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Ed Webb

Thomas Piketty: "You do need some inequality to generate growth" - The Globe and Mail - 0 views

  • if people feel that a disproportionate share of growth only goes to the top-wealth minority, then a large fraction of public opinion in European countries or in North America might turn against globalization
    • Ed Webb
      Seems Piketty's project is to save capitalism/liberal globalization. Deferring (indefinitely) structural change by applying minor corrections to the cycle of creative destruction and negative externalities. A kind of FDR project at the global level: dilute capitalism in order to prevent revolution.
  • I belong to the post-Marxist generation, if you wish – I turned 18 in 1989, with the fall of the Berlin Wall; I travelled to Eastern Europe to see those countries after the fall of their communist dictatorships, and I’ve never had any temptation for that. Anti-capitalists should read the history books.
    • Ed Webb
      I am almost his exact contemporary. I visited Eastern Europe shortly after 1989. I have read many history books. I still want to overthrow capitalism.

Global Economic Downturn: A Crisis of Political Economy - 0 views

  • For classical economists, it was impossible to understand politics without economics or economics without politics.
  • The use of the term “economy” by itself did not begin until the late 19th century.
  • For classical economists, the political and economic systems were intertwined, each dependent on the other for its existence.
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  • The current economic crisis is best understood as a crisis of political economy.
  • Moreover, it has to be understood as a global crisis enveloping the United States, Europe and China that has different details but one overriding theme: the relationship between the political order and economic life.
  • the origin of the current financial crisis was the subprime mortgage meltdown in the United States.
  • To be more precise, it originated in a financial system generating paper assets whose value depended on the price of housing.
  • From the standpoint of economics, this was essentially a financial crisis: who made or lost money and how much.
  • From the standpoint of political economy it raised a different question: the legitimacy of the financial elite.
  • Think of a national system as a series of subsystems — political, economic, military and so on.
  • Then think of the economic system as being divisible into subsystems — various corporate verticals with their own elites, with one of the verticals being the financial system.
  • A sense emerged that the financial elite was either stupid or dishonest or both.
  • Fair or not, this perception created a massive political crisis.
  • There was a crisis of confidence in the financial system and a crisis of confidence in the political system. The U.S. government’s actions in September 2008 were designed first to deal with the failures of the financial system. Many expected this would be followed by dealing with the failures of the financial elite, but this is perceived not to have happened.
  • This generated the second crisis — the crisis of the political elite.
  • The Tea Party movement emerged in part as critics of the political elite, focusing on the measures taken to stabilize the system and arguing that it had created a new financial crisis, this time in excessive sovereign debt.
  • Its argument was that the political elite used the financial crisis to dramatically increase the power of the state (health care reform was the poster child for this) while mismanaging the financial system through excessive sovereign debt.
  • The sovereign debt question also created both a financial crisis and then a political crisis in Europe.
  • What had been a minority view was strengthened by the recession.
  • The European crisis paralleled the American crisis in that financial institutions were bailed out. But the deeper crisis was that Europe did not act as a single unit to deal with all European banks
  • There are two narratives to the story.
  • One is the German version, which has become the common explanation. It holds that Greece wound up in a sovereign debt crisis because of the irresponsibility of the Greek government
  • The Greek narrative, which is less noted, was that the Germans rigged the European Union in their favor. Germany is the world’s third-largest exporter, after China and the United States (and closing rapidly on the No. 2 spot). By forming a free trade zone, the Germans created captive markets for their goods.
  • Moreover, the regulations generated by Brussels so enhanced the German position that Greece was helpless.
  • Which narrative is true is not the point.
  • The point is that Europe is facing two political crises generated by economics. One crisis is similar to the American one, which is the belief that Europe’s political elite protected the financial elite. The other is a distinctly European one, a regional crisis in which parts of Europe have come to distrust each other rather vocally. This could become an existential crisis for the European Union.
  • The American and European crises struck hard at China, which, as the world’s largest export economy, is a hostage to external demand, particularly from the United States and Europe.
  • The Chinese government had two responses.
  • The first was to keep factories going by encouraging price reductions to the point where profit margins on exports evaporated.
  • The second was to provide unprecedented amounts of credit to enterprises facing default on debts in order to keep them in business.
  • This led to a second crisis, where workers faced the contraction of already small incomes.
  • The response was to increase incomes, which in turn increased the cost of goods exported once again, making China’s wage rates less competitive, for example, than Mexico’s.
  • China had previously encouraged entrepreneurs. This was easy when Europe and the United States were booming. Now, the rational move by entrepreneurs was to go offshore or lay off workers, or both.
  • In the United States, the first impulse was to regulate the financial sector, stimulate the economy and increase control over sectors of the economy.
  • In Europe, where there were already substantial controls over the economy, the political elite started to parse how those controls would work and who would benefit more.
  • In China, where the political elite always retained implicit power over the economy, that power was increased.
  • In all three cases, the first impulse was to use political controls.
  • In the United States, the Tea Party was simply the most active and effective manifestation of that resistance.
  • In Europe, the resistance came from anti-Europeanists
  • It also came from political elites of countries like Ireland who were confronting the political elites of other countries.
  • In China, the resistance has come from those being hurt by inflation
  • Russia went through this crisis years ago and had already tilted toward the political elite’s control over the economy.
  • Brazil and India have not experienced the extremes of China, but then they haven’t had the extreme growth rates of China.
  • But when the United States, Europe and China go into a crisis of this sort, it can reasonably be said that the center of gravity of the world’s economy and most of its military power is in crisis. It is not a trivial moment.
  • Crisis does not mean collapse. The United States has substantial political legitimacy to draw on.
  • Europe has less but its constituent nations are strong.
  • China’s Communist Party is a formidable entity but it is no longer dealing with a financial crisis.
  • It is vital to understand that this is not an ideological challenge.
  • Left-wingers opposing globalization and right-wingers opposing immigration are engaged in the same process — challenging the legitimacy of the elites.
    • anonymous
      This is why so much of American life seems like that proverbial puppet show. Politicians, at their basest, have a vested interest in portraying this as a problem between us-vs-them. It reflects heat.
  • The real problem is that, while the challenge to the elites goes on, the profound differences in the challengers make an alternative political elite difficult to imagine.
  • This, then, is the third crisis that can emerge: that the elites become delegitimized and all that there is to replace them is a deeply divided and hostile force, united in hostility to the elites but without any coherent ideology of its own.
  • In the United States this would lead to paralysis. In Europe it would lead to a devolution to the nation-state. In China it would lead to regional fragmentation and conflict.
  • These are all extreme outcomes and there are many arrestors.
  • But we cannot understand what is going on without understanding two things.
  • The first is that the political economic crisis, if not global, is at least widespread, and uprisings elsewhere have their own roots but are linked in some ways to this crisis.
  • The second is that the crisis is an economic problem that has triggered a political problem, which in turn is making the economic problem worse.
  • The followers of Adam Smith may believe in an autonomous economic sphere disengaged from politics, but Adam Smith was far more subtle. That’s why he called his greatest book the Wealth of Nations. It was about wealth, but it was also about nations. It was a work of political economy that teaches us a great deal about the moment we are in.
    Classical political economists like Adam Smith or David Ricardo never used the term "economy" by itself. They always used the term "political economy." For classical economists, it was impossible to understand politics without economics or economics without politics. The two fields are certainly different but they are also intimately linked.

