Cyreenik Says
As if the Midwest didn't have enough growth problems, now comes this: a prescription on how both the city and the suburbs should grow. This 19 May 14 WSJ editorial, Turning the Twin Cities Into Sim City The Metropolitan Council's plans include making sure there is a proper mix of races and incomes in each suburb. by Katherine Kersten, describes how Minneapolis-St. Paul are getting deep into prescription. From the article, "Here in the Twin Cities, a handful of unelected bureaucrats are gearing up to impose their vision of the ideal society on the nearly three million residents of the Minneapolis-St. Paul metro region. According to the urban planners on the city's Metropolitan Council, far too many people live in single family homes, have neighbors with similar incomes and skin color, and contribute to climate change by driving to work. They intend to change all that with a 30-year master plan called "Thrive MSP 2040.""
There are two problems here:
The obvious one is prescription: for some reason the people of the Twin Cities region want to tell everyone the right way to do their habitation. (Yes, I feel they are doing this to themselves.) If this was being used to reduce what I call "Hobbiton" it wouldn't be so bad in my eyes, but there is no indication this is the goal. (Hobbiton is gated and cul-de-sac neighborhoods, randomly winding roads with speed bumps, and the resulting long drives and heavy traffic congestion on the few arterial roads going to shopping and work centers -- as versus widespread Euclidean grid road networks where most roads extend through much of the settled region, ala downtown Salt Lake City)
The second problem is distraction: These people aren't focusing on how to innovate and do their living better by experimenting and discovering more productive ways of doing things. Welcome to continuing stagnation.
I was reviewing my 2003 essay on Manias and Markets, and it occurred to me that the series of exciting events created by the Sochi Olympic extravaganza, Crimea Crisis, and Ukraine Chaos can be creating a market mania in businesses surrounding the Russian/Ukraine region. According the predictive model I described back then, all this excitement in the region should be powering a lot of from-the-heart, low profile investing. These are investments that feel good at the time to those making them, but in retrospect, and from the point of view of a cool-head of the time, they are hasty. Just as important, they are going to bite hind-ends in the long run. When that "long run" will come about is real hard to say, but I'm calling it.
I'm predicting that some time in the near future, one to ten years, the Russian and surrounding economies are going to experience a recession that will be in essence a hang-over from the current mania. The recession, at its core, is going to be about facing the harsh reality that the world Russia's economy plays in has changed, and changed deeply. The current mania is distracting from that reality. The recession is going to be about painful searching for what is going to replace what no longer works. I'm envisioning Japan's "Lost Decade" as what it will be similar to. (See the Russia is a grim place section below for more gory details.)
If Putin is still around as the hang-over threatens, times are going to be strange and scary. He will be ready, willing and able to do even more flag-waving and adventuring to keep the mania strong.
Update: The Russia-China natural gas deal of this month sure looks like another spectacular Putin coup. This 21 May 14 WSJ editorial, The New Non-Aggression Pact: The Russia-China gas deal has strategic benefits for both sides., talks about the implications of this mega deal. But as is pointed out in the article, the details are murky. From the article, "Key details weren't confirmed following the deal's signing in Shanghai, formally between Russia's state-owned Gazprom and China National Petroleum Corporation, also state-owned. Among those details is the price at which Russia will sell the gas, which had been the key sticking point over a decade of negotiation. Word is that whatever the price formula—Gazprom chief Alexei Miller called it a "commercial secret"—the Chinese will get their gas at a nice discount from what Germany, Moscow's main customer, pays."
On the whole, I applaud Putin: The PR success of this deal is astounding, even if nothing else about it is. He's keeping the mania at full steam.
Here are some further predictions:
o Note that the pricing and terms are being kept murky. This indicates that big concessions were made to make this happen now. I'm guessing that Putin's side did most of the conceding.
o Because so much politics is involved, this has a good chance of becoming a "Brat Project" -- my term for one that is going to be messy from the start and stay messy through to the end because the people in the trenches don't want to be working on this and they aren't getting good guidance. This means the completion is going to look like some terrible Rube Goldberg that functions... a little bit. (think the Obamacare web sites launch last year)
o Some time near the announced completion date (in 2018) a series of high-profile scandals will erupt uncovering lots of mismanagement and corruption. This will happen because this is a Brat Project... and because it is the Russian way!
This 15 May 14 Reuters article, Up to 21 dead, doctor says, as anti-China riots spread in Vietnam, describes the Vietnamese getting fed up with the crisis of China putting up an oil rig in the South China sea. From the article, "The anti-China riots erupted in industrial zones in the south of the country on Tuesday after protests against Beijing placing an oil rig in a part of the South China Sea claimed by Hanoi.
The brunt of the violence has been borne by Taiwanese firms, mistaken by the rioters as being owned by mainland Chinese."
These various South China Sea and East China Sea islands have been disputed between nations for decades. It has been more convenient for the Chinese and the other nations around the South China Sea to posture over these rather than solve the issues. Arguing about them has been a great way to do cheap flag-waving drills. Up until now that is. Now the flag-waving is turning into violent riots. And, as is common in from-the-heart issues, the people getting hurt are often innocent bystanders, in this case Taiwanese and other non-Chinese industrialists who share industrial parks with Chinese-owned businesses. And this isn't ending quickly or cheaply. The Chinese are evacuating.
