Free Markets, Free People

Daily Archives: March 15, 2010

Musings, Rants and Links over the 18th Fairway:03/16/2010

The French Finance Minister has noticed that the disparities within the European economy are causing a number of issues, and fingers the….Germans!

“Clearly Germany has done an awfully good job in the last 10 years or so, improving competitiveness, putting very high pressure on its labour costs. When you look at unit labour costs to Germany, they have done a tremendous job in that respect. I’m not sure it is a sustainable model for the long term and for the whole of the group. Clearly we need better convergence.”

You see, having an economy so efficient that you can be more competitive than your neighbors with high wages and a high standard of living means you need to change so that the French, Greeks and other assorted PIIGS can continue down the path they have chosen. The Germans are just too darned efficient for the greater good.

In the interest of being helpful I have identified several important initiative’s that the Germans should adopt to align themselves more fully with their neighbors.

  1. Do not keep your debt levels below 3% of GDP…ever.
  2. Encourage massive strikes at the drop of a hat.
  3. Make public services far more attractive than working in the private sector, with massive  strikes and riots to keep it that way.
  4. Make it almost impossible to layoff anyone for any reason.
  5. Mandate at least six weeks paid vacation for every employee.

That should make sure your economy is not too efficient.

Is China’s economy about to rollover?

I won’t explain this, just let it sink in:

I don’t think it will be as bad as Japan, but the evidence isn’t giving me any great comfort either.

I love Apple, and I love my iPhone. Still, is Apple really worth more than Walmart? Or these various baskets:

  • 4x the global smartphone market
  • 5x the global music market
  • 100x the global smartphone app market
  • Enough to buy HP, Dell and Hitachi, with mad money left over for Xerox or Seagate

Yep, that whole efficient markets hypothesis may take a beating again.

Did any of you see Michael Lewis on 60 Minutes Sunday? If you didn’t, I highly recommend it.


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Cross posted at The View From the Bluff

So was the Obama administration looking for a fight with Israel?

An odd set of circumstances and an ill timed Israeli announcement has evoked a very high profile and seemingly bitter denunciation of Israel by the US.  And, instead of stepping it down, after the initial condemnation, the US seems to be continuing to step it up.

It all comes after a visit to Israel by VP Joe Biden coincided with an Israeli announcment that it had approved the construction of 1600 housing units in Jerusalem.  The US chose to take that personally – literally.   Variously described as an “insult”, a “slap in the face” and “affront” to the Vice President and the administration, the problem was escalated by a phone call by Secretary of State Hillary Clinton to PM Benjamin Netanyahu.  This weekend David Axelrod kept the controvery alive on the Sunday talk shows.

So what’s up with all of this?  Certainly its fair to say that Biden was embarrassed by the announcement, something he had no idea was going to be made, much less coincide with his visit.  And it is certainly clear, after you read about the announcment and how it was made, that no one was more embarrassed and surprised than Netanyahu.  As he’s admitted subsequently, that it was ill timed and shouldn’t have been made while Biden was there.

End of problem?  Hardly.  It continues to grow, fester and escalate.   But the announcement, other than its timing, isn’t something which should surprise anyone.  We’re not talking about the West Bank here – where Israel has promised not to build.  We’re talking about East Jerusalem in an ultra-orthodox Jewish neighborhood.   It is an area over which Israel has adamently refused to negotiate.  This is not something of which the US is unaware:

Deputy Foreign Minister Danny Ayalon on Thursday defended Israel’s decision to approve construction of 1,600 new housing units in East Jerusalem, saying sovereignty over the capital has never been negotiable and that Israel would not make any more concessions for peace.

Again, if true that “sovereignty over the capital has never been neotiable” why, other than the diplomatic embarrassment, has the decision suddenly become a matter of concern soliciting demands from Clinton to include one that reverses the housing decision?

Jennifer Rubin at Commentary thinks that part of the reaction is simply indicative of the personality of this administration. Its temperment, if you will:

It’s attack, attack, attack — just as they do any domestic critic (even the Supreme Court Chief Justice). It’s about bullying and discrediting, trying to force the opponent into a corner. And in this case, their opponent is plainly the Israeli government. For that is the party the Obami is now demanding make further concessions to… well, to what end is not clear. Perhaps we are back to regime change — an effort to topple the duly elected government of Israel to obtain a negotiating partner more willing to yield to American bullying.

The language the Obami employ – ”personal,” “insulting,” and “affront” – suggests an unusual degree of personal peevishness and hostility toward an ally. That, I suppose, is the mentality of Chicago pols and of those who regard Israel not as a valued friend but as an irritant. And it is the language not of negotiators but of intimidators.

