Japan Likely To Open To More Migrants Workers

We have been forecasting that Japan, given its demographics, will eventually be compelled to liberalize its labor markets, despite the popular aversion to accept migrant workers.

Here is what I wrote in 2009,

And as its economy recovers, Japan's dwindling population (see the above chart from japanfocus.org) will endure strains from labor shortages.

While Japan can easily absorb more foreign workers when it is deemed as politically convenient, it would bear additional costs from the "learning curve" to integrate foreign workers to its society.

I guess the political pressures for such liberalization appears to be mounting, and seems even to emanate from the political class.

It isn’t just Japan’s demographic conditions that have been impelling for such changes but likewise China’s demographic trends—where the latter may provide competition for foreign workers.

This from Japan Times,

Foreign Minister Seiji Maehara called Wednesday for appropriate rules to accept more foreign workers ahead of an anticipated severe labor shortage in rapidly aging Japan, warning that China's eventual "supergraying society" could soak up migrant workers…

"If China seeks nurses and caregivers from neighboring Asian countries in 10 to 20 years' time, Japan, which already suffers from a shortage of staff, will compete with a country that has 10 times more people to secure medical workers," he said.

The foreign minister criticized the health ministry for being reluctant to accept more foreign nurses and caregivers and prioritizing the employment of existing qualified Japanese who are not working right now.

I’d bet cultural inhibitions extrapolated through politics will eventually pave way to embracing reality.

Who Is To Blame For High Energy Prices?

The upward pressure in the global prices of petrol products have prompted The Economists to ask “Are taxes or crude oil prices to blame for expensive petrol?”

Their narrative....

PETROL prices have risen steeply in rich countries, triggering heated arguments about whom or what is to blame. America’s energy department recently blamed a jump in petrol prices of 3.1 cents per gallon in the space of seven days on the political unrest in Egypt affecting crude oil prices. Japan’s government blamed the high price of crude oil for its tenth weekly price increase at the pump. The British government has given the same explanation for price increases averaging 15% in the year to January. But with the oil price still at only two-thirds of its peak in mid-2008, this is not the only cause—as the three charts below show

Elevated oil prices as we have repeatedly argued here, represents a mishmash of many factors that can be classified into two; mainly

-artificially high demand as a result of central banking inflationism (suppressed interest rate and QE) and

-on the supply side, the perceived shortages as a result of global governments restrictions to private investments (despite the lack of funding or technology) for political reasons, inadequate transparency of the actual state of reserves and attempts to manipulate the oil markets (OPEC cartel)—both of which has led to the escalating prices.

Lastly, taxes, which the Economist also raised, are also government imposed.

As to who is to blame for expensive petrol? I guess the answer is very much obvious: government interventionism.

Video On US Income Inequality: What Statistics Don’t Say

In this video, Professor Steve Horwitz explains the myth behind mainstream’s presentation of “income inequality”. (hat tip: Professor Art Carden)

Emerging Market Authorities Lean On Free Trade

Here seems to be more proof that emerging market authorities are more “free market” leaning today.

One of them, as shown below, has even been lecturing developed economies to adapt more liberalization.

This appears to be in stark contrast to the yesteryears where developing nations were subjected to the Washington Consensus or “an orientation towards Neoliberal policies” which refers to “economic reforms that were prescribed just for developing nations, which included advice to reduce government deficits, to liberalise and deregulate international trade and cross border investment, and to pursue export led growth.”

Brazil’s finance minister vehemently assailed the Federal Reserve for its QE,

From Wall Street Journal blog

Brazilian Finance Minister Guido Mantega on Tuesday renewed his attack on the Federal Reserve’s most recent program of quantitative easing, saying the policy had goosed global flows of hot capital and heightened the global problems of rising commodity prices and inflation.

Last year, Mr. Mantega warned that falling currencies — including the U.S. dollar, due to the Fed’s plan to buy up to $600 billion of Treasurys — had triggered a currency war. On Tuesday, the finance minister renewed his opposition to the Fed’s program — at one point correcting his interpreter to specify “quantitative easing” and not just “monetary policy.” (emphasis added)

And he equally slams entrenched protectionist policies...

More from the same article.

The finance minister also blamed the U.S. — and other developed markets — for playing a role in rising commodity prices. The problem, Mr. Mantega said, isn’t solely due to increased demand, unfavorable weather and natural disasters, such as last summer’s drought in Russia. Agricultural subsidies in the developed world, and higher prices for fertilizer made by advanced economies also are factors, he said. One solution Mr. Mantega offered: encouraging production of agricultural commodities in developing, low-income countries. And one sure way to make the situation worse: any type of price controls or restrictions, which the finance minister characterized as the equivalent of shooting one’s self in the foot.

