The pivotal moment

• 
  
• 
  

HAVING an idea and being passionately committed to it is important. But so is being clever enough to realise when it is not working, says Alan Patricof, a venture capitalist. He is looking to invest in young firms whose bosses know how to pivot: ie, dump their old business model and adopt a new one. Difficult times demand flexibility. At a recent presentation in New York, he says, he saw three firms he had previously seen less than a year before. “I didn’t recognise them,” he recalls.

This is a revival of an old argument: that investors should back people rather than ideas. What’s new is that the cost of starting certain kinds of businesses (especially web-based ones) has fallen, says Bill Sahlman of Harvard Business School. There has been a “remarkable increase in the degree of entrepreneurial experimentation,” he observes. It is easier to launch and test an idea, and to pivot to another if it flops.

Mr Patricof says that today’s entrepreneurs are more mature. Many have been through the start-up process before and are warier of burning up all their cash than they were in the 1990s. Hence their greater propensity to pirouette.

Fail to twirl and your start-up may become one of the “living dead”, warns Eric Ries, a serial entrepreneur and blogger. He writes that pivoting is particularly important if you are what he calls a “lean start-up”. Yet you can have too much of a good thing, he cautions. An entrepreneur can overdo it and become a “compulsive jumper, never picking a single direction long enough to find out if there’s anything there.”

Getting back to business

     

IN A speech to Morgan Stanley’s staff during the market turmoil of 2008, John Mack, the firm’s street-fighting boss, wondered aloud: “How do you get through chaos?” Wall Street’s most blue-blooded firm survived, bloodied, with government help and some timely investments from Asia. The question facing Mr Mack’s successor as chief executive, James Gorman (pictured), an urbane Australian, is equally vexing: how should the 75-year-old firm be reshaped so that it can prosper in a post-crisis world?
The answer lies partly in undoing much of the firm’s pre-crisis expansion under Mr Mack into mortgages and other risky, leveraged assets. The balance-sheet has shrunk by about 20%. Proprietary-trading desks have been closed or are being spun off, as are hedge funds. A push into more stable, and capital-light, wealth management and retail brokerage was made through the opportunistic purchase of 51% of Smith Barney from Citigroup. New people have been brought in to run the firm’s key divisions.
It is the biggest voluntary overhaul of any big American financial firm since 2008 (Citi was forced by regulators to restructure). It sets Morgan Stanley in contrast with its archrival, Goldman Sachs, which doesn’t seem keen to change at all.
Executives insist that this does not presage a new Morgan Stanley but merely a rebalancing towards less volatile, client-facing businesses, many of which, such as merger advice and securities underwriting, were the firm’s bread and butter before it contracted Goldman-envy. The firm has “cut off” the bits that made aggressive bets with its own capital, says Mr Gorman. Suspect units included a single mortgage desk that lost $9.6 billion. His mantra is “originate, distribute and manage capital”, not punt your own.
The ride is proving bumpy. After a good first half of the year, the firm made profits of only $313m from continuing operations in the third quarter, down from almost $1 billion a year earlier. Particularly disappointing was the institutional-securities (ie, investment banking and trading) division, the engine of the group. Its revenues slumped to their lowest since early 2009. An insider jokes that Morgan’s underperformance relative to Goldman is a public-relations ploy to ensure that the firm remains more popular than its rival. “With the lion’s share of the business being restructured, and new faces at the top, the outlook is unusually uncertain,” says Michael Mayo, an analyst at CLSA, a broker.
The firm is in a strong position in retail brokerage. The Smith Barney deal catapulted it to the top spot, with 18,000 brokers and $1.6 trillion in client assets. In a business where scale is important, only two competitors come close: Bank of America/Merrill Lynch and Wells Fargo. “We’re the prettiest girl at the dance,” boasts Mr Gorman. Morgan Stanley Smith Barney (MSSB) not only provides a huge distribution platform—for instance, the firm recently led a stock offering for General Motors—but is also a useful source of deposits.
The division has not been without problems. A lot of leading performers left after the merger, though the rate of departures has since fallen. Fear of losing more talent has kept the brokers’ compensation ratio at 60%, and the firm’s overall ratio at an uncomfortably high 54%, well above Goldman’s. But there is a lot of money to be made if the firm can make its brand as trusted on Main Street as on Wall Street.
Morgan Stanley’s reputation among blue-chip companies has remained strong, despite its near-death experience and earlier turmoil, such as the controversial merger with Dean Witter in 1997 and subsequent palace coup in 2005. Morgan heads the global league table for announced mergers and acquisitions this year and is in the top two in equities. It is popular with governments looking to sell shares: recent deals it jointly led include Petrobras and Agricultural Bank of China, as well as GM. “It would take a nuclear weapon to sink a brand as strong as theirs in traditional investment banking,” says a senior executive at a rival firm.
Morgan Stanley is, by contrast, an also-ran in fixed income, a crucial area these days that includes credit, commodities and rates. With 6% of the market, it is less than half the size of the biggest “flow monster”, Goldman. That matters not least because, as Morgan Stanley’s own analysts point out, the bigger you are in fixed income, the less volatile your returns. The firm is trying to push its share to 8% but Colm Kelleher, who runs sales and trading, acknowledges the scale of the task: “You don’t go from where we are now to being a top three counterparty in a quarter or two.”
In asset management, the smallest of the firm’s three main businesses, it will take years to reach its goal of becoming an “industry leader”, even if all goes to plan. With $273 billion of client money Morgan is a minnow—its eight largest rivals all manage more than $1 trillion. Long run as a collection of silos, asset management has scraped a profit in just two of the past 11 quarters. To jump-start the division, Mr Gorman has hired Greg Fleming, a former president of Merrill Lynch, whose past achievements include helping to sell his old firm to Bank of America for far more than anyone else would have paid.
Mr Gorman himself is a breath of fresh air. Mr Mack was the investment banker’s investment banker: a charismatic former bond salesman driven by instinct as well as analysis. By comparison, his successor, a former consultant known for his strategic flair, is “positively Cartesian”, as a colleague puts it (though sufficiently down-to-earth to be taking boxing lessons). “If John was our wartime leader, James is our peacetime builder,” says Mr Kelleher. Some worry that Mr Mack, now chairman, will meddle, creating tension at the top. He and Mr Gorman profess to get on well, however. There are no signs that Mr Mack, who now spends most of his time with clients, is interfering with strategy.
He may have more to say if the share price does not liven up over the next year or so. The firm trades at 20% below its book value, compared with 25% above for Goldman. Analysts want to see clear financial targets. But Mr Gorman will only commit himself to a goal of a “high-teens” return on equity “in normal markets”. The target of a 20% pre-tax margin at MSSB by 2012 has been quietly dropped.
Another worry is that the increased emphasis on the retail business will, over time, sap the cachet of the more venerable institutional business. “If [investment banking] is no longer your one big thing, it can become harder to attract the best people. And it can be insidious, like diabetes,” says a former senior Morgan Stanley man. The firm also needs to work harder to keep big clients sweet. Some have complained that it is “extremely complicated to do business with”, admits Mr Gorman. To fix that, he has hired a batch of experienced relationship managers, including Merrill Lynch’s Kevin Dunleavy, who has an enviable list of hedge-fund contacts.

