Friedman’s warning for the time

At a time when people look to governments to solve all sorts problems, the cautionary words of Milton Friedman come to mind from this 1979 interview. Even when capitalism, which is no perfect system, seems to fails let’s not fool ourselves that men in politics can save the world. We shall never forget that government contributed to creating this crisis (through bubble inducing monetary policy) and fell to enforce even the regulation on books (Madoff anyone?). Freedom depends on free markets and free-thinking people.

The Middle Class Engine of Growth

One of the greatest achievements of globalization has been the lifting of billions of people out of poverty and into the middle class which is the engine of economic growth. By the 1960s the middle class consisted of about a third of the world’s population, now more than 50% can be counted as middle class according to research by Surjit Bhalla, an Indian economist, with most of the growth coming from China. People in the middle class are generally more open-minded, more concerned about the future of their children, and prefer free markets and democracy which are better to balancing conflicting interests and promote growth. The middle class is also more likely to invest in education, new products and technologies, start new businesses which can generate jobs and are vital to prosperity.  With the economic crisis rolling around the globe and the risk of reversing globalization, the rise of the middle class could stop or reverse leaving the whole of humanity much worse off and a lot poorer potentially leading to instability and conflict.

Darwin’s evolution and humanity’s fate

This year will be the 150th anniversary of the publication of Charles Darwin’s theory of evolution. Evolution suggests basically that all living things are related and ultimately descend from a single common ancestor. This revolutionary theory has troubled many throughout history because it challenges the idea of divine creation. As a result countries where religion is important are least accepting of evolution. Seeing how many people in rich countries, America especially, do not embrace evolution despite mounting evidence is hugely disappointing for humanity. If even people who believe themselves to be living in ‘developed’ countries blessed by higher level of education cannot rid themselves of dogma and embrace the more rigorous discoveries of science, the future of humanity will remain at great risk. The survival of our species depends on our ability to adopt to new environments and use our scarce natural resources to survive natural disasters. This will be impossible if we do not realize that humans of all races and beliefs are part of a shared family whose survival depends on adaptation rather than divine intervention. Let us educate, not pray for, our children about who we truly are.

Dangerous temptations in times of panic

In the annual report published by an American think-tank called Freedom House, freedom in 2008, for the third straight year, appears to be in retreat across the world. The report attempts to rate the freedom of each country according to several measures of political rights and civil liberties. The study finds that freedom was repressed in 34 countries with countries in sub-Saharan Africa seeing the most erosion. The number of electoral democracies fell by two to 119 but 2009 will be a difficult year as economic collapse could put young democracies under extra pressure. History shows that days of rising protectionism and nationalism are fertile times for authoritarian regimes to impose further restrictions on freedom. It would be a tragedy if today’s  economic collapse would allow governments to tempt voters to trade freedoms for the relative security that can be imposed at a great cost with more government controls and powers. Sadly however it would not be the first time and it is a very likely scenario in times of panic and uncertainty. Let us not forget the great cost at which today’s freedoms have been acquired.

An oath in the bleakest of winters

America swore in its 44th president, the first black man to takes charge of the White House, not even a century after black Americans were still living in segregation. In an age where the American dream appears to be fading fast, this day marking another peaceful transition of power in an often bloody world served a powerful reminder about America’s amazing ability to renew itself. Beyond the celebration however this president faces huge challenges that will require tough decisions in order to solve major problems such as failing schools, poor health care, lost jobs and tackling global warming. Accomplishing all of this in a time of economic crisis and soaring public deficits will be an even bigger challenge and Mr. Obama knows this comparing the current crisis to the bleakest winter of the Republic’s history, when George Washington’s battered army lay at bay at Valley Forge. He promised an end to “putting off unpleasant decisions” but we shall see how these good intentions will fare against taking on the well entrenched interests and lobbies that are at the core of this amazing and yet sometimes seemingly doomed modern American Republic.

The quickly depleting seas

Oceans have provided humanity with a rich source of food and economic well being. Rampant overfishing however has caused fish stocks to fall everywhere. The global catch exploded to 93m tonnes in 2006, according to the UN’s Food and Agriculture Organisation, compared with just 19m in 1950. Better technology has enabled fishermen to catch more, smaller fish and recent research by Scripps, a marine-science research organisation, speculates that fish species may have declined by up to 80% from their original state. This is a disaster given how important fish is to human diet and the well being of entire communities around the globe. The tragedy is that depleting the seas is unnecessary and completely avoidable. Creating a global system of granting property and trading rights to fishermen, societies could encourage conservation and better use of scarce resources but narrow minded nationalism still prevails and until a big disaster strikes we fear inertia will prevail and proper safeguards may come too late.