Developed countries should remove subsidies and lift trade barriers to products of emerging countries,” he said. “Also, developed countries should provide new investment opportunities to prevent capital supplies from increasing commodity prices.

Looks like the table has been turned.

Economic Freedom Is Key To Prosperity

Great stuff from Professor Walter Williams, (bold highlights mine)

Poverty in Egypt, or anywhere else, is not very difficult to explain. There are three basic causes: People are poor because they cannot produce anything highly valued by others. They can produce things highly valued by others but are hampered or prevented from doing so. Or, they volunteer to be poor.

Some people use the excuse of colonialism to explain Third World poverty, but that's nonsense. Some the world's richest countries are former colonies: United States, Canada, Australia, New Zealand and Hong Kong. Some of the world's poorest countries were never colonies, at least for not long, such as Ethiopia, Liberia, Tibet and Nepal. Pointing to the U.S., some say that it's bountiful natural resources that explain wealth. Again nonsense. The two natural resources richest continents, Africa and South America, are home to the world's most miserably poor. Hong Kong, Great Britain and Japan, poor in natural resources, are among the world's richest nations.

We do not fully know what makes some societies more affluent than others; however, we can make some guesses based on correlations. Rank countries according to their economic systems. Conceptually, we could arrange them from those more capitalistic (having a large market sector and private property rights) to the more socialistic (with extensive state intervention, planning and weak private property rights). Then consult Amnesty International's ranking of countries according to human rights abuses going from those with the greatest human rights protections to those with the least. Then get World Bank income statistics and rank countries from highest to lowest per capita income.

Having compiled those three lists, one would observe a very strong, though imperfect correlation: Those countries with greater economic liberty and private property rights tend also to have stronger protections of human rights. And as an important side benefit of that greater economic liberty and human rights protections, their people are wealthier. We need to persuade our fellow man around the globe that liberty is a necessary ingredient for prosperity.

Professor Steven Landsburg shows 3 charts that arrive with same conclusion: Economic Freedom supersedes civil liberties or Political rights. In other words, democracy is only second to economic freedom.

Says Professor Steven Landsburg,

Political freedom and civil liberties are good things. I endorse them. But as far as human happiness goes, capitalism is an even better thing

Seasteading: A Dreamworld For Anarchists?

John Stossel suggests one way to escape the clutches of the government: Try Seasteading-an idea derived from Patri Friedman.

Photo from Seasteading Org

Writes John Stossel,

What is someone looking for better governance to do? In 2008, Friedman set up The Seasteading Institute. His website states: "(W)e believe that experiments are the source of all progress: To find something better, you have to try something new. But right now, there is no open space for experimenting with new societies. That's why we work to enable seasteading communities -- floating cities -- which will allow the next generation of pioneers to peacefully test new ideas for government. The most successful can then inspire change in governments around the world."

Read the rest here.

Adds Professor Bryan Caplan,

The whole point of seasteading is to get outside of existing jurisdictions, then create new institutions. Whatever else you think about seasteading, it does bypass the problem of changing either structure or policy in existing societies.

Hmmmm

Quote of the Day: ASEAN Free Trade Agreement

ASEAN+6 and the Trans Pacific Agreement could serve as starting points and become the basis of a future free trade agreement encompassing all of Asia and the Pacific.

That’s from ADB President Haruhiko Kuroda

Even multilateral institution as the ADB are discovering the importance of free trade.

A Map Of The World’s Drinking Habits

Interesting article from the Economist

THE world drank the equivalent of 6.1 litres of pure alcohol per person in 2005, according to a report from the World Health Organisation published on February 11th. The biggest boozers are found in Europe and in the former Soviet states. Moldovans are the most bibulous, getting through 18.2 litres each, nearly 2 litres more than the Czechs in second place. Over 10 litres of a Moldovan's annual intake is reckoned to be 'unrecorded' home-brewed liquor, making it particularly harmful to health. Such moonshine accounts for almost 30% of the world's drinking. The WHO estimates that alcohol results in 2.5m deaths a year, more than AIDS or tuberculosis. In Russia and its former satellite states one in five male deaths is caused by drink.

I’d like to add that institutions like the WHO, whom has called for stronger “alcohol control policies” appears to have forgotten about the epic regulatory failure in the “Volstead Act” or the US alcohol prohibition law of the 1920s.

Such prohibition, also known as ‘the Noble experiment’, according to wikipedia.org, “stimulated the proliferation of rampant underground, organized and widespread criminal activity” which eventually led to its repeal.

