Category: International Commerce

David Frum and Facts Have Only a Passing Acquaintance

David Frum, the Canadian former Bush speech writer whose phrase Axis of Evil is probably responsible for a thousand or so American deaths had an essay on Marketplace, yesterday, and while I expect right wingers to lie, this is the first time in my not so young (I’m 45) life that literally every word out of his mouth was not the truth.

So, I’m sending them the following letter:

Subject: Re: No defense for Europe’s protectionism

In listening to Mr. Frum’s essay on defense procurement, the F-35, and the Eurofighter, I had a unique experience. This is the first time in my life in which I have heard a commentary where I know that literally every fact stated is incorrect. I am not suggesting that there is deliberate deception involved, but the only alternative is a complete ignorance of the subject involved.

Cases in point:
* The NATO allies will soon reach a crucial decision about their next-generation air-to-ground fighter plane. Two candidates have emerged as finalists: the US-UK-Dutch-Italian-Norwegian F-35, or an update of the Franco-German “Eurofighter.”

While the F-35 is intended to a large degree, perhaps primarily, for air to ground operations, the Eurofighter Typhoon is primarily an air defense fighter, though an air-to-ground capability is being developed for the plane in later tranches.

The Eurofighter is not a Franco-German endeavor. The French are not involved at all, having built the Dassault Rafale. The partner nations are the UK, Germany, Italy, and Spain. The F-35 is not a US-UK-Dutch-Italian-Norwegian project. Only the UK qualifies a very junior partner, and they have still not been given the information necessary to properly maintain the aircraft. The rest of the countries are simply customers.

* Just about everybody agrees that the F-35 is the better — and probably cheaper — plane.

When comparing the two aircraft, the Eurofighter is more agile, with a higher thrust to weight ratio and lower wing loading, and faster, it supercruises, and has a higher ceiling, much like the F-35’s big brother, the F-22, though the F-35 is stealthy, and the Eurofighter is not.

Additionally, the Typhoon can accommodate the Meteor, the long-range missile being developed in Europe, which has superior kinematics to the US AMRAAM, while the F-35, with its internal weapons stowage cannot.

Furthermore, the current prices are nearly the same, but you are comparing a design that is in production (Typhooon) with one that is still in development (F-35), and whose price is still escalating, so it to predict anything beyond parity in cost is simply wrong.

* It’s the plane that will be bought by the Israelis, who tend to be choosy about things bearing on national survival.

The Israelis will not be able to buy the Eurofighter, as political considerations of of the Typhoon’s sale to Saudi Arabia preclude this. Additionally, it will be purchased with significant US military aid, which requires that US equipment be purchased with these funds.

Additionally, the cancellation of significant defense purchases of French aircraft and British tanks in the 1960s, the Israelis do not feel that they can rely on the Europeans as a reliable source of supply.

* The Eurofighter is built on four separate assembly lines in four Western European nations. This redundancy creates more jobs, but at very high cost. High cost, in turn, reduces the number of aircraft the European allies can afford to purchase.

This applies to final assembly lines only , and it is, in fact not very costly. The evidence is in examining the F-16 program, the least expensive, and most numerious, of the previous generation of Western combat aircraft, where it has been assembled in the US, Korea, Belgium, the Netherlands, and Turkey.

I would note that given the facts to support his thesis are all wrong, his thesis itself is suspect.

As Atrios would put it, wanker of the day*.

*The “wanker” bit is not going in the letter.

Malawi Beats Famine by Ignoring Free Market Fundamentalists

It’s really pretty simple. In 2002, over a thousand people in the country starved to death. In 2005, they had a famine crisis that had NGOs scrambling. This year, there is a 400 ton surplus of Corn (maize) much of which is alleviating the hunger in neighboring Zimbabwe.

So, what happened? The government ignored the free market fundamentalists, who are less idealogical than Osama bin Laden, and they did the right thing.

To quote Paul Harvey, and now, the rest of the story.

“What is different [this year] is the access to inputs,” explained Patrick Kabambe, permanent secretary in the Ministry of Agriculture and Food Security. “People are so poor they use recycled seed and no fertilizer. They can’t meet their needs that way and they grow no surplus. People sink deeper and deeper into poverty. It’s a vicious cycle. We had to do something.”

