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Explaining (again) the Euro/Greece Crisis to Grade 5
By Shlomo Maital
Hello Grade 5’ers! Thanks for inviting me. I know my subject, money and economics, is BOOOOOring. But believe me, it is important for you to know what is going on, because when you are just a few years older, what happens in Europe will affect you. Because Europe is the world’s biggest, or next-to-biggest, economy, depending on how you add the numbers.
So here’s the deal. Europe has had lots and lots of terrible wars, with France, Germany England and others fighting each other. Someone (in France) had a great idea. What if we stopped fighting and made money together, by buying each other’s stuff? If you buy my stuff, I’m not likely to want to fight you. So they called it the European Single Market. And it worked beautifully. No-one thinks Europe will have a big fight any time soon (though, Russia may be an exception – that’s another scary story).
If you sell and buy, you use money. But there are 28 countries that belong to this European club. What a mess if you have to start finding escudos, guilders, lira, pounds, francs, and all kinds of weird money. So 19 of the countries decided they would use the same new currency, which they called the “euro”. Kind of like America, where the 50 states all use the same money, the dollar. Some 332 million Europeans use the euro.
But there is a problem. If you have the same money, you have to have the same rules for making the money. That means, you have to get all those 19 countries to agree on the “rules of the game”. You can’t play baseball or football if neither team agrees what the rules are, right? And here is where things broke down.
Some countries want there to be lots and lots and lots of euros. Some countries want just a little bit of money. Some countries (like, a little country called Greece, only 11 million people) broke the rules, spent too much money, and got into trouble, just like we do when we spend too much. Because they had to borrow and now they have trouble paying back what they owe. Other countries, like Germany, who had lots of money, helped Greece but sent Greece kind of to the penalty box. No more spending. Less treats, less goodies. And Greece didn’t like it. I wouldn’t either.
So Greece has had elections and its new leaders are making a big fuss about the punishments other countries have given it. Some think Greece might even leave the ‘club’ (the euro). That might be terrible, because then some other countries might do the same, and the whole club would collapse. So, the 27 countries want Greece to stay in the club but they do not agree how to make that happen. It’s like, do you punish the Greek people for overspending (they didn’t do it, their leaders did)? Do you forgive them, and then others might do the same? Why should other countries give money to Greece? But if they don’t, they will lose too, because the whole Euro club might come apart.
And you know, Grade 5’ers, I guess you could see this coming. If you start a game, and you have not all agreed clearly on the rules, including for things that are really strange (like, what if two guys are on second base – who’s out? What if one player’s mother comes on the ice and drags him (the goalie) off to Hebrew School? (yup, happened to me) – you’re going to get into trouble. Those Europeans, they started a club without a clear set of rules, and worse, without any way of leaving it without causing REAL trouble.
I’m pretty sure they will muddle through and keep that weird euro club going. They all have too much to lose. But boy, kids, I think you Grade 5’ers could have done a far better job. Those Europeans, they couldn’t see their fingers even if they were right in front of their nose. So, when you go to play a game, or start a club, make sure everyone knows the rules. Kids usually do. It’s the grownups who are dumb about that sometime.
Feeling Empathy for Others: It’s Not Enough!
By Shlomo Maital
In a recent blog, I recounted NYT columnist Nicholas Kristof’s story about his high school chum, Kevin, who died recently after sinking into poverty and despair:
In his Op-Ed piece, Nicholas Kristof mourns the death of his school chum Kevin Green. They grew up together in Yamhill, Oregon, and ran cross-country together. Kevin lost a good job, went on welfare, got divorced, became obese, lived on food stamps, got diabetes, and died at age 54. Tea Party Republicans say he “had it easy because he got government benefits without doing anything”. Kristof notes that Kevin collected cans and bottles by the roadside, to make $20 a day for subsistence. Easy? Want to trade places? Did Republican wealth “trickle down” to Kevin and help him get a good job? Not a chance.
Kristof, in a later column, reports that he got immense flack from readers for this column. They said, it was Kevin’s own fault. He brought it on himself. Those hard-hearted readers lacked empathy, he notes.