Noble intentions will never rescind the laws of demand and supply.

Environmental Black Swan: ‘Doomsday’ Asteroid Could Slam Into Earth on 2036!

Since many people like to scare themselves with fictitious tales of environmental doom, this should represent as the ultimate environmental horror story or a black swan (low probability, high impact) event: earth could be hit by a ‘doomsday’ asteroid!

Scientists have even pegged a date for Armageddon: April 13, 2036!

From the Daily Mail, (emphasis added)

Warning comes days after another asteroid shot over the Pacific just 3,400 miles above the Earth’s surface

An asteroid travelling at 23,000mph could crash into Earth on April 13, 2036 killing millions and causing global chaos, scientists claim.

In a plotline taken straight from a science-fiction film, astronomers in Russia are predicting that the 300-yard-wide Apophis could slam into the planet in 25 years' time.

But don't panic just yet, as it is extremely unlikely to happen.

So unlikely, in fact, that Nasa has given the catastrophic event odds of 250,000-to-1 that it actually takes place.

Read the rest here.

Goodbye anthropogenic global warming!

ASEAN Bourses Undergoing Interim Correction

Since the advent of 2011, the Philippine Phisix has been on a losing streak.

In four out of the five weeks into the year so far or a string 4 consecutive weeks in the red, the Philippine benchmark has accrued a year-to- date decline of 10.76%

Regional Event and Seasonality

Before jumping to conclude about what’s been ailing the Phisix, we should take note of the following:

Figure 1: Bloomberg: Correcting ASEAN Bourses

One, this has been a regional phenomenon.

As the above chart reveals, our ASEAN contemporaries (Thailand-green, Indonesia-orange) have been synchronically on a downside path since November of 2010 (with the exception of Malaysia (red).

To extrapolate, there seems no internal dynamic that has been causing the current weakness—not the Rabusa expose nor the Angelo Reyes incident. And I don’t think that local or regional consumer price inflation has reached critical levels yet to incite political hysteria.

The Philippines just posted a record economic growth during the last quarter of 2010[1], and so with Indonesia[2], whose economic growth hit a 6 year high.

One may suggest that these events account for as past performances that does not serve as a good indicator of the future, from which the markets could be be pricing in. This could be true.

And that perhaps the market could be portending of a possible downshift following a turbocharged upside momentum. This could likely be a factor, too. But I would refrain from fixating on this premise as the main causation to the current market action.

The other thing is that the current correction could signify a cyclical motion.

The white arrows on figure 1 points to general market infirmities at the onset of 2009 and 2010.

The first quarter of 2009 marked the trough of the 2007-2008 bear market which culminated with the post Lehman bankruptcy global market collapse in October 2008.

In 2010, the first quarter weakness was then attributed to the Greece Debt Crisis, where the mainstream had insisted that deflation would return, the financial market would collapse and that the Euro dies along with this. All of which we had set out to debunk[3] and had been validated or proven correct.

So it appears that we have a normal countercyclical trend unfolding before our eyes.

No Egypt and Middle East Domino Contagion

Next, no this isn’t about Egypt nor is it about Tunisia’s Jasmine revolution or the falling dominos of autocratic regimes in the Middle East.

Figure 2: Bespoke Invest: Flight To Safety, Where?

As the excellent Bespoke Invest[4] charts shown in Figure 2, there hardly has been material signs of widespread anxiety as seen in the US dollar (left window) or Gold (right window). In short many of so-called market stress attributed to Egypt has been predicated on available bias.

Going back to the ASEAN equity markets, the interim bullmarket reversals began in November 2010, way before such Middle East “People Power” movements or political events that had long been predicted by French judge, political philosopher and anarchist, Étienne de la Boétie[5], during the 16^th century who once wrote[6], (bold emphasis mine)

``Resolve to serve no more, and you are at once freed. I do not ask that you place hands upon the tyrant to topple him over, but simply that you support him no longer; then you will behold him, like a great Colossus whose pedestal has been pulled away, fall of his own weight and break in pieces.”

In addition, people always tend to fall prey to mainstream media’s soundbites, yet the media blitz over Egypt has eclipsed the Thailand-Cambodia border military skirmishes that has also accounted for as negative news[7] this week. The risk of military escalation between our neighbors has apparently been eluded mainstream analysts.

Yet, such bellicostic incident should have prompted for a collapse in Thailand’s stocks, if we go by the mainstream’s logic. But this has not been so. Thailand SET lost 3.6% over the week was even less than Korea’s Kospi 4.6% or even nearly at par with the declines registered by the Philippine Phisix 3.18%.