A Crisis of Political Economy - 0 views

  • A more penetrating look at the very slow recovery of the world’s largest economy points to systemic failure by the financial and political elites.
  • Can you put the last three years in perspective?
  • It’s not that it’s not soluble, in many of these countries, but you see it in a destabilization going on beneath the surface. In fact, the riots in London are kind of symptomatic of this, of the fact that some elements of society have lost such respect for the elites that they’re prepared to take extreme action.
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  • Well you know, I think there’s a kind of model you could argue that people are deprived of things so they revolt. But it’s much deeper than that.
  • when criminality starts to look legitimate to large numbers of people, that’s when you have a social crisis.
  • I think it’s a mistake to look at what happened in London simply in terms of “well there were social cuts and so that’s why there was a rising.” That rising couldn’t have occurred if the elites themselves hadn’t appeared to be so corrupted, so compromised, and even one could say, so incompetent. That was the real issue that we faced there and I think if you simply say that if you do social cuts then people will riot, that’s not empirically true.
  • It’s when you wind up in a situation where you no longer know who’s in charge nor do you care, that opportunities are created for the criminal class.
  • You really have to distinguish between the constant comings and goings of the system and the silliness of Rupert Murdoch, who in the end turns out to be a very silly man in many ways.
  • People who were supposed to be experts in finance did inexcusably stupid things and also in the process, profited handsomely. People in the political system who were supposed to hold these people accountable and prevent them from doing these things, failed to do it.
  • But when the fundamental thing that legitimizes an elite, the financial elite’s ability to manage money prudently, is violated in two ways.
  • First, that they clearly can’t do it. And secondly that they profit from it anyway.
  • And the fact that they don’t seem to regard themselves as particularly having failed. I mean, this is what creates a crisis I think.
  • I’ll put it this way: this is a crisis in virtue — in the virtue of the political leadership, in the virtue of the financial leaders. There’s expected to be a certain degree of self-restraint and moral probity. You can’t substitute regulations for that, and you can’t worry about whether or not they’re going to be enforced in the future. The heart of the matter is that the integrity, the intelligence, the morality of these elites, have now been called into question.
  • The issue is: who are these people who are running things, what gives them the right to do so, and if that right does not somehow flow from competence, what does it flow from? So we have a crisis I think, not in corruption, but of sheer incompetence and indifference to incompetence, and that is something that is not necessarily unmanageable, but it’s certainly not a question of getting better regulations.
    "STRATFOR CEO George Friedman says the current economic problems in the United States, Europe and elsewhere are the result of systemic failure in two major communities: the financial and political elite."

The Debt Ceiling Deal: The Case for Caving (Part 3) - 0 views

  • The Tea Party, in this sense, has succeeded by adopting a rational frustration strategy.
  • You can find fault with the Tea Party’s prescription for balancing the budget—most economists do—but if they hadn’t come to Washington last year, Congress would have waited for a real bond crisis, five or 10 years from now, to create its super committee.
  • We will know, at the close of the next round of negotiations, which game the Tea Party has been playing: Balance the Budget or Kill the King.
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  • I appreciate pquincy’s thoughtful comments. With regard to the reference to divorce, it’s also worth noting that – regardless of whether or not there are children involved – almost all divorce cases (along with almost all other civil cases) are resolved through a bargained solution (i.e., a settlement) rather than a trial. But in the vast majority of cases the bargained solution is not achieved until the parties arrive at a critical deadline such as the eve of trial. This is because, prior to the deadline and as suggested by Brams, “each player has an incentive to dissemble” in pursuit of a better outcome for itself. Since each player intuitively understands this, neither views the other player’s assertions about their “bottom line” to be credible, and neither can convince the other of the genuineness of its own position prior to the deadline.
  • Pquincy ‘s suggestion that this problem should eventually become less acute in a repeated game appears to be correct. But in the game of politics, it seems that (as in litigation), a player can be expected to pretend – in the pursuit of self-interest and for as long as it can – that it is less interested in arriving at a bargained solution than it is in pursuing some sort of abstract principle (such as what it would characterize as “justice” or “the public good”).
  • In contrast to some of the other people that have posted comments in response to this article, I don’t think the outcome that was ultimately arrived at in the debt ceiling negotiations can be fairly attributed to Obama’s having played the game poorly. Rather, I think the outcome was attributable to the fact that it was obvious from the outset that Obama’s objective (regardless of whether one wishes to characterize that objective as “preserving the health and safety of our most vulnerable citizens" or “holding on for a few more years to the remnants of a bloated welfare state”) would unquestionably be placed further out of reach if he were to walk away from whatever deal the other side was ultimately willing to grant as of the deadline. He could not credibly pretend otherwise.
  • Although this article muddles a few basic concepts, it serves to illustrate that game theory offers a relatively straightforward explanation for much of the conflict that exists in the world, certainly a much better explanation than is routinely put forth by partisans and commentators. Brams is spot-on. And it's a cop-out to claim that game theory assumes that people are hyper-rational, or that it does not apply when someone is seeking an unreasonable goal. Even if your adversary's goal is, at least in your view, unreasonable or irrational, game theory allows you to understand how you and your adversary can be expected to behave in the pursuit of your respective objectives.
    Part 3 of the piece.

