Is China The Next Global Superpower? NO

On By southwerkIn Economic measurement

Is China The Next Global Superpower? NO

Over and over again, I hear people say with complete confidence, “China will be the next world power.” Occasionally the will express sadness at the decline of the United States but continue to express confidence that soon we here in this country will be the second greatest economic power on the planet.

No, it’s not going to happen. The United States will remain the world powerhouse economic center for probably at least the next fifty years.

Why do I think this? First, the Chinese have been claiming a growth rate of 10 percent a year for the last thirty years. Very funny. I am being told that communist totalitarian state has a growth rate roughly six percent higher per year than the United States for the last forty years. The Soviet Union made similar claims. So, did the nations of Eastern Europe. How did that work out?

Since we can be totally confident that the Chinese government is cooking the books, how can we gain insight into the Chinese economy? Well, we have to use anecdotal information.

Guess what? A nineteen year old sticks a knife into the heart of a party official and becomes a local hero. The locals contend that the party official used his position for personal enrichment, stealing land and other economic possessions while having his opponents (the victims of his thefts) beaten up.

Of course, there really wasn’t any large number of sympathizers, just 20,000 or so. These people petitioned the court for leniency. The youth was sentenced to death anyway. It would set a bad precedent if you could wack a party official for corruption. Other anecdotal evidence as well as various studies says the same thing. There is an incredible amount of corruption ongoing in the “People’s” Republic of China.
But don’t just take my word for it. Take a look at this news report from AlJazeera.

Let’s be a little more skeptical about Chinese economic growth. I hear the praises of free enterprise and democracy rising to high heaven all over this country. How come we don’t apply our principles to the Chinese Communists? How come free enterprise is the best economic system in the world but they have a yearly growth rate of 10percent in a government controlled economy? Someone is lying. What’s your call?

James Pilant

Jane Jacobs

On By southwerkIn ethics

008Jane Jacobs

Author of seven books, Jane Jacobs was not just an urban activist but a visionary. Here is David Owen’s take on her writings.

Morality and ethics are not trip wires. We must not wait until a moral dilemma strikes to act. We can act ethically and morally in an affirmative manner. We can seek to curb evil and its influence. It’s important to react to evil but it may well be more important to work against evil with persistence and commitment all our lives.Jane Jacobs when confronted with the taking of homes and businesses for development acted to stop it. She is an example of what can be done by a willingness to confront and oppose evil in an affirmative manner and not a passive one.

The Consumer Protection Agency

On By southwerkIn Government Failure

The Consumer Protection Agency

Currently in congress there is a bill passed by the House and now before the Senate that would create a U.S. Consumer Financial Protection Agency. The Senate at the behest of the financial institutions who have looted our treasury and destroyed the jobs and futures of millions of Americans is considering not having such an agency.

You see, there are wolves in the forest and the rabbits sometimes escape. Fortunately for the wolves they have powerful friends who continually corral and group the rabbits to make the hunting easier. For the rabbits to have a friend in the government would upset the rules of nature.

Let’s hear about the financial institutions from Elizabeth Warren, a defender of the rabbits.

I’m one of the rabbits and I resent that my Senators are unable to defend my interests.

James Pilant

Risky Lending and Lobbying – Connection?

On By southwerkIn business ethics

 

Risky Lending and Lobbying – Connection?

An International Monetary Fund report entitled: A Fistful of Dollars, Lobbying and the Financial Crisis, reports that those lenders pursuing high risk lending practices did the most lobbying.

The actual report is found here: http://www.dnb.nl/binaries/Deniz%20Igan_tcm46-223260.pdf

Perhaps we should think of the risky lenders on Wall Street less like ivy league educated scum individuals and more like bold Western heroes. Here let me provide some music.

However, some of you may not feel that the mantle of Western hero does not fit them well. How about this one?

Well, now that I’ve got that off my chest. Let’s discuss the issue. First a quote from the actual study:

We find that, after controlling for unobserved lender and area characteristics as well as changes over time in the macroeconomic and local conditions, lenders that lobby more intensively (i) originate mortgages with higher loan-to-income ratios, especially after 2004; (ii) securitize a faster growing proportion of loans originated; and (iii) have faster growing mortgage loan portfolios.