So do our leaders. It’s no wonder. Did you know that half of all members of the U.S. Congress (House and Senate) are millionaires? How can they feel our pain, our middle-class pain?
We need leaders with empathy. Empathy – feeling the pain of others – is built-in to our physiology. We have ‘mirror neurons’ that enable us to feel what our counterpart is feeling at a given moment, not just pain, but joy, embarrassment, grief, happiness. But over time, we can easily turn off those empathy neurons, and rationalize them away.
But even strong feelings of empathy, I feel, is not enough. I found David Brooks’ NYT column, written over three years ago, in Sept. 2011:
Empathy orients you toward moral action, but it doesn’t seem to help much when that action comes at a personal cost. You may feel a pang for the homeless guy on the other side of the street, but the odds are that you are not going to cross the street to give him a dollar. There have been piles of studies investigating the link between empathy and moral action. Different scholars come to different conclusions, but, in a recent paper, Jesse Prinz, a philosopher at City University of New York, summarized the research this way: “These studies suggest that empathy is not a major player when it comes to moral motivation. Its contribution is negligible in children, modest in adults, and nonexistent when costs are significant.” Other scholars have called empathy a “fragile flower,” easily crushed by self-concern.
In other words: It’s not enough to feel empathy toward others. You have to ACT on your feelings and do something about it, even something small and symbolic, at least once in a while, so that your empathy muscles do not wither.
In our recent book Cracking the Creativity Code, we list 10 brain exercises to develop creativity. The first of the 10, and most important, is “Act, Don’t Gripe”. If you see something wrong, injustice, try to fix it, take action, at least once in a while. I know a friend, who always, as a matter of principle, gives small change to homeless and those who beg on the streets, even ones who are clearly running a scam.
I wish we had political leaders who were middle class working people. We really don’t. Until we do, it’s up to us. Sharpen your feelings toward others. Develop your empathy. But don’t leave it at that. Try to act on it. If more people did that, maybe we wouldn’t even need to bother with those millionaires in Congress.
McDonalds: The Price of Falling Asleep
By Shlomo Maital
McDonalds, the $87 b. global fast food chain, is in trouble. The world has changed and its senior management team missed the bus. The price for this is heavy. The newly appointed CEO Steve Easterbrook, an accountant, will have to deal with slumping sales and falling stock price. For years consumers have been opting for healthier food. McDonalds simply failed to meet or recognize the trend.
Here is how Bloomberg Businessweek describes McDonalds’ decline under its previous CEO: “The rocky two-and-a-half-year tenure of Don Thompson, Mr Easterbrook’s predecessor, was marked by flagging sales as the company’s key low-income customers continued to struggle in the wake of the financial crisis. It also coincided with the rise of upmarket burger chains such as Five Guys and Smashburger, and the explosive growth of fast-casual restaurants such as Chipotle. …. Last year, McDonald’s recorded its first annual decline in global same-store sales in a dozen years. The US, where McDonald’s is the target of criticism for its contribution to the obesity epidemic and wage inequality, is not its only tough market. Operations in Germany, Japan, Russia and China are also struggling. Consumers are no longer interested in food that is simply fast — they need to be convinced that it is, among other things, healthy, fresh and natural.”
McDonalds is an exceptionally arrogant organization, I am told. The global economic downturn began early in 2008; McDonalds could have seen that its customers would be pinched and less able to dine out. The trend toward healthy fresh fast food has been ongoing for years; Wendy’s and Subway have leveraged it with great success. People simply get tired of the same Big Mac.
To me, McDonalds proves a core dilemma in management. McDonalds has great operational discipline in its franchises; it has to, to survive. But the same discipline destroys creativity, flexibility and innovation. Somehow, McDonalds has to revive its agility, its ideation, without ruining its fabled discipline and cost management.
Let’s see if Steve Easterbrook, who played cricket in a British private school, will adopt a strategy that isn’t precisely “cricket”.
