Crash of the Bumblebee — MY COMMENT

by John Brian Shannon

READ PROFESSOR PAUL KRUGMAN’S ARTICLE “CRASH OF THE BUMBLEBEE” HERE…

Supposedly, the bumblebee is not able to fly according to all the known laws of physics. But fly it does and it does so adroitly.

So too, according to all the known laws of working political models (those are called countries) Europe is not supposed to work. But it does so and is as adroit as any bumblebee will ever… be. Ahem.

Since the ashes of WWII, Europe has risen like the Phoenix of lore, from self-destruction to become a fully-fledged working model. Europe has many disparate parts, you would expect it to be unwieldy and it should definitely not fly. But it has surpassed everyone’s expectations – including the expectations of many European citizens and I daresay, some of Europe’s greatest leaders past and present.

A tip of the hat must always go to the foresighted American politicians of 1945-1950, who gave their blessing to the Marshall Plan to rebuild Europe and feed it’s people, until the Europeans could again feed themselves. Even after that the U.S.A. pursued a successful European project with vigour. There were many disagreements and even outright arguments between the Americans and the Europeans from 1945 right down ’till the present day. No doubt, there will always be differences of opinion, but so much more has gone right, than wrong over the past 67 years.

Differences aside, the U.S needs a successful Europe and Europe needs a successful America. Neither can afford a disaster on the other side of the pond.

The American Civil War can be considered America’s coming-of-age moment, while the gradually coalescing Europe, still fresh from reunification with it’s Eastern European counterparts, post-Cold War, must now forge some kind of coming-of-age moment for itself – or history will indeed pass Europe by.

One such test is the present ‘Eurozone Moment’ — where the wealthy northern European’s (where most of the euro-dollars live) must find a way to co-exist with their poorer southern cousins, who are in hock up to their nostrils.

If Europe can find a solution now, it may well be written down by future historians as Europe’s coming-of-age moment, the glorious moment when Europe realized that she is, in totality, greater than the sum of her individual parts thereof. Let’s hope Europe is self-aware at that level.

What time honoured political strategy could assist us here? I’m glad you asked. For one of the best-tested and time honoured practices for success is, the strategy of win-win.

But how to apply this to the present Eurozone Moment?

By simply finding many different things which will work to mutual advantage, where both sides can gain some amount of benefit. It doesn’t have to be an exact science. Forward progress is forward progress. On some matters, the north may gain more and on other things the south may gain more. What matters here is the need to not lose the Moment! And, to find multiple ways to succeed together.

The simplest idea in the world here is to create some kind of Euro-stock in order to ‘buy-down’ the interest rate of the southern European nations, especially the ones which are deeply in debt, or which have high unemployment and/or stagnant growth.

How could this profit the northern Euro stock-holders? The market works the same, anywhere you go. Price things over 5, 10, 15, 20 and 25 years. Investors will make money on the spread between the estimated price vs. the actual selling price.

If Spain, just for example, is having trouble affording the payments on the debt it owes, it doesn’t really matter that Spain isn’t carrying a lot of debt compared to some countries, what matters is, they can’t make the payments. How better to help Spain pay it’s debts, than to lower the interest rate on the money they owe? If 10% interest rates are killing them, then maybe those same multi-billions of debt financed at 2% interest, won’t.

If northern European’s can make money on buying down the interest rate for Spain, then Spain will be better able to fix it’s economy.

I would call that a win for northern European investors (whether sovereign, institutional or private) and a win for Spain.

That’s how to make a country (or a bloc of countries) pull together — instead of pulling itself apart. That is how to make Europe fly. The trick is to be there when needed, not after the crash.

John Brian Shannon writes about green energy, sustainable development and economics from British Columbia, Canada. His articles appear in the Arabian Gazette, EcoPoint Asia, EnergyBoom, the Huffington Post, the United Nations Development Programme – and other quality publications.

John believes it is important to assist all levels of government and the business community to find sustainable ways forward for industry and consumers.

Check out his personal blog at: http://johnbrianshannon.com
Check out his economics blog at:
https://jbsnews.wordpress.com
Follow John on Twitter: https://www.twitter.com/#!/JBSCanada

JOBS: The Key to Capitalism’s Success

by John Brian Shannon

As we all know, several political/economic models are in use in the early 21st century. A little refresher for you first, if your high-school political science classes didn’t especially thrill you.