Starting in 2006, and on a larger scale this year, the government distributed coupons to low-income farmers to allow them to purchase 50-kilogram sacks of fertilizer for 950 kwacha($7) rather than the market price of 4,500 kwacha. As a result, the average farmer’s yield jumped to two tonnes a hectare from 800 kilograms.

Malawi had this program throughout the 1990s, but in 2000, donor nations insisted that they scrap the program, saying that it “distorted the market”.

Some blame fell on poor rains, but it was also true that the 75 per cent of the population who are subsistence farmers could not afford either fertilizer or seeds.

That left them vulnerable to what the development industry calls “shocks” – such as one household member contracting HIV or malaria and being too sick to farm – leaving them with too little to eat and forced to sell items of value to survive. At the same time, larger farmers and traders capitalized on the poor harvest by stockpiling, while the government made decisions that were both ill-advised and corrupt, and mishandled the national strategic grain reserve. The next few years were a disaster.

And the cost?

The fertilizer subsidy cost the government $62-million – 6.5 per cent of the total government budget, a “whack of cash” in the words of one top economist – but that pales in comparison to the $120-million the government spent importing food aid in the 2005 famine. And the sale of maize to Zimbabwe and other countries will inject an additional $120-million into the national economy, a sizable figure here.

I’ve come to believe that a lot of international aid is really about making sure that the economies do not develop, so that, when a famine hits, subsidized western farmers can make a killing selling food aid.

India-US Nuke Deal Off For Now

Thank God!

The US-India civilian nuclear deal was supported by Bush and His Evil Minions because it was a big wet kiss (and no small subsidy to) the American civilian nuclear industry.

It cemented India’s position as a nuclear power, and in so doing stoked the fire of the nuclear arms race between India and Pakistan, and as I’ve said before, (see also here), this accellerates Pakistan’s program, and makes the loss of one or more weapons during civil unrest (Pakistan is in some ways bordering on being a failed state) to lord knows who.

Thank you to the Indian Communist party* for apparrently killing this deal. Manmohan Singh, the Indian Prime Minister has apparently killed the deal for now.

*One of the joys of the Bush and His Evil Minions is that on at least a weekly basis I am saying things, at least to myself, that I would
never have thought possible.

Free Trade: The Best Weapon Against the “Free Traders”

Dean Baker makes the point that the free trade evangelists would not be so supportive of free trade if their necks were on the line. (I should note that I made a similar point about press outsourcing to India in Pasadena California).

I am already a member of a profession abused by immigration policies (H1B and L1 visas), so Baker’s point that protected professions should be opened up to competition makes sense to me:

The big winners in this story are the workers who manage to keep themselves protected from international competition. As a result of recent trade and immigration policy, these highly paid professionals can buy low cost furniture, cars, and clothes. They can also have their homes renovated and their gardens maintained at low prices. They can even get cheap nannies for their kids.

But the key to the success of these highly paid workers is maintaining their own protection from international competition. There are long list of professional and immigration barriers that protect doctors, lawyers, and even economists and journalists from the same sort of international competition faced by textile workers and dishwashers.

In addition to the professional and licensing barriers that impose obstacles to foreign professionals working in the United States, there are also immigration barriers. These barriers prohibit a Wal-Mart Hospital or Wal-Mart University from hiring the lowest cost qualified foreign professionals from anywhere in the world, in the same way that Wal-Mart buys the cheapest clothes and toys from any country in the world.

The way to fix this problem is simple: we create transparent licensing requirements for the licensed professions that can be met by students training anywhere in the world. (Let them have test sites in their own country—administered by U.S. certified testers, of course.) We then remove any comparable pay requirements for these professions. The rule is free trade, just like with steel and clothes. If a Chinese doctor is willing to work in the U.S. for $50,000 a year or an Indian journalist is willing to work for $30,000, then they can be hired at these wages as easily as Wal-Mart buys cheap toys from China.

Word Up! Particularly the journalists and economists.