Ah well... it may have always been an over-the-rainbow dream, but seeing that dream come crashing down is painful to watch nonetheless.
This 13 May 14 WSJ article, Watt's New Plan Leaves Fannie's and Freddie's Investors Out by John Carney, talks about how... things have changed. From the article, "Mr. Watt's declaration that it isn't his agency's role to "contract the footprint" of Fannie and Freddie marked a big shift. Under his predecessor, shrinking the role of the two mortgage giants was a central aim."
This is a big mistake. There is no reason -- other than warm, fuzzy, from-the-heart thinking -- why the government should be involved in home mortgages. This involvement distorts the market. It means that decisions are not being made with the "big picture" -- the whole economy -- in mind. As was recognized at the beginning of the 2007 crisis, this is bad. What is not well recognized is that government support of mortgages is sucking resources away from projects that could be growing the economy faster. As I like to say, "Factories first, then housing for all those employed workers."
But now that crisis has past and the warm and fuzzy feelings about home owning are back in full strength. Sadly, they aren't going to be any better for the economy this time around than they were for it the last time around.
Update: This 23 Jun 14 WSJ article, Freddie and Fannie Bonds Don't Share and Share Alike by John Carney, talks about how investors are acting like they believe Freddie and Fannie bonds have government backing. They are happy to buy and they are keeping the yields in the low-risk range.
From the article, "A specter once thought exorcised from the housing finance market may be haunting it once more: the "implicit guarantee."
That describes a peculiar belief that existed before the financial crisis, when it was widely assumed that Fannie Mae and Freddie Mac FMCC would be rescued by the government if they fell into distress. Despite evidence that this idea enabled the two companies to borrow at interest rates close to Treasury yields, government officials denied any such guarantee existed-right up until they rescued the mortgage giants in 2008.
Now it looks like that belief endures, with risks for investors, regulators and taxpayers."
Sadly, it seems that investors don't want these "peculiar institutions" to die and they are backing that wish with their pocketbooks. This means the US housing finance market is going to stay warped away from free market conditions for a long time.
Thomas Piketty and his book "Capital in the Twenty-First Century" are making a lot of news these days. One example is this 3 May 14 Economist article, A modern Marx. I have not read the book, but I have read this article and a couple other book reviews. Here are my thoughts on this hot topic.
I like that Piketty is moving on to new ways of thinking about how money and economies work. I like that he is widening the definition of capital.
I agree with him that declining mobility is a big issue. It is one we need to examine carefully. I disagree with him on what is causing the decline. I think it is single parent child raising. But, rather than try to turn back the clock, we need to adapt to the harsh reality of lots of single parent child raising by building up social structures that give these kids lots of education and opportunity to learn and advance. How to do this is going to take clever thinking and much experimentation.
My hunch is to work at incorporating matriarchy thinking into the process because that's familiar and an old instinct. Support social groups that consist of a sea of care givers supporting a sea of children in a way that gives these groups good resources and training for raising those kids. What comes to mind as an example is how the government set itself up to give recommendations to farmers in the US in the middle 20th century. This helped improve farming steadily for decades, it can do the same for child raising.
For this reason I don't agree that progressive taxation is going to solve the issue -- partly because it is likely to be gamed by those very rich it is supposed to be leveling. Fixing the single parenting social environment is more likely to produce long-term gains.
I agree that the World Wars and Cold War eras were exceptional times in the relation of capital and growth. I disagree with his reasons for that. What I see as the underlying cause of that exception was the developed nations having a "big goal" that everyone in the community could work for: Winning a deeply scary war. That is what made the difference. Conversely, the Hoover and early Roosevelt years were times when the big goal was lost, and replaced with lots of bickering and acrimony, and that's why wealth got concentrated in those times and the economy didn't get fixed. The second war in Europe forced Roosevelt to change his ways, and I applaud him for being able to do so so effectively. He got on the "big goal" bandwagon most dexterously when current events gave him the opportunity to do so.
My hypothesis: The more uncertainty replaces optimism, and the stronger the calls for class warfare and wealth redistribution; the more scared the wealthy class becomes and the less likely they are to invest in the disruptive technologies that will better the world a decade or two later. Why invest in a railroad or a steel mill if it is likely to get nationalized by some populist political party that gains power?
There is a cultural image of Russia as a grim place. This 7 May 14 WSJ article, Putin's Hollowed-Out Homeland Russia's human capital is in steep decline. A 15-year-old boy there won't even live as long as one in Afghanistan. by Nicholas Eberstadt, paints a picture of Russian demographics that matches that cultural assumption. From the article, at the end of a long lists of issues, "Russia's geopolitical potential is being squeezed further by the rapid world-wide growth of skilled manpower pools. According to the International Institute of Applied Systems Analysis in Austria, in 1990 Russia accounted for nearly 9% of the world's working-age college graduates; that share is declining and by 2030 will have dropped to 3%. On this front, as on many others, Russia is simply being left behind by the rest of the world." Eberstadt further speculates, "Despite Vladimir Putin's posturing, he is leading a country in serious decline. If his dangerous new brinkmanship is a response to that bad news, then we should expect more of it in the future, possibly much more."
In this I would agree with him. Putin is a leader who is trying to distract his people from the pains of serious internal problems by entertaining them with exciting external adventures. Given the opportunities presented by Ukraine's chronic government blundering, this is a situation ripe for this East European Blunder Chain to keep on extending.
-- The End --