Category — Politics

The opening session today in the ongoing OECD Forum 2010 was on the future of capitalism, where economic historian Anatole Kaletsky argued that “we’re entering a new period of pragmatism, when ideology will give way to a more “common sense” approach.” Arguably, this is not such a radical notion; the financial crisis has shown in a dramatic way that there have been some serious cracks in what has commonly been accepted as “good” economic policy. It is easy to blame greed and carelessness in the financial sector, but that hardly goes to the heart of the problem. At the end of the day, even if the greed and carelessness of a few “evil bankers” really is to blame, policy has to change if the economic structures have been conducive to making it cause despair for millions of people.

Aside from highlighting dysfunctional economic structures and the need for reform, a very immediate consequence of the crisis is that Governments have been [Read more →]

King Solomon -the wise and rich by Giovanni Demin (1789-1859)

For the past 8 years Dani Kaufman has been publishing his Governance Matters papers in which  assessment of the level of governance in countries across the world is performed. Last year he followed up with pointing out a group of 8 (ggg-8) which apparently could teach other countries around the world how governance should be done. When the financial crisis struck Dani Rodrik used the opportunity to attack Kaufmann, who he finds, puts too much weight on governance when it comes to economic growth:

“After all, no-one can deny that the United States, for all its financial follies, is a rich country.  It turns out that it is possible to be corrupt in a fundamental way and still be rich. My own view is that there was never a strong theoretical or empirical argument for relying on governance reform, as conventionally understood, as an engine of higher growth.  The case for governance reform is that it is a good thing to do in and of itself.  But don’t confuse it for a growth strategy.”

For Rodrik, who has also recently come out as a skeptic to democracy’s effectiveness in promoting growth, the active measures and policies a government implements is more important, more resembling industrial policy. In response to Rodrik the Governance Matters blog of the World Bank say that

“It is true though that the debate about the causal relation between governance and growth is open and far from reaching final conclusions -and even when evidence suggests its existence, the transmission mechanisms from good governance to growth remain unclear. This makes more relevant the analysis and diagnosis of what aspects of governance matter the most for growth -under local and more specific circumstances.   There is an agreement that the times of cookie-cutter approaches for the governance reform agenda are over.  Instead, a country-oriented approach provides the best chances to effectively link the governance reform agenda to a country’s growth strategy.”

At least one agrees that governance must be looked and evaluated at at an aggregate, national level, but there are major flaws with the way Kaufmann tries to measure governance and its effects. By subjectively setting a standard for what ‘good governance’ encompasses, one assumes that what is good governance for one country would also constitute good governance for another. This is clearly wrong. Even though Norway scores close to top on the list on most measures, adopting Norwegian style institutions would not necessarily work very well in most other countries.

For good governance, I would argue, there is no gold standard, every country has to design its system to fit its context. Moreover, one needs to take history into account and basing a governance system on what is already there. Rather than searching for Platonic ideals we should seek effective governance systems that work – very much in line with the Neo-Schumpeterian or Evolutionary approach.

Lastly, governance should be evaluated in terms of effect or result and not process. I would say China constitutes excellent governance, how would it be possible to achieve above 10 percent growth almost  every year for the last 30 years if not? This is not to argue China is an ideal democracy or that it is treating all of it citizens very fairly, but in terms of improving the life’s of its citizens it has been truly successful. By evaluating policies on the basis on results we also ensure that the debate becomes a lot less biased and ideological.

In their Questions of the Week column, Foreign Policy claims that Britain’s newly elected David Cameron and Nick Clegg are the Doublemint Twins. Me and The Sundance Kid are offended. We are the real Doublemint Twins. There is no way Nick and Dave are anywhere near as suave as us, nor as good at making nice sketches of sandy blond passersby.

In the still ongoing political smear campaign against Goldman Sachs conducted by the Senate Subcommittee on Investigations, the latter has been particularly enraged by Goldman Sachs’ supposed “bet against home owners”. That is, because Goldman Sachs was net short exposure to mortgage-related securities, policy-makers have been arguing that the bank was contributing to pushing prices down, and in an evil way benefiting from the ruin of hard-working regular Americans.

Now, first of all, I am unsure about whether Goldman’s supposed “big short” really had a significant impact on housing prices. Arguably, the collapse of the U.S. housing market in 2007-2008 was a necessary consequence of unsustainably rapid price increases brought about by horribly easy credit in the years before, and would have been just as painful for regular hard-working Americans regardless of whether Goldman had a net short position or not. One could perhaps even argue that the crash would have been worse if Goldman had not been as hedged as they were.

