Going Global

This media hallabaloo about Iran seems to be based on nothing but cheap conjecture. No facts were uncovered about actual malpractice occuring with regard to the elections. Accusations were made that there was a shortage of ballot papers, 'pressurizing' of voters to vote for Ahmedinejad and candidate's representatives not being allowed to gain access to events at polling stations.

But none of this atually deals with the final count that emerged, the actual problem. Which showed president Ahmedinajad winning the election by a massive margin. Where are the errors pointed out in the actual counting mechanism? none of the protesters could actualy point out what sort of rigging had taken place. There was just a general consensus among them that some sort of rigging had to have taken place. On the surface, as any sane minded person would deduce, they just appear to be acting like sore losers.

Most of the protests were carried out in Tehran, which has a population of 14 million people. Iran itself has 70 million people in it. So how can the conviction of such a small fraction of a population be made to seem like the general consensus of the whole of its population? It just doesnt make sense.

And thats what these types of news stories are made for. To try and convey shallow messages in an attempt to shake up the basket a bit. They are aimed at the sort of people who just glance at the news and do not check their facts. This was simply a badly organized negative PR campaign against the Iranian leadership carried out by the Western media, if we want to get conspiratorial about it. Or rather, as i see it, it was just an opportunity to 'make some news' and all objectivity was lost as the media got blinded by a preconception that Iran's current leadership is essentially 'evil'.

Polls have shown that Ahmedinejad has secured major victories even in areas thought to be Mousavi strongholds and the margin by which he won (60%) is far too large to have been rigged.

Also, on a side note. Iran only has 35% internet penetration and 60% of its population is based in urban areas. Deduce of this what you will, but how can twitter updates from such a narrow margin of the population signify broad based protests sufficint enought to spark talk of the 'next Iranian revolution'?

the government of Iran does not appear to be completely innocent in this though. Apparently there has been some supression of protest activity and a cut down of media broadcasts from within. Though this may be standard government action to prevent things getting out of hand, as we have seen happen over here in SL, it is still enough to cause widespread speculation and concern about what is really happening inside.

Watch this Al-Jazeera take on it, its an interesting one.

"The war has hampered the country on many fronts for decades and much of the economic and human resources of the country have been wasted on the war. This has, over the years, pushed one of the most promising nations in the world to an abyss of despair and gloom. Although under- investment in education, infrastructure and health has held back progress of the country, the ending of such a dismal era would naturally invigorate the spirits of its people."

But there needs to be a concentrated effort from the business community together with the government to enable this to happen. Innovative policy instruments should be put in place and removals of bariers like red tape, corruption and non tariff barriers should be ensured. Also collective development of various sectors is needed to enable complementary growth.

As per the official release, the Summit

"..will discuss important matters on topics relating to the economy, banking & financial sector, agriculture, dairy, fisheries & tourism, employment, need for English and ICT as business languages and the importance of governance & accountability, both in the private and public sector".

...pay special emphasis to key challenges confronting the country, which includes post war reconstruction and resettlement, developing the northern and eastern regions, promoting balanced growth and macroeconomic management.

...will explore how challenges could be converted into opportunities and opportunities turned into time-bound action plans. The challenges and opportunities, both external and internal, would require cohesive effort from all stakeholders and the program for the summit has been designed to generate fresh ideas, a consensus view and a clear vision for the development of Sri Lanka."

It costs roughly Rs14,000 for individual participation and they do not provide free passes for students, i checked. So unless someone is willing to generously sponsor me, live updates and blog posts on the outcomes of the summit seems somewhat of a hazy reality. Also, if you're foreign, It costs you $200 which at today's rate comes to roughly 23k and i think that is without taxes.

Im not sure if there is any mechanism in place for the conclusions and ideas ensuing to be released to the public. Ideally they should have organized some sort of a live feed like a twitter/blogging platform and enabled recordings on YouTube etc. The Chamber of Commerce needs to get with the times.

The list of panelists include individuals from the government, international and regional financial/ research sector, local business leaders etc and looks promising. Hopefully, findings and conclusions made will have a concrete nature and would not be afraid to suggest radical change.

Also, the areas of concern seem to be largely related to the immediate future. But thats alright. Hopefully, this will help shape the government's future policy framework for the economy when they get down to it. What I'd really like to see is some serious governmental communications as to what their long term vision for the economy is. Flowery talk and metaphorical allusions to Singapore/Hong Kong etc notwithstanding.

The US was officially classed as an economy in recession after its last peak in December 2007 (NBER) after which it had two consecutive quarters of negative growth. A recession as defined by the National Bureau of Economic Research is

 A significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators. A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion.

Anyway to cut a long story short, they identified the last peak of the US economy as December 2007 after a significant period of decline followed it which was sufficient enought to be identified as a time of recession.

Taking the generally accepted definition of a recession i.e. 'a recession is indicated by two consecutive quarters of negative/a decline in real GDP' we can deduce that for the recession to stop and for growth to start the GDP should pick up.