The Debt Ceiling Deal: The Case for Caving (Part 2) - 0 views

  • Game theorists distinguish between “cooperative” and “noncooperative” games.
  • A cooperative game looks to divide a pie in a way that leaves both sides with trust in the process.
  • The object of the game, as each leader described it, was about how best to divide the pain of closing the deficit, in the same way a family sits down to a pile of bills on the kitchen table.
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  • The two parties in Washington pretended to be playing a cooperative game this summer.
  • The President’s bipartisan commission on deficit reduction, set up late last year and chaired by Democrat Erskine Bowles and Republican Alan Simpson, also played a cooperative game.
  • A noncooperative game lacks a higher authority to impose agreements on both sides.
  • In Washington, no politician is bound to reach a compromise to solve any long-term problem. Everyone, however, is playing a game called “election,” and the only possible goal in that game is to win the next one.
  • If you hear someone in Congress say, “Senator X is just playing politics,” a perfectly legitimate response is, “She has to. Those are the rules of the Constitution.”
  • Anyone who promises to fix or change Washington is merely attempting to impose a cooperative game on a town that, by design, can’t play one.
  • A game theorist would say that the President is trying to play a cooperative game in a town that can’t play along with him. The trouble for the White House is that the Republicans aren’t playing a game called “fix the budget deficit.” They’re necessarily playing one called “defeat Barack Obama.” A reasonable offer seldom works in a divorce; there’s no reason to expect it would in Congress.
  • Obama and the House Republicans, says Steven Brams, were playing chicken this summer, a noncooperative, non-zero-sum game in which both players can lose.
  • Brams argues that there’s no value in trying to determine whether anger is real or feigned; it has the same effect either way.
  • frustration can actually turn a noncooperative game cooperative
    Part two of the article, because there isn't a 'single page' option. Booo.

The Debt Ceiling Deal: The Case for Caving - 0 views

  • Failure to reach a deal threatened to bring on the economic equivalent of a nuclear winter. The leaders of the two parties, Barack Obama and Speaker of the House John Boehner (R-Ohio), appeared to grasp this, but a vocal band of “Tea Party hobbits,” as their fellow Republican, John McCain of Arizona, dubbed them, refused to go along.
  • Trapped in a classic game of “chicken”—a term game theorists use, too—in which both players entertain the option of killing everyone, the President did what game theory suggests a rational actor would do. He recognized his potential maximum losses were greater than his opponent’s. He caved.
  • for all the collective self-loathing that attended the debt ceiling talks, it’s important to remember that, like just about everything in human behavior, it was still reducible to a game. Looked at through the prism of game theory, it’s hard to see how the outcome could have turned out any other way.
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  • Crucially, game theory assumes that no one is crazy, and it’s true in life that almost no one ever is. There’s also a pragmatic reason to treat your opponents as sane: You can’t make predictions about their behavior unless you do.
  • People act crazy, but they’re at their craziest when they want something. All you can do in response is to make your most honest estimate of what the crazies actually want, and respond as if they are methodically pursuing it.
  • There is no advantage to be gained, for example, in pointing out that Kim Jong Il is a potbellied nut job in a bad suit. Everything he’s done during his reign as North Korea’s leader suggests he’s an amoral, but sophisticated, negotiator. Unpredictability, says Brams, can be a smart strategy.
    • anonymous
      When I was a kid, I remember hearing that Saddam Hussein was 'crazy'. I suspect that it's the only conclusion if you can't see connections.
    "Game theory does not concern itself with good and evil. It seeks to predict not which strategies are just, but which are most effective. John von Neumann, a Hungarian-born polymath with a sideline in predicting the blast radius of an atomic bomb, co-authored the discipline's seminal work, Theory of Games and Economic Behavior, in 1944."

Drunken Ben Bernanke Tells Everyone At Neighborhood Bar How Screwed U.S. Economy Really Is - 1 views

  • "And hell, as long as we're being honest, I might as well tell you that a truer estimate of the U.S. unemployment rate is actually up around 16 percent, with a 0.7 percent annual rate of economic growth if we're lucky—if we're lucky," continued Bernanke, nearly knocking a full beer over while gesturing with his hands.
  • While using beer bottles and pretzel sticks in an attempt to explain to the bartender the importance of infusing $650 billion into the bond market, the inebriated Fed chairman nearly fell off his stool and had to be held up by the patron sitting next to him.
  • "And trust me, with the value of the U.S. dollar in the toilet, import costs going through the roof, and numerous world governments unprepared for their own substantial debt burdens, shit's not looking too good for us abroad, either."
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  • "He stumbled up to the urinal and started mumbling on about the depressed housing sector or something," said Kampman, who claimed Bernanke had to use both hands on the wall to steady himself. "Then after a while he just sort of stopped and I couldn't tell if he was laughing or crying."
  • "This is what it's all about," said Bernanke, who reportedly danced alone in the middle of the dark tavern. "Fucking love this song."
    "Claiming he wasn't afraid to let everyone in attendance know about "the real mess we're in," Federal Reserve chairman Ben Bernanke reportedly got drunk Tuesday and told everyone at Elwood's Corner Tavern about how absolutely fucked the U.S. economy actually is."

Unemployment and jobs: Work for post-materialists - 4 views

  • I think Mr Yglesias' proposal that the Fed target a 3-4% rate of inflation is indeed the single best thing Washington can do to create jobs today.
  • there's something that bothers me slightly about this whole "job creation" discussion. The implicit idea seems to be that policy should aim to increase employer demand for employees. But it occurs to me that perhaps some of the long-term unemployed want remunerative work, but are a bit sick of "employment".
  • Philosophical questions of self-ownership and the alienability of labour aside, I am convinced that autonomy is profoundly important to most of us, and that the sort of self-rental involved in the employment relation is regularly experienced as a lamentable loss of autonomy, if not humiliating subjection. I think a lot of us would rather not work for somebody else.
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  • A threshold earner is someone who seeks to earn a certain amount of money and no more. If wages go up, that person will respond by seeking less work or by working less hard or less often. That person simply wants to “get by” in terms of absolute earning power in order to experience other gains in the form of leisure
  • This is me. I don't want to maximise income. I want to maximise autonomy and time for unremunerative but satisfying creative work. Reihan Salam has written provocatively on the subject of threshold earners, in addition to introducing me to David Roberts' related idea of "the medium chill".
    • Erik Hanson
      Word up. There are too many things I want to do that cost me money--or at least don't pay me.
    • anonymous
      This resonated with me, as well. I am actually pretty good at doing things that are completely tertiary to my job. I've been focused on turning my full-time job into that, but what I'd really like is some way to bounce from project to project, doing what I'm good at, getting some fulfillment, and getting something back from it.

