic September issue.

"Goodbye to All That: Reflections of a GOP Operative Who Left the Cult",  A shocking diatribe by Mike Lofgren who for thirty years worked on budget and defense issues for Republican Congressmen.


"People Don't Realize How Fragile Democracy Is" James Fallow's blog post commenting on Lofgren's piece and adding more insider testimony.

Back on the Air!

Hello, Friends!

I have been silent for six months. A bad case of writer's block plus a lot of travel--three trips to the US, one to Beijing and one to Qingdao.  While we were wandering around the US several of my friends scolded me for going quiet and urged me to get back in business blogging. So here goes....

I'll keep this one short and return with longer essays on the state of the universe in the weeks to come.  The topics that I will focus on are

1. Economic and political developments in the USA as I see them from my perch in Hong Kong and with input from my friends out in this part of the world.
2. Corporate responsibility. I have been teaching in this field for some time but haven't written about it in the blog.  A couple of readers have asked that I chime in occasionally on the topic.
3. Travelogue.  I don't expect to do much traveling to exotic places in the next year but will add photos and  commentary when there are opportunities.
4. Technology.  Infrequently I will provide a suggestion about useful or entertaining websites, software, hardware etc. (See below)
5. Miscellany.

Now you can follow the blog by email.  Click on "SUBSCRIBE VIA EMAIL" on the right side of the page and enter your address.  You will then get an automatic notice whenever any new material is added to the blog. If you can't find where to sign up for email you probably are reading this post in an aggregator such as Google Reader.  Clicking on the title should get you to the full website of the blog where you can sign up.

Two new tools for your reading pleasure.  At the beginning of the summer Lisa was given an iPad 2.  As she is much busier and not as much of a technology addict as I, the iPad has spent a lot more time in my hands.  I have added an app, Instapaper, which allows me to effortlessly save articles that I want to read later and then retrieve them on any of my electronic devices (desktop PC, iPod Touch, iPad).  There's a free version but you'll probably want to move up to the very reasonably priced paid version.  Instapaper has quickly become indispensable for me.  Give it a try.

Creative Destruction of Creating Shared Value

Dear Reader,
I sincerely hope that you didn't think I was being too tough on Michael Porter in my March 13 posting. I was positively obsequious compared to the Schumpeter columnist in this week's Economist. He thinks that it is "merely a pious hope" that shared value will trigger the next wave of innovation.  He accuses Porter of  providing a "paucity of evidence" to back his argument and of "play[ing} down the difficult trade-offs that businesses often have to make."  And he worries that Porter's theory "risks giving politicians carte blanche to meddle in the private sector."

You can read the complete article at http://www.economist.com/node/18330445

If only it were so easy to reinvent capitalism!

The Harvard Business Review began 2011 with Michael Porter and Mark Kramer inventing jargon and claiming they were reinventing capitalism. This month the Global Managing Director of McKinsey & Co. offers an executive summary course on the same topic. Read my views below and add yours in the comments. 

I.                    Creating Shared Value: A Ripple Not a Wave

In the lead article of the January-February 2011 edition of the Harvard Business Review Harvard[i] strategy guru Michael Porter and his business partner at their consulting firm FSG Social Impact Consultants claim to have reinvented capitalism in a manner that will restore the diminished trust in business which is now viewed by many as a cause of many social, environmental and social problems.  Even better, this new recipe will unleash a wave of innovation and growth.  Porter and Kramer label their new approach Creating Shared Value (CSV). As the name implies, they call for a refocusing of companies away from short term financial performance and towards community-wide value creation.  They write

The concept of shared value can be defined as policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates. Shared value creation focuses on identifying and expanding the connections between societal and economic progress.

The concept rests on the premise that both economic and social progress must be addressed using value principles. Value is defined as benefits relative to costs, not just benefits alone. Value creation is an idea that has long been recognized in business, where profit is revenues earned from customers minus the costs incurred. However, businesses have rarely approached societal issues from a value perspective but have treated them as peripheral matters. This has obscured the connections between economic and social concerns.