I’d also like to point out that the bloody street riots[8] in Bangkok, Thailand’s capital, in May of 2010, didn’t trigger a collapse in Thai stocks, in the same way as the latest political crisis in Egypt.

In other words, political events do not necessarily or automatically create volatility in stock market pricing.

Inflation Led Slowdown? Not So Fast....

Some may argue that rising inflation could be a factor.

Theoretically, inflation will not be good for equities in general because from the corporate earnings perspective—earnings get squeezed or crimped out of rising real cost of capital and losses on the net asset position that are fixed in nominal terms.

Most importantly, the biggest threat to shareholder value, writes McKinsey Quarterly[9], lies in the inability of most companies to pass on cost increases to their customers fully without losing sales volumes. When they don’t pass on all of their rising costs, they fail to maintain their cash flows in real terms.

But I would argue that the impact to equities from an inflationary environment greatly depends on the underlying state or conditions. That’s because equities have proven to be hedges during episodes of hyperinflations, such as in 1920 Weimar Germany hyperinflation[10] or most recently the Zimbabwe hyperinflation.

I quoted an All African article[11] in 2008

``The feat continued into 2008 with industrials posting a year-to-date growth of 960 quadrillion percent, which is 4,15 billion times as much as July's annual inflation of 231 million percent.

``The resource index is up 444 quadrillion percent since January. And so, from the look of things, ZSE investors may have indeed managed to hedge their assets against the effects of high inflation but some have been at a loss in US dollar terms."

A great living example of the stock market as an inflation “hedge” would be Venezuela (see Figure 3)

Figure 3 Tradingeconomics.com[12]: Venezuela Stock Market Driven By Rampant Inflation

Notice as the rate of annual change in consumer price inflation ramps up, the stock market, on a time lag, follows. As the inflation rate declines, the Venezuela’s stock market bellwether also, on a time lag, declines.

I’d like to further point out that Venezuela’s inflation rate has been at high double digits (25-35%) and appears to nearly tip over to the hyperinflation level or where inflation exceeds 50% a month[13].

The fundamental premise why stocks can function as a hedge doesn’t tag along the lines of earnings but rather on the public’s perception of the changes in the role of money—a deterioration in the “store of value” function.

As Adam Fergusson wrote about the disastrous Weimar Hyperinflation in When Money Dies[14],

October 1922, however, was the nadir for shareholders. From then on not only did money find its way back into shares, but people who could obtain cheap credit, or were unable to send their money abroad, began to realise the advantages of buying up their own country's industrial and other assets at a fraction of their true value. Although in real terms the stock market began to go up, the mark's purchasing power continued to go down.

Said differently under the state of high inflation, even if the values of shares go up, in real terms share values lose money because the money’s value erodes faster than the increase in share prices.

And those who argue on the premise where ‘company earnings determine share prices’ have found current movements in the global stock markets baffling and inexplicable. That’s because these experts have basically been focusing on the wrong aspects and has been ignoring the fast expanding role of monetary inflation’s impact on share prices[15].

Perhaps even Warren Buffett’s dramatic shift to political lobbying-crony capitalism[16] based investment approach could, in reality, be reflective of such changes.

To add, since inflation is basically a redistribution process, some industries are likely to benefit more than the others. Thus, a generalized or broadmarket decline is definitely not a characteristic of the supposed inflation based anxieties.

So all these point to an unsubstantiated premise where the decline in the values of ASEAN bourses has been imputed on the risks of inflation.

More On Growing Divergences

Here’s more: earlier we have pointed to several divergences[17] in the global market such as surging commodities, developed economy share prices and a firming Peso.

I’d like to add that one of the serious manifestations of a market meltdown/breakdown could be seen in the price actions of the local currency.

Figure 4: Bloomberg: JP Morgan Asia Dollar Index

That’s because market meltdowns tend to instigate a “flight to safety” dynamic where investors both local and foreign flee domestic capital markets and seek safehaven elsewhere abroad. In two words: capital flight.

This was demonstrably the case during the 2008 Lehman episode in 2008, (as shown by the white down arrow in the above chart) where the bellwether basket of Asian currencies represented by Bloomberg-JP Morgan Asia Dollar Index cratered.

Today, despite the quarter long weakness envisaged by the region’s stock market, Asian currencies values have remained buoyant.

Yet it is important to point out that Asian currencies tanked only during the latter half of 2008 or nearly at the pinnacle of the crisis. The Philippine Peso likewise began its descent 3 months after the peak in the local stock market.

This only means that as lagging indicators currency values can’t be used as a standalone metric to assess the state of the markets. It has to be combined with other indicators.