      I feel like all these little internet-networks hold the potential for that, but - as the article points out - it's not as though you can get by that way.
  • as Ronald Inglehart has documented, the achievement of high levels of widespread material well-being has precipitated a momentous shift toward "post-materialist" values across the entire developed world.
  • Having secured a relatively comfortable standard of living, we have come to worry less about the stuff we need to get by and more about the pursuit of self-realisation, meaning in life, justice in society, and harmony with the natural world.
    • Erik Hanson
      I think this is part of the "we're slipping into European economic views" thing.
    • anonymous
      Speaking for my wife and I, we feel like our material focus isn't on keeping up with the joneses, but doing stuff that makes enjoy our days just a little bit more.
    • Erik Hanson
      Unamerican! ;)
  • Whatever our level of education, if unemployment benefits and odd jobs add up to enough to keep us above a socially acceptable material threshold, we will not be in a hurry to accept any available employment, no matter how unpleasant or unsuitable.  
  • So, yeah, I'd like to see wage subsidies and a 4% inflation target. But I'd also like to see a shift away from economic policy that pushes us so insistently into the "employee" role. What does the government call you if you are working but not on somebody's payroll with social security and Medicare taxes automatically deducted from your wages? Self-employed!
  • You must work for somebody, even if it's yourself.
    • Erik Hanson
      "Gotta Serve Somebody" is on my morning playlist. Dylan brings the truth.
  • But I don't want to be a tiny business that hires me. I don't want to be my own boss. I don't want to be a boss at all, or to have one. I just want to work and get paid for it, on terms agreeable to the parties involved.
  • Clearly, decoupling health benefits from employment would help a lot. Less obviously, but at least as importantly, we need to eliminate the insane patchwork of regulations that keep folks from legally cutting hair for money in a kitchen, or legally making a few bucks every now and then taxiing people around town in a 1988 Ford Escort. De-formalising and de-bureaucratising labour certainly makes it harder for government to track who has paid what to whom, who owes how much in various taxes, and so forth. But it would be truly pathetic if the legal/economic organisation of our society was optimised for government surveillance and tax collection and not for the exercise of autonomy in pursuit of a meaningful life.
    • Erik Hanson
      ... Maybe. The fact of the matter is that group insurance rates through employers tend to be much more affordable than getting individual coverage. There's a reason so many hipsters and art types work part-time at Starbucks and other shops that offer benefits to part-time workers.

      Just as there's a reason for regulation beyond just tracking how money moves. We don't just certify drugs or beef because we want to make sure we know what people are spending money on at the supermarket.
    • anonymous
      Quite true. Will's a bit too anti-regulatory for my taste. To expand your observation: if we let the free market do its thing, it does not logically follow that all our food will be safer, absent a regulatory apparatus. In fact, my hazy recollection is that the mix of regional laws and patchwork of safety requirements is one reason that some industries _crave_ regulation, so they can do business without quadrupling the size of their legal department.
    "The Atlantic, with the support of McKinsey & Company, has put together a forum on the question: 'What's the single best thing Washington can do to jump-start job creation?'"