Baker is Right: IP is Protectionism

Dean Baker makes the excellent point that economists who rail against any restriction on trade are nowhere to be found when the trade barrier supports movie and record executives or pharma.

We need to recognize the fact that IP is a restriction on free trade, and to understand that IP protections need to be balanced against the virtues of free trade. Conversely, this also means that the virtues of free trade need to be balanced against negative societal impact more generally.

A Good View of the Coming Downturn

Nouriel Roubini has a very bleak picture of where the US economy is going. He is predicting a 15% drop in house prices in the nest two years (I predict at least that much), and there is downward pressure on auto sales and other consumer spending.

And then there is this:

Unfortunately, financial globalization together with securitization and mushrooming of complex credit instruments has lead to greater opacity and less transparency in the financial system. And this lack of transparency breeds unmeasurable uncertainty rather than priceable risk. Risk can be priced as you have a distribution of probabilities on various events. But unmeasurable uncertainty causes higher risk aversion under conditions of market distress. This generalized uncertainty is now coming from two sources: first, we do not know the size of the overall losses in credit markets: sub-prime alone could lead to losses of $100 billion or much higher depending on how much home prices will fall. And other losses from other illiquid financial instruments remain unmeasured in a world where institutions were marking to model rather than marking to market and where credit rating agencies were mis-rating complex credit instruments. Second, as securitization implies that financial risks have been spread out of banks and to the corners of the global financial system we do not know which firms are holding the toxic waste and thus which firms will go belly up next. It is like walking blind in a minefield where you have no idea of where the mines are. This uncertainty breeds large fear – after the massive greed of the previous credit and asset bubble has now burst – and lack of trust of financial counterparties, even otherwise respected ones: everyone want to hoard liquidity and hold the safest assets as even large financial institutions do not trust each other and are unwilling to lend to each other. This greater opacity of financial globalization and securitization implies that the re-pricing of risk that we have observed in the last few weeks is a permanent rather than a transitory phenomenon. And the sharp spike in the cost of credit will further weaken an already weakened economy. This is thus the first real crisis of the new world of financial globalization and securitization.

Translated into ordinary English, he’s saying that the global finance system has become so opaque and so byzantine that risks cannot be evaluated and assets cannot be valued. The world financial system is no better than a game of 3 card Monte.

Remember What I Said About Currency?

I said that an downturn would force the Fed to push interest rates down, and that this would hose the dollar, leading to a falling dollar, and from there import driven inflation, as the cheap crap we buy from Chins becomes more expensive. Well, Richard X. Bove, a respected analast for Punk Ziegel & Co.has just written the same thing.

He’s saying that cutting interest rates to help salvage mortgage lenders will not save them because, “Lower interest rates will send the dollar into a tailspin and wreak havoc in the job market.”

Nice catch 22, but it gets worse, Chinese inflation is surging, it just hit 6.5%, the highest rate in 11 years.

This means that their central bank is going to have to boost interest rates, which will strengthen the Yuan.

Of note, food was a primary component, 18.2% year over year (Pork 49, cooking oil 34.6 %, eggs 23.6 %, fresh vegetables 22.5 %), and this will lead to civil unrest, probably to coincide with the Olympics, unless they reign this in aggressively.

This is going to get ugly.

Gambling Dispute With a Tiny Country Puts U.S. in a Bind – New York Times

The US-Antigua dispute over Net gambling is escalating, and it’s hit the NY Times, which means that it’s really hit the mainstream, but before I get into that, I have to acknowledge Dean Bakers incisive analaysis, and the magnificent snark therein, where he says “Antigua Threatens the United States with Free Trade“, which is absolutely true. IP restrictions are restrictions on trade through exclusive licensing.

A brief recap on the whole Internet gambling business, the US implemented an internet casino gambling ban. It still allows for other internet gambling, “including the online purchase of lottery tickets*, participation in Web-based pro sports fantasy leagues and off-track wagering on horse racing.”

Online casinos are a big part of the Antiguan economy. It’s the 2nd largest employer on the Island.

So Antigua takes it to the WTO, Antigua wins. Big whoop. Really….Who cares. If they are allowed to place tarrifs on US cars, or toothpaste, what difference does it make? Their population is around 70,000, so it’s a negligible impact, right?