The problems have at least been identified. Insiders talk of a new-found scrappiness: “a determination that the firm be more than just a survivor,” as Ted Pick, co-head of equities, puts it. The chief executive is leading from the front when it comes to wooing clients: he has met more than 400 since taking over in January.
And when it comes to managing risk and allocating capital according to risk-adjusted returns, not crude revenues, lessons appear to have been learned. After reeling off numerous initiatives in these areas, Mr Kelleher suggests that the recent crisis will prove to be for Morgan Stanley what the 1994 bond market blow-up was for Goldman: an event so traumatic that it leads to a permanently increased attunement to risk.
“In the future we’ll show more discipline in defining the sandboxes we play in,” says Mr Gorman. If he keeps to that promise, the firm that was founded during the Great Depression through a spin-off from J.P. Morgan might one day look back on the Great Recession as a time of rebirth, not just pain.

The status seekers

       

KARL MARX began “Das Kapital” by noting that the wealth of capitalist societies presents itself as “an immense accumulation of commodities”. He didn’t know the half of it. These days, supermarkets stock tens of thousands of different products. Established brands breed new variations without cease. The problem for companies is working out which of these products will become a hit and which will gather dust on a shelf. To help them, an entire industry of consumer-watchers has appeared.
These are the people who lurk in supermarkets to see which washing-up liquid you put in your basket, or ask you to fill out a five-page questionnaire in return for a chance to win an upgrade from cattle class. The market for consumer-watchers is as crowded and competitive as any other. Established giants such as Nielsen and Mintel strain to fight off upstarts and niche players such as William Higham of Next Big Thing and Faith Popcorn.
Consumer-watchers of all sizes have several things in common. They constantly coin annoying neologisms, which they would doubtless call “annoyologisms”. Ms Popcorn chirps about “manity” (male vanity) and “brailing the culture” (spotting trends). They hype passing fads as seismic shifts. And their propensity to be spectacularly wrong seems not to damage their business at all. Mark Penn, Hillary Clinton’s campaign manager, argued that the American presidential election of 2008 would be driven by micro-trends (eg, the voting preferences of left-handed vegans) when it was clearly driven by a couple of macro-trends (hope and change).
One of the trendiest trend-watchers is called trendwatching.com. A consultancy based in London and Amsterdam, it is fashionably “networked” and “global”. Five full-time employees pore over acres of data sent in by 700 trend-watchers in more than 120 countries. Trendwatching.com is as irritating as any of its competitors: its reports are littered with references to “nowism” (instant gratification), “maturialism” (consumer sophistication) and “tryvertising” (offering free samples). But the company has also produced a fascinating argument, illustrated with thousands of examples, about the changing ways in which consumers seek to flaunt their status.
Consumption is partly about pleasure: chocolate tastes good, silk feels soft and so on. But it is also about showing off, and what is deemed bragworthy has changed dramatically over time. In the 1950s it was about “keeping up with the Joneses”—amassing as much new stuff as your neighbours. Today everyone in the rich world has a washing machine, so people increasingly seek to advertise their hipness or virtue instead.
Rather than buying their clothes from predictable European fashion houses, they trawl the world for exotic designs from Brazilian favelas or South African townships. They customise their purchases to express their personalities. Bike by Me, a Swedish firm, allows you to choose the colour of every part of your bicycle. Trikoton, a German fashion house, allows you to buy clothes that reflect the sound of your voice (a computer turns your speech patterns into knitting patterns).
Possessions are plentiful; time is scarce. So there is cachet in being able to boast about the places you have been to and the things you have done. Savvy companies increasingly offer experiences as a way of hooking customers. For example, Tiger Beer gives loyal drinkers access to concerts and gigs. Dunhill, a luxury firm, promotes 1930s-style exotic travel, including hunting with eagles in Mongolia.
Many people want to make it clear that they are deeply, deeply concerned about the world’s problems, so a growing number of goods are designed to convey this message. Toyota’s Prius hybrid car is not only green; it is also instantly recognisable as such. Bed Stu makes shoes that look as if they are covered with oil from the Gulf oil spill. Mango Radios are hand-crafted in an Indonesian village using sustainable materials. And so on.
Another effective marketing tool is to help customers learn new skills. Kraft’s Triscuit crackers division has distributed 4m cards containing basil and dill seeds, along with guides to gardening. Sheraton’s Nha Trang hotel in Vietnam has opened a purpose-built cooking school for guests. Seattle’s Sorrento hotel has sponsored a night school where guests can gather of an evening to discuss the latest hit book.
Today’s status-conscious consumers have a weapon that their predecessors were denied—the internet. Connectedness is now a crucial social signifier. (Social Printshop, an American website, lets you create a high-resolution print of your Facebook friends and hang it on your wall, to show how popular you are.) The internet helps you demonstrate your virtue by buying products from the farthest corners of the earth (if you are a fair-trade enthusiast) or from just round the corner (if you are a locavore). Or both, presumably, if you are both. It also helps you make friends with other people whose interests match yours, a fact companies have been quick to exploit. Edelman, a PR firm, finds that 82% of Generation Y have joined brand-sponsored online communities.