The capitalist system employed by the Western nations and some other nations, is often referred to as the Free Enterprise system, the Free Market system, Wealth Accumulation, Capital Accumulation or the Open Economic model – depending on the context of a conversation. Politics can vary within capitalist systems – which are often a variant of democracy (civil rights enshrined in a constitution, the right to vote, rights to property and person and freedom of expression) form part of this model. Socialist parties represent the “left wing” and conservative “right-wing” parties are represented along with independent candidates as elected by the registered voters.

In the capitalist system, greed is the primary agent of economic change. If you want to eat, you work for money to buy your food. If you would rather drive to work than walk, you work for money to buy a car and insurance. An individual “works” to earn “profit” to purchase goods or services. The underlying premise being, that if an individual has a decent education and works “smart” and “hard” you will accumulate wealth over time. Western corporations and governments operate in a similar fashion.

So, why isn’t it working?

“It IS working!” wealthy Western individuals emphatically state.

“It IS working!” Western corporations emphatically state.

“It IS working!” Western governments emphatically state.

And in those cases, it most emphatically IS working!

But the rest of us are not. Working, that is. You know… jobs, working, making a living, paying the bills, making the rent… and all the rest of it.

You will recall my words from a previous paragraph; “An individual “works” to earn “profit” to purchase goods or services. The underlying premise being, that if an individual has a decent education and works “smart” and “hard” you will accumulate wealth over time.”

All good there. Except what happens in the capitalist system when there aren’t enough jobs?

The short answer is; A failed economic system. Ever more wealth becomes concentrated in a ever smaller percentage of the general population. You guessed it — 1% of the Western population will always agree that the Open Economic system works well for them.

For Western nations it is death by a thousand cuts and only in the interests of economic survival will our present system evolve into something very unlike the present model and it may take as long as 50 years to do so.

Let me back up a bit.

I promised you a political science refresher and here is the other half of it. The Communist system, sometimes called the Statist model, the Centralized Economic model, or the Closed Economic model, does not employ greed as the primary driver of human activity. Profit, either at the individual or corporate level is unknown and all economic activity is considered the property of the state. The only things that really matter to a communist is the national GDP and the sovereignty of the country. Of course, civil rights and personal freedoms are enshrined in the constitutions of communist countries – although at the end of the day personal rights can be and often are subjugated in the best interests of the state.

For one example of this, in the former USSR alcoholism rates were astonishingly high. But this was never reported in the Soviet media as it was thought that publicizing this knowledge would emotionally depress workers across the nation – and thereby suppress economic output. Therefore and officially, in the former USSR there was no alcoholism – and hence, the government-owned hospitals failed to devise a treatment for a disease which only occurred in the decadent West! If a citizen of the former USSR arrived at a hospital or doctor’s office for treatment of his alcoholism, he was told that he suffered from “an imaginary disease” and was counseled to stop “trying to get attention” by emulating Western behaviors. And no doubt put on some sort of watch list for good measure.

Eventually the former USSR collapsed mainly due to internal forces. However, some communist nations remain and are thriving. China has surpassed India, France, the UK, Germany, Japan and every other country except for the United States in GDP and accumulated wealth – and has done so by employing the statist economic model. According to most economics Professors, China will surpass the United States GDP by 2040. That’s 28 years from now in case you are a Chinese economist counting the days.

The main reason for the dramatic growth-driven economic performance in China is that many Western corporations have chosen to do business in China rather than the West – due to lower land and construction costs, lower labour rates, the lower costs associated with a relaxed or non-existent regulatory environment (depending on the industry and region of the country) and other cost-lowering factors associated with operating a business in China.

Beginning about 1999, U.S. corporations especially, have embraced the opportunity to lower their costs by closing their North American factories and building brand-new factories in China – sometimes with significant communist Chinese government assistance! Other western corporations too, have been closing our factories by the thousands in America and Europe and relocating their manufacturing operations to China – and on account of this economic activity, the Western economies combined are at present, 150 million jobs short of full employment. This trend of creating jobs in communist China whilst simultaneously creating higher unemployment in the Western democracies will continue as long as Western voters don’t complain too much.