I certainly think that’s part of it. But it still doesn’t explain it all. That’s more about style – and while I think it is a fair description of this administration’s style, I’m still not convinced that answers the mail in this regard. As Rubin goes on to remind us, 15 years ago the official US policy declared that Jerusalem should be the “undivided capital of Israel”. It seems a little odd to get this excited about the internal zoning decisions concerning that city if that’s our policy.

So what else is it? How does an embarrassing situation become escalated into a diplomatic confrontation with an ally? Well, there’s an interesting article in Foreign Policy magazine that says it is much more than just a matter of embarrassment. And, if I read it correctly, the US was, most likely, looking for the diplomatic equivalent of a fight with Israel if this is true:

On Jan. 16, two days after a killer earthquake hit Haiti, a team of senior military officers from the U.S. Central Command (responsible for overseeing American security interests in the Middle East), arrived at the Pentagon to brief Joint Chiefs of Staff Chairman Adm. Michael Mullen on the Israeli-Palestinian conflict. The team had been dispatched by CENTCOM commander Gen. David Petraeus to underline his growing worries at the lack of progress in resolving the issue. The 33-slide, 45-minute PowerPoint briefing stunned Mullen. The briefers reported that there was a growing perception among Arab leaders that the U.S. was incapable of standing up to Israel, that CENTCOM’s mostly Arab constituency was losing faith in American promises, that Israeli intransigence on the Israeli-Palestinian conflict was jeopardizing U.S. standing in the region, and that Mitchell himself was (as a senior Pentagon officer later bluntly described it) “too old, too slow … and too late.”

The January Mullen briefing was unprecedented. No previous CENTCOM commander had ever expressed himself on what is essentially a political issue; which is why the briefers were careful to tell Mullen that their conclusions followed from a December 2009 tour of the region where, on Petraeus’s instructions, they spoke to senior Arab leaders. “Everywhere they went, the message was pretty humbling,” a Pentagon officer familiar with the briefing says. “America was not only viewed as weak, but its military posture in the region was eroding.

You connect the dots.  Was this rather minor problem the perfect excuse to try and recover our image of strength?  As many of us have been saying, 2009 was a year of assessment when other world leaders took stock of the new administration.  It looks like the Arab world’s verdict is in.

The briefing went further to say that the weakness and Israeli “intransigence” (as described by the various Arab leaders) was actually putting the lives of our soldiers in the CENTCOM theater at further risk.

This briefing and its revelations has been mostly unreported, although Jake Tapper did hint at it when questioning David Axelrod on ABC’s “This Week”:

TAPPER: All right, last question. Vice President Biden went to Israel this week and he was greeted by a slap in the face, the announcement by the Israeli government of the approval of new housing units in an Arab section of Jerusalem. President Obama was said to be very upset about it. Vice President Biden and Secretary of State Clinton made very strong comments about it. Will there be any consequences, tangible consequences beyond the tough talk? And does Israel’s intransigence on the housing issue put the lives of U.S. troops at risk?

AXELROD: Well, look, what happened there was an affront. It was an insult, but that’s not the most important thing. What it did was it made more difficult a very difficult process. We’ve just gotten proximity, so-called proximity talks going between the Palestinians and the Israelis, and this seemed calculated to undermine that, and that was — that was distressing to everyone who is promoting the idea of peace — and security in the region.

Israel is a strong and special ally. The bonds run deep. But for just that very reason, this was not the right way to behave. That was expressed by the secretary of state, as well as the vice president. I am not going to discuss what diplomatic talks we’ve had underneath that, but I think the Israelis understand clearly why we were upset and what, you know, what we want moving forward.

TAPPER: I hate to say this, but yes or no, David, does the intransigence of the Israeli government on the housing issue, yes or no, does it put U.S. troops lives at risk?

AXELROD: I believe that that region and that issue is a flare point throughout the region, and so I’m not going to put it in those terms. But I do believe that it is absolutely imperative, not just for the security of Israel and the Palestinian people, who were, remember, at war just a year ago, but it is important for our own security that we move forward and resolve this very difficult issue.

Tapper raised the issue brought up by the CENTCOM briefing and Axelrod simply avoided it.

Meanwhile, the Palestinians have taken the escalated diplomatic row as an excuse to bail on the peace talks again much to no one’s surprise.

Is this row all about posturing for the Arabs in reaction to the findings of the CENTCOM briefing?  Is it an attempt to strengthen our image in those circles? If so this is a pretty poor way of doing that.  It accepts the premise that Israel is the only problem and therefore it is only Israel that must concede to solve the problem.  Read Clinton’s demands if you doubt that’s not the case.   It also identifies as a problem something that has previously never been considered one.

In the meantime, much like the people of the US, Arab leaders are not going to be impressed by only talk – something the administration is long on.  It is going to demand action – something which puts the administration in a very awkward position given what they’re now demanding vs. what Israel may be willing to do.  And even if Israel capitulates, it will simply mean more demands – all to the detriment of our strongest ally in the region.

