Here's my Top 10 items from around the Internet over the last week or so. As always, we welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz.
See all previous Top 10s here.
My must read today is #1 from Paul Krugman on the TPP. #9 is also a great backgrounder on the shadow banks in China.
1. The pointless TPP - The debate around the Trans Pacific Partnership has heated up in New Zealand in recent months as the consensus around its inevitability and value has broken down across the political spectrum in New Zealand.
There's a good few people in business who actively oppose the TPP, particularly in the software and Internet industries. Sceptics at Fair Deal include Trade Me, TUANZ, Internet NZ and the Institute of IT Professionsals.
Unions and the Green Party oppose the deal, as does a good chunk of the left of Labour, for the usual reasons that any acceleration of globalisation may cost workers jobs and press down on wages. They're also rightly sceptical about the role of the US drug, food and movie lobbies, who are crawling all over the text.
David Cunliffe's rearguard action to fend off the sceptics within Labour while also keeping a good deal if it can be done has captured the attention of Wellington's beltway in recent months. Along with many TPP opponents, Cunliffe has called for the details of the deal to be made public before it is signed.
TPP opponents have taken heart in recent weeks from an upswell of opposition within the US Congress from both the left and the right. The decision by Democratic Senator Harry Reid to block US President Barack Obama's request for fast track approval appears to have stopped the TPP in its tracks, at least until after the mid-term Congressional elections in November. Even Trade Minister Tim Groser has conceded that a deal is unlikely this year.
So the latest piece in the New York Times from Nobel Prize winning economist and Obama-backer Paul Krugman is interesting. He won his Nobel for his analysis of trade patterns so has a little expertise in the area.
He says the TPP is no big deal and wouldn't be a great loss if it never happened. He's talking both about the benefits for the United States and the world as a whole. He says there isn't a compelling case for the deal.
What the T.P.P. would do, however, is increase the ability of certain corporations to assert control over intellectual property. Again, think drug patents and movie rights.
Is this a good thing from a global point of view? Doubtful. The kind of property rights we’re talking about here can alternatively be described as legal monopolies. True, temporary monopolies are, in fact, how we reward new ideas; but arguing that we need even more monopolization is very dubious — and has nothing at all to do with classical arguments for free trade.
2. So why are the Americans chasing the TPP? - Here's Shawn Donnan at the FT saying Krugman is missing the point: the deal is about containing China, not about trade.
It begs the question: Why would New Zealand encourage a deal designed to work against the interests of its largest trading partner -- China?
Here's Donnan:
Krugman seems to be missing one of the big motivations for US trade policy these days. Both the TPP, which groups 12 Pacific Rim countries including Japan, and the Trans-Atlantic Trade and Investment Partnership, the EU-US negotiations launched in July, are really big strategic, rather than economic, projects.
They are about responding to the changing shape of the global economy and the rise of China and other emerging economies and trying to reinforce the US (and to a lesser extent, the EU’s) position at the centre of it. They are, particularly in the case of the TPP, about security policy as much as economic policy. If, as the FT’s Geoff Dyer puts it in his new book, the “contest of the century” is the one between the US and China, then trade deals (as they often have in history) have a whole other purpose.
3. 'Economists institutionalise inequality' - The Editor of the Lancet, Richard Horton, recently unleashed a series of tweets criticising economists and how their thinking was infecting policymaking about health.
It sparked an interesting debate via Pieria. Here's Horton's view:
The tenets of economics—the centrality of the market, the importance of competition—have begun to influence, distort, and damage the values on which universal health systems were originally built. Economic instrumentalism, the notion that unless we can prove the economic value of an idea or an intervention it is socially worthless, is now dominant in much of government. We see institutions supposedly dedicated to health now incorporate wealth into their mission statements. The health community has too often colluded with politicians to appease economists who measure value with a financial metric only. It's surely time to challenge economists, their discipline and their arguments, and counter with an alternative philosophy that puts lives ahead of margins and wellbeing before returns on investment.