Bailing out of 2008

2008, a very difficult year, came to an end shaped by 3 major forces:

a) Economic Collapse: The credit and real estate crisis developed into a global financial crisis when in September investment bank Lehman Brothers declared bankruptcy while the American government seized control of giant insurer AIG, and big mortage lenders Fannie Mae and Freddie Mac to avoid their catastrophic collapse. Some big banks failed while others were folded into larger ones  (Merrill Lynch, Countrywide, Wachovia, WaMu, etc) to avoid panic. With credit tightening, the American government also unveiled bail out packages to prop up banks and the financial system while the Federal Reserve slashed interest rates to zero and started to print money. Global stockmarkets collapsed wiping out trillions of paper wealth and with consumers drastically cutting spending economic activity collapsed in the US and around the world leading to mounting losses of jobs and confidence.

b) Horror paid humanity its annual visit with its share of disasters both natural and man-made. In May a cyclone devastated Myanmar killing 145,000 while violent earthquakes flattened villages in Sichuan, China’s most populous province killing 70,000 (obscuring somewhat the Beijing olympics already tarnished by the riots in Tibet). Besides continued wars in Iraq and Afghanistan, in August Russian tanks rolled into Georgia’s South Ossetia followed in November by terrorist attacks in Mumbai, India’s financial center and in December by Israel’s war against Hamas in Gazas to round up a bloody year.

c) Hope and fear dominated the end of the year with the election in America of Barack Obama as the first black president raising the prospect of change in all sorts of Amercan government policies. The reality of economic collapse with million of Americans unemployed raised fears however of a long recession punctuated by the scary images of the Great depression becoming more prominent in the once roaring American psyche.

Offshoring and rationing medical care

As economies falter protectionism in on the rise and will hurt everyone. Americans who often are afraid of seeing their jobs offshored have been quite happy to soak up Asian savings and cheap products to raise their standard of living. Now even more of them are discovering the benefits of medical tourism. With 46m Americans lacking health insurance, and millions more facing huge out-of-pocket medical expenses, Americans are increasingly heading overseas to cheaper facilities where many treatments can be done in world-class hospitals abroad for a fractions of the price charged by American hospitals. Recent research shows that American health tourists will rise from 2m in 2009 to 10m by 2012.

People voting with their feet are sending a clear message to the health care industy and the American government which overregulates this sector stifling innovation. Although many in America would love the expansion of government run health care beyond the already huge Medicare system (operated with gargantuan deficits), the reality is that Americans do not want to face up to the trade offs and compromises required to provide health care to all. Those who are well covered by subsidized company plans are keen to protect their privileges until of course they find themselves out of a job and without coverage.

A modern society however should not tolerate having millions of people without basic health coverage because this hurts everyone by lowering productivity and imposing hefty costs on taxpayers. In a world of unlimited demands and scarce resources the clear solution remains rationing care. This is already done by the hated HMOs, and any other system whether run by private entities or governments would continue to face the hard choice of measuring costs versus benefits. The clear challenge is to tackle privileges  and realign services and resources more rationally. Clearly even rich societies cannot afford to provide unlimited medical care to everyone, but they owe it to themselves for financial and ethical reasons to provide at least some basic health care services to all its citizens. It would be too much however to hope that political rhetoric will allow a proper debate about this very sensitive topic so we expect more American to happily travel seeking excellent medical care at a lower cost in foreign facilities far away from the hypocrisy.