Finally here’s another important divergence as noted by Bespoke Invest (see figure 5)

Figure 5: Divergences in Global Markets (Bespoke Invest)

Figure 5 shows that the Exchange Traded Funds (ETF) of various emerging markets, the natural gas, various treasuries funds and gold mining issues have failed to live up to the animated performances by their contemporaries.

As Bespoke Invest[18] notes,

It's not the emerging markets in one region of the world that are struggling either. ETFs that track Brazil, Latin America, China, India, and Asia Pacific are all below their 50-days. Typically when the US market is rallying, emerging markets are rallying even more. Bulls looking to outperform the S&P 500 have been using emerging market securities to do so for multiple years now. Recently, however, this strategy has been a performance killer.

As duly noted by Bespoke, past performance can’t be expected to deliver similar results.

And it should apply opposite ways.

Although such divergences may be construed or seen by some as decoupling, it isn’t. Asian and most of emerging markets have vastly outperformed in 2010, thus given that no trend goes in a straight line, today’s relative underperformance signify as a pause or natural correction process and is likely a temporary event.

Bottom line: Current developments represent as buying opportunities.

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[1] Inquirer.net, Philippines posts record economic growth at 7.3%, January 31, 2011

[2] Financial Times Asia, Indonesian growth hits six-year high, February 7, 2011

[3] See Why The Greece Episode Means More Inflationism, February 15, 2010

[4] Bespoke Invest Where's the Flight to Safety? February 11, 2011

[5] Wikipedia.org, Étienne de la Boétie

[6] de la Boétie, Étienne The Politics Of Obedience: The Discourse Of Voluntary Servitude, Mises.org, p.47

[7] Telegraph.co.uk Ancient temple damaged by shell fire in Cambodia, February 7, 2011

[8] See Politics And Markets: Bangkok Burns Edition, May 20, 2010

[9] McKinsey Quarterly How inflation can destroy shareholder value, Winter 2010

[10] Wikipedia.org Inflation in Weimar Germany

[11] See Black Swan Problem: Not All Markets Are Down! November 11, 2008

[12] Tradingeconomics.com, Venezuela Indicators

[13] Wikipedia.org, Hyperinflation

[14] Fergusson Adam, When Money Dies: The Nightmare of the Weimar Collapse, p.78

[15] See Stock Market Prices: Inflation versus Corporate Fundamentals, February 8, 2011

[16] See Warren Buffett: Embracing Crony Capitalism, February 12, 2011

[17] See Phisix: Panicking Retail Investors Equals Buying Opportunity, January 31, 2010

[18] Bespoke Invest Emerging Markets Not Participating in Global Rally, February 10, 2011

The Web As Foundation To The Knowledge Revolution

``The economic problem of society is thus not merely a problem of how to allocate "given" resources—if "given" is taken to mean given to a single mind which deliberately solves the problem set by these "data." It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know. Or, to put it briefly, it is a problem of the utilization of knowledge which is not given to anyone in its totality.”- Friedrich von Hayek

Dictators of Tunisia and Egypt have recently been toppled. Autocratic leaders of Yemen, Jordan and Algeria have likewise been under political pressure.

The web’s real time connectivity coursed through social media has allowed for a widespread diffusion of information...and knowledge. And this has lowered the cost of organization and mobilization that has apparently increased the demand for political spontaneous actions in the form of “people power” political movements.

In short, the economics of the web has been transforming the political order[1].

But when we read social media sceptics like such as Stratfor’s Marko Papic and Sean Noonan, who writes[2]... (bold highlights mine)

Social media alone, however, do not instigate revolutions. They are no more responsible for the recent unrest in Tunisia and Egypt than cassette-tape recordings of Ayatollah Ruholla Khomeini speeches were responsible for the 1979 revolution in Iran. Social media are tools that allow revolutionary groups to lower the costs of participation, organization, recruitment and training. But like any tool, social media have inherent weaknesses and strengths, and their effectiveness depends on how effectively leaders use them and how accessible they are to people who know how to use them...

The key for any protest movement is to inspire and motivate individuals to go from the comfort of their homes to the chaos of the streets and face off against the government. Social media allow organizers to involve like-minded people in a movement at a very low cost, but they do not necessarily make these people move.

...we understand that such objections have been founded on superficial premises-mostly from underrating the importance of knowledge and the continued the expectations that political developments flow from top-down dynamics.

Hayek’s Knowledge Revolution

Knowledge, according to the great Friedrich von Hayek[3], never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess.

This simply means that everyone’s unique perspective represents as dispersed knowledge. When dispersed knowledge are combined, exchanged, mimicked and improved upon these interactions result to fresh or innovative ideas.

