back

Cyreenik Says

January 2011 issues

Panic and Blunder Time in the Middle East

This 28 Jan 11 WSJ article, Arab Unrest Spreading by Matt Bradley and Bill Spindle is one of dozens on the riots and unrest spreading through the Middle East.

This is a scary and novel time in the Middle East. This kind of unrest hasn't happened for many decades, which means no one is quite sure what it means or how to respond to it.

Novel and scary and requiring a fast response: It's clearly Blunder Time in the Middle East.

Watch for a lot of excitement and a lot of mistakes to be made. The rioters and the people they are bringing to power are enthusiastic, but not experienced.

One of the ironies of this crisis is that while Middle Easterners are likely to blame the CIA, the American organization most deeply involved is the Federal Reserve. With the implementation of QE2 and its massive bond buying, the US is exporting inflation, which is the root of the rising food prices, which is the trigger for the current unrest.

Update: Further insight into the Middle East unrest: Like Greece, these countries with deep unrest also have large percentages of the population employed by the government. See this 10 Feb 11 WSJ editorial, Is Egypt Hopeless? by Daniel Henniger for details. This means solving the unemployment problem will have take as much deep pain as solving the political problem.

 

Russia's Permanent Blind Spot: Enfranchisement

Question: What do the Jan 2011 Domodedovo Airport terrorist bombing and the Dec 2010 second trial of former Russian oil tycoon Mikhail Khodorkovsky have in common?

Answer: They are both examples of disenfranchisement doing huge damage to Russian society, and they show that the people of Russia and their rulers are blithely unaware of it.

One of the consistent policies of Russian rulership from the days of the Czars through the days of the Soviets and into contemporary times is that of practicing blatant discrimination -- there are people who are "in" and command the resources of the nation, and there are people who are not, and what the law says matters a whole lot less than what the people who are in say.

The advantage of this is that resources can be marshaled quickly and they are directed by central planning. The disadvantage of this is that it creates rampant disenfranchisement in the society, and this disenfranchisement is the root of the violence, corruption and apathy that are so much a part of Russian day-to-day living.

For Russian society to improve dramatically, the Russian people are going to have to see the linkage between their violence, corruption and apathy problems and the disenfranchising caused by the governing style they permit their rulers to use.

Russia's experience is a cautionary tale for the US: We are not going to improve public safety by trampling on the rule of law -- doing so is a prime ingredient in disenfranchising. It is ironic, but having a strong secret police (anti-terror aspects of Homeland Security) does not add to public safety because it promotes disenfranchisement, which leads first to apathy, then corruption, then violence.

Update: Here's an article about an example of Russian Blunder spawned by this crisis: color coding terrorism. Russia considers color-coded terror threat alerts, 28 Jan 11 AP, by Jim Heintz. Color coding didn't work for America, but it felt good at the time. Now the Russians are going to try it for the same reason.

Update: Instead of enfranchisement, Russia is caught in the vicious circle of ruthless leadership, as explained in this 2 Feb 11 WSJ editorial, The Roots of Moscow's Chechen Problem by Elena Milashina. The Chechen violence justifies the Putin administration's getting more ruthless in the eyes of the average Russian citizen.

 

Surprising Good News: Obama's WSJ editorial

Barak Obama's 18 Jan 11 WSJ editorial, Toward a 21st-Century Regulatory System, was like reading a fairy tale ending for me. This is the "hope" I voted for when I voted for him two years ago. In this editorial he is: a) talking about the right topics and b) saying the right things. Wah WHOOO!

Next we get to find out how much of a fairy tale it really is.

But... I'm really, really happy to at least be hearing the right kind of story for a change. It's a step in the right direction where all the previous steps have been in the wrong direction.

Update: In this 19 Jan 11 Huffington Post article, President Obama Gets It Right: Regulation Hurts Innovation, So Why the Public Backlash? by Gary Shapiro, president of Consumer Electronics Association, Mr. Shapiro discusses the unfavorable reaction to the WSJ editorial. A lot of the comments were negative and only seven people "liked" the article to Facebook. (I'm one of those seven.)

Personally, I'm as surprised as Mr. Shapiro. And disappointed: If a lot of people are going to boo the president when he takes his first baby step in the right direction, why should be expect him to take any more in that direction.

Most disappointing... most disappointing... There's a lesson in human thinking in this somewhere, but it's going to take a while for me to figure it out.

 

Red flag in the sunrise: US exports inflation

This 18 Jan 11 WSJ editorial, The Latest American Export: Inflation by Ronald McKinnon, talks about the dark side surprises that will come with quantitative easing. It discusses how expanding the money pool in America leads quickly to more "hot" money which flows into overseas investments, which overheat the economies of developing nations. The results, the article points out, are nasty for years afterwards to both the developing countries and the US, and gives examples of the aftermaths of 1971 and 2003 money expansions.

This is an example of a place where we, the US, need to be looking for a better way to solve our fiscal and economic problems.

Update: Here is a 23 Feb 11 WSJ editorial, The Federal Reserve Is Causing Turmoil Abroad by George Melloan, talking about the relation between Fed policies and unrest in the Middle East. It looks as if Ben Bernake ought to get a few statues of himself put up in town squares across the Middle East for being "Rich uncle of our new nation".

 

Surprise Technology Use: The Housing Bubble Created Jobs

This Ah-Hah! came to me as I read several articles in the WSJ complaining about how the Dobbs-Frank bill was killing job creation because it was killing credit creation for small entrepreneurs, and an article posted by Luc Vallée on 13 Jan 11, Housing Crisis Climax, on his site also about the housing crisis.

The Ah-Hah is: One of the less recognized changes that the US housing boom of the 2000's made was transforming how US small and medium size businesses were financed. Instead of going to banks and asking for a business loan, many, many small time entrepreneurs chose a quicker and simpler financing route: They got a home loan or charged business operating expenses on their credit cards.

When the Housing Crunch kicked in with a vengeance in 2007, this avenue of financing began to get cut off, and as the Great Recession has continued, it has remained cut off.

This partly explains why the jobs recovery from the Great Recession has been so anemic: aspiring small business people can't get the loans they used to, so they can't grow their businesses like they used to. And, more important, it seems to be an unrecognized factor in much economic policy making.

This an example of a surprise use of a technology. No one in the late 1990's or early 2000's who had much to do with house financing was thinking, "Hmm... this is going to have an enormous effect on job creation, and I'm not talking about the construction industry, I'm talking about throughout the US economy."

This is the kind of surprise relation that we need to be aware exists. And now that the world is getting more interconnected, these surprise relations exist more and more.

Understanding this kind of surprise relation, and being able to deal with them when they pop up, is much more important to maintaining economic stability than seeing economic events through the prism of human weakness, such as, "This mess was caused by bankers being greedy."

 

-- The End --

back