The GDP of an economy is measured as follows

GDP = Consumer spending + Investments + Government spending + (Exports - Imports)

or GDP = C + I + G + (X - M)

Now according to this BBC report the The American Bankers Association's Economic Advisory Committee thinks the US economy is set to grow in the third quarter of 2009. Im sure this is good news all around as a recovery in the US economy will probably mean eventual growth for other nations as well.

But is it really going to be a sustained growth?

Opinions of different schools of economic thought vary on the best option to handle a recession. The end of the Great Depression of the 1930s is credited to the policy ideas of John Maynard Keynes who suggested increasing government spending as a method of boosting production. In practice, this can even involve activities metaphorically akin to the famous paying-people-to-dig-holes-and-fill-them-up-again scenario.

But some are of the opinion that the massive government spending of the second World War is what ultimately brought the world out of the depression, leading to uncomfortable thoughts on the current global economy and political environment.

Monetary economists advocate the use of expansionary monetary policy by reducing interest rates to stimulate borrowing and thereby increasing spending power and eventually consumer spending. The Supply-side economists advocate tax cuts to promote business capital investment.

The general consensus among most economists is that a recession is a problem born of a drop in aggregate demand (meaning the total demand for goods and services within an economy). Therefore, as we can see, theoretical suggestions are mainly directed at stimulating at least one area of an economy that would contribute to a pick up in GDP.

The US's new forecast of a growth of 0.5% seems largely due to an increase in consumer spending which can possibly be attributed to the drastic reduction we have seen in the US's interest rates over the past few months. Also, government spending on dying corporates and banks caused still more money to be injected into the system and would have boosted produtivity somehow, somwhere.

However, unemployment is set to increase to 10% and the overall outlook of employement does not look too good for the next year and a half or so although the increase in consumer spending (which two thirds of the the US economy is driven by), is hoped to temper this.

But there are still deeper problems. According to the BBC the damage caused to the Public Finances and the Labor markets are still substantial and industrial production has fallen more than analysts expected.

There is also the problem of the US's growing trade deficit, which is not helping.

Therefore there are mixed signals on the status of this 'recovery'. It could be the beginning of a slow climb back to the top or it could just be a random spurt of growth brought on by arbitrary circumstances. We should hope for the former.

Here are some really great stories that i thought i'd share.

Inflation, a double edged sword? - The Mises Economics Blog explores the inflationary implications of the US's trillion dollar bailout of the banks. It talks of how although pushing the inflation button and increasing the money supply is easy to do, the hard part is reigning it back in. Although its presumtion that contrationary monetary policy after a 'recovery' 'would also reduce bank reserves, reduce credit availability and loans, and increase interest rates' is true, this does not have quite the ominous ring to it as is hoped by the writer. Once the economy is 'recovered' such a reigning in may be necessary to curb inflation and may be the only option available and may not be all that destructive. Their call back to the Gold standard at the end of it though, seems hardly viable. But a great read nonetheless.

Googlenomics - Ever wondered how google manages to make so much of money while giving away most of their products for free? Ads right? Ever wonder how their system of advertising actually works? Its an economy unto itself thats what it is. Google initialy went the traditional way by having salesmen solicit advertising but then they discovered Adwords (toted by some as the greatest business discovery ever). Adwords uses auction theory to have a cost efficient way of selling advertising to bidders. But theres way more to it than this. Google employs a Chief Economist and also has Macro and Micro elements to its operation. This article is a brilliant read. Thanks to Brad De Long for the pointer.

A good time to die - The Adam Smith Institute Blog. The Us has what they call an estate tax where they have this massiv tax imposed on estates over a certain value when the ownder dies. The estate tax has been largely reduced through Bush pressure and is set to come to zero by 2010. But will return in full force (fifty percent) by 2011. This read explores the possibility of more rich people dying in 2010. Its even a bit morbidly funny. If you'll forgive my insensitivity.

China, The US State Department - This account of China is not exactly some obscure study of sensational interest but gives you everything you need to know about the more recent (special emphasis on the last century) Socio-political and economic activity of what will probably become the the worlds biggest economy in ten years. Interesting learning point for me was the Taiwanese political connection and its origins.

US and world car giant General Motors finally files a chapter 11. They already owe a lot of money to the government. They have already lost a good few amount of workers, but this will only increase now.

A chapter 11 bankruptcy is where companies take the option of temporary protection from takeovers (hostile or otherwise) and dissolution. the general idea is that the Bankruptcy filing gives them protection until they can clean up their act and come back into business in their own right. So GM now has a few months to 'rightsize' itself and get back into fighting shape if it still wants to be GM into the future.

Only about 10% of companies who file for Chapter 11 have known to come through at the other end of it. Most others get gobbled up in bits and pieces by other players. In GMs case, their global spread makes them more vulnerable to being eventually scattered among a large group of buyers.

For a full analysis of the bankruptcy and its contributing history, see this Economist report.

Rumours are that a Chinese firm is set to buy the Hummer brand