Civilisations Die

This is from clearly-only-America-can-save-the-world kind of book (at least that's the impression I have got from what I have read so far) Hot, Flat, and Crowded written by Thomas L. Friedman.

The well-known Indian author Gurcharan Das remarked to me during a visit to Delhi in 2005 that ... America was a country "that was always reinventing itself," ... because it was a country that always welcomed "all kinds of oddballs" and had "this wonderful spirit of openness." American openness has always been an inspiration to the whole world, he told me. "If you go dark, the world goes dark."

Wow!

I agree with all that Mr. Gurcharan Das has to say about America except that last bit about the world going dark if America going dark. I think - just to give him the benefit of doubt - being an Indian, Mr. Gurcharan Das was being polite to his American guest. For I cannot think of any other reason how he could forget the decline and fall of empires through the ages. One doesn't have to look too far. There was once this empire in which the sun never seemed to set. So great was its reach. Great Britain too declined. The world did not go dark.

Education in United States

More than the book GEB, I find Douglas Hofstadter's description of his education more interesting that the book itself ...

[I]n late 1967 ... I dropped out of math grad school in Berkley and took up a new identity as physics grad student at the University of Oregon in Eugene. ... I was very discouraged with the way my physics studies and my life in general were going, so in July I packed my all my belongings into a dozen or so cardboard boxes and set out on an eastward trek across the vast American continent. ... From Boulder I headed further east, bouncing from one university town to another, and eventually, almost as if it had been beckoning me the whole time, New York City loomed as my ultimate goal. Indeed I wound up spending several months in Manhattan, taking graduate courses at City college ... but as 1973 rolled around, I faced the fact that despite loving New York in many ways, I was even more agitated than I had been in Eugene, and I decided it would be wiser to return to Oregon and to finish graduate school there. ... In 1974, I switched Ph.D. advisors for the fourth and final time ...

Wow!
Can you do that? I mean, switching subjects, schools & university, and professors at will?

Mr. Obama, You need Lessons in Economics

Mr. Obama,

Chances are that you haven't read my open letter to you, posted some while ago. Chances are that you will not read this too.

In my previous letter I had a tiny paragraph on banning protectionism. For your convenience, here is the extract:

"Ban protectionism. Open up world trade. Will make you unpopular in America if you do it immediately. But has to be done and will happen whether America likes it or not. If the world has to prosper. Your call."

I am sure you are surrounded by economists of repute who advise you on important matters. I am therefore surprised how you could even dream of taxing outsourcing. The fact that you have been mentioning Bangalore quite often shows you are being misled. The roots of the US economic meltdown does not lie in Bangalore. Nor does Outsourcing to Bangalore or Beijing cause US misery.

One does not have to an economist to understand this. I am not. Fortunately there are many pop-economics books in the market that are very good. I would recommend that you go no further than Tim Harford's The Undercover Economist. Here is an excerpt:

A more extreme example may clarify things further. Think of a country whose government is very keen on self-sufficiency. 'We need to encourage our local economy,' says the Minister of Trade and Industry. So the government bans all imports and patrols the coast to prevent smuggling. One effect will be that a lot of effort will be devoted to producing locally what was once imported: this certainly is encouragement to the local economy. But another effect is that all of the export industries will quickly shrivel and die. Why? Because who would want to spend time and money exporting goods in exchange of foreign currency, if nobody is allowed to spend spend the foreign currency on imports? While one part of the local economy is encouraged, another is crippled. The 'no imports' policy is also a 'no exports' policy. And indeed, one of the most important theorems of trade theory, the Lerner theorem, named after the economist Abba Lerner, proved in 1936 that a tax on imports is exactly equivalent to a tax on exports.

Still wish to go ahead with taxing outsourcing, Mr. Obama?

Obama sending out the right signals

Obama is making all the right moves. So far ...

If what Guardian says is correct and Obama is actually in the process of drafting a letter to open up direct contact with Iran, he is sending out two important signals:


a) A majority of terrorists are Muslims, but all Muslims are not terrorists.
and
b) The world needs all help to neutralize terrorism.

Pakistan and Afghanistan is the hub of most terror attacks now (and by many accounts, of all future ones too). Iran provides a good access route to Afghanistan. Though I do not believe that Iran will open up access routes into Afghanistan the way Pakistan did, a friendly Iran is better than an hostile one.

My other posts on terrorism:

http://churn-news.blogspot.com/2008/11/real-terrorists.html

http://churn-news.blogspot.com/2008/11/countering-terrorism-simple-solution.html

Amateur Investors

I had to double check the date Against The Gods was published. In the chapter, 'The Fantastic System Of Side Bets', which I missed the last time I read this book, is a small foot note that I have reproduced below:

"Most individual home mortgages are packaged with other mortgages and sold off in the open market to a wide variety of investors. In effect, the bankers have traded off the risks of prepayment to a market more willing to bear that risk; these mortgage-backed securities are complex, volatile, and much too risky for amateur investors to play around with."

I was under the impression that the present crisis was due to an instrument of a more recent origin. Evidently I was totally wrong. Against the God was published in 1996.

I wonder who Bernstein thinks are "amateur investors".

Note: The photograph used belongs to Myles Davidson. Please go here to see more such photographs

Present Financial Crisis Is For the Wimps

The following passage from Against The Gods by Peter L. Bernstein. (The beginning almost reads like Harry Potter)

"This was a dark time, one marked by a series of ominous events: Watergate, skyrocketing oil prices, the emergence of persistence inflationary forces, the breakdown of the Bretton Woods Agreements, and an assault on dollar so fierce that its foreign exchange value fell by 50%.

The destruction of wealth in the bear markets of 1973-1974 was awesome ... After adjustment for inflation, the loss in equity values from peak to trough amounted to 50%, the worst performance in history other than the decline from 1929 to 1931. Worse, while bond-holders in the 1930s actually gained in wealth, long-term Treasury bonds lost 28% in price from 1972 to the bottom in 1974 while inflation was running at 11% a year."

The effects of the 1973-1974 crash was felt world-wide and the impact lasted some 20 years. See here.

Why is everyone panicking now? It is not as if the world has not seen this before.

What do we have now?
Oil prices are down ... dollar is holding (actually going up - see here) ... The World Bank and the IMF are going strong ... inflation is actually falling (oh I see! deflation!)

Or are we condemned to repeat history for ever?

Note: the picture used here belongs to "duchesssa". To see more of her photographs visit her gallery.

Strong Dollar

Feels nice when you observe something and the experts catch up later, doesn't it? This is from Financial Times dated 17.Sep.2008 (see my post on 17.Sep.2008):

One of the most extraordinary features of the past month is the extent to which the dollar has remained immune to a once-in-a-lifetime financial crisis. If the US were an emerging market country, its exchange rate would be plummeting and interest rates on government debt would be soaring. Instead, the dollar has actually strengthened modestly, while interest rates on three- month US Treasury Bills have now reached 54-year lows. It is almost as if the more the US messes up, the more the world loves it.

For the complete article go here.

Will anyone tell me why is the dollar appreciating?

Wall Street is in a state of turmoil.
Unemployment rates in US are on the rise (HP has today announced a downsizing of 25,000 odd employees).
And if the value of currency is determined in open market, will someone tell me who is upbeat about the US economy? And why?

PS: I did get the answer to this one. See Why is Dollar Appreciating?
Later on, the main stream media caught up. What fun!