Prolific author and writer Matt Ridley calls such phenomenon as Ideas having Sex[4].

Professor Don Boudreaux expounds[5] on Matt Ridley’s intellectual intercourse.

The easier it is for ideas to get together, check each other out, and jump into bed with each other, the greater will be the number of newly created ideas — ideas that would not otherwise be conceived.

Copulating ideas has also another very important role: coordination of diversified information into the production of goods and services. And this has been the path to our (human) progress.

Matt Ridley, author of the very impressive book the Rational Optimist writes[6]

``the sophistication of the modern world lies not in individual intelligence or imagination. It is a collective enterprise. Nobody—literally nobody—knows how to make the pencil on my desk (as the economist Leonard Read once pointed out), let alone the computer on which I am writing. The knowledge of how to design, mine, fell, extract, synthesize, combine, manufacture and market these things is fragmented among thousands, sometimes millions of heads. Once human progress started, it was no longer limited by the size of human brains. Intelligence became collective and cumulative.

And that’s exactly what the web has been facilitating—an unlimited orgy of ideas—Hayek’s knowledge revolution is essentially being realized through social media.

From Vertical To Horizontal Flow

In the past the flow of information reflected on how economic production had been organized: the industrial age marked by mass production and thus a top to bottom dynamic. This holds true even with the political framework. From the top down economic structure emerged the grand experiments with centralized form of governance in the form of communism, socialism, autocracy, fascism and totalitarianism.

The traditional medium of information for the consuming public had been mostly through TV, radio and newspapers. Because of the limited networks, these institutions discriminated on the information it chose to broadcast, thus the exchange of ideas had largely been constrained.

Governments easily resorted to information control via political censorship in order to regulate “the moral and political life of the population[7]” or when political leaders felt the need to advance their interests.

Controlling the flow of information meant controlling the medium. Thus, political leaders throughout history have attempted to control the medium to preserve political power.

This time is proving to be different.

Today information flows real time and horizontally, enabled by the web.

People can simply self publish their thoughts, unedited, via the blogsphere (which incidentally accounts for an estimated 133 million[8] bloggers and growing) or through privately owned websites.

People can send messages via email or even by text messages via mobile phone.

People can also air blips of short messages or comments via the online community as Facebook and Twitter.

Or produce videos via podcasting and youtube that are being broadcasted via blip.tv or vimeo or video aggregators which has been posing a threat to TV.

And investors have been following the money trail.

As more and more people get wired or become netcitizens AD money spent on the internet has substantially been growing[9] see figure 6.

Figure 6: AD Spending Follow the Money Trail (Morgan Stanley)

Morgan Stanley’s Mary Meeker predicts of the explosion of mobile internet as the major source of growth for the web[10].

Even some TV programs today try to interact with the web by publishing tweets or facebook comments of audiences on air!

The democratization of information from the web or cyberspace has dramatically altered the complexion of knowledge distribution.

Gossip And The Transition To A Horizontally Based Political Order

In the hunter gatherer society, where our ancestors wandered in small tightly knit groups, gossips were used as a tool to evaluate relationships and as form of social discipline.

Aside from useful information, gossips, according to David Brooks of the Biorational[11], served to ``maintained social bonds and enforced social norms. In small groups like our ancestors' hunter-gatherer bands, in which everyone talks to everyone else regularly, liars and social cheats were found out quickly and were dealt with quickly. So lying and social cheating were relatively rare.”

The introduction of the web has basically brought back the traditional role of gossip.

For instance, Wikileaks has spilled the beans on many stealth government activities, and wikileaks has been instrumental in unleashing the popular “Jasmine” revolt in Tunisia[12].

Despite governments attempt to harass and control the founder of wikileaks, the success wikileaks has prompted for the broadening of competition.

As Professor Gary North rightly observes[13],

WikiLeaks has taken this to a new level. Now a disgruntled former WikiLeaks employee is branching out on his own. He has started a new organization, OpenLeaks. This is the kind of competition I love to see. A Reuters story describes what is about to happen. "All across Europe, from Brussels to the Balkans, a new generation of WikiLeaks-style websites is sprouting."...

As the number of these sites increases, it will become more difficult for governments to contain the leaks. The desire of leakers to become important overnight will grow.”

Of course governments can initiate countermoves such as instituting “firewalls” (as in the case of China) or kill-switch strategy[14] or the shutdown of ISP providers or disseminate counterpropaganda.