This is research language, an arcane format similar in many ways to spell casting in Lord of the Rings. Let me translate: We worked hard to do a fair study and we discovered that lenders who did a lot of lobbying made stupid decisions.

So, here we come to the meat of the matter. The more lobbyists you hire, the more money you spend on influencing the government; the more likely you are to take risks.

Of course, you could turn it around. The more money and lobbyists financial institutions send to Washington, the more Washington protects them from laws and regulations while simultaneously shielding them from the effects of their ridiculous decisions.

We all learned in civics class that bankers and financiers are careful to protect their investors from loss while our Senators, Representatives and President would never fail to protect us from financial sector decisions that could destroy millions of jobs and damage the economic fabric of the planet.

We all know that a new Democratic President wouldn’t appoint all of his economic advisors from the very firms receiving bailout money. We all know that no Congress would give hundreds of billions of dollars of loans to private companies without setting up a mechanism to get the money back. We all know that should by some mischance all our protections fail and our financial system comes within a matter of minutes of total collapse that new rules and regulations would be put in place to stop that from happening again.

I guess I’m just cranky. I am getting older. Of course, I do teach Business Ethics and watching these event unfold hits me in the gut. It’s like teaching medicince in a place where they just kill the patients to save money.

But I’m probably just cranky.

James Pilant

 

President John Kennedy – Ask Not

On By southwerkIn business ethics

President John Kennedy – Ask Not

What would Kennedy say about the greed and shorsightedness on Wall Street? I don’t know. But his repeated calls to national service still resonate (Peace Corps).

More importantly, do you think a financier from one of the “great” investment banks ever thinks of the interests of this county when making any kind of decision. Let’s remember for a moment a President who called on the best of our nature and judgment, not our greed and self interest.

Watch the video

Ethics and the Bank Bailout

On By southwerkIn Government Failure

Ethics and the Bank Bailout

President Barack Obama said Thursday he wants to tax banks to recoup the public bailout of foundering firms at the height of the financial crisis. “We want our money back,” he said.

Is it moral to tax banks to repay the public funds given them?

Is this a hard question?

If you run a restaurant, a filling station; if you sell insurance, automobiles, real estate; if you own a garage, a body shop or rent movies; will the government come and give you money to save your business in this time of troubles?

If you make particularly stupid and greedy decisions that result in your firm’s danger of failure, should this increase the probability of government help?

There is a Bible verse that may have relevance here. Psalm 37:21 The wicked borroweth, and payeth not again: but the righteous sheweth mercy, and giveth.

Well, the righteous have giveth and some may consider it just for the banks to pay back what they have received.

James Pethokoukis writing in reuters believes that the tax may very well pass.

Is that just? I hope it passes. A little justice may go a long way.

James Pilant

A Public Official Does His Job

On By southwerkIn Government Failure

A Public Official Does His Job

Phil Angelides is the Chairman of the Financial Crisis Commission. Yesterday during testimony he said this to Lloyd Blankfein, the CEO of Goldman Sachs.

“I’m just going to be blunt with you,” he told Blankfein. “It sounds to me a little bit like selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars. It doesn’t seem to me that that’s a practice that inspires confidence in the market.”

(What the company was doing is explained in a McClatchy news article. Most simply it was a set of investments in which the contract created a situation that if the investements prospered, Goldman Sachs made money, but if the investments went sour, Goldman Sachs made even more money. The investor bore all the risk.)

For so much of the time after this unprecedented story of financial incompetence, greed and outright stupidity, public officials have said little but given much to the financial industry. Here is a different voice. Whether in the long term this proves sincere is still a question. But I liked the sound of it. Ethics tends to work well in an environment in which there are penalties for doing wrong. The wrong doers have profited from their actions. This is not the kind of example a country and developing civilization need. It is in fact quite dangerous when a large group of powerful Americans no longer share common interests or abide by the same rules as other Americans.

James Pilant

Shareholders Out of the Loop?

On By southwerkIn Capitalism

The SEC says that Bank of America didn’t properly inform shareholders that Merrill planned to rush out $3.6 billion in bonuses to its employees – information that shareholders needed to make an informed decision about the merger.

In the fourth quarter, Merrill lost 14 billion dollars.

What do you get bonuses for? I was under the mistaken impression that these were rewards for performance. Apparently they have other uses.