The customer is always righteous
In the long run, other trends may shape markets more. The rich world is rapidly ageing. People over 50 will account for two-thirds of all growth in consumer spending in France over the next two decades. Emerging markets are starting to look like America in the 1950s: people are obsessed with acquiring their first fridges and cars. The recession is forcing Western consumers to pay more attention to prices than they used to. But people, like peacocks, will never tire of displaying to friends and potential mates just how wonderful they are. Firms whose offerings scream “status” will never want for customers. 

A metal with a bright future

    

ALL that glisters is not gold, as the old saying rightly affirms—because at the moment, copper is shining too. Last week the price of gold surged past $1,400 an ounce, but for pure performance copper is the clear recent winner. Since the middle of the year the price of gold has risen by a decent 13%; copper, on the other hand, has soared by 35%. Stocks of copper at the London Metal Exchange (LME) are down to 8 days of global consumption; add in holdings at Shanghai’s exchange and producer stocks and it creeps up to close to a fortnight.
On December 3rd rumours circulated that JPMorgan bought up warrants for more than 50% of the LME’s copper stocks, probably in readiness to launch a physically backed exchange-traded fund (ETF), a popular investment vehicle for gold that is now set to spread to a wide variety of base metals. The race to launch copper ETFs is swiftest because it is the metal in shortest supply. China’s mammoth demand for copper—it sucks up 40% of world supplies—has not been matched by fresh supplies. New copper deposits are thin on the ground. As older mines get deeper and the choicest parts of deposits become exhausted, ore grades have declined. In all, there has been very little net growth in supplies for several years.
Plumbers are steadily switching from copper pipes to plastic ones; and the Chinese have found a way of substituting the metal with cheaper aluminium in air-conditioning units. Despite this, demand for other uses is still set to outstrip supply, and prices to rise, in the next couple of years or so. This makes copper alluring to the investor—hence the slew of ETFs backed by physical copper that are set to be launched. BlackRock, Deutsche Bank and ETF Securities hope to join JPMorgan in offering investors exposure to physical copper. This too is sure to push prices higher as the funds take copper off the market at a time of tight supply. If regulators can be persuaded to set aside their objections and allow these ETFs to trade, copper, currently trading at over $8,750 a tonne could be pushed up beyond $10,000 according to RBS, a bank.
Other are not so sure. Investors, who can already invest in copper through the futures market, may not want the reassurance of holding physical supplies. Unlike gold it is far too bulky to be of use for slipping a couple of bars into a case and making a dash for the border. Its bulkiness means it costs more to store. But even if investors aren’t keen on copper ETFs the laws of supply and demand are set to push prices higher anyway. For now, that is. Those same laws have started to prompt investment in developing new copper mines and expanding existing ones. From 2012, as this extra supply comes on to the market, the metal may begin to lose its lustre.

We have lift-off

IT WAS tremendously exciting to watch the launch of SpaceX’s Dragon capsule at The Economist Tower in London, along with a number of colleagues.
Judging by the excited faces of SpaceX employees after the live webcast, everything went perfectly. Dragon, the world’s first orbital space capsule built by the private sector, will now orbit the planet a few times over the next couple of hours before splashing down in the Pacific.
It is a small but significant milestone. The unmanned demonstration mission wants to prove that Dragon is able to deliver crew and cargo to the International Space Station (ISS). The reason for all the excitement is that the working capsule really points the world firmly in the direction of greater involvement by the private sector in providing trips to space. More competition means lower prices. Lower prices mean better access. After the retirement of the shuttle, Dragon would be able to deliver crew and cargo to the ISS on top of a Falcon 9 rocket.


The Economist has been writing about private spaceflight, and the potential of the private sector, for years. Not everyone has been convinced. Earlier this year there was a nasty battle in Congress over the extent to which the American government would commit to buying rides to the space station from private-sector providers such as SpaceX. In an amazing reversal of roles, Democrats were in favour of the cheaper-nimbler private sector options, while Republicans preferred relying on traditional government muscle.
Had this flight failed, it would have undoubtedly been used for political advantage to dismiss the private sector and argue that only the government can provide spaceflight reliably. With a successful launch, those clouds have lifted and the horizon is, finally, in clear view.

Celtic Wedding Music Provided By Fiddlplay in Central Oregon

As wedding guests arrive to the wedding venue they are intrigued by the faint sound of ancient Celtic music hanging on the light summer breeze's as they approach the wedding ceremony and convocation.