A Brief History of the Corporation: 1600 to 2100 - 1 views

  • In its 400+ year history, the corporation has achieved extraordinary things, cutting around-the-world travel time from years to less than a day, putting a computer on every desk, a toilet in every home (nearly) and a cellphone within reach of every human.  It even put a man on the Moon and kinda-sorta cured AIDS.
  • The Age of Corporations is coming to an end. The traditional corporation won’t vanish, but it will cease to be the center of gravity of economic life in another generation or two.  They will live on as religious institutions do today, as weakened ghosts of more vital institutions from centuries ago.
  • this post is mostly woven around ideas drawn from five books that provide appropriate fuel for this business-first frame. I will be citing, quoting and otherwise indirectly using these books over several future posts
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  • For a long time, I was misled by the fact that 90% of the available books frame globalization and the emergence of modernity in terms of the nation-state as the fundamental unit of analysis, with politics as the fundamental area of human activity that shapes things.
  • But the more I’ve thought about it, the more I’ve been pulled towards a business-first perspective on modernity and globalization.
  • The human world, like physics, can be reduced to four fundamental forces: culture, politics, war and business.
  • Culture is the most mysterious, illegible and powerful force.
  • But one quality makes gravity dominate at large space-time scales: gravity affects all masses and is always attractive, never repulsive.  So despite its weakness, it dominates things at sufficiently large scales. I don’t want to stretch the metaphor too far, but something similar holds true of business.
  • On the scale of days or weeks, culture, politics and war matter a lot more in shaping our daily lives.
  • Business though, as an expression of the force of unidirectional technological evolution, has a destabilizing unidirectional effect. It is technology, acting through business and Schumpeterian creative-destruction, that drives monotonic, historicist change, for good or bad. Business is the locus where the non-human force of technological change sneaks into the human sphere.
  • Culture is suspicious of technology. Politics is mostly indifferent to and above it. War-making uses it, but maintains an arms-length separation.
  • Business? It gets into bed with it. It is sort of vaguely plausible that you could switch artists, politicians and generals around with their peers from another age and still expect them to function. But there is no meaningful way for a businessman from (say) 2000 BC to comprehend what Mark Zuckerberg does, let alone take over for him. Too much magical technological water has flowed under the bridge.
  • It is business that creates the world of magic, not technology itself. And the story of business in the last 400 years is the story of the corporate form.
  • There are some who treat corporate forms as yet another technology (in this case a technology of people-management), but despite the trappings of scientific foundations (usually in psychology) and engineering synthesis (we speak of organizational “design”), the corporate form is not a technology.  It is the consequence of a social contract like the one that anchors nationhood. It is a codified bundle of quasi-religious beliefs externalized into an animate form that seeks to preserve itself like any other living creature.
  • What was new was the idea of a publicly traded joint-stock corporation, an entity with rights similar to those of states and individuals, with limited liability and significant autonomy
  • two important points about this evolution of corporations.
  • The first point is that the corporate form was born in the era of Mercantilism, the economic ideology that (zero-sum) control of land is the foundation of all economic power.
  • In politics, Mercantilism led to balance-of-power models.
  • In business, once the Age of Exploration (the 16th century) opened up the world, it led to mercantilist corporations focused on trade
  • The forces of radical technological change — the Industrial Revolution — did not seriously kick until after nearly 200 years of corporate evolution (1600-1800) in a mercantilist mold.
  • Smith was both the prophet of doom for the Mercantilist corporation, and the herald of what came to replace it: the Scumpeterian corporation.
  • The corporate form therefore spent almost 200 years — nearly half of its life to date — being shaped by Mercantilist thinking, a fundamentally zero-sum way of viewing the world.
  • It was not until after the American Civil War and the Gilded Age that businesses fundamentally reorganized around (as we will see) time instead of space, which led, as we will see, to a central role for ideas and therefore the innovation function.
  • The Black Hills Gold Rush of the 1870s, the focus of the Deadwood saga, was in a way the last hurrah of Mercantilist thinking. William Randolph Hearst, the son of gold mining mogul George Hearst who took over Deadwood in the 1870s, made his name with newspapers. The baton had formally been passed from mercantilists to schumpeterians.
    • anonymous
      So, Mercantilism was about colonizing space. Corporatism is about colonizing time. This is a pretty useful (though arguably too-reductionist) way to latch on to the underpinning of later thoughts.
  • This divide between the two models can be placed at around 1800, the nominal start date of the Industrial Revolution, as the ideas of Renaissance Science met the energy of coal to create a cocktail that would allow corporations to colonize time.
  • The second thing to understand about the evolution of the corporation is that the apogee of power did not coincide with the apogee of reach.
  • for America, corporations employed less than 20% of the population in 1780, and over 80% in 1980, and have been declining since
  • Certainly corporations today seem far more powerful than those of the 1700s, but the point is that the form is much weaker today, even though it has organized more of our lives. This is roughly the same as the distinction between fertility of women and population growth: the peak in fertility (a per-capita number) and peak in population growth rates (an aggregate) behave differently.
  • a useful 3-phase model of the history of the corporation: the Mercantilist/Smithian era from 1600-1800, the Industrial/Schumpeterian era from 1800 – 2000 and finally, the era we are entering, which I will dub the Information/Coasean era
    • anonymous
      I think it would be useful to map these eras against the backdrop of my previously established Generational timeline (as well as the StratFor 50-year cycle breakdown) in order to see if there are any self-supporting model elements.
  • By a happy accident, there is a major economist whose ideas help fingerprint the economic contours of our world: Ronald Coase.
  • To a large extent, the history of the first 200 years of corporate evolution is the history of the East India Company. And despite its name and nation of origin, to think of it as a corporation that helped Britain rule India is to entirely misunderstand the nature of the beast.
  • Two images hint at its actual globe-straddling, 10x-Walmart influence: the image of the Boston Tea Partiers dumping crates of tea into the sea during the American struggle for independence, and the image of smoky opium dens in China. One image symbolizes the rise of a new empire. The other marks the decline of an old one.
  • At a broader level, the EIC managed to balance an unbalanced trade equation between Europe and Asia whose solution had eluded even the Roman empire.
  • For this scheme to work, three foreground things and one background thing had to happen: the corporation had to effectively take over Bengal (and eventually all of India), Hong Kong (and eventually, all of China, indirectly) and England.
  • The background development was simpler. England had to take over the oceans and ensure the safe operations of the EIC.
  • eventually, as the threat from the Dutch was tamed, it became clear that the company actually had more firepower at its disposal than most of the nation-states it was dealing with. The realization led to the first big domino falling, in the corporate colonization of India, at the battle of Plassey.
  • The EIC was the original too-big-to-fail corporation. The EIC was the beneficiary of the original Big Bailout. Before there was TARP, there was the Tea Act of 1773 and the Pitt India Act of 1783. The former was a failed attempt to rein in the EIC, which cost Britain the American Colonies.  The latter created the British Raj as Britain doubled down in the east to recover from its losses in the west. An invisible thread connects the histories of India and America at this point. Lord Cornwallis, the loser at the Siege of Yorktown in 1781 during the revolutionary war, became the second Governor General of India in 1786.
  • But these events were set in motion over 30 years earlier, in the 1750s. There was no need for backroom subterfuge.  It was all out in the open because the corporation was such a new beast, nobody really understood the dangers it represented.
  • there was nothing preventing its officers like Clive from simultaneously holding political appointments that legitimized conflicts of interest. If you thought it was bad enough that Dick Cheney used to work for Halliburton before he took office, imagine if he’d worked there while in office, with legitimate authority to use his government power to favor his corporate employer and make as much money on the side as he wanted, and call in the Army and Navy to enforce his will. That picture gives you an idea of the position Robert Clive found himself in, in 1757.
  • The East India bubble was a turning point.
  • Over the next 70 years, political, military and economic power were gradually separated and modern checks and balances against corporate excess came into being.
  • It is not too much of a stretch to say that for at least a century and a half, England’s foreign policy was a dance in Europe in service of the EIC’s needs on the oceans.
  • Mahan’s book is the essential lens you need to understand the peculiar military conditions in the 17th and 18th centuries that made the birth of the corporation possible.)
  • The 16th century makes a vague sort of sense as the “Age of Exploration,” but it really makes a lot more sense as the startup/first-mover/early-adopter phase of the corporate mercantilism. The period was dominated by the daring pioneer spirit of Spain and Portugal, which together served as the Silicon Valley of Mercantilism. But the maritime business operations of Spain and Portugal turned out to be the MySpace and Friendster of Mercantilism: pioneers who could not capitalize on their early lead.
  • Conventionally, it is understood that the British and the Dutch were the ones who truly took over. But in reality, it was two corporations that took over: the EIC and the VOC (the Dutch East India Company,  Vereenigde Oost-Indische Compagnie, founded one year after the EIC) the Facebook and LinkedIn of Mercantile economics respectively. Both were fundamentally more independent of the nation states that had given birth to them than any business entities in history. The EIC more so than the VOC.  Both eventually became complex multi-national beasts.
  • arguably, the doings of the EIC and VOC on the water were more important than the pageantry on land.  Today the invisible web of container shipping serves as the bloodstream of the world. Its foundations were laid by the EIC.
    • anonymous
      There was an excellent episode of the original Connections series that pointed this out, specifically focusing on the Dutch boats and the direct line to container ships and 747 cargo planes.
  • A new idea began to take its place in the early 19th century: the Schumpeterian corporation that controlled, not trade routes, but time. It added the second of the two essential Druckerian functions to the corporation: innovation.
  • I call this the “most misleading table in the world.”