Porter and Kramer are right to remind businesses, nonprofits and communities of the benefits that they derive from mutual understanding and closer collaboration.  They provide numerous vivid examples of how companies are benefiting from such relationships.  But their thesis is not original. Adam Smith recognized the same symbiosis 235 years ago.  Such situations have been well known for decades to the business and civic leaders in many places including Houston (oil and gas), San Jose (information technology), Bangalore (software development, call centers), Shenzhen (electronics assembly) and Raleigh Durham (research).

The application of CSV is unlikely to have the transformative benefits claimed.  It does not address many of the problems that have created the distrust of business.  Furthermore, it does not offer a way for businesses to measure the shared value that their activities may generate nor offer new ways that such value can be incorporated in business decision making.

The diminished trust attributed to the 2007-08 housing crisis and financial meltdown was ultimately caused by agency problems in loan originators, investment banks and rating agencies as well as regulatory capture and old fashioned fraud.  The call for CSV does not address any of these issues. Instead, the authors ignore the unglamorous business practices that reinforce ethical conduct and compliance with the law and that reduce or offset externalities.  In a blog post on the FSG web site co-author Mark Kramer dismisses the “more traditional CSR activities such as GRI reporting that responsible companies accept as a cost of doing business.”  In fact GRI reporting provides valuable nonfinancial information to company directors, to investors (e.g. more than 870 UNEP PRI members who manage ~$25 trillion in assets) and to other stakeholders and improves the reporting companies’ standing in the capital markets. Surely that is shared value.

Businesses seldom respond to exhortations in the Harvard Business Review.  Instead they pay attention to signals or information such as customer preferences, prices (of goods, services including labor and capital), taxes and subsidies (negative subsidies), laws, technology and customs and traditions.  Each company responds to these signals in its own way, but collectively these responses produce an emergent order that we recognize as a market.  The order will not change because someone, even Michael Porter, calls for it to.  CSV does not provide a new way for a company to capture more of the shared value.  Neither does it produce a new set of information or signals to influence business decisions and thus modify the emergent order.  Until then CSV will unleash only a ripple rather than the predicted wave of innovation and growth.

II.                  Capitalism for the Long Term—The Cliff Notes Version

In the following issue of the HBR[ii] Dominic Barton, Global Managing Director of McKinsey & Company tackles a similar problem: how to restore the weakening social contract between capitalism and the public. Mr. Barton gets neither the cover-page treatment nor the fancy charts and graphics that jazz up the Porter-Kramer article. But his diagnosis of the causes of the crisis of confidence in business is more clear-eyed and his recommended remedies are likely to be more effective than the January recipe.

Mr. Barton calls on business and finance (1) to abandon their short-term orientation and reengineer incentives and structures to focus their companies on the long term, (2) to focus on serving the interests of all major stakeholders rather than just shareholders and (3) to offset the risks of dispersed and disengaged ownership by strengthening boards’ authority and capability to act like owners.  All of these recommendations are on target but the article suffers from its brevity; the recommendations are too general and deserve a more elaborate treatment. Furthermore, the author seems unaware of some of the important work already underway to solve some of the problems he identifies. And in a couple of cases he points his finger at groups that may not be responsible for the problems.

For instance, he scolds institutional investors which hold “roughly 35% of the world’s financial assets” for taking the short-term view and thereby leading “capitalism as a whole” down the same path.  He seems oblivious to the progress that has been made over the last half decade in propagating as ESG perspective among institutional investors. Refer to the work of the UNEP Principles for Responsible Investment mentioned above.  He also is too quick to accuse high frequency traders “who now account for 70% of all U.S. equities trading” of contributing to short-termism.  Where is the evidence that these traders’ activities, largely based on arbitrage, influence the business plans of the companies whose stocks they trade?

