Wednesday Night #1463

Written by  //  March 17, 2010  //  Antal (Tony) Deutsch, Canada, China, Economy, Israel, Markets, Middle East & Arab World, Québec, Reports, Science & Technology, Wednesday Nights  //  Comments Off on Wednesday Night #1463

Karl Moore has just returned from leading a trip to Dubai for 25 students from McGill’s Desautels Management Faculty (Dubai an eye-opener for students – McGill program: Met with CEOs, learned about economic planning)
The United Arab Emirates, more particularly Dubai, is the subject of much press these days, not always favorable, much of it concerning the abrupt decline of the local economy and consequent hurried departure of ex-pats “Literally, there are thousands of leased cars abandoned at the airport, because if don’t have a job in Dubai and are out of work, you must leave the country within three months and you may go to jail of you bounce a cheque. The draconian measures lead to a sudden exodus ‘while the getting is good’. Those who stayed there, stayed well”. While there is criticism of Burj Khalifa, the world’s tallest building (depending on assorted interpretations), or of indoor skiing in the desert heat, the less reported achievements include one of the world’s largest solar farms. Although situated near the center of the major oil producers, plans are being made for the construction of a city of fifty-thousand inhabitants, totally independent of carbon, without leaving a trace of carbon imprint.
With the passage of time, Dubai and Abu Dhabi  are destined to become the World’s financial center. Energy-rich Abu Dhabi and flamboyant Dubai offer great  attractions for an executive whose work is in the Middle East or North Africa, including housing, shopping, good schools, outstanding airports.  With at least 10% of the population worth $20 million at birth, there is little incentive for Emiratis to work.  Most laborers are hired on a contract basis and when there is no employment, they are shipped home. [Editor’s update: Dubai reveals how it wants to restructure its debts The Economist 25/03]

The Niqāb controversy
The recent case regarding the rights of a niqab-clad woman in a government-sponsored language course sparked a divergent and quite passionate debate.
Here, in Québec, through respect for individual, ethnic and religious differences, we have learned to live sensitively with each other, at times overcompensating in our zeal to appear objective.  We see no inconsistency in proclaiming Québec a secular jurisdiction while maintaining a Crucifix in the Chamber of the National Assembly.  Some members of our political parties at times resemble more proselytizers of a secular religion than politicians.  Whatever our secular, religious, linguistic or political differences, the treatment of our citizens has been generally fair and reasonable as in the generous treatment of Chassidic Jews whose lifestyle so differs from that of other ethnic groups.  This being so, the angst around the accommodation of women who believe that their religion requires them to wear the niqāb in public (in fact the Koran does not) is difficult for some to understand.  The debate on reasonable accommodation has gone into overtime and in an open, secular society such as Québec, as long as there is no question of discrimination, the choice between religious practice and reasonable secular rules should be made by the individual without attempting to change either. BUT, the issue resides in the difference between a private practice and a demand for special treatment in a public institution, be it at a government office, a pedagogical or financial institution. Some say that depending on the strength of an individual’s religious belief, the secular may or not be sacrificed, especially where physical identification is necessary. Others are convinced that the state must set parameters that conform to majority opinion – especially as the majority is supported by a diverse group that includes Julius Grey.   After considerable discussion, opinions remained divided.

China is increasingly becoming  a colonial power, acquiring agricultural land (along with natural resources) abroad in order (possibly) to ensure that future generations (of Chinese) will be fed.  It is more likely that the Chinese are attempting to rid themselves of foreign currency reserves  by becoming colonizers, buying land abroad to compensate for all the commodities the western world buys from them. The concern is that, as a totalitarian government, China tolerates abuses of power (e.g. Zimbabwe) in the developing world that the western developed world – despite its hypocrisy – tends to discourage, although our history of making deals with unsavory characters is  no better. Eventually, we can expect the value of the Chinese currency to rise gradually and slowly. [Update 23/3: Maybe the Chinese yuan isn’t as undervalued as everyone thinks]

Is the real problem that we throw attention at it without any solutions?
If proportional representation has ever been presented as the most rational form of government, Israel – which boasts numerous highly influential fringe political groups – has demonstrated it to be a fallacy.  U.S. long-time support of Israel should have rationally prevented the embarrassment suffered by Vice President Biden on his recent visit.  Benjamin Netanyahu has always been a hardliner, and is supported by the religious right in Israel which encourages new settlements on the West Bank and resists a negotiated peace with the Palestinians.  Curiously, support of the current Israeli government by Jews, not only in Israel but also in North America is waning, as exemplified by the increasing influence of the moderate political action committee (J Street) and the strong words coming from General Petraeus, however, the current official Israeli position is supported by both the Jewish and Christian religious right in the U.S. in preparation for the second coming of Christ and/or the Messiah as predicted in the Revelations. In examining what appears to many the disproportionate influence of “the Jewish vote”, several factors come in to play including financial contributions, the residual feeling of guilt about events of World War II in western nations,  and most important,  highly organized, politically experienced voting blocks of people who understand how to work within the political system.
Some liken the Israeli-Palestinian conflict to that in Ireland which faced resolution when funding ran out, but most see the situation as either more intractable or exaggerated. The claims to Jerusalem as  the Holy City by the three major religions might well have been avoided had those responsible created the Old City as an international city, following the walls built by the Turks nearly 600 years ago. Today, the problem has become disproportionate to the population, land size and economic importance of the country.  Although many Middle East countries are devoted to the elimination of Israel, pragmatists – and they are perhaps the optimists –  see the combatants becoming weary and settling on a peace, the border being determined by the wall that now exists between them. Until that happens, the situation remains volatile and dangerous.