  • corporations and nations may have been running on Mercantilist logic, but the undercurrent of Schumpeterian growth was taking off in Europe as early as 1500 in the less organized sectors like agriculture. It was only formally recognized and tamed in the early 1800s, but the technology genie had escaped.
  • The action shifted to two huge wildcards in world affairs of the 1800s: the newly-born nation of America and the awakening giant in the east, Russia. Per capita productivity is about efficient use of human time. But time, unlike space, is not a collective and objective dimension of human experience. It is a private and subjective one. Two people cannot own the same piece of land, but they can own the same piece of time.  To own space, you control it by force of arms. To own time is to own attention. To own attention, it must first be freed up, one individual stream of consciousness at a time.
  • The Schumpeterian corporation was about colonizing individual minds. Ideas powered by essentially limitless fossil-fuel energy allowed it to actually pull it off.
  • it is probably reaosonably safe to treat the story of Schumpeterian growth as an essentially American story.
  • In many ways the railroads solved a vastly speeded up version of the problem solved by the EIC: complex coordination across a large area.  Unlike the EIC though, the railroads were built around the telegraph, rather than postal mail, as the communication system. The difference was like the difference between the nervous systems of invertebrates and vertebrates.
  • If the ship sailing the Indian Ocean ferrying tea, textiles, opium and spices was the star of the mercantilist era, the steam engine and steamboat opening up America were the stars of the Schumpeterian era.
  • The primary effect of steam was not that it helped colonize a new land, but that it started the colonization of time. First, social time was colonized. The anarchy of time zones across the vast expanse of America was first tamed by the railroads for the narrow purpose of maintaining train schedules, but ultimately, the tools that served to coordinate train schedules: the mechanical clock and time zones, served to colonize human minds.  An exhibit I saw recently at the Union Pacific Railroad Museum in Omaha clearly illustrates this crucial fragment of history:

  • For all its sophistication, the technology of sail was mostly a very-refined craft, not an engineering discipline based on science.
  • Steam power though was a scientific and engineering invention.
  • Scientific principles about gases, heat, thermodynamics and energy applied to practical ends, resulting in new artifacts. The disempowerment of craftsmen would continue through the Schumpeterian age, until Fredrick Taylor found ways to completely strip mine all craft out of the minds of craftsmen, and put it into machines and the minds of managers.
  • It sounds awful when I put it that way, and it was, in human terms, but there is no denying that the process was mostly inevitable and that the result was vastly better products.
  • The Schumpeterian corporation did to business what the doctrine of Blitzkrieg would do to warfare in 1939: move humans at the speed of technology instead of moving technology at the speed of humans.
  • Blitzeconomics allowed the global economy to roar ahead at 8% annual growth rates instead of the theoretical 0% average across the world for Mercantilist zero-sum economics. “Progress” had begun.
  • Two phrases were invented to name the phenomenon: productivity meant shrinking autonomously-owned time. Increased standard of living through time-saving devices became code for the fact that the “freed up” time through “labor saving” devices was actually the de facto property of corporations. It was a Faustian bargain.
  • Many people misunderstood the fundamental nature of Schumpeterian growth as being fueled by ideas rather than time. Ideas fueled by energy can free up time which can then partly be used to create more ideas to free up more time. It is a positive feedback cycle,  but with a limit. The fundamental scarce resource is time. There is only one Earth worth of space to colonize. Only one fossil-fuel store of energy to dig out. Only 24 hours per person per day to turn into capitive attention.
  • Then the Internet happened, and we discovered the ability to mine time as fast as it could be discovered in hidden pockets of attention. And we discovered limits.

    And suddenly a new peak started to loom: Peak Attention.

  • There is certainly plenty of energy all around (the Sun and the wind, to name two sources), but oil represents a particularly high-value kind.

    Attention behaves the same way.

  • Take an average housewife, the target of much time mining early in the 20th century. It was clear where her attention was directed. Laundry, cooking, walking to the well for water, cleaning, were all obvious attention sinks. Washing machines, kitchen appliances, plumbing and vacuum cleaners helped free up a lot of that attention, which was then immediately directed (as corporate-captive attention) to magazines and television.
  • The point isn’t that we are running out of attention. We are running out of the equivalent of oil: high-energy-concentration pockets of easily mined fuel.
  • There is a lot more money to be made in replacing hand-washing time with washing-machine plus magazine time, than there is to be found in replacing one hour of TV with a different hour of TV.
  • . To get to Clay Shirky’s hypothetical notion of cognitive surplus, we need Alternative Attention sources.

    To put it in terms of per-capita productivity gains, we hit a plateau.

  • When Asia hits Peak Attention (America is already past it, I believe), absolute size, rather than big productivity differentials, will again define the game, and the center of gravity of economic activity will shift to Asia.
  • Once again, it is the oceans, rather than land, that will become the theater for the next act of the human drama. While American lifestyle designers are fleeing to Bali, much bigger things are afoot in the region.

    And when that shift happens, the Schumpeterian corporation, the oil rig of human attention, will start to decline at an accelerating rate. Lifestyle businesses and other oddball contraptions — the solar panels and wind farms of attention economics — will start to take over.

  • It will be the dawn of the age of Coasean growth.
  • Coasean growth is not measured in terms of national GDP growth. That’s a Smithian/Mercantilist measure of growth.

    It is also not measured in terms of 8% returns on the global stock market.  That is a Schumpeterian growth measure. For that model of growth to continue would be a case of civilizational cancer (“growth for the sake of growth is the ideology of the cancer cell” as Edward Abbey put it).

  • Coasean growth is fundamentally not measured in aggregate terms at all. It is measured in individual terms. An individual’s income and productivity may both actually decline, with net growth in a Coasean sense.
  • How do we measure Coasean growth? I have no idea. I am open to suggestions. All I know is that the metric will need to be hyper-personalized and relative to individuals rather than countries, corporations or the global economy. There will be a meaningful notion of Venkat’s rate of Coasean growth, but no equivalent for larger entities.
  • The fundamental scarce resource that Coasean growth discovers and colonizes is neither space, nor time. It is perspective.
    This is a lay friendly, amateur, mental exploration of the Corporation. It's also utterly absorbing and comes with the usual collection of caveats that we amateurs are accustomed to rattling off when we dunk ourselves into issues much bigger than ourselves.