Wrong

What the Antigua asked for, and received as a sanction was the right to ignore US IP restrictions, and to distribute US IP protected products without restriction.

While the drug manufacturers have nothing to fear, it’s not like they are going to become a Viagra® manufacturing powerhouse, the makers of non-tangible items, like movies, music, software, etc. are in the process of freaking out, which looks something like this: , because the island is well wired (from the online Casinos), and can set up an operation that would make AllofMP3.com look like a Sunday social.

Truth be told, the consequences will not be as dire as IP companies will make out. I expect that very few people who would otherwise pay for these products will download them, and my guess is that these companies know that.

The reason that they are concerned is that if I am right, and the consequences will be minor, then you will see another argument against draconian IP restrictions, because the sky did not fall.

This may be of particular interest to the Chinese too, as this ruling could be extended to the “Great Firewall of China.

*On the matter of state lottery tickets, I believe that they should be treated differently, being a state run activity and a revenue generator, but when we signed onto the WTO, it specifically forbade this.

More Downward Pressure on the Dollar

This makes it more likely that other nations will be putting part of the foreign reserves in non-US currencies.

This will place further downward pressure on the USD, and further upward pressure on interest rates.

Iran Asks Japan to Pay Yen for Oil, Start Immediately
uly 13 (Bloomberg) — Iran asked Japanese refiners to switch to the yen to pay for all crude oil purchases, after Iran’s central bank said it is reducing holdings of the U.S. dollar.

Iran wants yen-based transactions “for any/all of your forthcoming Iranian crude oil liftings,” according to a letter sent to Japanese refiners that was signed by Ali A. Arshi, general manager of crude oil marketing and exports in Tehran at the National Iranian Oil Co. The request is for all shipments “effective immediately,” according to the letter, dated July 10 and obtained by Bloomberg News.

The yen rose on speculation for an increase in demand for the currency, the result of Japan’s annual 1.24 trillion yen ($10.1 billion) of oil imports from Iran. Central bankers in Venezuela, Indonesia and the United Arab Emirates have said they will invest less of their reserves in dollar assets because of the weakening currency.

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Dollar Mixed After New Low Vs. Euro: What Does it Mean

Yesterday, the Dollar hit an all time low vs. the Euro.

Additionally, the dollar has weakened to the lowest amount against the pound since 1981.

What does this mean if this trend continues?

Basically, it means that foreign investors will demand greater return because the risk of their losing money from foreign exchange fluctuations increases. This means higher interest rates, since the US trade deficit is being supported by foreign investors.

Of particular note would be an increase in oil prices.

Furthermore, this is inflationary, since there is an awful lot that is not made in the US any more, and as the dollar drops, the price of these items go up, which will force the Fed to further raise interest rates.

The increases in inflation will reduce consumer spending power, and a significant downward pressure on house prices, as people purchase based on monthly payment, not price.

Additionally, if oil suppliers get skittish, they may switch to Euro denomination of oil purchases, Venezuela and Iran already have for political reasons, and there will be pressures on foreign national banks to further diversify out of the dollar in order to preserve their reserves.

You notice that it all feeds itself.

Additionally, when one looks at systems like this, the changes tend to be abrupt, and there is significant overshoot, so this can get very ugly in a matter of weeks.

US Firms Commit Premeditated Murder.

Here’s hoping that the people involved, up to the top eventually see the inside of a Columbian prison.

They asked for these guys to be murdered. This is the unavoidable consequence of targeting labor activists by right wing militias in Latin America.

Trial begins for killing of 3 union leaders

By Seattle Times news services

BIRMINGHAM, Ala. — Jury selection began Monday for a civil trial in which U.S. coal company Drummond is accused of paying right-wing paramilitary gunmen to kill union leaders at a mine it operates in a war-torn corner of northern Colombia.

The civil case is believed to be the first to come to trial under a seldom-used U.S. law that dates back nearly two centuries, which lets foreigners sue U.S. corporations for their conduct abroad.

Drummond has denied involvement in the deaths of the three union leaders in 2001 near the sprawling open-pit mine it operates in Colombia.

