China recently announced intentions to loosen its One Child Policy as part of a broader shift towards a consumption-based economy. As the theory goes, more births equal more demand for products and services as well as additional security for China's savers that they will be looked after in older age - either directly by their numerous kids or indirectly through transfer payments from younger workers. Unfortunately, the relationship between consumption and birth rates is not straightforward or one-sided: Social, cultural, and environmental factors stemming from China's fledgling consumer culture are pushing birth rates down and are likely to continue to do so regardless of government policy. Read the full piece on Buy Buy China.
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Obama's main mistake in Syria was drawing the Chemical "red line" to begin with. The war there is no more horrible this week than it was last week, regardless of the weapons used. There are several groups of psychopaths fighting each other, and fighting to support one of them will not make things better. It would only serve America's need to "do something" and generate business for the world's military industries. 

What the West should do is set up safe areas along/near Syria's borders where civilians can relocate and be provided for. It would save more lives, cost less, and will not bring about a worst outcome in a situation where all options are bad anyway. It would also carry more moral weight and be more principled than forcing the hand of yet another country and then leaving it in an even bigger mess (Afghanistan, Iraq, Lybia, Egypt, etc.).
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It is likely that Iran is developing and acquiring nuclear capabilities in order to produce nuclear weapons. Iran's current rulers have been vocal and consistent in their calls for Israel's destruction. Such statements have gone beyond what is considered acceptable in the arena of international relations. Iran actively and openly supports violent activities against Israeli civilians via proxies in Lebanon, Gaza, and elsewhere. Iran undermines Lebanon's sovereignty and national security by funding and supplying a local army not controlled by that country's government; it undermines a potential peace agreement between the Israelis and Palestinians by encouraging and facilitating the latter's choice of violent resistance and denial of Israel's right to exist within any borders. It is possible that Iran will soon enter a "zone of immunity", following which it will not be possible to thwart its efforts to acquire nuclear weapons. 

Israel should not attack Iran. Nor should it solicit American action to that end. Based on historical precedents, if Israel had a surgical way to thwart Iran's nuclear ambitions, it would have done so already. Hence, on the assumption that such an elegant solution is not available, the cost of an Israeli strike does not seem commensurate with the reward. Further, the potential cost, and likelihood, of living with a nuclear Iran does not seem high enough to justify a wager of this kind.

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Interesting that Christopher Hitchens and the Iraq War "leave" us on the same day. Hitchens wrote a lot about religion being the cause of all bloodshed in the world, but also described himself as a "single-issue voter", with the issue being "defending civilization against its terrorist enemies and their totalitarian protectors". He vowed to "expose and oppose any ambiguity" on that matter. He supported America's wars during the last decade, including the idea of preemptive strikes.

Interesting to see how a man who calls himself an "enlightened" rationalist is so lacking in irony and cannot notice that his own warmongering serves and facilitates all the violent, irrational elements of society that he blamed "religion" for nurturing.

There is no "secularism"; All humans are prone to adopt dogmas and anoint idols. All humans are prone to errors of judgment, guided by fear. Faith is the realisation that the world goes on turning without you and that it is futile to try to control it (and those in it). People with and without Faith can be found in both the secular and religious world. Hitchens, I suspect, was driven by fear. May he rest in peace.
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The newspapers are filled with stories of governments spending money they don't have. Some blame it on work ethic (Greece), historical trauma (Germany), political gridlock (US), or just sheer frivolity (Italy). The assumption is that political change will bring about a change in spending patterns. It won't. Politicians take on obligations they can't afford for one simple reason: Because they can.

Throughout history, kings and politicians used paper derivatives of real money to finance their pet projects and wars. In the past, however, their ability to do so was limited by technological constraints (even paper money takes time and resources to produce), competition (the availability of other, more "solid' currencies), and the fact that large parts of the global economy relied on barter trading or other means of exchange and not on official currencies.

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Throughout history, cities have been at the centre of human development, rising and falling in line with the fortunes of different societies (Hall 1998). Urban life has been studied within a variety of disciplines - anthropology, sociology, politics, architecture, geography, and economics. Scholars have used urban analysis for diverse purposes, from predicting troughs in the business cycle by observing skyscrapers (Thornton, 2005) to writing "personal" biographies of individual cities - most recently Jerusalem (Sebag Montefiore, 2011). Within economic history, the study of cities focuses on the relation between urbanisation and development, and more specifically on the study of factors such as employment, wages, disposable income, access to capital and public goods, as well as more general economies or diseconomies of urban density and agglomeration of industry. 