A very interesting situation brought on by perceived weakness and a diplomatic style akin to a pit bull at a cat show.  It will be interesting to monitor the situation and see what comes of it, but, as one Israeli envoy noted, US/Israel relations are at their lowest ebb in 35 years.  And I doubt this has substantially increased our image among the Arabs.

~McQ

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US credit rating in jeopardy if Obama budgets pass

I’m not sure how much more of a blatant warning than this can be sounded over the financial path the Obama administration plans on taking us:

Moody’s Investor Service, the credit rating agency, will fire a warning shot at the US on Monday, saying that unless the country gets public finances into better shape than the Obama administration projects there would be “downward pressure” on its triple A credit rating.

Examining the administration’s outlook for the federal budget deficit, the agency said: “If such a trajectory were to materialise, there would at some point be downward pressure on the triple A rating of the federal government.”

That’s a very civilized way of saying “cut spending and cut borrowing or we’ll cut your credit rating so you can’t borrow and can’t spend”. The budget deficits projected by the Obama administration would eventually see 15% of the government’s future revenue committed to debt service – about the same as in 1983. However:

This time the servicing burden would be harder to reverse, however, because it would not be caused by high interest rates but by high debt levels.

Moody’s says it doubts the political will to raise taxes significantly from their present 14.8% of national income level or to cut spending from 25.4% of national income. That, of course, means an ever increasing gap between revenue and spending and jeopardizes the nation’s credit rating.

Moody’s isn’t the first rating firm to issue this type warning:

The report follows concerns recently expressed about the US public finances from the other large rating agencies. Standard & Poor’s warned last week the triple A status of the US was at risk unless the country adopted a credible medium-term plan to rein in fiscal spending. Fitch Ratings issued a critical report on the US in January.

Fitch said: “In the absence of measures to reduce the budget deficit over the next three to five years, government indebtedness will start to approach levels by the latter half of the decade that will bring pressure to bear on the triple A status.”

Or, we’re headed toward a financial cliff and right now our leadership is hitting the accelerator. If you think we have financial problems now, watch what happens of we suffer through the downgrading of our national credit rating.

~McQ

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Who’s “optimal” are we talking about here?

Thomas Friedman is at it again. He finds our method of governance just too cumbersome and one which mostly yields “sub-optimal” results. I mean, look at the Chi-coms:

TOM BROKAW: Tom, are we at a kind of turning point in America in terms of being able to make this a functioning country again, or are we dysfunctional?

TOM FRIEDMAN: Well this is what worries me. I’ve been saying for awhile Tom, there’s only one thing worse than one-party autocracy, the Chinese form of government, and that’s one-party democracy. In China, if the leadership can get around to an enlightened decision it can order it from the top down, OK. Here when you have one-party democracy, one party ruling, basically the other party just saying no, every solution is sub-optimal. And when your chief competitor in the world can order optimal and you can only produce sub-optimal? Because what happens, whether it’s health care or the energy bill, votes one-through-fifty cost you a lot. Fifty to fifty-nine cost you a fortune. And vote sixty: his name’s Ben Nelson! And by the time you’ve made all those compromises, you end up with the description David [Brooks] had of the health care bill, which is this Rube Goldberg contraption. I really hope, I hope personally it passes. I hope it works. But I can’t tell you I think it’s optimal.

Well, of course mandating one child and one child only was certainly considered to be “optimal” by the leadership. The polity didn’t agree. And now the mostly male generation which has since grown up and is experiencing a vast shortage of women doesn’t either. Damn law of unintended consequences – it always tends to screw up “optimal” top-down decisions, doesn’t it?

And as I recall, they certainly considered the “Great Leap Forward” to be “optimal”, didn’t they? What are a few million, er 14 to 20 million deaths, when the “top down” solution is so, uh, “optimal”. Indeed, with those 14 to 20 million deaths, the plan ended up working rather well – except for those cases of cannibalism – because there was more for those who were left.

Very “optimal”.

And the “Cultural Revolution” was pretty “optimal” as well, wasn’t it?

It was certainly “optimal” for Stalin to declare the Kulaks “enemy of the people” wasn’t it? It allowed him to essentially steal their farms and “collectivize” them while deliberately starving millions of those “enemies” of his “optimal” plan to death in 1933. Yup, very “optimal” if you’re Joe Stalin and you get to make those “top down” decisions, isn’t it?

I assume Hugo Chavez thought it was an “optimal” solution to nationalize the oil industry Venezuela. None of that sloppy law and democracy stuff for him, by George.  And that’s worked out so well, hasn’t it?

Optimal.

Would someone buy Mr. Friedman a one-way ticket to China please?  There he can forever bask in the goodness of top-down “optimal” decisions and glory in them like so many millions have already done there since the imposition of “optimal” top-down decisions. 

That would be an “optimal” result for me.

~McQ

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