Monday's Top 10: The gated globe; China's water problem; changing facts; E. coli fuel; austerity's benefits?; JPMorgan's litigation provision; Dilbert, and more

Here's my Top 10 links from around the Internet at 10:00 am today. We now have a Monday-Wednesday-Friday schedule for Top 10.

Bernard will be back with his version this Wednesday. We will have a guest posting on Friday.

As always, we welcome your additions in the comments below or via email to david.chaston@interest.co.nz.

See all previous Top 10s here.

1. The gated globe
The forward march of globalisation has paused since the financial crisis, giving way to a more conditional, interventionist and nationalist model, says Greg Ip at The Economist.

Most of the world now feels threatened by the growing power of emerging economies, and economies struggling to get better incomes for their people. Ironically, it is the emerging economies who feel the most threatened.

Mike Moore probably said it best; we are happy to be generous on Sundays, but when we return to work, we don't want to be threatened by their exports. A new selfishness is invading our collective; we no longer can be bothered to get more skilled and competitive.

It's just easier to throw up barriers at our borders.

Globalisation has clearly paused. A simple measure of trade intensity, world exports as a share of world GDP, rose steadily from 1986 to 2008 but has been flat since. Global capital flows, which in 2007 topped $11 trillion, amounted to barely a third of that figure last year. Cross-border direct investment is also well down on its 2007 peak.

Much of this is cyclical. The recent crises and recessions in the rich world have subdued the animal spirits that drive international investment. But much of it is a matter of deliberate policy. In finance, for instance, where the ease of cross-border lending had made it possible for places like America and some southern European countries to run up ever larger current-account deficits, banks now face growing pressure to bolster domestic lending, raise capital and ring-fence foreign units.

2. Dicing with death
It's not only the Americans who are dealing badly with public policy issues. China has a water crisis, one that will perhaps come to stunt their future rather sooner than we realise.

The Economist has a nice summary of the problem in this video, which you can't watch without realising how badly they are dealing with the issue, and how it might all affect us, rather soon it seems. (Sorry, I can't stop the auto-start.)

3. The (surprising) case against foreign aid
In his new book, Angus Deaton, an expert’s expert on global poverty and foreign aid, puts his considerable reputation on the line and declares that foreign aid does more harm than good.

It corrupts governments and rarely reaches the poor, he argues, and it is high time for the paternalistic West to step away and allow the developing world to solve its own problems. Here is an excerpt from the NY Times:

In his considered judgment, global poverty today is no longer a result of lack of resources or opportunity, but of poor institutions, poor government and toxic politics. Though about $134 billion in official aid still flows from donor governments to recipient governments, there is no mystery, he says, as to why foreign aid fails to erase poverty. That is not its mission, he asserts: typically it serves commercial interests at home or buys political allies abroad, too often unsavory ones.

All aid is distorted by politics at both ends, he says, citing the example of Mauritania several years back, when aid was in danger of being cut off. The country’s president hatched the brilliant idea of becoming one of the few Arab countries to recognize Israel. The aid taps were reopened and the reforms rescinded.

The author has found no credible evidence that foreign aid promotes economic growth; indeed, he says, signs show that the relationship is negative. Regretfully, he identifies a “central dilemma”: When the conditions for development are present, aid is not required. When they do not exist, aid is not useful and probably damaging.

4. Today's raw market data ...
A quick new-week update:

5. Facts change faster than prejudices
Here are ten trends that don't get reported much and don't much fit the standard narratives, says The Atlantic:

1. Solar energy is now cheap and unsubsidised and threatening major disruption to fossil fuel based systems.
2. The US is becoming more Asian, not more Latin.
3. China's working age population is now falling, and its era of cheap labour is over.
4. US CO2 emissions are tumbling per capita, and may keep falling to even to 1950's levels.
5. Getting a degree doesn't help incomes like it used to.
6. Americans are driving much less, and taking public transport much more.
7. The growth in the cost of US healthcare is slowing fast.
8. The BRICs hit a wall; only China qualifies now.
9. Passive money management is trumping active.
10. Most US Govt debt is snapped up by Americans, not Chinese.