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The rapid growth of the Asian "Tiger" economies gave rise to the idea of an Asian development model, one which consists, perhaps, of a cultural component that is uniquely Asian. Confucianism, an existential and political philosophy that originated in China and spread through east and southeast Asia, is often mentioned as one such possible component. More broadly, the interplay between culture and development has fascinated economists and sociologists for generations and is addressed in many of the classics of both disciplines1. As two relatively closed societies and as Asia's only two large-scale economies to attain the status of developed countries, Japan and South Korea offer an interesting case study for the examination of the importance of Confucianism.

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Japan and Korea are among a "handful of successes among the world's more than one hundred developing countries" (Kuznets 1994:1) and as such offer a successful development model to emerging economies in Asia and beyond. While both countries completed the transition to a fully-developed economy in the 20th century, it is worthwhile to examine the historical foundations of this transition. By surveying the 19th century roots of Korean and Japanese development, we can draw conclusions that may benefit the 21st century modernization efforts of other countries, most notably China. 

It is beyond the scope of this short essay to address the myriad factors that may have influenced industrialization and further economic growth in these two countries. My aim is to provide an overview of, and perspective on, some of the recurring themes in the relevant literature, namely the role of political stability; advances in agriculture; urbanization and proto-industrialization; formation of human and physical capital; and the impact of institutional change.

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I have been living in London for two months now. Over the past week, two interesting things happened here. First, Muamar Qadaffi, an autocratic ruler, and a man whose messengers were convicted in court for killing British civilians, was welcome (via satellite) as a guest speaker at the London School of Economics, where the moderator referred to him as "the brother leader". The university, to be clear, is partly funded by the British tax payer. 

A few days later, Julian Assange was arrested due to allegations of "sexual crimes", later found out to be alleged misconduct under an exotic Swedish law that prohibits condom-less sex. Such allegations don't normally get a person on the Interpol's "most wanted" list and trigger an arrest in a foreign country. Clearly, the arrest was driven by pressure from various governments and interested parties.

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"The central concept of liberalism is that under the enforcement of universal rules of just conduct, protecting a recognizable private domain of individuals, a spontaneous order of human activities of much greater complexity will form itself than could ever be produced by deliberate arrangement, and that in consequence the coercive activities of government should be limited to the enforcement of such rules, whatever other services government may at the same time render by administering those particular resources which have been placed at its disposal for those purposes"
Friedrich A. Hayek, Studies in Philosophy, Politics, and Economics, 1969. Apart from being one of the longest sentences ever, the above encapsulates Hayek's key ideas about society, politics, and economic planning. I will follow up with a proper explanation when I have a free moment (Sorry for all the quotes this week!).
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"The impulse of acquisition, pursuit of gain, of money, of the greatest possible amount of money, has in itself nothing to do with capitalism. This impulse exists and has existed among waiters, physicians, coachmen, artists, prostitutes, and beggars. One may say that it has been common to all sorts and conditions of men at all times and in all countries of the earth, wherever the objective possibility of it is or has been given... Unlimited greed for gain is not the least identical with capitalism, and is still less its spirit. Capitalism may even be identical with restraint, or at least a rational tempering, of this irrational impulse."

Max Weber, Author's Introduction to The Protestant Work Ethic and the Spirit of Capitalism.
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"The importance which the certainty of law has for the smooth and efficient running of a free society can hardly be exaggerated. There is probably no single factor which has contributed more to the prosperity of the West than the relative certainty of law which has prevailed here."
Two years into the crisis, the US finds itself with fewer jobs, slower growth, and a higher unemployment rate than expected in the government's worse case scenarios. The current debate concerning America's troubles is focused mainly on monetary and fiscal policy: more or less stimulus, higher or lower taxes, and the expansion or contraction of government programs. 

While the source of America's pain is in monetary and fiscal policy (artificially low interest rates, wars, programs to encourage sub-standard home loans), one of the keys to its recovery lies in a different field: The law.

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Tomorrow evening, Israel will celebrate its 62nd birthday. In honor of the occasion, we set to explore five Israeli figures of speech that encapsulate the country's character -- a unique mix of good humor, grief, paranoia, and almost nonsensical optimism. 

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A specter is haunting Europe -- the specter of bankruptcy. Just when we thought that things in the old continent are as bad as it gets, it looks like they are about to get much worse. A few weeks ago, Greece practically defaulted on its debtSeveral other European countries, including England, seemed to be heading in the same direction; and global investors were already losing faith in Europe's ability to recover. And now, a highly improbable event is threatening to exacerbate the situation.

