Now for the personal economic commentary: On the economic front I was saddened to see Angela Merkel, the German Chancellor, saying all the wrong things.  In the Tuesday December 7^th US print edition, it was reported that:

 Angela Merkel, the German Chancellor, has ruled out two of the most widely backed ideas for combating the ongoing eurozone’s debt crisis, saying that she saw no need to increase the size of the European Union’s €440bn rescue fund and that the bloc’s treaties did not allow for the creation of a Europe-wide bond.

This seems crazy to me.  No government can buck the market – we have seen this time and time again.  In recent days the cost for European countries to borrow has soured, and talk has moved beyond Portugal (they will have to be bailed out) to Span, and even Italy.  Faint murmurings were heard in regard to France!  The problem is that the fund, as is, is not big enough to save Spain!  So there is no choice but to talk up the idea of the fund being bottomless.

The second point is more political than economic.  The German government does not want to take on a real liability that will materially impact their own borrowing costs.  As it stands today Germany is somewhat insulated from its weaker partner conditions.  With a Euro bond, the increased cost to borrow would start to spread more evenly acorss the community.  This would tarnish German economic ‘success’ (ignoring the fact that the very imbalances created by Germany’s export led economy are part of the problem).  What they are not thinking about is what happens when Spain goes under.  At that point the talk will drift back to “the Euro is doomed”.  What price the cost of borrowing in Germany then?

A larger fund and a Euro bond, mutual liability, is about as good as it could get.  These would be stronger weapons to tackle the “market”.  If Merkel continues to resist, disaster for the eurozone is more a matter of time.

And what did I see the following day?  In the Wednesday December 8^th US printed edition, the headline was, “Is there the will to save the eurozone” from columnist Martin Wolf.  Hang on everyone – its gonna get pretty wet in here soon.

Briefing: America’s Public Debt – Tomorrow’s Burden.  An up to date review of the dire situation we find ourselves in.  You need to stay on top of this to appreciate the pickle we are in re politics and economics.  Our children will be materially impacted by this. 

Schumpeter: The Three Habits…of highly irritating management gurus.  Somewhat tongue-in-check look at how management gurus, over the years, peddle, then re-peddle, their skills.  How is it that a book that hails the new business models and leaders, less than 2 years later, have little credibility as industry winners succumb to the next cycle?  Why is it that no single tenant remains universally dominant?  Is it that traits that lead to winning are, by definition, dynamic and changeable?  If so, what value is in reading a book or consulting with a guru who will be out of date by the time you get to the last page, or he has cashed the last payment?  Why indeed.

Silvio Berlusconi and Italy’s Judges: Injudicious – The prime minister’s worrying plans to promote judicial reform in Italy.  You have to read this article.  It highlights what a farce the Italian prime minister is making of Italian politics.  The guy is a crook (a Brit had been found guilty of receiving a bribe from someone – everyone knows it is from a dealing with Mr. Berlusconi) that owns a sizable chunk of the press and TV media in Italy, who keeps changing the law to ensure he, and his political cronies, cant be prosecuted for any wrong doing.  It is amazing that in 2009 this can go on. 

INTERNATIONAL: The Roman Catholic and Anglican Churches – Unleashing the Counter-Reformation. Quite amazing article on the offer, by the Catholic Church, to allow disaffected Anglicans, who are torn by their own inability to reconcile itself to the social fractures, divisions, and sub groups (we call progress) in our society, to join the Catholic Church.  More importantly the offer is not for individuals, but for whole churches!  The vary fractures in society that are creating stress faults in the Anglican Church are being used as reasons to allow for them to “return” to the Catholic Church.  As the article quotes at the conclusion: “As Richard Chartres, the Anglican bishop of London, commented, the pope’s initiative “sounds to me like a vindication of the idea of married priests, which was one of the achievements of the Reformation.”  He was being ironic.  Probably.”

October 17^th-23^rd

Unconventional monetary policy: Loose thinking – Japan’s sobering experience of quantitative easing.  A draw on the Japanese experience of the last 20 odd years whereby “quantitative easing” (what we in the west are undertaking) has not worked, so the Japanese recessions has long endures and low-growth is the norm.  I have a book on my reading-list on this topic which I need to get too soon before this is old news.  The idea is that Japan, when their economy hit the wall, took too long to respond in this fashion, and never stuck with it as long as they should have.  The result is an anemic economy that never quite get’s going again.  The US, UK and some other western nations responded to their own recent crisis much faster, and much more quickly, and though the risk of a “slow growth” period looks pretty sure, it seems the west might survive the risks the east did not.  Well, that’s the hope.

October 10^th-16^th

Buttonwood: The Nature of Wealth – The World confused financial assets with real ones.  Interesting if all together brief review of how assets are defined, and measured.  And how we collectively respond to signals for managing and getting value from them. 

Sport and Game Theory – Common-room Quarterbacks.  One of my favorite topics, game theory, explained in terms of how teams play (American) football.  Specifically, how particular responses to few or frequent interactions, can be leverage in order to maximize value…or not…

I had to smile.  Some years ago, even after she left office, the Economist used to track the number of times Margaret Thatcher’s name was in the press, week on week, as a measure of success (or notoriety) of her beliefs.  I lived in the UK through her reign, and just before and after it, and am well versed in the history of Britain in the ‘70’s.  Bottom line – her beliefs were divisive – one part of the population understood her message, believed it, and realized the world had changed and we had to change (somewhat painfully) with it.  The other segment of the population did not understand, did not agree, and felt they could/should preserve (or grow) the “nanny state”.   One group, the former, believes in equality of opportunity; the other in equality of outcome.

It is the “nanny state” to which we now march so willingly in America.  But her quote stands up well.  In fact while driving one of my boys to school today and listening to the news, I heard an article being debated about applying government funds to appliance manufacturers.  The point promoted was: “if the auto-industry get’s hand outs, and banks too, why not us?”

This led me to think of two important economic issues: crowding out and distortion.  For every dollar pushed by the government toward one stake-holder, and by definition, not for another,  the balance across all stake-holders is revised (read distorted).  The natural order of things – whatever that would be – is consciously changed not by an economic behavior but by political behavior.  Two things we know – the law of unintended consciences will lead to other stake-holders to get around the system; to “level the playing field”.  Second, we are playing with income or wealth re-distribution.  

Crowding out takes place when enough government invested money, prevents commercial funds from making the same investment.  On the surface this sounds fine; in practice it leads to a mess.  Governments are not investing for any profit-based strategy that follows any creative destruction motivation.  Governments invest for social and political reasons.  The former creates, through pain, cyclic growth.  The latter creates pain, through infrequent step-wide growth.

The year after Margaret Thatcher was kicked out of the Conservative Party, I joined that organization at a local level (where I lived).  I was so upset at how the “dark suites” (as the grandees of the party were called) treated her.  I wanted to do my part to help.  For local elections I did door to door work, polling my neighbors on their political voting leanings.  I was aghast!  These houses were nice: detached, 4+bed, nice yards, with 2 or 3 cars, color TVs, computers, even boats.  These were home owners (something that had improved dramatically under Thatcher).  They were mostly middle class to working class.  Not 50 years before they would have felt themselves working class and happy to a black and white TV and 1 car.  The very policies that led to sustained growth, despite the odd call to the IMF and currency devaluation, were being ignored.  I could not understand how picky “normal” people are; how easily they pick and choose which part of history they remember.  Too many folks said to me, on door step after door step, “well, what did she do for me lately?”  I quit the party – realizing that there are no rational voters – just people.

Go Margaret!