March 15, 2013


Understanding China’s Internal Migration

March 3, 2013 by

China’s President Hu Jintao talks to Vice President Xi Jinping after the closing ceremony of the National People’s Congress at the Great Hall of the People in Beijing on March 13, 2009. Alfred Cheng Jin/Reuters via Council on Foreign Relations

In November 2012, China began a once-in-a-decade leadership transition that will continue through this month when Xi Jinping succeeds Hu Jintao as President of the People’s Republic. Xi has been primed to carry his nation into the second decade of the twenty-first century, as the country prepares itself for an unprecedented international role. With its new economic, political, and military clout, Xi’s China stands ready to be both a regional and global leader.

Amidst this historic shift, however, lies a set of deep challenges that Xi will be forced to confront on the international front. These include a ‘pivoting’ United States, growing nationalism in Japan, and a more caustic North Korea, among many others.

However, an often overlooked and more dangerous domestic problem is a result of the restrictions placed on the migrant workers that have been fueling China’s monumental growth. Understanding the causal factors that explain rural migrants’ flock to urban areas will be crucial for the fifth generation of leadership, which is dealing with one of the largest human movements in the world.


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Horsemeat & Horsepucky

February 24, 2013 by

Arabian horses on a farm in Saskatchewan, Canada. Photo by Evan Leeson

As the Great Horsemeat Crisis continues to spread—“gallops” is the verb favored by the European press—across the continent, and countries pile on to blame Romania (France, Holland, Cyprus, etc.), what is becoming increasingly clear is that old-fashioned corporate greed, aided and abetted by politicians eager to gut “costly” regulations and industrial inspection regimes is behind the scandal.

In a sense it is fitting that the whole imbroglio began in Ireland, where inspectors in Ulster first indentified that hamburgers should have more properly been labeled “horsewiches.” The Emerald Isle has more horses than any country in Europe, and, according to the Financial Times, in 2007 Ireland produced 12,633 thoroughbred foals and has some 110,000 “sport” horses.

The year 2007 was just before the Irish real estate bubble imploded, bankrupting the nation and impoverishing millions. And the year the “Celtic Tiger” died was very bad news for horses. Thousands of the creatures were simply turned loose by their financially strapped owners, and the number of horses sent to slaughterhouses jumped from 2,000 in 2008 to 25,000 in 2012.


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Food, Disposable Income, and Rising Political Violence

February 13, 2013 by

Over 1,600 IDP’s who had fled attacks receive emergency food and non-food items in Juba, Sudan. Tim McKulka/UN

Much of the focus of rising political violence in the world today has been linked to the process of political change, particularly in the Middle East and North Africa.

There is ample reason to establish such a link, and it remains highly relevant, however the preoccupation with political change in MENA over the past two years has shifted focus from other equally important precursors of political violence throughout the world. Of all the other factors contributing to political violence, and there are many – including natural resource acquisition, refugee flows, and boundary disputes – perhaps the most pressing and growing challenge is posed by simply getting enough food to eat on a daily basis.


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The Errors of Austerity: The Blanchard Prescription

January 9, 2013 by

IMF chief economist Olivier Blanchard. Stephen Jaffe/IMF

Economists were created and feted to make witchdoctors respectable. The harm that economists can produce, while still not quite in the vicinity of those of doctors, can be extensive. Errors are tolerated, fictions propagated. Dangerous doctrines become impenetrable and the mainstay of governments.

It was therefore interesting that the IMF’s chief economist Olivier Blanchard, along with his colleague Daniel Leigh, made a confession in a recent paper that, “Forecasters significantly underestimated the increase in unemployment and the decline in domestic demand associated with fiscal consolidation”. Last October, they were already busy at work seeking to pull the carpet from under the very organisation they are employed by, taking issue with the orthodox school of austerity. The calculations upon which the austerity measures were then inflicted upon such countries as Greece were deemed inaccurate.


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Could the Global Bond Market cause another Global Financial Crisis in 2013?

January 5, 2013 by

With Christmas and New Year cheer and optimism still bubbling away for most of us we now need to turn our attention to the major risk factors that are likely to impact upon the world economy and financial markets during 2013.  While the world economy is estimated to have grown by over 3 percent in 2012 overall and has enjoyed such a remarkable escape from the paralysis affecting some of its constituents like Europe, a major issue is whether this stable growth trajectory will continue for the foreseeable future.