Upon being seated the guests observe that the Celtic music is being played live by Fiddleplay Fiddler, Roland White from Bend, Oregon. The ancient Celtic melodies are beautiful tunes that reach back in time, creating the perfect setting for such an important day. Many of the tunes have titles perfectly fitting the occasion such as; Give Me Your Hand, Haste to the Wedding and Simple Gifts to name but a few.

Fiddleplay provides music for the entire wedding ceremony starting with the prelude music as guests arrive; "There is nothing more special than your wedding guests being greeted by timeless and Ancient Celtic Melodies that speak to the heart".

As the vows are completed the music shifts to toe tapping rhythmic tunes that are reminiscent of the party on the Titanic, as guests and wedding party exchange gifts, share the feast and raise their glasses to the many toasts that last a lifetime.

As one wedding bride remarked, "It was a pleasure having you play. We were all so pleased with the Music! It went beautifully with the setting and you are extremely talented. It exceeded even our highest expectations".

For information on Central Oregon Weddings, wedding receptions, wedding musicians or live fiddle music performances visit fiddlplay dot com or contact weddings ( @ ) fiddlplay dot com or at the web site featured below dot

The Meaning and Definition of Integrity

In an effort to define the word "integrity", I came up with some explanations, after consulting some dictionaries and encyclopaedias.

Integrity is made up of several words, meanings and synonyms. It consists of a lot of what can be described as ethical and moral values or civilised values.

1. Soundness:

This refers to how healthy an opinion, argument, reasoning or a research finding is, implying how free it is from flaw, defect or decay.

Also, how free is it from error, fallacy, or misapprehension; exhibiting or based on thorough knowledge and experience; legally valid; logically valid and having true premises; agreeing with accepted views.

It also means solid, firm, stable and thorough; showing good sense or judgment based on valid information.

2. Completeness:

It means having all necessary parts, elements, or steps; highly proficient; totally, absolutely, thoroughly and fully carried out; including all possible parts.

3. Sincerity:

It means fairness and straightforwardness of conduct; adherence to the facts.

4. Honesty:

It implies a refusal to lie, steal, or deceive in any way.

5. Honor:

It suggests an active or anxious regard for the standards of one's profession, calling, or position.

6. Probity:

It implies tried and proven honesty or truthfulness.

7. Incorruptibility:

It implies trustworthiness and truthfulness to a degree that one is incapable of being false to a trust, responsibility or pledge.

It also finally means being incapable of corruption; not subject to decay or dissolution; incapable of being bribed or morally corrupted.

8. Conclusion:

The question to be asked is where does a nation stand with regard to these principles of integrity; where does an organisation or political party stand and finally what is my individual position? This synonymous question can also be asked: How civilised are we?

9. Resources:

Stanford Encyclopedia of Philosophy
Wikipedia Free Encyclopedia
Merriam-Webster Online Dictionary

10. The Stanford University Encyclopedia of Philosophy states the following:

"Integrity is one of the most important and oft-cited of virtue terms. It is also perhaps the most puzzling. For example, while it is sometimes used virtually synonymously with 'moral,' we also at times distinguish acting morally from acting with integrity. Persons of integrity may in fact act immorally-though they would usually not know they are acting immorally. Thus one may acknowledge a person to have integrity even though that person may hold importantly mistaken moral views.

When used as a virtue term, 'integrity' refers to a quality of a person's character; however, there are other uses of the term. One may speak of the integrity of a wilderness region or an ecosystem, a computerized database, a defense system, a work of art, and so on. When it is applied to objects, integrity refers to the wholeness, intactness or purity of a thing-meanings that are sometimes carried over when it is applied to people. A wilderness region has integrity when it has not been corrupted by development or by the side-effects of development, when it remains intact as wilderness. A database maintains its integrity as long as it remains uncorrupted by error; a defense system as long as it is not breached. A musical work might be said to have integrity when its musical structure has a certain completeness that is not intruded upon by uncoordinated, unrelated musical ideas; that is, when it possesses a kind of musical wholeness, intactness and purity.

Integrity is also attributed to various parts or aspects of a person's life. We speak of attributes such as professional, intellectual and artistic integrity. However, the most philosophically important sense of the term 'integrity' relates to general character. Philosophers have been particularly concerned to understand what it is for a person to exhibit integrity throughout life. Acting with integrity on some particularly important occasion will, philosophically speaking, always be explained in terms of broader features of a person's character and life.

What is it to be a person of integrity? Ordinary discourse about integrity involves two fundamental intuitions: first, that integrity is primarily a formal relation one has to oneself, or between parts or aspects of one's self; and second, that integrity is connected in an important way to acting morally, in other words, there are some substantive or normative constraints on what it is to act with integrity. How these two intuitions can be incorporated into a consistent theory of integrity is not obvious, and most accounts of integrity tend to focus on one of these intuitions to the detriment of the other.

A number of accounts have been advanced, the most important of them being: (i) integrity as the integration of self; (ii) integrity as maintenance of identity; (iii) integrity as standing for something; (iv) integrity as moral purpose; and (v) integrity as a virtue. These accounts are reviewed below. We then examine several issues that have been of central concern to philosophers exploring the concept of integrity: the relations between types of integrity, integrity and moral theory, and integrity and social and political conditions."

When will voters care about the deficit?