Cuba’s government for instance has designed a campaign to counter the web. Unfortunately this was again exposed, according to Wall Street Journal’s Mary O’Grady[15]

Last week a leaked video of a Cuban military seminar on how to combat technology hit the Internet. It demonstrates the dictatorship's preoccupation with the Web. The lecturer warns about the dangers of young people with an appealing discourse sharing information through technology and trying to organize.

As in the case of Egypt, the kill switch strategy has ultimately failed[16].

Circulating political propaganda or spreading disinformation can easily neutralized by “local based” knowledge or by speciality sites (e.g. snope.com).

One important development from the web is that it has altered the way governments have been behaving, as governments seemingly become more cautious and possibly less repressive in dealing with transgressors or with the political opposition, as in the case of China.

Borje Ljunggren of Yale Global notes of several incidences and sees[17] that

In case after case since 2004, the internet has dramatically changed the course of an event, forcing the party to maneuver between response and repression.

Mr. Ljunggren further notes that Chinese state control of information has also been under pressure,

He further writes, (bold emphasis mine)

Censorship is an organic part of the party-state and will no doubt remain a crucial weapon, but its usage is increasingly exposed as the Chinese internet society becomes aware of the extent to which entrenched party interests determine their access to information. As a consequence, an idea of a “right to know” is taking shape in China’s rapidly growing online civil society and this could, in Shirk’s analysis, become “the rallying cry of the next Chinese revolution.

While internet freedom clearly is not about to be declared, civil society and new technology will over time push limits beyond the axiomatic boundaries of the party-state.”

As one would notice the vertical-hierarchal structure of governments are constantly held under pressure by the democratization of knowledge.

And this should apply with political ideology too.

Political and economic ideology latched on a vertical top-bottom flow of power will be on a collision course with horizontal real time flow of democratized knowledge.

This would likely result to less applicability of ideologies based on centralization, which could substantially erode its support base and shift political capital to decentralized structure of political governance that would conform with the horizontal structure of information flows.

People will know more therefore control from the top will be less an appealing idea.

The final word from futurist Alvin Toffler[18], who predicted this Hayekian Knowledge Revolution which he molded through as his Third Wave concept.

``Computers can be expected to deepen the entire culture’s view of causality, heightening our understanding of the interrelatedness of things, and helping us to synthesize meaningful “wholes” out of the disconnected data whirling around us....The intelligent environment may eventually begin to change not merely the way we analyze problems and integrate information but even the chemistry of our brains.”

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[1] See The Web Is Changing The Global Political Order, January 29, 2010

[2] Papic Marko and Noonan Sean Social Media as a Tool for Protest, stratfor.com February 3, 2010

[3] Hayek, Friedrich August von The Use of Knowledge In Society, Individualism and Economic Order, Mises.org, p.77

[4] See Matt Ridley: When Ideas Have Sex, August 11, 2011

[5] Boudreaux Donald J. Promiscuous, Productive Ideas, CATO Unbound, September 10, 2010

[6] Ridley Matt, Humans: Why They Triumphed, Wall Street Journal, May 22, 2010

[7] Newth, Mette Newth The long history of censorship Beacon for Freedom of Expression, 2001

[8] Bradley Phil, Great Blog statistics, Phil Bradley’s Weblog

[9] See The Deepening Of The Information Age: News Sources And Ad Spending, January 7, 2011

[10] Meeker, Mary Internet Trends 2010 by Morgan Stanley Research, slideshare.net 2010

[11] The Bio-Rational Institute Pleistocene brain, mobile phone, May 26, 2006

[12] International Business Times, Wikileaks helped spark Tunisia revolt : FPJ January 29, 2011

[13] North Gary When the Insiders Lose Control, February 3, 2011

[14] Cowie James, Can the Internet Tame Governments? – Part I, Yale Global, February 9, 2011

[15] O’Grady, Mary Anastacia Will Cuba Be the Next Egypt?, Wall Street Journal February 7, 2011

[16] See Egyptian Revolt: Web Censorship Fails, February 1, 2011

[17] Ljunggren Borje Can the Internet Tame Governments? – Part II, Yale Global February 11, 2011

[18] Toffler, Alvin The Third Wave p 175

Warren Buffett: Embracing Crony Capitalism

Warren Buffett used to be the person I wanted to emulate. Not anymore.

This is because Warren Buffett’s investment approach has radically changed. He has undergone dramatic transformation from a Graham-Dodd modeled value investor to a political entrepreneur-crony capitalist.

The Huffington Post writes, (bold highlights mine)

No matter what the government does, taxpayer bailouts of the financial sector will sometimes be necessary, according to the nation's second richest man.