The market
The stock market has attained a seventeen month high and is believed by some to be oversold, price/earnings ratios completely out of proportion, and the market out of touch with the basic realities of deficits and debts. According to a theory of WN’s favorite technical and cyclical analyst, years that correspond to mid-term elections -always a multiple of two – and years that end in a zero  [Editor’s note: a complicated and vague way of saying every 2 years].  There appears to a be considerable amount of consumer hunger – just walk around Walmart of Future Shop – which may be fueling the earnings figures. As pointed out last week, Canadians should not rejoice at the relatively high price of our dollar as it adversely affects our exports. This logic is apparently what is prompting Chinese authorities to continue to undervalue (or in some views, including Paul Krugman’s, manipulate) their currency. We should also consider that consumers around the world would face rising prices increasing the cost of living.
It is not at all evident that the U.S. industries that have died during the recent financial crisis will succeed in being resuscitated. What we really need and want is to create an entrepreneurs’ paradise in North America, a challenging goal given the taxes all will have to pay for what has already occurred.
One expert suspects that the rise of the Canadian dollar is indicative of some invisible tightening of monetary policy a little more than Americans. No government in Ottawa really wants a high exchange rate, e.g. $1.20 U.S.; the issue is that once we get close to par, presumably Canada will be forced into following monetary policy that approximates the U.S. policy of the time.
Research grants are generally well administered and accounted for. The researcher is required to account to his or her university or institution which, in turn, delivers an accounting to the granting body (federal or provincial). The case in Alberta  is exceptional and may be the result of failure of the university to monitor the researcher’s activities. In addition, the lack of communication between the two universities regarding references probably stems from their rivalry. The case should not cause concern. However, there are grounds to question a certain number of the research applications, as some appear frivolous and may involve a mysterious need to conduct the research in warmer climates during the winter.

On that note, the evening concluded with an enthusiastic expression of thanks to Karl Moore for his entertaining and informative discussion of the recent McGill trip to Dubai.

T H E  I N V I T A T I O N


We are doomed apparently to be mired in economic gloom attributable to everything from the failure of President Obama to govern as though he really believed he had been elected (Ron Meisels) and the failure of the United States to face up to the fact that the much-admired system of checks and balances is focused on checks (of the body-blow variety) rather than balances (several Wednesday Nighters), – including the appalling Supreme Court decision on campaign financing (Kimon)  –  to the lack of a European central bank with fiscal levers (Maureen Farrow). As discussed last week at a Wednesday Night that did honour to the memory of Carl Beigie by wading into a plethora of topics, the crisis in Greece is simply a microcosm of what is happening in developed and developing nations (most of WN economists). Precisely what Jeff Rubin said earlier this month Jeff Rubin: We’re all PIGS now
Note: At Tony Deutsch’s suggestion, we plan to give the topic of checks and balances and governance in the U.S. an evening of its own very soon.

The FT gives somewhat cheerier news, announcing that Fed signals optimism over US economy, but this is in contrast to the New York Times predictions for 2012 Corporate Debt Coming Due May Squeeze Credit
(NYT) 2012 is the beginning of a three-year period in which more than $700 billion in risky, high-yield corporate debt begins to come due, an extraordinary surge that some analysts fear could overload the debt markets. Sovereign debt aside, the approaching scramble for corporate financing could strain the broader economy as jobs are cut, consumer spending is scaled back and credit is tightened for both consumers and businesses. Private equity firms and many nonfinancial companies were able to borrow on easy terms until the credit crisis hit in 2007, but not until 2012 does the long-delayed reckoning begin for a series of leveraged buyouts and other deals that preceded the crisis.

For another view of the economic crisis, Kenneth Matziorinis sends along “Fear the Boom and Bust” a Hayek vs. Keynes Rap Anthem  – John Maynard Keynes and F. A. Hayek, two of the great economists of the 20th century, come back to life to attend an economics conference on the economic crisis. Before the conference begins, and at the insistence of Lord Keynes, they go out for a night on the town and sing about why there’s a “boom and bust” cycle in modern economies and good reason to fear it.

