lifeflakes

Lots of companies engage some sort of marketing strategy to unveil or push their goods and services but few, unlike Apple, excel in the art of creating infinite buzz and hype about their products. The latest example of this power was the release this week of the new iPhone aimed at the booming smartphone market. The event unveiling the product was preceded by weeks of speculation and high press alerts about what features this new Apple toy would include. Less surprising was the fact that the hype was completely unjustified given that the new iPhone would only include features (mainly 3g, and GPS) that have been offered by competitors for some time. Clearly the iPhone is still a superior product in terms of design and ease of use (especially when navigating the web) but more will be needed to catch up with Nokia the market leader with a substantial market share. Apple is betting that the ability of external developers to build applications for the iPhone will enable it to boost growth however Apple’s proprietary technology will likely be inferior in the long term to Android, the open source mobile platform launched by Google. It will be interesting whether Apple’s preference for proprietary closed technologies used by the iPhone will prevail in the end. It is truly entertaining however to see so many open source technology enthusiasts who criticize Microsoft’s proprietary instincts turn a blind eye almost in adulation for Apple’s flair to sell plenty of hot air.

Despite the hype and celebrity show-offs about the need to increase economic aid to poor countries, the reality is that no amount of charity can truly eliminate the underlying reason for poverty: the lack of economic growth. Economists are not popular souls and targeted charity can deliver benefits but it does not take a PHD to understand that no country can provide its citizens a decent life mainly by relying on the subsidy of others. A recent study on the subject sponsored by the World Bank (“The Growth Report: Strategies for Sustained Growth and Inclusive Development”) looked at 13 countries that since 1950 have grown at an average rate of 7+% a year for 25 years or longer. The report notes that, although the causes of growth varied significantly between countries, they all seem to share 5 characteristics: 1) full exploitation of the world economy (importing bright ideas and technology; producing exports that others want); 2) macroeconomic stability; 3) high rates of saving and investment; 4) letting the market allocate resources; and 5) committed, credible, capable governments. The table above shows a few countries that are growing fast with India and Vietnam on their way close to joining this select group. The bottom line is that good economy policy and especially embracing free markets and free trade can bring millions of people out of poverty more than any amount of feel-good charity.

The rise of oil prices have been depressing Americans for some time now. Having forgotten the oil crisis of the 1970s and having enjoyed for two decades cheap oil prices, American’s expansive car culture degenerated into a passion for large (SUV) vehicles whose gas tanks cost a fortune to fill nowadays. With growing demand from booming emerging markets and a weak dollar, high prices are likely to persist for some time (this week they reached $122 a barrel versus $15 ten years ago). Politicians have lost no time to pander to these concerns while as so often the case ignoring basic economics. The truth is that market prices, when undistorted, provide valuable feedback about economic choices. Although no one likes to pay high prices at the pump the reality is that humanity is depleting its oil reserves at greater speed as prosperity spreads around the globe. The sooner we realize that we can no longer continue on current trends of oil consumptions, the sooner we will begin to aggressively invest in switching to energy alternatives. This will be a painful, long and expensive process upon which the health of our planet and even our future prosperity clearly depend on.

There used to be a time when video games were just games for the kids but today ever more adults are using them for entertainment purposes. No surprise then than this once small industry has become a multi-billion dollar business with great growth prospects. New technologies however are often not well received by older generations who fret about their potential of polluting immature minds. Tv, rock music, club dancing and even the internet have been singled out over time for the breakdown of society, decency, social interactions, independent thinking, and infinite other social ills. It is no surprise then that one of the best selling video game called Grand Theft Auto (GTA) where violence prevails, is continuously under attack. Despite no study has shown that GTA or other video games lead to increase in violence, politicians love to make grand standing speeches about “protecting our kids”. We do not know whether it is irony or coincidence that some of them were too busy sniffing and smoking in their younger years to recall the graver sins committed on their summers of love.

The uprising in Tibet against China’s occupation provides an important test for China and the world. As the power of China grows, it will become clear what kind of China the world will have to deal with in the future. There are worrying signs: China’s support for awful regimes (North Korea, Sudan, Myanmar, etc); growing Chinese nationalism (especially visible in reaction to large protests that greeted Beijing’s Olympic torch in Europe); the communist regime’s continuing restrictions of human rights and basic freedoms do not bode well for the future. Olympics have always been ideal tools of national propaganda but the rise of a resentful and undemocratic China will pose serious risks to world peace especially as the conflict over Taiwan may degenerate into a dangerous war. History is filled with examples of humans’ potential for mischief, there is hope however that the rise of a prosperous China ever more integrated with the global economy will provide an incentive toward ever more cooperation. In the end free markets remain humanity’s best hope for peace and prosperity long after the theatrics of Olympic brotherhood and its torches will be extinguished in Beijing.