However, there is a counter argument, Thomas F. Cooley, writing in an opinion piece for Forbes magazine writes that bonuses and other benefits are closely tied to shareholder interests and demonstrates this by using graphs. He graphs shareholder interests against executive benefits. I quote:
The observations cover the years 1992 to 2006. Our sample consists of information on 31,587 executives, employed by 2,872 companies, for a total of 33,896 company-executive matches and 167,822 executive-year observations.

His graphs indicate correlation between stockholder interests and compensation. I am not convincedin this instance. I am not opposed to high executive compensation provided it is approved by the shareholders and rewarded for successful performance. I am very opposed to executive compensation paid for out of public funds for a disastrous performance.

My problem with Mr. Cooley’s graph isn’t in its accuracy but in my perception that it does not analyze the problem at hand – the correlation between investment banks success and their executive bonuses with an appropriate analysis of how government funds played out in that success.

High executive compensation might work well in dozens of industries. Does it work well in these? And if it does not, what should we be doing instead?

Is it ethical to consider a business successsful if it can get government rescue money totalling billions of dollars to put it in the black? If so, is it then ethical to pay bonuses based on a success purchased with public money?

James Pilant

Hard Thinking

On By southwerkIn ethics, Teaching

I had the misfortune and the opportunity to think over the long break. The misfortune was due to my trip to Tulsa. I have a dramatic allergy response to the city either the phosphorous laden Arkansas River or the emissions of the oil refineries or both. I was down and in a lot of pain for several days. But on a larger note, I thought. I am 53 years old and I am not sure what happens next. Gail Sheehy called my age, the age of mastery. I don’t feel like a master of my career or much of anything else.

So, I thought. I apologize for the lack of posts. I wanted to clarify what it was I was trying to do. I wanted to clarify to myself my purpose and to set some goals for this savage year. Yes, savage year. I predict a rough year for me and, more particularly my students. They have come seeking new lives and all this economy has to offer them is pain. They seek an American dream that barely exists.

Why should I write this when so few read it? I wrote my previous blog for more than a year and never gained an audience. I finally deleted it feeling it was of no significance. This one is different. It is different because I am using it as a tool to seek kindred souls and develop my thought.

I want to talk about ethics seriously and without backing away in educational jargon from confronting the evils of our time. Of particular concern are two issues. One is the total lack of protections for our internet communications. We as a people are entitled to some kind of protection for our e-mail and other posts. The second is privatization in the state of Arkansas, my home. I sense something in motion. I worry about the assets of the people of this state being turned over to private interests for their unjust and cruel enrichment.

Sometimes, I would fold my tent and walk away. I could read, listen to music, play my games and let the sweet things of life escape me away from the tedium of the continuing struggle for significance, for the struggle against evil, for that action that says I stand and while I live I will try to do what’s right. Let me quote Tennyson:

 Tho’ much is taken, much abides; and tho’
  We are not now that strength which in old days
  Moved earth and heaven; that which we are, we are;
  One equal temper of heroic hearts,
  Made weak by time and fate, but strong in will
  To strive, to seek, to find, and not to yield.

Not a great post, but my post. A new year. Continued struggle. 2o10

James Pilant

FIFA and Less Regulation

On By southwerkIn Capitalism

FIFA and Less Regulation

Foul Play: FIFA shows what less regulation offers to business (via Paul Kiser’s Blog)

(This originally appeared on 6/29/10. It was improperly tagged and search engines couldn’t see it. So, I’m reposting it so the post can be seen by search engines like Google.)

Kiser compares the current crisis in the rules governing calls in soccer with the rules of good business.

He writes: “This is a good lesson for those who preach that less regulation is good for business. We have seen what happens when government is stripped back to allow business to do as they will to their customers and the market. Too little regulation leads to foul play. It always has, always does, and always will.”

I recommend this to your attention.

James Pilant

by Paul Kiser USA PDT  [Twitter: ] [Facebook] [LinkedIn] [Skype:kiserrotary or 775.624.5679] Up until today the Fédération Internationale de Football Association (better known as FIFA) believed in fate, not fair play. In FIFA soccer (better known as football) four referees are charged with monitoring non-stop activity on a ‘pitch’ that is a larger field th … Read More

via Paul Kiser’s Blog