EconAir

Why has the political and economic development of Russia since 1991 been so different than that of China?   Russia – political collapse of Communism and the Communist Party. China – Communist Party keeps political control after brutally suppressing demonstrations in Tiananmen Square. Russia – loses Eastern Europe and much of old Russian Empire, creating  economic disruption and political enemies on borders. China – keeps territorial boundaries. Russia – slow to reform agriculture. China – starts reforming agriculture in late 1970s.   Increases food production and income of farmers. Russia – tries to move quickly to democracy.   Ends up with disappointment and authoritarian government.   Does not tolerate internal dissent.   China – no free elections.   Does not tolerate internal dissent. Russia – attempts quick transition to capitalism.   Ends up with corrupt combination of government bureaucrats and oligarchs...

In an earlier post, Them That Has, Gets: The Rich Get a Lot Richer , I mentioned that the 5% of the households with the highest income accounted for about 35% of total consumption in the United States.  This percent will probably rise in the future if the long-term trend towards more income inequality continues to grow. Two related comments. The relatively affluent probably account for an even higher percent of discretionary spending.  Other studies indicate that rising income inequality is a global trend, occurring in most wealthy countries.  Also, there is a rapidly growing elite of super rich in the rest of the world, as the Forbes list of the wealthiest families in the world indicates. This raises a number of questions.  Given the level of imports of mass produced products, is mass production still the basis of an industrialized economy?  And what about marketing?  Is it more profitable to go after the mass market or, invoking Pareto’s La...

Over this weekend (October 23-24), The Wall Street Journal had an article entitled “Putting a Price on Professors,” which you can read at http://online.wsj.com/article/SB10001424052748703735804575536322093520994.html As a reader of murder mysteries and a fan of the Sopranos, the title scared the hell out of me. After I calmed down, I realize they were talking about something more like economics (a non-violent major) – attempts at cost/benefit analysis. The main idea is that some states, especially Texas, are trying to determine which college professors, majors and programs make money and which lose money. The accounting methodology is a very primitive version of profit and loss statements, focusing primarily on salary costs. Excluded are revenue from grants and the cost of capital equipment, which makes analysis of the sciences particularly worthless. But at least it’s a crude attempt at accountability, in a financial sense, which is understandable since taxpayers pay for m...

I generally think management books are a waste of time. But occasionally I come across some advice I think is worthwhile. Such as this: Conscious organization is the great spiritual task of man. We speak of the “composition” of a picture; it is the way the artist has organized his material. The harmony of a piece of music depends on the way the musician has organized his material. The statesman organizes social facts into legislation and administration. The greater the statesman, the greater power he shows in just this capacity. It might be fun to try to do it in one’s own life, to say: “Here are the materials of my life. How would the artist arrange them in order to make the composition the most significant? How would he subordinate lesser values to higher values? How would he manage to give everything its fullest value? Or we might ask ourselves the craftsman’s question, “How can I make of my life a whole whose beauty and use shall be one?” Organization is what separate...

When al Qaeda struck the World Trade towers and the Pentagon in 2001, the United States had been the world’s only superpower for ten years. But what does it mean to be a superpower in the modern world? A world of over 200 countries, multinational corporations, global financial markets, global mobility of people and information, and a myriad of competing groups like non-governmental organizations (NGOs) such as Human Rights Watch, global religious groups, drug cartels and terrorist groups. How much power does the United States have to control, or at least influence, events outside the United States? What does it depend on? As throughout history, it partly depends on the strategic choices made by the political leadership of the superpower and how skillfully that leadership reacts to opportunities. Al Qaeda overplayed its hand with the attack on the World Trade center. As the only superpower, there was a lot of resentment aimed against the United States. Countries and NGOs tha...

I asked the following question on one of my economics exams: You are the leader of a country that is trying to economically develop. Your head geologist bursts into your office with the news that he has just found a huge pool of oil. He hasn’t told anyone. What do you do? The answer: Shoot him. Why? Because relying on the export of oil or mineral wealth has been more of a curse than a benefit. Recent history shows relying on raw material exports retards, not promotes, economic development, political change towards democracy, and social change toward tolerance and equality. The cautionary tale from history is Spain. In 1492 Spain was finally (after over a 400 year crusade) united under a Catholic government. Much of Spain's educated elite, minority groups of Muslims and Jews, were persecuted by the Inquisition and forced to leave Spain and later Portugal (enriching Holland). But a lucky bet on Columbus led to immense mineral wealth, mostly silver, from Spanish Ame...

Thucydides A friend of mine recently said that the most “useless” course he took in college was history. Let’s start with Thucydides, The History of the Peloponnesian War . This was a war that took place over 2,400 years ago. What possible relevance could it have to Americans? In this war, Athens and Sparta, the two “superpowers” of Greece, were locked into a long war for the dominance of Greece. The climax to the story in Thucydides was that Athens decided to send its formidable fleet and much of its army to attack Syracuse, an ally of Sparta, far away across the Mediterranean Sea in Sicily (still there). The campaign was a disaster, leading to political instability at home and weakening Athens’ military position in Greece. Sound familiar? Remind you of our involvement in Vietnam? This is not a direct analogy but suggestive of some of the consequences of the Vietnam War. These potential consequences were not factored into the decision to make a major commitment in V...

Presidential elections are now a billion dollar business, with massive marketing campaigns run by specialists. Bestsellers minutely analyze winning and losing strategies and tactics. Yet an important factor in successful campaigns is usually ignored. It was formally called “the common touch” but with the increased political influence of the South and Southwest I call it “the good ole boy” factor. It goes like this. The American voter is having a beer in a bar. The two presidential candidates walk in. Which candidate would the voter prefer to have a beer with? Let’s look at some of the choices: Franklin Roosevelt or Herbert Hoover? Harry Truman or Thomas Dewey? John Kennedy or Richard Nixon? Jimmy Carter or Gerald Ford? Ronald Reagan or Jimmy Carter? Bill Clinton or George Bush? George W. Bush or Al Gore? (Granted, Al Gore won the popular vote but George W. Bush’s political persona made it a lot closer than it should have been.) Barack Obama or John McCain? The...

I've been asked to define some financial terms and comment on the current financial crisis and coming recession. -Financial institution (is it any bank or stock broker?) -Investment bank ( I never understood why Goldman Sachs was considered a kind of bank) -Systemic risk -Counter party risk -Mortgage backed securities vs. mortgages (does a mortgage become a security when it's bunched up with a lot of other mortgages so a person can invest in the whole bunch?) -Hedgefund -Relationship between hedge funds, short selling and credit default swaps. Financial Institution - any company that deals in finance - money, credit, stocks, insurance. It could be a bank, stockbroker, insurance company, hedge fund, credit card company, mutual fund company, etc. Even half of GE is a financial company. Investment bank. In 1934, the U.S. government passed a law dividing banks into commercial banks and investment banks. That law has since been repealed so there is a lot of overlap...