By 2030, the Western democracies will be much-weakened in comparison to a still-booming China and the other Asian nations. At that time, Asia will be supplying almost all the manufactured goods for the Western economies which will by then, have lost 300 million jobs to Asia.

Also by 2030, perhaps as many as 700 million Westerners will be retired persons receiving some form of Social Security – while millions of younger people won’t be old enough to join the workforce. It will be a time when less than half of the West’s population will be employed and able to support the Western economies. From the Western point of view, this trend gets worse until 2060 when economic performance is expected to plateau in Asia.

A paradigm-shift has been taking place right under our Western noses for three decades now and we have just now begun to notice. China will soon be the dominant world power – and we handed it to them in exchange for higher profits for Western corporations.

It’s said; “He who has the gold makes the rules” – and it is shaping up to be a very different world indeed.

Follow John Brian Shannon on Twitter: https://twitter.com/#!/JBSCanada

Greek and French Voters Overturn Austerity

By John Brian Shannon

Greek and French voters have overturned austerity in Europe, but voters have really overturned a change to sustainable economic policies.

The structural changes there have caused some level of financial problems for individuals and families.

But the alternative was to let the outrageous, drunken-sailor spending continue until there was nothing left of the economies in question. Eventually that would have caused a real pan-European depression  – instead of five years of austerity in only those countries foolish enough to have overspent themselves for decades.

It is the obscene deficits which have run year after year (and have piled up into unaffordable debt) that are responsible for the lowered credit ratings in those countries and the poor economic performances found only in those particular European countries, it must be said. I note that the rest of Europe is doing quite well – even accounting for the combined drag and multi-billion euro bailouts of Greece, Portugal and Spain.

Blaming austerity, is like blaming the doctor who is now fixing your broken arm for the original accident — as you drunkenly stumbled out of the casino! The Greek economy was a basket-case long before austerity ever arrived and it will be a basket-case now that austerity is leaving Greece.

Greek and French citizens have voted for the former glory days of unrestrained spending with lots of toys and goodies from their governments – and to hell with paying for it!

“Let the EU bail us out forever, for tonight, we drink like drunken sailors!” And, if you think that isn’t being hollered at full volume at many thousands of cantina’s and spilling out on to the streets of Greece tonight, you’ve never been there!

Follow John Brian Shannon on Twitter: https://twitter.com/@JBSCanada

Foreign Policy Magazine’s “A Kremlin Made of Sand” – MY COMMENT

Russian President Vlad Putin was the man who brought in 2-consecutive-term limits for the office of Russian President and without any complaining when the time arrived he did exactly as the Russian constitution required – he stepped down from Presidential office. All in all, pretty democratic of him.

Under his leadership and under the leadership of Dmitry Medvedev, the Russian economy has never been better – and yes, just like all economies these days a slip-up could prove costly. It’s the same everywhere it seems!

If the oil price happens to slip below $115. per barrel, I’m certain the Russian’s can simply defer some of their spending programs, until the oil price picks up again. Having hit ‘peak oil’ a few years back, I doubt prices will be dropping much, nor for long – as demand is still growing as the world economy returns to normal.

Paragraphs 3 and 4 (impressively and highly annotated) from Wikipedia — attest to Vlad Putin’s management successes during his first two terms as President and one term as Prime Minister. This information is widely accepted as factual and without contest.

“Putin has overseen a return of political stability and economic progress to Russia, ending the crisis of the 1990s.[4][5]
During his presidency, the Russian economy grew for nine straight years, seeing GDP increase by 72% in PPP (sixfold in nominal),[6][7] poverty decrease by more than 50%,[8][9] and average monthly salaries increase from $80 to $640.[6][10]
These achievements have been ascribed by analysts to strong macroeconomic management, important fiscal policy reforms, surging capital inflows, access to low-cost external financing and a several fold increase in price of oil and gas.[11][12][13]
The fast formation of the modern middle class in the country, the 2.3 times increase in real incomes between 2000-2011 as well as improvements in healthcare and public order allowed Russia to achieve the highest level of life expectancy in its history.[14]

As Russia’s President, Putin passed into law a flat income tax of 13%, a reduced profits tax, and new land and legal codes.[12][15]

As Prime Minister, Putin oversaw large scale military reform and police reform. His energy policy has affirmed Russia’s position as an energy superpower.[16][17]
Putin established a number of national champions, i.e. state corporations which oversaw the restoration of high-tech industries in the country (such as nuclear industry and defence industry).
Significant rise in foreign investments[18] contributed to the boom in such sectors as automotive industry.