A LOT of folks in Washington are busying themselves talking about America's federal deficit and debt issues. The deficit has obviously been forced to the front page by the sense that bond markets have had it with America's borrowing:
Come to think of it, markets don't seem that frightened of American debt, do they? But of course, public outrage over government red ink is also driving the issue to the forefront:
Huh. It actually looks as though the public doesn't care about the deficit either, at least relative to the state of the general economy. So why is the deficit such a big issue right now, at least in Washington?
The short answer is that President Obama has given the press a nice news peg in the form of the impending release of a report from his deficit reduction commission. Another question, then, is why the president felt the need to appoint a deficit reduction commission. And the answer there is some combination of "the deficit actually needs to be addressed" and "the president felt there was a political weakness that needed defending". Why the president felt a weakness on deficits is another, mysterious issue. While the deficit has risen significantly on Mr Obama's watch, much of the rise has been due to economic weakness, and one would have thought that the Republicans would have lost all deficit credibility after their performance during the Bush administration. But that's another matter.
The deficit actually needs to be addressed. As the economy recovers over the next couple of years, the deficit will decline. It will only decline, however (and depending on what Congress does), to the nearly but maybe not quite sustainable range of 3% to 5% of GDP, and it will then begin rising again around mid-decade, thanks mostly to increasing entitlement spending. By the end of the decade, America's debt-to-GDP ratio will be at troublingly high levels. And at some point between now and then, probably in a couple of years when America's economic slack has largely tightened up, interest rates will rise. Depending on how high and how fast they rise, America's economy will experience something between a slight drag on growth and a serious crisis.
All right, so America has both medium-term and long-term budget issues that need to be worked out, and the medium-term issues should ideally be worked out within the next couple of years. But there's no real sense in which the deficit is an emergent issue in America, in the way that a 9.6% unemployment rate is. Voters must be a little perplexed by the obsession with deficit issues. Either that, or they're internalising the view that fixing deficits is somehow emergent and/or crucial to economic recovery. But then you'd expect more people to put deficits high on their list of top concerns.
There is a very sensible view of deficit issues, broadly embraced by The Economist, which entails medium-term deficit reduction as a means to create the fiscal room for more stimulus. Take the bond market vigilantes out of the equation, and there's no way for stimulus opponents to cite bond market vigilantes as a reason to oppose stimulus. Peter Orszag has made a monetary version of this argument, suggesting that if medium-term fiscal issues were dealt with then the Fed wouldn't have to work as hard to hold rates down and there would be less fretting about debt monetisation.
As I said, these are sensible views. If I could point out troubles with them, one would be that, other than always just around the corner, it's difficult to spot any American bond market vigilantes. (They're all on holiday in Dublin.) The other would be that polling consistently finds that Americans are much more concerned about the economy than about the deficit. And it's a little difficult for me to spot the political path that runs from the present position through tackling the thing Americans aren't worried about and then on to handling the thing Americans are worried about. Maybe there's a path there, but it's sufficiently poorly marked that you're likely to lose your way before reaching the final destination.
Meanwhile there's this other route that looks relatively straight and clear. Boost growth now, through fiscal expansion if possible. The more rapidly you boost the economy, the sooner government debt looks like a lousy investment relative to other options and the sooner rates rise, giving deficit hawks an actual threat to point at. The more you boost the economy in the short run, the bigger a cushion there will be to protect against the contractionary impact of forthcoming austerity, and the bigger a role the natural winding down of automatic stabilisers can play in deficit reduction. And of course, by tackling the economic situation, one frees the voter's mind to concentrate on other issues—like the deficit. Who knows? In a couple of years' time, voters might actually be worrying about red ink.
Obviously, there are downsides to this approach, the biggest of which is a failure to insure against a sudden turn in market sentiment against American government debt. A responsible, reasonable, forward-looking government would clearly go for the pre-emptive consolidation planning. But suppose one lacks a responsible, reasonable, forward-looking government? Suppose legislators leap blindly from issue to issue, depending on what looks at a particular moment like the greatest threat to their electoral prospects? In that world, I'm not sure the clearer path doesn't promise better odds at achieving both strong recovery and eventual deficit cutting.

The non-cash benefits of Social Security

WHAT exactly do we get out of Social Security? Last week Karl Smith pointed out that young people seem to think we get a lot, as polls show they're willing to pay higher taxes rather than cut Social Security. He proposed that since they're the ones who'll be paying the taxes 10 to 20 years down the road when Social Security runs into trouble, perhaps we should honour their preferences. Megan McArdle responded by making the excellent point that many of those young people are likely to change their minds over the next decade or two: people tend to get more concerned about taxes once they actually start paying them. Mr Smith likes Ms McArdle's response, but suggests, if I understand it correctly, that there are good reasons from a small-government perspective why other programmes should be cut before Social Security:

There are important differences between pure transfers like Social Security and public goods like education and national defense. With education or defense there are society-wide benefits to estimate and important policy choices to be made regarding how much of the public good to produce and by what means. With a transfer you get out the same thing you put in: cash.
McArdle is right that since choices about Social Security restrict our taxing options that we can’t look at these programs in pure isolation. Still there is a fundamentally different sort of analysis going on. Social Security payments do not crowd out the private sector in favor of public goods. That basic trade-off does not have to be considered. If Social Security recipients want to buy iPads or shoes, American-made apparel or Chinese imports, it is up to them. Resources flow into the private sector under the direction of private individuals.