An Icelandic volcano erupted on April 15, creating a black cloud that threw Europe's airline industry into chaos: Two thirds of all flights have been canceled over the past weekend, and Europe's largest airline, Lufthansa, cancelled all of its flights. The movement of people and goods in and out of the continent is severely hampered, bringing many industries to a virtual halt. The eruption is far from over, and experts are still unable to predict the end of it. The volcano's last eruption, in 1821, lasted for two years.(!)

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The American media is in combative mood: A year and a half after Lehman's collapse, the pundits are finally waking up to the fact that China bears a significant share of the blame for the current financial crisis. And so, the Krugmans of this world are calling for the US government to 'punish' China through a variety of protectionist measures. 

I have been writing about China's role in creating the current crisis for a long time. And still, I think it is wrong to blame China for America's pains - namely, a collapsing credit bubble, rising unemployment, and a ballooning government debt. 

Yes, the Chinese are manipulating their currency. By doing so, they make it easier for Americans to buy Chinese goods for less and make it harder for Chinese citizens to increase their purchasing power. They are also making it more difficult for Chinese companies to move up in the global supply chain and produce better, more innovative products for higher prices. China's currency manipulation, on its own, damages no one other than the Chinese people. 

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'There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved.'
The above quote from Ludwig von Mises's Human Action (1949) pretty much sums up where we are and where we're headed. There are two ways out of this mess: Allowing bad banks and bad companies to go bankrupt and take some pain in the short term; or bail them out through government "creation" of more money and cheap credit.  Looks like the world has opted for the second option. 

This means we will experience a period of illusionary recovery, mostly in real estate prices and equity markets, powered by the huge amount of new money created by government(s). This illusionary recovery can last anywhere between 6 months to 10 years - depending on the amount of money being printed and on external triggers - but will eventually come to a painful stop, when all governments are deeply in debt and there's no one left to bail them out. 

Once we reach that point, governments are most likely to choose the only way out that allows them to divert public attention from their failure and get everyone to work together towards a common goal -  war. Until then, enjoy the ride. 
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The latest financial crisis sparked public interest in economics and rekindled the debate concerning the proper role the dismal science should play in our lives: books by and about dead economists such as Keynes, Hayek, and Schumpeter are in high demand; economic blogs are more popular than ever; and the public is bombarded with introspective monologues by contemporary economists, all the way from Paul Krugman to John Chochrane. The latest contribution is a Wall Street Journal article by Prof. Russ Roberts. Unlike the opposing so-called scientific explanations for the crisis suggested by various economists, Roberts is questioning whether economic science is at all a science and suggests that more than anything, economics might be suffering from a crisis of identity. 

Roberts points out that unlike most sciences - in which progress is steady and concrete - in Economics 'theories that were once discredited surge back into favor' and since it is impossible to control for all the relevant factors in an economic experiment, each effect can be explained by a variety of causes, or a combination of causes. This, in turn, means that the  explanations for economic phenomena change in line with the political climate.

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More fresh photos from Hiroshima and Miyajima here.
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'Google News is a computer-generated news site that aggregates headlines from news sources worldwide, groups similar stories together and displays them according to each reader's personalized interests...

Our articles are selected and ranked by computers that evaluate, among other things, how often and on what sites a story appears online....

As a result, stories are sorted without regard to political viewpoint or ideology and you can choose from a wide variety of perspectives on any given story.'
We often read about the explicit ways in which those in power use the media to manipulate public opinion through censorship, 'spinning', and news management. However, each type of media (TV, the Internet, the Newspaper) affects political consciousness and ideology, even in the absence of any editorial control. 

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'The Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive.'
Paul Samuelson died this week. Samuelson was the first American economists to win the Nobel Prize in 1970, and was one of the most influential proponents of Keynsian economics. His introduction to the field sold millions of copies and was used to train a generation of economists.

Samuelson was a big fan of government management of monetary affairs (printing money, setting interest rates), and so it is no surprise that the list of economists that saw him as their mentor includes contemporary "superstars" such as Ben Bernanke and Larry Summers. 
 
The above quote is taken from the 13th edition of Samuelson's introduction to economics, published in 1989. A few months later, the Soviet Union collapsed. 

Samuelson lived with the times and his error is excusable. The real question is why, twenty years later, contemporary economists still preach soviet-style policies. May Samuelson rest in peace. Communism, for now, is still alive and well. 
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Note: The views and observations expressed on this web site are published for the sake of public discussion and do not represent my personal opinion or the opinion of my companies, clients, and/or employers. If you would like to get my opinion on anything, ask me.