Above: Charles Ponzi, the model banker, according to the Senate Subcommittee on Investigations

Nevertheless, it is interesting for the sake of argument to assume that Goldman’s supposed “big short” did in fact push down the price of property, which seems [Read more →]

The United States is not the only place where offshore drilling has been on the political agenda during the last years. In Norway, where the offshore oil and gas industry is a significant part of the economy, making Norway the third largest oil exporter in the world, there has been debate about opening up scenic coastal areas of Lofoten and Vesterålen for offshore drilling. The Northern Norwegian coastal archipelagos feature amazingly scenic nature complete with fjords and mountains, the world’s largest population of cod along with a thriving fishing industry, and whether possible drilling in the area should be allowed to commence has already been the subject of intense debate.

Still, Norway’s Labor Party led coalition government is arguably leaning towards opening up the area for oil and gas investments, in spite of vocal protests from its Socialist Left Party members. It has certainly been  [Read more →]

In connection with this year’s women’s day celebration in March, my younger sister who is a Seargeant in the Royal Norwegian Air Force was interviewed by an “investigative journalist” from NRK making a piece about women in traditionally male occupations. She recounted to me a part of the interview that did not make it past clipping. It went something like this:

Interviewer: Have you ever experienced gender discrimination?

Sunniva, female Air Force Sergeant: No, I can’t recall any situation where I have been discriminated against.

Interviewer (a little surprised): But, you must have… Eh, well, I have heard stories about women in the military…

Sunniva, female Air Force Sergeant: I can only speak for myself, but I have never experienced anything like that.

Interviewer: Well, have you ever experienced ALMOST being the victim of discrimination?

Sunniva, female Air Force Sergeant: Eh, no…

Interviewer: OK, so you don’t feel like you are being discriminated against, but do you think that some other women perhaps could feel like they were if they had your job?

…

I feel so much safer now that I know that the media is investigating hypothetical gender discrimination.

As a part of its 18-month long inquiry into the causes of the financial crisis, Senate Homeland Security and Governmental Affairs Investigations Subcommittee on Tuesday summoned Lloyd Blainkfein and several other senior Goldman executives to answer for their role in causing the financial crisis.

According to the subcommittee, it has [Read more →]

During the year and a half since Barack Obama got elected president of the United States the country has been awash in hysteric conservative paranoia. One of the last incarnations of this amongst the conservative grassroots movements are so-called “open-carry” demonstrations. That is, demonstrations where people show up carrying rifles and loaded handguns in order to show how committed they are to the United States Constitution and American democracy.

Yesterday, one of these these rallies, [Read more →]

I was recently reading some older posts on Andrew Clavell’s Financial Crookery, and came across a post from early January on the decision made by Iceland’s President Ólafur Ragnar Grímsson to let the so-called Icesave bill (with which Iceland agrees to pay back Britain and the Netherlands the deposits made by its citizens that were lost by its banks) be subject to a popular referendum that it surely would not survive. It didn’t, on March 6th 93% of voters wanted it dead, compared to a diminutive 1,6% who wanted Iceland to [Read more →]

A saying goes that “acceptable unemployment is defined as the level at which the Government economist writing the report still has a job.” Certainly, it can be argued that in most countries, economists tend to be quite insulated from the consequences of the policies they propose. Apparently, this is not the case in North Korea. After a major currency reform last year failed completely, the high-level economist Pak Nam Gi, former finance director for the North Korean “Worker’s Party”, was convicted of treason for “ruining the national economy as the son of a big landlord who infiltrated the ranks of revolutionaries” and executed by firing squad.

The policy environment leading the execution of the North Korean economist, who was most likely a scapegoat, is hardly one that should be emulated. However, I can’t help but think about how the U.S. or Europe might have looked in the wake of the financial crisis if a more North Korean approach had been taken during the witch-hunt that followed it (and is still ongoing).  Could you charge Richard Fuld with treason for over-leveraging, or Eugene Fama for trying to make people think that capital markets are efficient?. Certainly one would expect the emergence of a slightly more risk-averse financial sector.

For a more realistic discussion about discretionary power being given to regulators, check out The Epicurean Dealmaker’s recent post about fire alarms, strong men, and big axes.

Thanks goes to loyal Evolution-Revolution reader and good friend Jan Petter Janssen, creator of Developing Trader, for the tip about Pak Nam Gi.