The problems that Mr. Barton cites do indeed pose existential threats to capitalism and the brief sketches of solutions that he offers point the right direction.  His large audience deserves a more complete roadmap.  Perhaps he and his McKinsey colleagues are already printing those maps for their fee-paying clients.

---

[i] ”Creating Shared Value: How to Reinvent Capitalism—and Unleash a Wave of Innovation and Growth” by Michael E. Porter and Mark R. Kramer, Harvard Business Review, January-February 2011. A copy of the article is available at fsg.org.  Registration is required.

[ii] “Capitalism for the Long Term” by Dominic Barton, Harvard Business Review, March 2011.  On March 11, 2011 a copy of the article was available at http://hbr.org/2011/03/capitalism-for-the-long-term/ar/1

When China Rules the World (Oh, that's so 1776!)

Anyone who is concerned about the Rise of China apoplexy that is sweeping the USA and, to a lesser extent, Europe should look at Martin Jacques's TED Talk.  Jacques is a writer, journalist and public intellectual. The talk is a very concise summary of the main ideas of his 2009 book When China Rules the World: The Rise of the Middle Kingdom and the End of the Western World.

Jacques's economic analysis is nothing special.  A new book on China's economic rise is published every week.  However, he has original and interesting things to say about  China as a 'civilization-state" rather than a "nation-state", about Chinese attitudes toward race and about the relationship of the state to society.  Of course, all of these themes are more fully treated in the book than in the 24 minute TED video.  One of the more interesting points omitted from the video is that modern China's relations with it's east Asian neighbors may be evolving into a tributary nation system which reached its previous height in the 17th and 18th centuries.

China was arguably the dominant world power in those days.  The British empire did not reach its peak until the 19th century and the Spanish was already in decline. The Ottoman empire centered on Constantinople had begun to come apart at the seams.

Here's an interesting chart of the world's largest cities over time. (Source: http://geography.about.com/library/weekly/aa011201a.htm)  I have highlighted the Chinese ones.

City	Year Became #1	Population Information
Memphis, Egypt	3100 BCE	Well over 30,000
Akkad, Babylonia (Iraq)	2240
Lagash, Babylonia (Iraq)	2075
Ur, Babylonia (Iraq)	2030	65,000
Thebes, Egypt	1980
Babylon, Babylonia (Iraq)	1770
Avaris, Egypt	1670
Memphis, Egypt	1557
Thebes, Egypt	1400
Nineveh, Assyria (Iraq)	668
Babylon, Babylonia (Iraq)	612	First above 200,000
Alexandria	320
Pataliputra (Patna), India	300
Changan (Xi'an), China	195	400,000
Rome	25	450,000 (100 CE)
Constantinople (Istanbul), Turkey	340 CE	400,000 (500)
Ctesiphon, Iraq	570
Changan (Xi'an), China	637	400,000 (622); 600,000 (800)
Baghdad, Iraq	775	First over 1 million; 700,000 (800)
Cordova, Spain	935
Kaifeng, China	1013	400,000 (1000); 442,000 (1100)
Constantinople (Istanbul), Turkey	1127
Merv (Mary), Turkmenistan	1145	200,000 (1150)
Constantinople (Istanbul), Turkey	1153
Fez (Fes), Morocco	1170
Hangzhou, China	1180	255,000 (1200); 320,000 (1250)
Cairo, Egypt	1315
Hangzhou, China	1348	432,000 (1350)
Nanking, China	1358	487,000 (1400)
Beijing, China	1425	600,000 (1450); 672,000 (1500)
Constantinople (Istanbul), Turkey	1650	700,000 (1650 & 1700)
Beijing, China	1710	900,000 (1750); 1.1 million (1800)
London, United Kingdom	1825	First over 5 million; 1.35 million (1825); 2.32 million (1850); 4.241 million (1875); 6.480 million (1900)
New York	1925	First over 10 million; 7.774 million (1925), 12.463 million (1950)
Tokyo	1965	First over 20 million; 23 million (1975)