I think this is a pretty interesting point. It's not one that makes much difference, for me, in deciding whether to cut Social Security or something else, but for people with different ideological preferences it might. It's similar to the laissez-faire argument for pure cash transfer payments to the poor, rather than extensive social services or specific development initiatives. Which is an interesting argument.
The only thing that strikes me the wrong way in what Mr Smith writes, is the implication that we don't get any identifiable public good out of Social Security, because it's a "pure transfer" programme. I understand what Mr Smith is saying, but it still strikes me as a bit misleading. Obviously, all insurance programmes are pure cash transfers, but equally obviously, insurance programmes, whether public or private, provide something of value: namely security, peace of mind, hedging against risk. Retirement investments like annuities or Social Security are a type of social insurance. They provide guaranteed peace of mind about your financial future (at some minimal level) even if everything else goes to the dogs.
A universal public retirement annuity or pension, like Social Security, is a public good, even if it's intangible. (Don't get me into arguments that it's not a "public good" because pensions and annuities are excludable. A universal pension or annuity is by definition non-excludable.) Like all forms of insurance, Social Security allows people to do things they otherwise couldn't. If Americans had to worry that they might wind up in starvation-level poverty in their old age, they'd have to save more rather than spending on consumer goods, and they'd be more hesitant to take risks like changing jobs or careers. And as with any decision to insure yourself, this public good of social insurance costs money. The money our society spends to insure that its citizens won't be indigent in their old age is money that could be spent on something else. There is a modest opportunity cost there. But the public good that we're buying through that opportunity cost is a real one.
There's a temptation among those who want to reduce public spending on social insurance to minimise such intangible goods. In the health-care debate, arguments frequently surfaced that people don't need health insurance, they need health care. That's clearly not true; being insured against the possibility of getting cancer is a different kind of good from chemotherapy, and I want one of those goods right now, but not the other. Similarly, people who don't like Social Security tend to argue that it's a "Ponzi scheme" and so forth. This isn't true; it provides a good that is distinct from its transfers of cash from some people to others. The public good we get out of Social Security is universal insurance against dire poverty in old age. The programme probably ought to be made more progressive to bring it in line with that goal, but it's important to remember that this is the basic deliverable here.

Green view: How to save $300 billion

LAST time it met, in 2009, the G20 took a stand against a little discussed problem that unites environmentalists and economists: fossil-fuel subsidies. Over the course of the subsequent year, the nations contributed to a list of the “inefficient” subsidies they supported and the things they planned to do about it. So far, this list is unimpressive. According to an analysis of the G20 documents by Doug Koplow, who works with an environmental watchdog called Oil Change International, many of the countries are reporting only superficially, and the standards against which they measure themselves are far from uniform. Most damningly, none has as yet put a new subsidy-cutting policy on the table.
For a more objective view of the scale of subsidies for fossil-fuel consumers (as opposed to subsidies for production, which are a different kettle of fish) than that provided by the subsidisers themselves, turn to the World Energy Outlook of the International Energy Agency (IEA), a respected annual compendium of data and analysis. In the 2010 edition, released this week, the IEA puts the global total at $312 billion a year. The reduced energy demand that would follow on an abolition of these subsidies, it reckons, would be 5% of the world’s total, making it equal to the current energy consumption of Japan, Korea and New Zealand combined.
Some environmentalists try to turn this situation to their tactical advantage by comparing these figures to the much lower absolute level of subsidy given to renewables. This is a mistake in terms of logic, and quite possibly in terms of tactics, too. It is quite plausible to argue that the “size” of the subsidies in contention should be measured in terms of the amount of energy contributed. Since renewables contribute hugely less to world energy use than fossil fuels do, renewable subsidies ($57 billion in 2009) are already larger than fossil-fuel subsidies on a per-kilowatt-hour or per-tonne-of-oil-equivalent basis. Over and above that, renewable-energy boosters may not want governments to focus too closely on the benefits of cutting subsidies, lest they get a taste for it.
Better to eschew comparisons and concentrate on the straightforward case against the fossil-fuel subsidies, which is overwhelming. They encourage inefficient energy use, and they represent a lot of foregone export revenue in countries that produce oil and gas and at the same time subsidise their home markets (a common arrangement; Iran, Saudi Arabia and Russia are the three countries most invested in subsidising). Though they are often justified in terms of helping the poor, the lion’s share of the benefits—85% to 90%—typically accrue to those on middle incomes and the wealthy; the poor are typically not big energy users, and rarely drive. Money that could be invested in services the poor do need and use is spent on subsidising energy for the rest. And as Mr Koplow and his colleague Steve Kretzmann point out, subsidised fossil fuels for the rural poor can tip the balance away from renewable energy sources, such as solar, in the off-grid applications to which they are particularly well suited, and where they would otherwise be most competitive.
Subsidies can, if governments are willing to spend enough money, keep prices stable within a country even as they rise on the international market, which is another justification sometimes offered. But this is invidious. When some consumers are sheltered from a price signal, that signal has to get stronger in order for those who are facing it to take more drastic action than would otherwise be needed. Damping volatility in sheltered markets increases it in open ones. Fatih Birol, the chief economist at the IEA, points out that 95% of current growth in oil demand is coming from countries where the oil price is subject to subsidies.
And then there’s the climate. People obviously don’t need subsidies in order to produce carbon dioxide, but at the margin they help. The IEA estimates that removing all fossil-fuel consumption subsidies would reduce global carbon-dioxide emissions by 1.5 to 2 billion tonnes by 2020. Current emissions from fossil fuel are about 30 billion tonnes; but that potential 1.5 billion reduction is more than a third of the difference between business-as-usual emissions and the level needed to stand something like a 50:50 chance of limiting global warming to two degrees centigrade.
An attractive cut
One of the striking aspects of the IEA’s $312 billion figure is that more than a fifth of it comes from a single country: Iran. To get fuel prices as low as ten American cents a liter for gasoline (two cents for diesel) cost the government some $66 billion in 2009, according to the IEA: that’s $895 per person, or 20% of GDP. Saudi Arabia’s subsidy is actually higher per capita, but lower overall and under 10% of GDP; Uzbekistan’s is a remarkable 32% of GDP, but only $11 billion in total.
The outrageous subsidies are making Iranian industry inefficient as well as costing the government a bomb; the amount of energy used per unit of GDP in Iran has been rising by 1.6% a year since 1990, and the country spent about $5 billion in 2009 importing gasoline and diesel. Cognisant of the madness this all represents, the government has passed a new subsidy reform law aimed at moving the country to market-based prices by 2015, though, as the IEA notes, “the path to implementation is still unclear”. Among other things, driving up energy costs in a country that already has more than 10% inflation poses obvious problems.
Elsewhere there has already been some progress. The fall back of oil prices from their 2008 peak gave nations the possibility of reducing subsidies, which some, including China, took advantage of. Indeed while China’s subsidy is still quite large in absolute terms ($18 billion) consumers are paying 96% of market prices. Russian subsidies are falling; Indonesia hopes to get rid of its altogether by 2014.
Still, there remains a great deal to be done. As Mr Koplow points out, concerted G20 action will require common definitions of what a subsidy is and how to value it, as well as greater transparency from the countries involved. The case for removing such subsidies in general is obvious to all. The politics of removing each one in particular will doubtless prove trickier, even with better orchestrated peer pressure there to provide a helping hand. But there’s a lot of money to be saved, and good to be done, if countries can get this right.