As markets crashed in the fall of 2008, government officials feared that if certain financial institutions failed, the entire financial system -- or perhaps even the entire economy -- would come down with them. In the months after the government extended a $700 billion bailout to the financial sector, lawmakers have striven to ensure that no institution poses such a systemic risk that it would be too big, or too interconnected, to be allowed to fail.

But famed investor Warren Buffett, whose own firm profited handsomely from the bailout, said bailouts are an inevitable feature of finance, Bloomberg reports.

Buffett, who is personally worth at least $45 billion, told the government panel charged with investigating the causes of the financial crisis that its work would not prevent the phenomenon of "too big to fail."

Reading last night’s very timely article at Mises.org, Frank Chodorov wrote of how some capitalists have contributed to the advancement of socialism.

Mr. Chodorov wrote, (bold highlights mine)

The task of producing goods and services for exchange was accepted as a necessity, but the summum bonum was the acquisition from the king of grants, patents and subsidies that would yield them monopoly profits, that is, profits over and above what might be garnered in a competitive market. Their aim was to live like nobles who rendered no service for the rents they collected from their tenants.

It appears that such “rent seeking paradigm” seems to be Mr. Buffett’s newfound specialty.

Warren Buffett’s perceived “bailout-as-a-necessity” is due to the fact that he or his company profits from these. Yet, what is beneficial for him comes at the expense of ordinary people. Bailouts are basically redistribution of wealth from the average Americans to Mr. Buffett, his company and shareholders.

Nonetheless bailouts are not inevitable. Eventually a political economic system that persists in doing so will only degenerate. And this will likewise affect his company’s profits overtime.

Besides, bailouts or political concessions depend on patronage. Once Mr. Buffett’s political network has gone out of the loop then such privilege goes out of the window as well.

So instead of looking for economic opportunities to exploit on, Mr. Buffett and his executives will be focusing on lobbying.

This only goes to show how Mr. Buffett’s the time horizon has substantially narrowed. Maybe it’s because of age.

But Mr. Buffett has certainly been a disappointment, unlike his libertarian father, a staunch defender of the “old right”, Howard Buffett.

More Financial Globalization: Proposed Deutsche Boerse AG-NYSE Euronext Takeover

The trend towards further consolidation of global stock exchanges continues with the proposed takeover Deutsche Boerse AG's of NYSE Euronext.

Integrating national stock markets has been part of the ongoing financial globalization process that will only deepen the correlation of price actions among global bourses. In 2007, I wrote,

With the revolutionary advances in the field of communications and information technology-the advent of on-line electronic trading platforms makes it possible for real-time electronic transactions regardless of the geographical distance.

Grounded on this premise, the major exchanges appears to be in a rush to integrate financial services, to diversify and expand their market coverage, reduce transaction (bookkeeping, clearing and settlement) costs by achieving the economies of scale, to eliminate further inefficiencies by way of human intervention, provide for financial depth by attracting global investors (to augment the demand side), traders and listing companies (to increase supply side), to improve on liquidity by easily matching buyers and sellers, and finally, adapt to the ongoing changes in marketplace by being accessible to the growing significance of institutional investors [pension funds, hedge funds, mutual funds and insurance companies] as compared to retail investors in the past.

And stock markets have been evolving—the introduction of dark pools has also been prodding for such mergers as competition deepens.

Nevertheless with the proposed merger, the Wall Street Journal editorial rues on the apparent the loss of America’s leadership, they write

The merger is nonetheless one more lesson in how easily capital, both financial and human, can relocate. It's no coincidence that the heavily regulated equity business has languished or moved out of the U.S., while lightly regulated derivatives markets have boomed in the United States and elsewhere.

In the early 1990s, American exchanges played host to half of the world's new public companies. Last year, according to Dealogic, U.S. exchanges hosted 171 initial public offerings worth a total of $45 billion. But this U.S. deal-making was dwarfed by the action overseas, where 1,295 companies went public with a total value of $237 billion. The iconic NYSE now lags behind two Asian exchanges in IPO volume. This is partly the result of more rapid growth in developing economies, but it used to be that foreign companies wanted to float their shares in the U.S. Now they're as happy in Hong Kong.

U.S. over-regulation is certainly to blame here, especially the 2002 Sarbanes-Oxley law and its multimillion-dollar compliance burden on public companies. The Securities and Exchange Commission's own exhaustive 2009 survey of U.S. and foreign firms showed that the burden of complying with Sarbox remains a major deterrent to going public in the United States. Yet the agency still hasn't made a serious effort to pare these burdens. (bold emphasis mine)

The lesson is clear: interventionism diminishes competitiveness

Coming Soon: Atlas Shrugged The Movie

(hat tip: Robert Wenzel)