A Deep Contrite Apology to the people of Greece
By Shlomo Maital
Greece’s new prime minister Alexis Tsipras has been sworn in and vows to lead an anti-austerity coalition. He could possibly lead Greece out of the euro and back to the drachma. This would be unspeakably painful for Greece, in the short run, but possibly best in the long run.
Meanwhile, we economists all owe Greece an apology. We have caused immense suffering, needlessly, to 11 million innocent Greeks. According to Nobel Laureate Paul Krugman, economists drafted the ‘troika’ agreement in May 2010, under which the IMF, European Central Bank and European Commission lent Greece money, in return for extreme austerity. Greece had no choice in the matter.
This document assumed Greece would suffer only a small contraction in 2011 and by 2012 would be recovering. Yes, unemployment would rise to 15 per cent (Would Merkel’s Germany ever accept such a scenario??) in 2012, but then it would fall rapidly. Why? Because austerity would work quickly, heal Greece’s economy, and restore growth.
Really? Did the troika economists ever find a single (just one! One!) example in history where austerity worked?
No. There are none.
Instead, Greece suffered a depression, 28 per cent unemployment, its young people migrated abroad, learning German for instance, and youth unemployment reached nearly 60 per cent.
Greece kept its part of the bargain, slashing public spending by 20 per cent. But the promised benefits of austerity turned out to be disaster. That is why Tsipras won the election. And it is why the euro has dived. The EU and its economists brought it on themselves.
It isn’t complicated at all. To heal a budget deficit, you need a growing economy, because when the GDP grows, tax revenues grow much faster, 1.5 times faster. To get a growing economy, you need spending and demand. If people can’t spend, because they have no jobs and their wages are falling, only the government can take up the slack. But if you slash government budgets, the economy will shrink, not grow, and the debt problem will become even worse. That is what ‘austerity’ does. It’s pretty simple.
On behalf of my fellow economists, I would like to apologize to the people of Greece. We screwed up. And worse of all — none of those responsible seem willing to admit it.
Whatever Happened to the U.S. Middle Class?
By Shlomo Maital
The middle class is the bulwark, the core, of every nations’ democracy and economy. It provides the labor, the capital and the stability that nations need. This is why we should worry, when the middle class is disappearing, as it is in the U.S. (Middle class is defined as a household with income from $35,000 to $100,000.)
A report in today’s Global New York Times by Dionne Searcey and Robert Gebeloff, based on their study, reveals these facts:
- 53 million middle class households, nearly half of all households, are aging; many are headed by those over 65. Why? Older Americans have the safety net of social security, which is politically safe and linked to the cost of living. While middle class income has declined (median household income fell 9 per cent since the year 2000), income of households headed by elderly adults has risen by 14 per cent. Problem is, that elderly safety net is going bankrupt.
- In the late 1960s, 60 per cent of middle class households were comprised of two married adults with children. Today? It is just 25 per cent.
- In the Great Recession, 2008 – ??, “we lost a lot of middle-income jobs and we gained a lot of low-paying jobs”, says an expert from the American Enterprise Institute. That is why the strong job figures lately are misleading. They are Wal-Mart and McDonalds jobs.
- The middle class deludes itself. A NYT survey shows 60 per cent of people who call themselves middle class think that if they work hard they will become rich. But this is an illusion. Social mobility in the U.S. has greatly declined. To get rich and richer, you need to be rich already.
I think the article fails to make a key and obvious point. America’s political leaders were accomplices in shifting America’s manufacturing to Asia. This destroyed millions of high-paying jobs (as in auto production). It was done both by Democratic and Republican Presidents. Nor is Congress even trying to get those jobs back. Apparently, you cannot have a strong stable middle class unless your country makes things other than hamburgers. Is that obvious? America is now paying the price for its leaders’ blindness.
Meanwhile, the U.S. middle class has not disappeared, it has simply migrated; middle class families in China and India are booming, thanks in part to well-paying jobs.
In his State of the Union address, President Obama called the middle class the “foundation of the American economy”. Really? Then, why have you, Obama, and other leaders allowed the middle class to decline so drastically? And what are you doing to reverse the trend?
Story-Driven Policy: Worth a Try!