At the end of the day the global stock market has been a secular bear market for over a decade and we are now at the juncture of ascertaining whether the bear will have its final growl in 2013 or we will enter a new market phase.


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Mark Carney to head the Bank of England

November 27, 2012 by

Mark Carney in Davos, Switzerland. Jolanda Flubacher/swiss-image.ch

As a Canadian, perhaps I should feel a surge of patriotic pride now that Mark Carney has been designated the new head of the Bank of England – quite a step up for the current governor of the Bank of Canada. There is no question that Mr. Carney is a market-savvy guy (he did, after all, work for the vampire squid), and his experiences as Chairman on the Financial Stability Board (FSB) suggests that he is sensitive to the ongoing systemic risks present in our increasingly complex global banking system.

That said, his recent attack on the Bank of England’s Andy Haldane in a Euromoney interview last month, does give one some cause for concern, particularly as it evinces the usual complacency that most Canadians seem to feel about the basic soundness of their own banking system, which essentially upholds the universal banking model as a viable one. By contrast, in his famous “dog and frisbee speech” delivered last August at Jackson Hole, Wyoming, Haldane suggested that: “Regulation of modern finance is almost certainly too complex. That configuration spells trouble…Because complexity generates uncertainty, it requires a regulatory response grounded in simplicity, not complexity.”


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The Fiscal Cliff and the American Economy

November 24, 2012 by

Looking at the latest US data, business sentiment and capital spending have been eroding, and given the lagged impact of capex, that trend looks set to continue for the next few months. Against that, a number of consumer sentiment indicators remain upbeat and housing looks like it is in a firmly established uptrend, after a 5 year bear market. In fact, the existing home inventory to sales ratio is as low as it ever gets, and that is with still very depressed sales. If sales pick up further, given low inventories and with new housing starts still below the replacement rate, home prices could lurch forward.

That said, the markets have been fairly upbeat given the rising perception of a deal to avert the US falling off the ‘fiscal cliff’. But even a deal that drains, say, 1-1.5% of GDP will have negative consequences for the US economy. Bear in mind that the U.S. still has a very high ratio of private debt to GDP. Therefore any such fiscal restriction as contemplated by the two parties may result in a significantly lower economic growth rate than the average 3% rate of the last five quarters (which is what the revised economic data of the past few quarters will eventually show).


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Weariness Foretold: The EU Budget Summit

November 22, 2012 by

Photo by Olivier Hansen/Flickr

There were always going to be disagreements about next year’s EU budget, which started in the evening instead of a sensible morning hour, and occupied officials into the early morning. Various MEPs pitched for an increase in spending for this year (some 7.3 billion pounds) and the next. The European Parliament has been considering restoring some 6.5 billion pounds worth of funding slashed by governments from next years’ budget. The austerity battles continue to remain running affairs. Eight hours of negotiations only ended out in walkouts, suggesting that the summit to agree to the EU’s funding plans for 2014-2020 might be stalled.

The EU Commission’s claim is that an increased amount is necessary to pay the bills. New Dutch finance minister Jeroen Dijsselbloem found that claim barely believable. “I’d question that very much. The Commission has to re-prioritise, that’s just the way it is. Budgetary discipline is not just for the member states.”


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In the Midst of Plenty: In Defense of American Workers

October 2, 2012 by

Union workers protesting in Wisconsin. Photo by Ryan O’Hara

This is part 4 of a 4 part series. Part 1 can be found here, part 2 can be found here and part 3 can be found here.

It has been over a half century since Jack Kerouac posited ‘whither goest thou, America?’ to a nation facing an uncertain future. Listening to the party platforms being created at both national political conventions it is apparent that the country is still trying to find its compass, and many issues have remained unresolved over the past fifty years. Progress made need not be diminished; however, the country must work harder to not only preserve what it has already achieved, but also engage more encompassing issues in a deliberate manner.


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Has Mario Draghi Saved the Euro?