The Madness of Man and War

The marking today of the 90th anniversary of the end of World War I gives us time to reflect on the madness of man. Nature and the animal kingdom are filled with examples of cruelty in the battle for survival, man however, a species supposedly blessed by a  superior intelligence, excels above all in the art of killing and warfare. History is littered with bloodshed, some caused by inevitable natural disasters, but most is the result of the belligerence man that has not been tamed by the painful lessons of the past. In World War I for example some 20 million soldiers and civilians are thought to have lost their lives (70,000 died just in 1 day in the battle of Somme). Although ancient history through the middle ages and modern times have seen numerous conflicts and death, the 20th century was by far the bloodiest. Over 70 million people, the majority of them civilians were killed in World War II making it the deadliest conflict in human history. Trench warfare of course pales in comparison with the deadliness of the nuclear bombings by America of Hiroshima and Nagasaki, which claimed 140,000 and 85,000 lives. By far the worse however were the slow extermination by Nazi Germany under Hitler of millions of jews and europeans in gas chambers and concentration camps. On an even grander and more disgusting scale were the millions more of russians and chinese who died in gulags, labor camps or of famine under the madness of communist cultural revolutions created in Stalin’s Soviet empire and Mao’s China. As we write today, conflicts are still flaring in almost all of earth’s continents, some small others far bigger, pointing to a future where humanity’s tears and blood will still flow abundantly as if to prove that man is a species whose madness still far surpasses its own limited intelligence.

Electing a messiah of change

The election of Barack Obama as the first black president of the United States of America is a historic event. Beyond his talents, Mr. Obama achieved this feast mainly by presenting himself (and being warmly embraced by the media) as a messiah of change. Of course politicians of all creed claim to embrace change during elections and we still remember Mr. Bush, like many of his predecessor, selling himself as a uniter  able to work with Democrats in his home state. Beyond the rhetoric, however, there are clear problems with Mr. Obama’s vision of change and the likelihood of it coming to Washington.

• Prior to election night, the Democratic party already enjoyed majority power and led congress for the last 2 years with little results. More importantly, given the huge expansions of government achieved by the former Republican party majority, it is clear there is very little difference between the two parties’ interpretations about the role of government (merely a tool to support their electoral base).

• Mr. Obama himself seems an old style politicians who has always duly followed his party line and happily leveraged the power of lobbyist (lawyers, unions, etc.) to raise millions and get elected. Like a good old politician he was quick to betray his promise to use public financing for the election which would have limited his campaign spending and was able to spent three times as much as the hapless Mr. McCain.

• While the rhetoric focused on change, the core vision of change being offered by Mr. Obama is little different from the status quo. Mr. Obama believes in a major expansion of government action to fix all sorts of problems – economy, health care, climate change, etc. This is the same trend that the US has adopted since the election F.D. Roosevelt and has led to the expasion of federal powers and public spending beyond the imagination and intent of the original constitution.

• The fundamental problem is that Mr. Obama like many of his predecessors believes that elites know better than the public. Unfortunately, like the depression that assailed the U.S. just as Roosevelt came to power, today economic crisis has its main roots in the failure of government and politicians and not in the failure of the markets, which are mainly communication systems often misread by greedy investors.

• As Milton Friedman proved, the depression following the market crash 1929 was caused by the idiotic policies of the Federal reserve, US government and the restriction of trade. Like Friedman, future historians will prove that the credit crunch of 2008 was caused again by the policies of the Federal Reserve, congress, and presidents eager to promote home ownership and to cushion the business cycle with easy money. Look at the facts: the crisis started and developed in the housing markets and banking industry, two of the most regulated sectors of the economy with a plethora of government agencies that failed to provide the proper oversight.

• Despite this, Mr. Obama faults the economic crisis on the lack of regulation when in reality the core problem remains the failure of a bloated government that in trying to do too much fails miserably even in performing its key functions: providing security (terrorism fostered), disaster planning (katrina mess), and market oversight (SEC, Fannie, Fed sleeping at the wheel).

We wish Mr. Obama well but until Americans elect a congress and president that understand what kind of change is truly necessary, we believe that even bigger disasters lie at the horizon. The global investors who have been buying American treasuries, that are vital to finance this ever bloated US government, will one day stop financing this madness as they realize that Americans can no longer pay their own and their public sector’s ballooning debts (just think how big the deficit and liabilities of social security and medicare already are).

Mr. Obama, like his predecessors, has clearly stated that he wants government to spend more in all sorts of things (yes we can, he says) and by doing that he will ensure that the day of reckoning will edge ever closer marking the crumbling of America as a superpower. Historic as this election was, the greatest Americans remain by far the founding fathers whose vision of small and limited government was truly revolutionary but could not last the rise of political parties and elites hungry for ever more power, which is after all the driving force of politics.