    Thanks to BoingBoing, via Futurismic, for the pointer:

    "The year was 1772, exactly 239 years ago today, the apogee of power for the corporation as a business construct. The company was the British East India company (EIC). The bubble that burst was the East India Bubble. Between the founding of the EIC in 1600 and the post-subprime world of 2011, the idea of the corporation was born, matured, over-extended, reined-in, refined, patched, updated, over-extended again, propped-up and finally widely declared to be obsolete. Between 2011 and 2100, it will decline - hopefully gracefully - into a well-behaved retiree on the economic scene."

India's Voluntary City - 1 views

    "Fascinating piece in the NYTimes about a new city in India, a new city of 1.5 million people and more or less no city government."

    The reference point for the NYTimes article. Marginal Revolution.

10 Market Bubbles That Could Soon Burst - 0 views

    "The president of the Minneapolis Federal Reserve, Navayana Kocherlakota, recently published a paper in which he argues that government guarantees helped fuel the bubble in real estate. While his paper was largely aimed at prescribing solutions to this problem, it raises the question: What other bubbles are lurking out there in the global economy? We asked several experts and to our surprise, they had a long list: "

    By Charles Wallace at Daily Finance on November 9, 2010.

A Few Election Thoughts - 0 views

    "What I see happening is this: the public is aware, rather inchoately, that things are going badly wrong and that the life they are accustomed to is under threat, but they have no idea what to do. The parties, by and large, have failed to diagnose the roots of the problem, and instead are reflexively proposing to relive their greatest hits of the past. Since the problems of the past are not the problems of the present, these approaches are not working. This is leading both parties into a cycle of over-promising what they can deliver, thus leading to bitter disappointment. "

    By Stuart Staniford at Early Warning on November 4, 2010.

The Implications of U.S. Quantitative Easing | STRATFOR - 0 views

  • QE is expanding the money supply — in essence printing money — and using that money to purchase items that investors are avoiding for whatever reason. This forces money into the system and — in theory at least — lowers the cost of credit throughout the economy. It also allows the central bank to target specific portions of the economy where it thinks the most good can be done. QE is generally shunned by central banks, as unduly increasing the money supply tends to be inflationary, and nothing eats away at purchasing power (and with it political support) like inflation.
  • The United States has not engaged in large-scale QE since it combated the Great Depression.
  • STRATFOR does not see the current round of QE as large-scale.
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  • Put simply, 0.86 percent is well within the range of “normal” operations and so is very unlikely to have an appreciable impact on inflation levels.
  • This leaves STRATFOR weighting two potential — and not mutually exclusive — implications of the Fed’s decision.
  • First, this could be the Fed reassuring all concerned that the American economy is, in fact, all right.
  • Second, the Fed — in league with the White House — is attempting to shape discussions at the upcoming G-20 summit on Nov. 11 in Seoul.
  • Put simply, an unrestrained QE effort can quite effectively drive the value of the currency down. The dollar is the world’s dominant trade and reserve currency — accounting for roughly 42 percent of all transactions and some two-thirds of all reserves.
    "The U.S. Federal Reserve announced Nov. 3 that it will engage in quantitative easing (QE), a method of expanding the money supply often used when an economy is in a recession. The amount of QE the Fed intends to allow, compared to the size of the U.S. economy, is at most moderate. Rather than being intended to revamp the economy, the move likely is instead a means of rebuilding confidence in the U.S. economy. Likewise, it could be a way to set the tone for currency policy discussions at the G-20 summit on Nov. 11."

    At StratFor on November 3, 2010.

Income Inequality: Too Big to Ignore - 0 views

  • During the three decades after World War II, for example, incomes in the United States rose rapidly and at about the same rate — almost 3 percent a year — for people at all income levels.
  • The share of total income going to the top 1 percent of earners, which stood at 8.9 percent in 1976, rose to 23.5 percent by 2007, but during the same period, the average inflation-adjusted hourly wage declined by more than 7 percent.
  • The rich have been spending more simply because they have so much extra money. Their spending shifts the frame of reference that shapes the demands of those just below them, who travel in overlapping social circles. So this second group, too, spends more, which shifts the frame of reference for the group just below it, and so on, all the way down the income ladder. These cascades have made it substantially more expensive for middle-class families to achieve basic financial goals.
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  • the counties where income inequality grew fastest also showed the biggest increases in symptoms of financial distress.
  • The counties where long commute times had grown the most were again those with the largest increases in inequality.
  • The counties with the biggest increases in inequality also reported the largest increases in divorce rates.
  • these counties had the largest increases in bankruptcy filings.
  • There is no persuasive evidence that greater inequality bolsters economic growth or enhances anyone’s well-being.
    "PEOPLE often remember the past with exaggerated fondness. Sometimes, however, important aspects of life really were better in the old days. "

    By Robert H. Frank at The New York Times on October 16, 2010.

Geithner's Speech on the Global Economy | STRATFOR - 0 views

  • three points where the United States sees dangers to the global system.
  • The first is maintaining growth.
  • Next, Geithner pointed to differences in exchange rate systems.
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  • Third, Geithner spoke about the reformation of the global financial architecture and evoked the framework agreement signed at the September 2009 G-20 summit.
  • The problem for China is that while Germany and Japan are U.S. allies, firmly lashed to the American-dominated international system, and have already been forced to change in response to American demands — such as the 1985 Plaza Accord in which Washington forced them to adopt market-oriented exchange rate policies — China is not.
  • If the United States is serious about enforcing such a policy, it will require changes to the next three biggest economies — China, Japan and Germany — as well as to those who have grown accustomed to the status quo, that is, in some way, almost everyone else in the world.
    "U.S. Treasury Secretary Timothy Geithner spoke at the Brookings Institution on Oct. 6 and outlined Washington's economic and financial goals for a series of major upcoming international meetings. He called for G-20 countries to continue working together on global economic and financial challenges, and presented three points where the United States sees dangers to the global system. " At Stratfor on October 7, 2010.