September 13, 2012 by

European Central Bank President Mario Draghi. Monika Flueckiger/swiss-image.ch

Germany’s Constitutional Court gave a green light on Wednesday for the country to ratify Europe’s new bailout fund, boosting hopes that the single currency bloc is finally putting in place the tools to resolve its three-year old debt crisis.

In an eagerly anticipated ruling that has had investors on tenterhooks for months, the court in the southern city of Karlsruhe insisted the German parliament be given veto rights over any increase in Berlin’s contribution to the 700 billion euro European Stability Mechanism (ESM). There were strings attached to its endorsement of the ESM and a separate European pact on budget rules, and a relief rally has occurred as another apparent impediment to a euro “solution” appears to have been eliminated.


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Public Sector Jobs Are Real Jobs

September 4, 2012 by

In 1976 at a time when economists thought more about unemployment, the US economist Charles C. Killingsworth wrote a paper entitled “Should full employment be a major national goal”. He was a long-time advocate of public employment programs and understood how deficient the economics profession was when it came to caring about people.

I thought about this paper recently upon reading an article in the Daily Beast by the always insightful Michael Tomasky, “The Real Obama Needs to Fight Five GOP Myths About the Imaginary Obama” . Tomasky discusses the myths that Obama needs to dispel during his party’s upcoming convention. One in particular caught my attention: the idea that the President needed to confront the myth that he allegedly believes that jobs come from government.


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War By Other Means: Chinese Economic Espionage in the Automobile Sector

September 3, 2012 by

Automobile assembly line in Zhejiang province, China. Image via Business Week

China’s continued development and geopolitical rise, though impressive and seemingly globally-minded, serve as a reminder that its dual economic and security-focused interests remain a threat undermining both competitors and trading partners.

In May of this year, the US Department of Defense released its annual report on China’s military capabilities, entitled, “Military and Security Developments Involving the People’s Republic of China 2012.” The report outlines a growing and emerging Chinese military focused on obtaining Western dual-use and military technologies by any means.


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Products with a Purpose

August 29, 2012 by

Fair trade coffee beans being sold in West Bridgewater, Mass. uusc4all/Flickr

In Eli Marmar’s life story, water is a recurring theme. “I was raised in the Bay Area as a competitive swimmer and spent my formative years in the ocean surfing. It rained on my wedding day. My son was born in a birthing tub.” No surprise then that he launched his company Freewaters with one mission: provide clean drinking water, one pair of sandals at a time.  That’s right, sandals.  San Francisco-based shoemaker Freewaters represents a new breed of social enterprises that have philanthropic agendas built explicitly into their corporate DNA.

Beyond the traditional selling points of price and presentation, companies like Freewaters are offering products that directly support a humanitarian purpose—and the concept is catching on fast.


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Greece is being kept alive by the ECB’s Emergency Lending Authority

August 10, 2012 by

Mario Monti, Mario Draghi and Angela Merkel in Brussels. Image via European Council

Greece has moved off center stage, as Spain has become the preoccupation de jour for Europe’s increasingly embattled authorities. But one has to wonder how the Greek banking system has managed to sustain itself over the past several months, given widespread deposit flight and the country’s ongoing solvency challenges. Well, we now have a better idea, courtesy of a leak to the German weekly news magazine Der Spiegel, which has published information about ECB plans to keep Greece on its feet until the next tranche of European Union-International Monetary Fund aid is paid out.


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How Far is the ECB Prepared to Go to Save the Euro?

July 29, 2012 by

ECB President Mario Draghi with Ramon Tremosa. Image via European Council

Re-reading Mr Draghi’s market-moving remarks last Thursday, one gains a sense that the European Central Bank chief recognizes that the ECB has a banking run on its hand. Most market participants have understandably focused on Mr. Draghi’s pledge that the ECB was “ready to do whatever it takes” to preserve the single currency. “Believe me, it will be enough,” he told a conference in London.  We prefer to focus on other aspects of the speech.

It is particularly salient that Mr. Draghi highlights the fatal flaw of the euro zone noted by Professor Peter Garber some 14 years ago: As long as there was no perceived probability of euro exit by any euro nation, the established transfer system coupling private markets with European system of Central Bank support (Target 2, ELA, ECB repos) would function like any other monetary system in a single nation state.


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