And the ensuing response:
More than 40 years ago, an essay by Alan Williams to defend economic evaluation admitted its imperfections, but concluded with Maurice Chevalier's view on old age: “Well, there is quite a lot I don't like about it, but it's not so bad when you consider the alternative!”[18] Economics, like medicine, is imperfect. The challenge for practitioners of each is to ensure that the perfect does not drive out the good.
4. The return of Marxism - Daniel Drezner writes at Foreign Policy about the return of Marxism to the debate about global economics. He got some stuff right and some stuff really wrong.
Marx's made a couple of significant contributions to political economy, and the post-2008 world puts a lot of them on display. Following Smith and Ricardo, he was really one of the first to think about capitalism as a global rather than a national phenomenon.
Going beyond Smith and Ricardo, Marx stressed two important facets of the market that they did not. First, he stressed that crisis was endogenous to global capitalism. Marx acknowledged and admired the productive machine that was the capitalist system, but he also stressed that periodic busts were baked into the system. This is a point that spread into some corners of mainstream economics -- see Hyman Minsky, Charles Kindleberger or even Reinhart and Rogoff -- but could do with a little more emphasis in the old grad school syllabus.
The second dimension Marx stressed was power -- which is why he's still appreciated among those who study global political economy. A riff through The Communist Manifesto or the highly underrated Wage Labor and Capital shows the ways in which Marx appreciated how capitalism led to a redistribution and concentration of economic power over time. It's not that hard to find recent empirical work that bolsters a Marxist analysis of economic power.
That said -- and you knew there was a "that said" coming -- the current moment also highlights some Very Big Things that Marx got wrong -- badly, world-historically wrong. First, as an economic determinist, Marx was convinced that class triumphed over all other political cleavages -- including nationalism. That's.... really untrue -- and the lack of truth about it affects any decent analysis of the global political economy.
5. The Chinese angle - The dramas in Ukraine and the Crimea are rightly the focus of world attention at the moment. But what does it all mean for China? This is the prism we should use to look at this sort of geopolitical issue these days.
Conservative European MP Charles Tannock lets rip at Putin in this Project Syndicate piece. He also points out the implications for China.
Obama should emphasize to the Chinese their stake in Eurasian stability. Putin may regard the Soviet Union’s disintegration as a tragedy, but for China it was the greatest geostrategic gift imaginable. At a stroke, the empire that stole millions of hectares of Chinese territory over the centuries, and that threatened the People’s Republic with nuclear annihilation, simply vanished.
Since then, Central Asia’s independent states, and even Ukraine, have become important trading partners for China. Russia’s conquests in Georgia greatly displeased China, as was seen at the post-war summit of the Shanghai Cooperation Organization (a regional grouping that includes ex-Soviet countries that share borders with China and Russia). Russia pushed the SCO to recognize the independence of Abkhazia and South Ossetia. But the SCO balked. The group’s Central Asian members – Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan – would not have stood up to the Kremlin without China’s support.
6. How economists failed - In this video below Institute for New Economic Thinking Director and former US Senate Chief Economist Robert Johnson explains how he thinks the economics profession failed the world before, during and after the Global Financial Crisis.
"I think the economics profession was making tremendous money in consulting for the financial sector. Many of the theories were not investigational illumination how financial markets worked. They were portraits painted like a marketing document. They did a great disservice to mankind and we're cleaning up after that right now."
"When the people become anxious they want the expert to tell them what's going to happen. And they feel good when their anxiety is relieved because they think they understand the future. But if the expert instead of telling the truth is telling snake oil, a false story, when that is unmasked the expert becomes the scapegoat."
Ökonomie neu denken - Jenseits der Finanzkrise (V) from Stifterverband on Vimeo.
7. 'A nation of rent-seekers' - The Sydney Morning Herald's Ross Gittins is a veteran of the economic commentating trade in Australia. Here he makes some tough points about Australia's love of rental property and the power of industry lobbies. Ditto for New Zealand.
