Economist Weekly Round up April 30th – May 6th 2011

THE ECONOMIST STAYS “NO” TO AV
– It proposes it’s own voting reform i.e. the First Past the Post Plust (FPTP+). FPTP+ would inject a dose of PR into the current FPTP system such that a fifth of MPs would be selected on a PR basis.

AMERICAN ECONOMY IS ON ITS KNEES
– but can still boast assets that other emerging powers can’t such as the Ivy League and Silicon Valley.
– Obama’s policy to “out innovate” China is nonsense. Ideas spill over from one economy to another: when China innovates Americans benefit i.e. innovation is not a zero sum game.
– The US (Japan aside) is the  only global power without a credible austerity plan and is unlikely to have one till after the 2012 elections (when a new political mandate is established and the presidents first 100 days in office begins).
– There is a growing risk of America catching Europe’s disease of ‘Structural Unemployment’ i.e. a layer of the workforce who never will be employed.

SYRIA IS NOT LIBYA
– Syria, unlike Libya, is a hub of the Arab world, which makes intervention there a lot more tricky and potentially messy affair.
– Syria is entangled with Lebanon, Hizbollah, Iran, Iraq and carries much regional sympathy following regular suffering at the hands of Israel.
– Death toll already likely to have exceeded 450.
– There are only modest amounts of oil in Syria for a middle east nation.
– Economist still holds hope that Assad may stand down.

DIGITAL INSECURITY IS A FACT OF LIFE
– Re, the SONY Playstation hacking saga – being open with customers when things go wrong is something particularly difficult for Japanese firms. Compare to the Japanese governments lack of communication over the developing situation at Fukushima following the tsunami/earthquake.
– Managing multiple passwords and being able to detect phishing are now important life skills.

SPEND ON CHILDCARE, NOT ON TAX BREAKS
– Childcare costs around 28% of the average net income of a two-earner household with children – over double of the OECD average.
– Countries that spend more on services – especially high-quality child care – than on cash hand-outs and tax breaks (e.g. child benefit) tend to get better results for a smaller outlay. But in Britain the proportions are reversed.

BRITISH ADVERSITY TO THINKING/INTELLECTUALISM
– The country’s  preference for common sense over deep thinking has served it well. Unlike much Europe, Britain never fell for fascism or communism.

GERMANY’S LABOUR MARKET ABOUT TO BE FLOODED
– Is about to be inundated by east Europeans as their  labour markets are now open to citizens of the eight east European countries that joined the EU in 2004 (which DE and Austria have put off as long as possible.

FRENCH HIPPOCRACY ON GLOBALISATION
– A giant Abercrombie & Fitch store is set to open on the Champs-Elysee, which is becoming one of the world’s premier retail streets.
– Although the French proclaim hostility to free markets they generally lap up the offerings e.g. France is one of the most profitable markets for McDonalds.

ITALY’S IMMIGRATION SOLUTION
– Following a large influx of north Africans on the back of the unrest in that region, Italy granted a swath of immigrants resident permits (thus granting them free travel across the Shengen) and put them on trains destined for France.
– France immediately gathered up the immigrants and erected border controls on its border with Italy.
– Sarkozy and Burlesconi in a joint press conference called for more powers of border controlled in the EU and more solidarity in the management of immigrants across the EU.

AVERAGE DAILY COMMUTE
– Is 37 minutes in the UK
– 48 minutes in the US
– 30 mins in Italy

EXIT BOB GATES
–  Despite 2008 election rhetoric, Obama’s foreign policy closely follows on from Bush’s – winding down war in Iraq, deploying drone attacks in Afghanistan, desire but inability to shut down Guantanamo and ratcheting up sanctions on Iran, but most importantly having the same defence secretary Robert Gates (until last week).
– Hillary Clinton has already said she will not stay after 2012.
– Obama’s running military policy himself: America’s counter-insurgency plan in Afghanistan was in large part drafted by the president himself after his generals failed to provide one he liked. The decision to embark on a half-war in Libya was very much his own, in the face of objections from Bob Gates.

END FINALLY IN SIGHT IN LIBYA?
– The latest liberation of the city of Misrata may well be a turning point in the Libya conflict.
– The Regime’s Orwellian spin on events is on overdrive – claiming that a swath of regional tribesmen would descend to Misrata and retake the city from the rebels using violent means if necessary – there was little sign of this playing out.
– Regime’s only remaining hope for hanging on was to maintain this defacto split between the West and the East (i.e. the running stalemate), which has been pierced following Misrata’s liberation.
– NATO has been more strategic in its stirkes – instead of tragetting dispersed military units, they are now targeting Gadaffi’s command and control centres, which appears to have the regime on the back foot.

CLOSING CORPORATE TAX LOOPHOLES
– Firms should be taxed not where they say they make profits but where they generate sales i.e. where their consumers are. This would make sense as it is relatively simple and would surely shift much of the tax base to bigger economies and away from tax havens.

FUKUSHIMA GOOD AND BAND FOR FRENCH NUCLEAR
– Areva is a French state backed nuclear power plant manufacturer that is very expensive.
– Although the market for nuclear power plants has shrunk in the wake of the Fukushima disaster, the existing projects that remain are looking for extra safe plants which the more expensive Areva provides.

GOLD IN THE WAY DOWN?
– 2 signs it could be on the way down:
a) Increasing participation the public (i.e. not just financial institutions) in gold means the market is on overdrive.
b) The basis for valuations is switched from the purchasing power in terms of barrels of oil to weakening paper currencies.

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