Economic megaprojects which Putin endorsed have included the construction of major export pipelines (notably ESPO, Nord Stream and BPS-2), the restoration of the global satellite navigation system GLONASS, and the building of infrastructure for top level international events held in Russia (2006 G8 Summit, APEC 2012, and multiple sporting events).”

http://en.wikipedia.org/wiki/Vladimir_Putin

As a person widely-known to not like surprises, he welcomes any opportunity for communication with world leaders, which makes them feel quite comfortable enough to pick up the phone to discuss any matter at all with him — oh, how unlike the Soviet era of leadership!

We in the West don’t fully appreciate how fortunate we are to have Vlad Putin holding the position of the President of Russia.

Follow John Brian Shannon on Twitter: https://twitter.com/@JBSCanada

The Debt of Democracy!

Democracy is, by definition, always a work in progress. That’s not a knock against democracy, for every other system so far, has turned out to be worse. But it is a realistic appraisal of our system.

One of the things about the democratic system which is in drastic need of improvement is the present election cycle which rewards politicians with more terms in office for tossing unaffordable goodies at taxpayers, usually just before each election.

We keep falling for it! Is is “their” fault, or is it “our” fault?

Well, we keep re-hiring them! So, it’s our fault!

Not only that, it’s worse than that! Remember former Prime Minister Jean Chretien and his Finance Minister Paul Martin?

Weren’t those the two that took Canada from near ‘junk-bond’ status – well on-track to be in worse shape than Greece (!) is now, and within 6 years returned Canada to a zero-deficit condition AND… AND(!) with significant government debt pay-downs?

Well, yes they were.

For that stellar accomplishment Jean Chretien and then Paul Martin were booted out of office!

I say we get the governments we hire, the governments we deserve, and the governments that spend more than we can afford, because that is who we as a people are – rotten little children. And then we compound that by being profoundly ungrateful towards those who actually do something to restore our fiscal balance.

Until we grow up as a society and learn enough to know better than to hire over-spending politicians we will ever be in a state of near-economic peril.

In the meantime, I’m a big fan of balanced-budget legislation for all levels of government. Not only that, Canada’s total accumulated debt is obscene for a first-world nation with uncountable resources and a small population, we must do better than merely balancing our budgets every year, we must pay down our debt to reasonable levels.

My goodness, little Leichtenstien with next to no resources nor territory runs zero deficits and has no debt at all!! Many other well-run countries do well with tiny deficits for convenience-sake, not for the sake of crisis management and barely noticeable government debt. None of them has Canada’s advantages – for crisis’ sakes!

Wikipedia has some good but basic information on this, check Wikipedia “Economy of Sweden” “Economy of Norway” Economy of Australia” – same goes for Leichtenstien, Oman, Qatar, Argentina (yes, Argentina), South Korea and many others.

Apart from having 40% debt-to-GDP ratios, or less, and low government debt, all of the following countries are otherwise “normal” having excellent growth, low inflation and unemployment figures, they score well on the global competitiveness index and their citizens enjoy good-to-excellent living standards . They also have low per capita crime rates and fine health care systems. Two, effectively have 0% debt-to-GDP.

For example:

http://en.wikipedia.org/wiki/Economy_of_Australia

http://en.wikipedia.org/wiki/Economy_of_Liechtenstein

http://en.wikipedia.org/wiki/Economy_of_Qatar

http://en.wikipedia.org/wiki/Economy_of_Oman

http://en.wikipedia.org/wiki/Economy_of_Kuwait

http://en.wikipedia.org/wiki/Economy_of_Sweden

http://en.wikipedia.org/wiki/Economy_of_Switzerland

http://en.wikipedia.org/wiki/Economy_of_South_Korea

http://en.wikipedia.org/wiki/Economy_of_Argentina

http://en.wikipedia.org/wiki/Economy_of_South_Africa

http://en.wikipedia.org/wiki/Economy_of_New_Zealand

Finally, the best link on global debt belongs to The Economist:
http://www.economist.com/content/global_debt_clock

For plenty of links on these topics visit my blog:
http://www.scoop.it/t/politics-in-the-21st-century