By Shlomo Maital
Nicholas Kristof and friend Kevin Green, Yamhill
The latest buzzword in professional and academic circles is “evidence-based”. As an adjective, it modifies ‘psychology’, ‘medical care’, ‘policy’… everything. Everything has to be evidence based. That usually implies a large data base mined for correlations. Problem with that is, G-d is in the details. Truth is in the details. By using data, especially Big Data, we miss the stories about the “little” people… forgotten people who struggle daily with illness, poverty, crime, drugs and other afflictions. The Talmud says, If you save a single soul, it is as if you saved the whole world. The point, of course, is to treat every single person with huge respect and massive importance.
Today’s New York Times has two seemingly-unrelated stories that make this point perfectly.
In his Op-Ed piece, Nicholas Kristof mourns the death of his school chum Kevin Green. They grew up together in Yamhill, Oregon, and ran cross-country together. Kevin lost a good job, went on welfare, got divorced, became obese, lived on food stamps, got diabetes, and died at age 54. Tea Party Republicans say he “had it easy because he got government benefits without doing anything”. Kristof notes that Kevin collected cans and bottles by the roadside, to make $20 a day for subsistence. Easy? Want to trade places? Did Republican wealth “trickle down” to Kevin and help him get a good job? Not a chance.
In Binyamin Applebaum’s piece on Washington, “Three stories illustrate Fed’s power and its limits”, he covers Janet Yellen (Fed Chair) and her first speech. Instead of an academic bore, quoting data, citing equations and analysis, Yellen, who is brilliant, told the stories of three Chicago residents struggling to recover from the recession. She used their stories to explain why she will be very very slow and cautious in ending the Fed’s low-interest policy, despite Republican pressure to do so. I wonder if she chose Chicago, because that is where President Obama lived and worked.
All three ‘heroes’ in Yellen’s speech are struggling, but gaining ground. Jermain Brownlee, 40, got a job building bus seats, though he makes less than he once did in construction. Dorine Poole lost her job, then got a new one as a full-time office manager. She makes $20,000 a year, far less than the $32,000 she once made before the recession, as a claims processor. Vicki Lara, 62, lost her job in the recession and a year later, is serving food samples in a supermarket two days a week, six hours a day. She wishes she could work more hours. She owed $1,200 when she lost her job, and that debt has now ballooned to $3,700, with interest. If she worked more, the companies to whom she owes money would simply garnish her wages. So she had to decline a full-time job. She told the NYT, “When I walk home to catch the bus, I see five homeless people freezing in this weather…I wish I made enough money to help them.”
Lots of people do make enough money to help them. But if you believe it’s their own fault, why bother? Surely, they LOVE being homeless, outside, in the freezing cold. Who wouldn’t?
I would like to see story-based policy. If you want to cut welfare as a policy, tell me a story about a real person and real events, to back up what you claim. When I was a professor, I wrote papers based on data. I always felt that the REAL story was in the story itself. But when I told stories, my papers were rejected, often with biting comments – because in Academe, “story” is a swear word. Single cases, it is claimed, prove nothing.
Wrong. They prove everything. They help us understand real people, real events, real problems. When the U.S. Congress is populated by elected representatives, half of whom are millionaires, how in the world can they understand people like kevin, Vicki, Jerome or Dorine? They can’t.
Shawn Leibowitz Retires Undefeated
By Shlomo Maital
Last Thursday 15-year-old Shawn Leibowitz completed a 2 km. race. He got a special medal, awarded in a podium ceremony. Big deal, you say? Marathons are 21 times longer. For Shawn it was a big deal. Shawn was abandoned as a baby, because he suffered from infantile paralysis. He trained for the race for months. His adopted parents live in a Moshav, Kochav Michael, in the South of Israel. His friends and coaches applauded him as he waved from the podium.
Yesterday Shawn passed away. His heart simply stopped. Was there a connection with the race? No one knows. Whatever the case, completing that race made Shawn immensely happy. It’s a cliché, but – he definitely died happy.
The race was held in memory of members of Kibbutz Yad Mordecai, on the Gaza border, who died in battle.