The federal lawsuit was filed by the International Labor Rights Fund and Pittsburgh-based United Steelworkers union in March 2002 and seeks unspecified damages on behalf of the dead union leaders’ families.

The union leaders, Valmore Locarno, Victor Orcasita and Gustavo Soler had argued with Drummond about wage and safety issues.

Four witnesses have come forward claiming Drummond gave cash and cars to paramilitary fighters in exchange for killing the men.

Other Countries Now Throwing Economic Weight Around

US unilateralism will be increasingly untenable as time goes on. This is one such example.

Free trade is generally sold as a series of restrictions on other governments, but the requirements of the current regime require compromises that strike at the heart of law enforcement, consumer safety, and worker protections.

The “soft economic power” (blaackmail) that the US uses to influence domestic policies of other nations, up to and including elections, will increasingly be directed back toward the US.

Banks want data pulled from US

By Mark Ballard
Published Tuesday 3rd July 2007 09:53 GMT

The central banks of China and Russia have joined private companies in calling on Swift, the international financial intermediary, to pull all non-US data from America, The Register has learned.

SWIFT has found itself caught between a rock and a hard place. The organisation secretly handed over personal data to comply with demands from the US to aid the country’s investigation into terrorist finances after the September 11 attacks. By doing so, it broke the data protection laws of many EU countries.

The move raises questions about the perceived security of commercial data held in the US. Swift conducts its own privacy audits of US counter-terrorism subpoenas on financial transactions it manages for the banking industry.

The EU also struck an agreement with the US last week to establish its own oversight of the US operation. SWIFT has also applied for Safe Harbor protection of its data in the US, yet is still taking pressure to withdraw from the US seriously.

“There are other countries that would like to see data situated in the EU rather than the US,” said a well-placed source.

China and Russia were “notable” among countries whose central banks had expressed their concerns to Swift. The European Central Bank, which also used Swift’s services, has been criticised by EU authorities for letting the EU look at European financial data in secret.

Swift is trying to break into the domestic banking markets in China and Russia and is keen to get off on the right foot with local authorities. In India, where Swift is also trying to make a splash, the banks are said to be investigating alternatives.

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The RIAA Has Me Rooting for the Russians

Heck, if the choice was between the RIAA and Dick Cheney, I’m not sure how I’d choose.

Russian copyright wars to continue despite AllofMP3 shutdown
By Chris Williams
Published Tuesday 3rd July 2007 10:47 GMT

AllofMP3.com, the UK’s second most popular source for music downloads after iTunes, has been shut down after diplomatic pressure was piled on Russian authorities.

MediaServices, the combative firm behind the site, is still selling cut-price music however, meaning the international legal posturing is set to continue.

The British Phonographic Industry (BPI), which had won the right to sue AllofMP3 in the UK, told The Reg this morning it was unsure how the shutdown would affect its legal attack.

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These are Called “Death Throws”

Basically, all that the private equity firm was interested in was the dealer network. Chrysler will not be manufacturing cars in 5-10 years. It will simply be rebadging them.

Chrysler reportedly near import deal with Chinese automaker
greement to import Chinese subcompacts reportedly close to final approval; news comes as concerns linger over the safety of Chinese-made goods.
July 3 2007: 8:21 AM EDT

NEW YORK (CNNMoney.com) — Chrysler Group is set to give final approval to a deal that would have a Chinese automaker build small cars for it to sell in the United States and Western Europe, according to a newspaper report Tuesday.

The deal between Chrysler and China’s Chery Motor Co., which comes in the wake of growing concern among U.S. consumers over the safety of Chinese-made goods, was in question after DaimlerChrysler agreed to sell a majority stake in Chrysler to private-equity firm Cerberus Management.

But the Detroit News reports that Chrysler CEO Tom LaSorda is in China finalizing the agreement.

The paper said the deal will be announced in Beijing on Wednesday, which, given the difference in times zones, is just before the Independence Day holiday here.

Chrysler had first confirmed that it was holding talks with Chery on the Friday before the New Year’s holiday here, another time that minimized news coverage.

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