China buys up the world

China buys up the world

And the world should stay open for business

Nov 11th 2010

IN THEORY, the ownership of a business in a capitalist economy is irrelevant. In practice, it is often controversial. From Japanese firms’ wave of purchases in America in the 1980s and Vodafone’s takeover of Germany’s Mannesmann in 2000 to the more recent antics of private-equity firms, acquisitions have often prompted bouts of national angst.
Such concerns are likely to intensify over the next few years, for China’s state-owned firms are on a shopping spree. Chinese buyers—mostly opaque, often run by the Communist Party and sometimes driven by politics as well as profit—have accounted for a tenth of cross-border deals by value this year, bidding for everything from American gas and Brazilian electricity grids to a Swedish car company, Volvo.
There is, understandably, rising opposition to this trend. The notion that capitalists should allow communists to buy their companies is, some argue, taking economic liberalism to an absurd extreme. But that is just what they should do, for the spread of Chinese capital should bring benefits to its recipients, and the world as a whole.

Related items

• Chinese takeovers: Being eaten by the dragonNov 11th 2010

Why China is different
Not so long ago, government-controlled companies were regarded as half-formed creatures destined for full privatisation. But a combination of factors—huge savings in the emerging world, oil wealth and a loss of confidence in the free-market model—has led to a resurgence of state capitalism. About a fifth of global stockmarket value now sits in such firms, more than twice the level ten years ago.
The rich world has tolerated the rise of mercantilist economies before: think of South Korea’s state-led development or Singapore’s state-controlled firms, which are active acquirers abroad. Yet China is different. It is already the world’s second-biggest economy, and in time is likely to overtake America. Its firms are giants that until now have been inward-looking but are starting to use their vast resources abroad.
Chinese firms own just 6% of global investment in international business. Historically, top dogs have had a far bigger share than that. Both Britain and America peaked with a share of about 50%, in 1914 and 1967 respectively. China’s natural rise could be turbocharged by its vast pool of savings. Today this is largely invested in rich countries’ government bonds; tomorrow it could be used to buy companies and protect China against rich countries’ devaluations and possible defaults.
Chinese firms are going global for the usual reasons: to acquire raw materials, get technical know-how and gain access to foreign markets. But they are under the guidance of a state that many countries consider a strategic competitor, not an ally. As our briefing explains (see article), it often appoints executives, directs deals and finances them through state banks. Once bought, natural-resource firms can become captive suppliers of the Middle Kingdom. Some believe China Inc can be more sinister than that: for example, America thinks that Chinese telecoms-equipment firms pose a threat to its national security.
Private companies have played a big part in delivering the benefits of globalisation. They span the planet, allocating resources as they see fit and competing to win customers. The idea that an opaque government might come to dominate global capitalism is unappealing. Resources would be allocated by officials, not the market. Politics, not profit, might drive decisions. Such concerns are being voiced with increasing fervour. Australia and Canada, once open markets for takeovers, are creating hurdles for China’s state-backed firms, particularly in natural resources, and it is easy to see other countries becoming less welcoming too.
That would be a mistake. China is miles away from posing this kind of threat: most of its firms are only just finding their feet abroad. Even in natural resources, where it has been most active in dealmaking, it is not close to controlling enough supply to rig the market for most commodities.
Nor is China’s system as monolithic as foreigners often assume. State companies compete at home and their decision-making is consensual rather than dictatorial. When abroad they may have mixed motives, and some sectors—defence and strategic infrastructure, for instance—are too sensitive to allow them in. But such areas are relatively few.
What if Chinese state-owned companies run their acquisitions for politics, not profit? So long as other firms could satisfy consumers’ needs, it would not matter. Chinese companies could safely be allowed to own energy firms, for instance, in a competitive market where customers could turn to other suppliers. And if Chinese firms throw subsidised capital around the world, that’s fine. America and Europe could use the money. The danger that cheap Chinese capital might undermine rivals can be better dealt with by beefing up competition law than by keeping investment out.
Not all Chinese companies are state-directed. Some are largely independent and mainly interested in profits. Often these firms are making the running abroad. Take Volvo’s new owner, Geely. Volvo should now be able to sell more cars in China; without the deal its future was bleak.