6. JPMorgan's legal woes
Only a bank could do this, only a very big bank. Last year it cost US$16.4 billion to run JPMorgan, plus it spent US$7.2 billion settling legal issues. They are reporting their first loss since 2004.

However it is facing a biblical deluge of future legal and regulatory claims and has raised its provisioning for these, to a massive US$23 billion. Basically, from a regulator's perspective, you can't hurt JPMorgan for their failings unless you make them pay more than US$23 billion ! Anything less, and they will write it back as a gain (for which Jamie Dimon will probably get a bonus).

On a conference call with analysts and investors, CFO Marianne Lake said litigation expenses would "normalize over time". She added that the $9.2 billion expense included mortgage and 'Whale'-related matters that have yet to be concluded.

"The board continues to seek a fair and reasonable settlement with the government on mortgage-related issues – and one that recognizes the extraordinary circumstances of the Bear Stearns and Washington Mutual transactions, which were undertaken at the request or encouragement of the U.S. government," said Dimon.

Later on a conference call, Dimon added that the bank would prefer to settle litigation, saying lengthy battles against regulators were difficult to win.

7. Rubbing their hands
And, of course, as in any business dispute, the only winners are the lawyers. More from DealBook:

Even as defense lawyers publicly complain that government regulators are being too aggressive, they privately celebrate the windfall. Law firms in New York and Washington are collectively earning many hundreds of millions of dollars representing JPMorgan in cases ranging from weak controls against money laundering to commodities trading, according to interviews with senior partners at several of top firms.

“It’s pretty straightforward: Whenever regulators go after the big financial institutions and corporations, it’s very good business for the law firms that represent them,” said Allen D. Applbaum, a co-leader of global risk and investigations at FTI Consulting and a former federal prosecutor.

8. E. coli, fuel of the future?
First bacteria to produce diesel, then E. coli to make petrol. Things are moving fast in biotech. Still, a long way to go before its commercial (- if ever).

Using genetically modified E. coli to generate biofuel isn’t new. U.K. scientists said in April they have developed a process under which the bacterium turns biomass into an oil that is almost identical to conventional diesel – a development that followed similar research by U.S. biotechnology firm LS9 in 2010.

But the breakthrough this time is important because the reprogrammed E. coli can produce gasoline, a high-premium oil product that’s more expensive than diesel if the biofuel becomes commercially viable, according to Prof. Lee Sang-yup at the Korea Advanced Institute of Science and Technology. His team’s study was published in the international science journal Nature on Monday.

“The significance of this breakthrough is that you don’t have to go through another process to crack the oil created by E. coli to produce gasoline. We have succeeded in converting glucose or waste biomass directly into gasoline,” Mr. Lee told The Wall Street Journal.

“The gasoline we’re generating could be used in your car. It has identical composition and chemical properties to conventional petrol.”

9. The case for tough medicine
Simon Nixon at the WSJ thinks the early evidence in Spain shows what the Keynesian didn't think would happen, a sharp recovery after painful austerity medicine. A Merkel win?

[I]t’s worth noting that mainstream economists consistently underestimated the depth of the recession in Europe and may be similarly underestimating the scale of the recovery – just as the profession has been almost universally taken by surprise by the strength of the U.K. recovery.

In the case of Spain, nobody predicted the strength of its export performance and the speed with which productivity and competitiveness have improved as a result of tough decisions by companies and a determined program of structural reforms. This has created the conditions for an investment and export-led recovery that - crucially - can be self-funded by a corporate sector now generating substantial cash.

10. Today's quote
"If you lend someone $20, and never see that person again, it was probably worth it." - Author Unknown

11. Where the Government spends its money