Paul Krugman is concerned about China’s currency manipulation. In  Taking On China, he makes the case that it’s time for America to confront China about the undervaluation of its currency.

Finally, continuing our interest in the EU and the euro, Stratfor offers an analysis of Germany’s place in Europe, which concludes that “The paradigm that created the European Union – that Germany would be harnessed and contained – is shifting. Germany now has not only found its voice, it is beginning to express, and hold to, its own national interest. A political consensus has emerged in Germany against bailing out Greece. Moreover, a political consensus has emerged in Germany that the rules of the eurozone are Germany’s to refashion. As the European Union’s anchor member, Germany has a very good point. But this was not the “union” the rest of Europe signed up for – it is the Mitteleuropa that the rest of Europe will remember well.” Note that Stratfor really does not like the euro. Guy Stanley comments:
“The Stratfor piece was (typically) provocative and well-informed…There may be no mechanism for expelling countries from the EMS…but presumably countries or blocs of them can always leave, so it follows there’s some additional scope for loosening up the union or even promoting closer ties with a more federal economic structure….As to Germany’s role as bankroller, sellers always end up financing their sales.”

Science and Technology
Monday marked the 25th anniversary of the Internet designation “.com.” To commemorate the occasion, VeriSign hosted a conference on Tuesday in Washington.
Arianna Huffington writes that the panel on which she is participating has been asked to predict the next “game-changing .com breakthroughs” and what “the next generation of .com might hold in store.”  Her prediction? That “someone is going to create an online tool that makes it possible to instantly fact-check a story as you are reading it — or watching it on video.
“Picture this: It’s last summer and you are reading or watching a story about health care, and Sarah Palin or Betsy McCaughey is prattling on about death panels. Instantly, a box pops up with the actual language from the bill or a tape rolls with a factual explanation of what the provision in question really does. And this is a non-partisan tool. So when, in the midst of the legislative debate, President Obama says “I didn’t campaign on the public option,” the software will fire up and instantly show you where support for the public option appeared in his campaign plan, and clips of all the times he mentioned it in public after he got elected.”
What a great idea, but how will a Truthiness Tool make money? There are so many who stand to profit from its non-existence.

We are looking forward to comments on the shocking (or is it common-but-ignored practice?) story Funding cut for star scientist, Daniel Kwok, who is accused of spending part of his research grants on purchases like car parts and home entertainment gear.
Our question; if all sorts of controls are put into place to ensure that every penny is accounted for, will this not add to the burdens of the scrupulously honest researcher, increase the costs of his/her research and somewhat diminish its effectiveness? Or is this generally not an issue? Would love to have input from John Jonas.
MML comments: “… the part that I found the most interesting in the story was the fact that each university who dispensed with his services neglected to inform the next employer. I suspect there is more here than meets the eye. It is inconceivable that there were no background references required to move from one university to another, and yet, nothing surfaced. Why?”

Then there is the story of the muzzling of climate-change scientists by Environment Canada, which according to the Gazette, has achieved the Harper government’s aim of reducing coverage of climate science by as much as 80% – one way to avoid criticism.

Afghanistan, Pakistan and the U.S.
There is a fascinating postscript this week to the insight that Chuck Cogan offered us last Wednesday regarding American foreign policy and intelligence operations, particularly CIA-Pakistani ISI collaboration ever since the days of the U-2. The AP reports that Taliban No. 2 Mullah Abuld Ghani Baradar was in negotiations with the Afghan government at the time of his arrest in Pakistan. Afghan President Hamid Karzai was reportedly furious over the arrest and the role of U.S. intelligence in facilitating it.

What can we say about the latest Israeli move on settlements – and during Joe Biden’s visit? We yield to Tom Friedman who suggests that the Vice President “should have snapped his notebook shut, gotten right back on Air Force Two, flown home and left the following scribbled note behind: ‘Message from America to the Israeli government: Friends don’t let friends drive drunk. And right now, you’re driving drunk. You think you can embarrass your only true ally in the world, to satisfy some domestic political need, with no consequences? You have lost total contact with reality. Call us when you’re serious. We need to focus on building our country’.”

Finally, (Un)Reasonable Accommodation
For those who are following the local Niqab debate, we point to Margaret Wente’s piece on Two solitudes and the niqab in which she makes the point that “There’s a French version and an English version to this story – and they’re completely different”, adding that “It is a fascinating story about reasonable accommodation, competing rights and where we ought to draw the line on tolerance in a democratic society. Most Quebeckers think the accommodation of immigrants has gone too far. [She even quotes Julius Grey] In English Canada, provincial government officials are only too eager to distance themselves from intolerant Quebec.” We agree with her conclusions. What do you think?

This grab bag of thoughts and references should at least start the conversational ball rolling. Please join us to keep it in play!

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