New Statesman - Facebook, capitalism and geek entitlement - 0 views

  • The film's basic formula is the familiar blogs-to-bling-and-bitches redemptive parable of male geek culture, with the added bonus that it happens to be based on real events. The protagonist, Facebook's co-founder Mark Zuckerberg, is a brilliant 19-year-old coder. His painful social ineptitude, as told here, gets him savagely dumped by his girlfriend, after which, drunk and misunderstood, he sets up a website to rate the physical attractiveness of the women undergraduates of Harvard, thus exacting his revenge upon the female sex that has so cruelly spurned his obvious genius.
  • The Social Network is an expertly crafted and exhaustively modern film, and one of its more pertinent flashpoints is the reminder that a resource that redefined the human interactions of 500 million people across the globe was germinated in an act of vengeful misogyny.
  • This is no reflection on the personal moral compass of Sorkin, who is no misogynist, but who understands that in rarefied American circles of power and privilege, women are still stage-hands, and objectification is hard currency.
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  • This is what Facebook is about, and ultimately what capitalist realism is about: life as reducible to one giant hot-or-not contest, with adverts.
  • There is a certain type of nerd entitlement that is all too easily co-opted into a modern mythology of ruthless capitalist exploitation, in which the acquisition of wealth and status at all costs is phrased as a cheeky way of getting one's own back on those kids who were mean to you at school.
  • The protagonist is invariably white and rich and always male -- Hollywood cannot countenance female nerds, other than as minor characters who transform into pliant sexbots as soon as they remove their glasses -- but these privileges are as naught compared to the injustice life has served him by making him shy, spotty and interested in Star Trek. He has been wronged, and he has every right to use his l33t skills to bend the engine of humanity to his purpose.
  • For me, being a geek is about community, energy and celebration of difference -- but in the sterile fairytale of contemporary capitalism, successful geekery is about the rewards of power and the usefulness of commodifying other humans as a sum of likes, interests and saleable personal data.
    "The Social Network is an elegant psychodrama of contemporary economics. " By Laurie Penny at New Statesman on October 1, 2010. Referred to by Nicholas Schiller.

Whoa; capitalism is like The Matrix, dude - 0 views

    "I'd agree that what are usually described as "free markets" are indeed broken (there's too much evidence to ignore), but I remain to be convinced that those markets are truly "free" in any way that Adam Smith himself would have recognised. I'm no economics boffin, of course, and as such I'm not going to state with certainty that truly free markets would be the solution to all our economic woes… but I think it's fair to say that regulation is never going to prevent disasters and abuses in a system wherein certain groups and individuals are given (or simply invent for themselves) ways of avoiding or circumventing such." By Paul Raven at Futurismic on August 30, 2010.

They Still Don't Get It - 0 views

  • The art of the "big lie" is to repeat something often enough, and with a powerful enough megaphone, such that your distortions are not challenged.
  • By trying to rewrite the narrative of the economic cataclysm we have lived through, the deniers are attempting to challenge the common-sense conclusions that flow from an accurate understanding of history.
  • Greenberg was removed as CEO of AIG by his own board—of its own volition—after his refusal to answer questions about his involvement in fraudulent reinsurance contracts that his company had created. Five people were convicted by a jury in Connecticut in 2008 for their role in these frauds. The federal prosecutor, in his summation, called Greenberg an unindicted co-conspirator in the scheme. In New York, the judge who will hear the case based on these facts, brought by the state when I was attorney general, called the case "devastating" and referred to AIG as a "criminal enterprise." AIG as a corporate entity settled the case with my office in 2006 by restating its financial results and paying a fine of $1.6 billion. Shareholders are now awaiting judicial approval of an additional $750 million settlement to compensate them for damages they suffered from these accounting frauds.
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  • What does it mean that supposedly thoughtful voices in the corporate world continue to deny the simple fact that irresponsible behavior should be addressed head on, and the rules of conduct altered sufficiently to permit a sound foundation for future economic growth?
  • Schwarzman recently compared the attempt to tax the often astronomical fees earned by private equity managers as ordinary income—as they should be—to Hitler's invasion of Poland. This horrific statement, from someone who spent millions of dollars on his own birthday party, is an unfortunate reminder of the mind-set of at least some pockets of our corporate leadership. It is time for more enlightened voices in the corporate world to use their own megaphones.
    "Some people on Wall Street, and at the Wall Street Journal, speak as if the financial crisis never happened." By Eliot Spitzer at Slate Magazine on August 22, 2010.

Is China Turning Japanese? - 0 views

  • That's because China's economic growth has followed what's sometimes called "the Japanese model."  In Japan and other Asian countries, this model has proved extraordinarily successful in the short term in generating eye-popping rates of growth -- but it always eventually runs into the same fatal constraints: massive overinvestment and misallocated capital. And then a period of painful economic adjustment. In short: Beijing, beware.
  • The Japanese model channels wealth away from the household sector to subsidize growth by restraining wages, undervaluing the currency, and, most powerfully, forcing down the cost of capital.
  • too much of the economy depends on hidden subsidies to survive. 
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  • Unless domestic consumption expands dramatically, China can continue growing rapidly only by increasing investment well beyond what is economically useful or by forcing larger trade surpluses onto a reluctant world.
  • Many reasons have been given for low Chinese consumption -- demographics, Confucian culture, skewed tax incentives, amateurish marketing, the sex imbalance, the tattered social safety net, etc. If Beijing takes administrative steps to address the correct cause of low consumption, so goes the theory, it will automatically rise.
  • The other, smaller (but rapidly growing) school of thought argues the model itself prohibits high consumption: growth is high because consumption is low.
  • Contrary to conventional thinking, the Chinese have no aversion to consuming. They are eager shoppers, as even the most cursory visit to a Chinese mall will indicate. The problem is that Chinese households own such a small share of total national income that their consumption is necessarily also a small share.
  • One option might be for Beijing to engineer a huge shift of state wealth to the household sector through, say, a massive privatization program.
  • Another option, and ultimately the only sustainable path forward, would involve reversing the subsidies that generated such furious growth.
  • Unfortunately, the longer China waits to make the transition from this model of growth, the more difficult the transition will be.
  • The sooner China begins the difficult transition, the less costly it will be, but in no circumstance is it likely to be easy. They key will be to get consumption to grow quickly relative to GDP, and China might simply not have the time to do it by reversing the wage, currency, and interest-rate subsidies paid by the household sector.
    "China has formally overtaken Japan as the world's second largest economy. Yet, for all the recent excited commentary, there's less cause for baijiu toasts in Beijing than they might think." By Michael Pettis at Foreign Policy on August 19, 2010.
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