Credit seems one of those wonderful things in life that can help people make ends meet in difficult times. The financial system is one of mankind’s greatest creations when we think about it because it enables us to leverage other people’ savings to invest in and produce new things. Think about it: we may not trust some of our neighbors and yet in search of some kind of return, through banks, we lend money to and borrow from people we never met. The problem with credit however is that most consumers today use it regularly to increase their spending rather than leveraging it judiciously in difficult times. Consumers have been increasing the use of credit across the world (see chart) and millions of people today struggle to make every month payments on high interest credit cards. The credit card industry is excellent at peddling its wares but the credit crisis afflicting consumers is something that each of us needs to take responsibility for us. Let’s face it, unlike previous generations who led most lives, the new generations have become spoiled, we want it all, we want it now and living beyond our means has become a dangerous addiction. As with all addictions the pure will be long and painful and admitting we have a problem would be a good first step in long journey.

There are more worrying signs that America’s long party is over. The dollar continues to lose significant value with the exchange rate reaching new lows against the euro and yen (see chart). This is partly due to the financial uncertainty following the sub-prime mess and the Federal Reserve’s action to aggressively lower interest rates. The greenback’s loss of value is however mostly a result of Americans’ addiction to borrowing and living well beyond their means through OP(iu)M (Other Peoples’ Money, mainly the borrowed capital provided by Asian savers). Given the dollar’s role as the world’s preferred reserve currency, the devaluation could have been fiercer and no doubt the dollar will rebound somewhat over the long run but the loss of purchasing power and the impact on American consumers will have long lasting repercussions.

New York has enjoyed the unrivaled status of being the financial capital of the world for some time. The animal spirits of capitalism after all are nowhere more ebullient than on Wall Street where fortunes can be quickly created and destroyed. Unprecedented greed however has undermined this financial titan. Wall Street has seen and survived booms and busts before but in a world where the American economy is not the only powerful engines anymore, Wall Street may have sawn the seeds of its own demise. The sub-prime craze, the high levels of debt and leverage, corporate fraud, not to mention the crumbling dollar are the sign that mark the end of an era. Wall Street, being rescued by Sovereign Funds or the Feds (see the virtual collapse and rescue of Bear Stearns this week) point to diminished future in a world where capital flows can be directed quickly to many hungry markets. Wall Street will always have its bulls but the era of sole supremacy is over. It is now up to Washington to determine whether the American economy will remain competitive or go down the same sorry path of slow decline.

Taxes are a necessary evil, we are told, and that may be fine when taxes are aimed at providing services in areas where markets struggle (such as national defense, helping the poor, policing, etc.). The problem is that with the expansion of government and related taxation seems to know no boundaries. As a matter of fact despite the level of federal taxation in America has increased abundantly over the last century, the federal debt continues to balloon as entitlements get out of control (pensions and health care). The bottom line is that governments are hungry beasts and they will continue to claim a greater portion of people’s incomes unless we rethink their role in our lives. European countries (see table ) with high taxation and highly regulated market offer valuable lessons as their citizens struggle to prosper in low growth, high unemployment economies. In the simple words of Winston Churchill: “We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”

In a post-industrial era where information and the exchange of ideas are as critical to the wealth of nations as much as capital, it is very alarming to see that censorship still prevails in certain parts of the world. In some cases restricting online content to filter, for example as done in many western countries, obscene and violent material especially against children may seem tolerable. However the pervasive censorship performed in some parts of Africa and Asia, especially the Middle East and China is very dangerous. Why should we care if we are not affected by it? Well, censoring free speech online and off is a threat to world peace and prosperity that should concerns us all. By blocking the exchange of information fearful tyrants bend the truth and foment hate and lies that generate extremism and can degenerate into armed conflict. I know these days it is fashionable to be green but next time we worry about saving the planet, spare a thought for our fellow men and women who leave behind these virtual walls and support organizations like Radio Free Asia who try to combat this nonsense.