What gets me is how blatantly self-seeking our lobby groups have become. It is as if the era of economic rationalism - with its belief that the economy is driven by self-interest - has sanctified selfishness and refusal to co-operate for the common good.
Another explanation may be the growth of a lucrative rent-seeking industry. These days far more people make their living lobbying for interest groups than did so in the 1980s.
When your livelihood depends on convincing your clients their money is well spent, it is hardly surprising these ever-multiplying industry groups, corporate ''government relations managers'' and freelance lobbying firms make so much noise and are so untiring in their efforts to extract concessions from government.
8. The problem with bitcoin - Robert Shiller has written an excellent piece in the New York Times on how Bitcoin is a bubble, but also how some good might come out of it. He poses some deep questions about how we use money, and touches on the issue of rent-seeking.
Bitcoin has been focused on the wrong classical functions of money, as a medium of exchange and a store of value. Bitcoin offers a way of “mining” electronic coins that can replace our dollar bills and bank accounts. Yet there is no fundamental need for this. Money, as we’ve known it for decades, works quite well in these respects. It would be much better to focus on another classical function: money as a unit of account — that is, as a basic standard of economic measurement. Scientists spend a lot of time thinking about ways to improve systems of measurement. Business people should, too.
This has already begun to happen. History shows that this unit-of-account function of money has been separated from the other two, and to good purpose. For example, since 1967 in Chile, an inflation-indexed unit of account called the unidad de fomento (U.F.), meaning unit of development, has been widely used. Financial exchanges are made in pesos, according to a U.F.-peso rate posted on the website valoruf.cl. One multiplies the U.F. price by the exchange rate to arrive at the amount owed today in pesos. In this way, it is natural and easy to set inflation-indexed prices, and Chile is much more effectively inflation-indexed than other countries are.
Consider rents. Increases may seem unfair to tenants, yet they may be needed to offset inflation. In Chile, a landlord can easily set the monthly rent for the tenant in U.F.s and then never have to change it, reducing the potential for errors, delays and misunderstandings. The name “U.F.” reframes people’s thinking so that keeping real economic values stable is natural and easy.
9. 'Too connected to fail' - Bloomberg has a useful piece here explaining the linkages between China's banks and its shadow financing sector. It's an excellent backgrounder.
As China’s top legislators start their annual meeting in Beijing tomorrow to set economic targets, efforts by policy makers to crack down on unregulated lending threaten to undermine financial stability.
“The failure of one product could lead to defaults of many others in a chain reaction,” said Christine Kuo, a Hong Kong-based analyst at Moody’s Investors Service. “The fall of shadow banking, starting with trusts, will spill over to the whole financial system, trapping banks and other stakeholders. That’s why the government is extremely cautious for fear that any misstep may trigger a systemic crisis.”
At stake is what the China Trustee Association, an industry trade group, estimates are $1.8 trillion of products developed by trust companies. Lenders also created $1.6 trillion of high-yield wealth-management investments, up 40 percent in the nine months through Sept. 30, according to JPMorgan.
It turns out all these shadow institutions are very connected to banks and SOEs.
Credit-underwriting criteria for such loans, with most going to industries such as mining, property development and local-government borrowing arms, are often more lax than those applied by banks or debt capital markets, making them vulnerable in an economic slowdown, according a November report by McKinsey & Co. and China Ping An Trust Co. Trusts are arguably the second-most risky financing channel for companies, after underground financing, Zhang Zhiwei, an economist for Nomura International Hong Kong Ltd., wrote in a Jan. 28 note.
Fewer than 10 percent of trust firms are formed by the private sector, with the rest owned by large state-owned enterprises, financial conglomerates and local governments, the McKinsey and Ping An Trust report said. The state-owned companies often own each other’s shares, and the government is involved in appointing the heads of these firms.
10. Totally the trailer for The Lego Movie. If only because my daughter is mad about lego and, apparently, it's a subversive commentary on modern capitalism. Although it is a movie that appears a lot like an ad for very expensive toy system...
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