When I jog today I will think of Shawn. For many, running 2 km. is effortless. For a few it is an enormous challenge. Perhaps someday, Shawn will have a race named after him, with a special effort to enrol those who have a physical handicap.
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Why ISIS has humiliated the West – and why it matters
By Shlomo Maital
ISIS (Islamic State, known as Da’esh in Arabic) is a radical Islamic organization whose goal is to establish a Caliphate in Syria, Iraq and the rest of the Mideast, based on Islamic law. ISIS seeks to do this through a tiny well-organized and well-funded military force that at its peak comprised some 25,000 fighters. After ISIS gained control of a huge swatch of land in Syria and Iraq, some 56,000 sq. kms. (about 16,000 sq. miles), three times the size of Israel (’67 borders), a coalition of some 60 (!) mainly Western nations organized to attack ISIS, mostly from the air.
Here are 21 countries of this 60-nation coalition, whose representatives met on Thursday Jan. 22 in London to take stock of the results of their joint action against ISIS:
Australia, Bahrain, Belgium, Canada, Denmark, Egypt, France, Germany, Iraq, Italy, Jordan, Kuwait, the Netherlands, Norway, Qatar, Saudi Arabia, Spain, Turkey and the United Arab Emirates. And of course, the United States, represented by Secretary of State John Kerry.
Here is the total result to date. The U.S. claims that 6,000 ISIS fighters were killed, a casualty rate of about 25 per cent. Mainly Iraqi Army forces have taken back one percent (that’s 1 %) of the land captured by ISIS.
And that’s it. That’s the whole result of the whole operation. President Obama, in his State of the Union address, said the 60-nation operation has “halted Islamic State’s advance”.
If I were a taxpayer in any of these 60 nations, I would demand my money back. If this is the best the West can do against a small murderous band of terrorists who claim to act in the name of their religion, who slaughter hostages and civilians brutally and challenge Western culture — to “halt the advance”, with aircraft carriers, F-16’s, drones, smart bombs, and all the rest of the West’s technology —
I’m reminded of the first Rocky film, starring and written by Sylvester Stallone. The main achievement of underdog Rocky was simply to last 12 rounds against the world champion Apollo Creed. Simply by staying in the fight, and holding the vast armoury of the West to a stalemate, ISIS will find an almost infinite number of recruits worldwide among impressionist young people, who see it as “Rocky”. By letting ISIS fight it to a stalemate, the West is handing victory to ISIS, and the price in future will be extremely heavy. Recruits worldwide will flock to ISIS to be part of the modern “Rocky” story, and already have.
It leads one to wonder whether the soft fat West is able to defend itself against the barbarians at its gates, or whether it will fall as Rome did in rather similar circumstances.
A report just issued report claims (unverified) that one of the two Japanese hostages held by ISIS has been executed.
The End of Moore’s Law? Why It Matters
By Shlomo Maital
In 1965 the (later) co-founder of Intel, Gordon Moore, published a scientific paper, in which he made the following claim: “Over the history of computing hardware, the number of transistors in a dense integrated circuit doubles approximately every two years.” This was quite amazing, because integrated circuits were very new and there was not much history of ‘computing hardware’. And how right he proved. (See the diagram). In 1971, around when Intel was born, there were 2,300 transistors on a single chip. Today? With 10-core microprocessors, there are some 2.6 billion! That is almost exactly 21 doublings, in the 43 years since 1971. How in the world did Gordon Moore know???
This powerful exponential curve, which presumes a 42 per cent annual compounded rate of growth (of the number of transistors on a chip), has completely changed our lives, placing a cell phone device in our hands that has the power of a major computer. It has placed chips into cars, refrigerators, and nearly everything. It has greatly reduced the price of electronic devices, because the same exponential curve that expands the number of transistors per microprocessor, also lowers exponentially (negative exponential) the cost, very rapidly.