Show a little confidence
Chinese firms can bring new energy and capital to flagging companies around the world; but influence will not just flow one way. To succeed abroad, Chinese companies will have to adapt. That means hiring local managers, investing in local research and placating local concerns—for example by listing subsidiaries locally. Indian and Brazilian firms have an advantage abroad thanks to their private-sector DNA and more open cultures. That has not been lost on Chinese managers.
China’s advance may bring benefits beyond the narrowly commercial. As it invests in the global economy, so its interests will become increasingly aligned with the rest of the world’s; and as that happens its enthusiasm for international co-operation may grow. To reject China’s advances would thus be a disservice to future generations, as well as a deeply pessimistic statement about capitalism’s confidence in itself.

The euro-zone crisis, again

Ireland’s plan for a brutal fiscal adjustment has done nothing to appease panicky bond markets. Portugal is also in their sights

Nov 11th 2010 | dublin

IN 2008 a strike by French and Spanish lorry drivers cut off the supply of components from Germany to Volkswagen’s Auto Europa plant, south of Lisbon, forcing the factory to close for a day. Two years on there is a more serious threat to the supply lines of countries on the fringes of the euro zone. The yield on Ireland’s ten-year government bond vaulted towards 9% on November 10th, 6.2 percentage points above the yield on safe German Bunds (see chart); Portugal’s topped 7%.

Such signs of distress may foreshadow a buyers’ strike that would eventually force both countries to turn to the European Financial Stability Facility, the euro zone’s rescue fund. At the very least, the panic should force the European Central Bank (ECB) to make bigger purchases of Irish bonds to stop a self-fulfilling run.
There are still some willing buyers for peripheral debt at the right price. On November 10th Portugal raised €1.25 billion ($1.7 billion) in a sale of six- and ten-year bonds, completing its fund-raising for this year. Portugal is aiming for a budget deficit of 4.6% of GDP next year, less than half Ireland’s target, though it has more debts to roll over. Ireland has no need to tap the markets soon: its debt-management agency has hoarded €20 billion of cash, according to Morgan Stanley (Portugal has squirrelled away €10 billion). That is enough to cover Ireland’s borrowing needs and bond redemptions well into next year.
Even if each government has a little breathing space, anxiety about public finances has eroded their banks’ ability to secure long-term debt finance, with knock-on effects for other types of corporate borrowing. Reliance on short-term loans from the ECB is worryingly high. Ireland’s banks fund 10.2% of their assets with ECB cash, according to Barclays Capital; the figure for Portugal is 7.2%. For now banks have access to ECB funds at its main interest rate, currently 1%, for up to three months. Some on the ECB’s council might have hoped soon to make the terms more restrictive, but that now seems unlikely. Portugal in particular has huge foreign debt, much of it channelled through its banks: some think this is the country’s main frailty. Fitch, a ratings agency, downgraded four of Portugal’s banks on November 8th, on concerns about funding.
Both Ireland and Portugal had hoped that bold efforts to cut budget deficits would appease bond markets and clear their funding channels. On November 4th Ireland’s government said that it planned budget cuts worth €6 billion (or 3.8% of GDP) in 2011. It will follow that with €9 billion of further measures in 2012-14. Details will be set out later this month in a four-year economic plan.

Our interactive Global Debt Clock calculates and compares all governments' debt

Portugal’s budget for 2011 was finally approved on November 3rd: the main opposition party agreed not to block it after securing a smaller rise in taxes and bigger spending cuts than first planned. The measures include an increase in the standard VAT rate and a 5% average cut in public-sector wages. The overall fiscal tightening in 2011, including actions announced earlier, will be an eye-watering 4.3% of GDP, estimates Julian Callow, at Barclays Capital.
It is hard for economies to prosper under this sort of fiscal squeeze. In Ireland the hope has been that clarity about the fiscal outlook might persuade consumers to save less and spend more. But taxpayers have barely had time to absorb the news that the cost of bailing out the banks will push Ireland’s budget deficit to 32% of GDP this year, even after raiding a fund set aside to pay for future welfare costs. They have now been told that a further €15 billion-worth of fiscal pain is still to come—twice the figure suggested in last year’s budget—because of higher interest costs and more realistic growth forecasts. The natural reaction for householders is to fear the worst. As European leaders discuss ways to make creditors bear losses when countries default, that goes for bond markets too.

3 Types Of Support and Resistance That Will Turn You Into A Profitable Trader

Support and resistance is vitally important in forex trading. Any profitable forex trader has learned how to use support and resistance properly, and if you truly want to make money in the foreign exchange, you need to learn it as well. Today, I want to talk about 3 types of support and resistance that you can use to make more money.

Forex Study – Learn at No Risks

If you are searching for the best Forex learning in terms of learning the winning strategies and learning to trade quickly in that case, you should believe the best Forex home study lessons which let you to learn fast and risk free. In the Forex market 90% of all trader lose currency so you should to learn skills and in terms of entering the cream of the crop 10% of traders who build big Forex gains, here are the major advantages a course will provide you, in terms of achieving Forex trading success. You should learn the proven…

Triad Trading Formula 2 Stock Market Analysis

The world of stock trading has changes big time, no more is the expert prosperous now that technology and internet have given virtually anyone the ability to trade stocks on the open market. Five or so years ago this was not that case, since then the World Wide Web has exploded and software made to trade has been developed and perfected with ease of use in mind.