In “Tapeout”, the magazine of the Israeli semiconductor industry, the latest issue asks whether Moore’s Law is about to “exit” (R.I.P., die, stop)? In a sense it already has. Intel’s 10 core microprocessor is impressive (basically 10 microprocessors in one) but the truth is, many of those ‘cores’ do not operate at any given moment. Intel simply shifted its marketing from “hey, count the megahertz” to “hey, count the number of cores”.
However, if microprocessor technology truly does ‘hit the wall’, like a marathon runner, and a limit to packing transistors onto a chip is reached, then an entire industry will be in crisis. It will have to find a new technology, to restore the exponential growth, on which profits and revenue are built. And shifting to an entirely new silicon technology – perhaps chips based on cell biology? — will be expensive, risky, difficult and will lead to a major shakeout in the industry, as small disruptive startups rise to the fore to replace big lumbering established firms.
In “Tape-out”, the experts are divided about the alleged end of Moore’s Law. After all, its ‘end’, demise, has been predicted now for decades. But as the technology approaches and passes 10 nanometers, it may be true that a physical limit is being reached.
Watch the semiconductor industry closely. Repeal of Moore’s Law will affect all of us, in so many ways.
“Moore’s law” is the observation that, over the. The observation is named after Gordon E. Moore, co-founder of the Intel Corporation, who described the trend in his 1965 paper. His prediction has proven to be accurate, in part because the law now is used in the semiconductor industry to guide long-term planning and to set targets for research and development.[4] The capabilities of many digital electronic devices are strongly linked to Moore’s law: quality-adjusted microprocessor prices,[5] memory capacity, sensors and even the number and size of pixels in digital cameras.[6] All of these are improving at roughly exponential rates as well
How the U.S. Govt. Helped Smash the Oil Cartel
By Shlomo Maital
With the price of oil below $50, and likely to remain low for quite some time, with $100 oil unlikely to return, it is interesting to discover why. The main reason? America is now the world’s biggest oil producer, topping Saudi Arabia, because of fracking and frantic drilling – and the Saudis choose not to fall on their swords and slash their production.
But WHY has America been able to produce so much oil? The answer is in Eduardo Porter’s piece in today’s Global New York Times (“Behind drop in oil prices, the hand of Washington”). It is: U.S. government policy and funding, dating back to Nixon, Reagan and the elder Bush. “Facing years of a broad energy shortage, in the shadow of an embargo by Arab oil producers [in 1973], Nixon..and Congress laid the foundation of an industrial policy that over …four decades developed the technologies needed to unleash American shale oil and natural gas onto world markets”. Porter cites a scholar who notes, “public investments in technology innovation [e.g. energy] can bring a huge benefit for both the economy and the environment”.
Congress approved the Prudhoe pipeline from Alaska just weeks after the Arab embargo. The 1974 Energy Act, creating the Dept. of Energy, kick-started a period of heavy government investment in R&D to recover gas from shale. This agency provided the funds to develop ‘horizontal drilling’ and polycrystalline diamond compact bits to cut through the shale, and performed the first big proof of concept hydraulic fracking, while Energy Dept. labs created a multi-well fracking site. The inventor of shale fracking, George Mitchell, got a lot of help from the government. And, the Reagan Administration, earlier, abolished price regulation, to remove a major barrier to unconventional development of gas deposits.
Of course, bold entrepreneurs who took risks and invested in fracking deserve credit. But as in many new technologies, the hand of government, in regulation and investment, was highly visible.
A key point is that even if rock-bottom oil prices drive oil shale producers out of business for now, the ability to quickly revive oil shale output will put a ceiling on oil prices that is far below the record $111 peak. Saudi Arabia can produce oil at a marginal cost of $5 to $8 a barrel, enabling it to smash prices lower. But America’s ability to produce virtually infinite amounts of fracked shale oil at a marginal cost of around $58 will help keep crude oil prices reasonable in the near future.
Let’s keep in mind, however, that persisting low oil prices will bankrupt countries like Russia, Iran, Venezuela, and others. This may not be good news. Russia is already looking for creative ways to make trouble for America, in Yemen and in Iran, out of spite for America’s lead in imposing sanctions on Russia. The world will remain unstable, despite low oil prices and in part because of them.
TIMnovate 