Tipos al alza, Bolsas a la baja

The Chinese Economy and Fed Policy

 

SEP 29, 2015

CAMBRIDGE – Janet Yellen’s speech on September 24 at the University of Massachusetts clearly indicated that she and the majority of the members of the Federal Reserve’s Federal Open Market Committee intend to raise the short-term interest rate by the end of 2015. It was particularly important that she explicitly included her own view, unlike when she spoke on behalf of the entire FOMC after its September meeting. Nonetheless, given the Fed’s recent history of revising its policy position, markets remain skeptical about the likelihood of a rate increase this year.

The Fed had been saying for several months that it would raise the federal funds rate when the labor market approached full employment and when FOMC members could anticipate that annual inflation would reach 2%. But, although both conditions were met earlier in September, the FOMC decided to leave the rate unchanged, explaining that it was concerned about global economic conditions and about events in China in particular.

I was unconvinced. I have believed for some months that the Fed should start tightening monetary policy to reduce the risks of financial instability caused by the behavior of investors and lenders in response to the prolonged period of exceptionally low interest rates since the 2008 financial crisis. Events in China are no reason for further delay.

Consider, first, domestic economic conditions, starting with the employment picture. By the time the FOMC met on September 16, the unemployment rate had fallen to 5.1%, the level that the Fed had earlier identified as full employment. Although there are still people who cannot find full-time jobs, driving the unemployment rate below 5.1% would, according to the Fed, eventually lead to unwanted increases in inflation.

The current inflation picture is more confusing. The annual headline rate over the past 12 months was only 0.2%, far short of the Fed’s 2% target. This reflected the dramatic fall in energy prices during the previous year, with the energy component of the consumer price index down 13%. The rate of so-called core inflation (which excludes energy purchases) was 1.8%. Even that understates the impact of energy on measured inflation, because lower gasoline prices reduce shipping costs, lowering a wide range of prices.

The point is simple: When energy prices stop falling, the overall price index will rise close to 2%. 

And the FOMC members’ own median forecast puts inflation at 1.8% in 2017 and 2% in 2018.

So if the Fed, for whatever reason, wanted to leave the interest rate unchanged, it needed an explanation that went beyond economic conditions in the United States. It turned to China, which had been much in the news in recent weeks. China was reducing its global imports, potentially reducing demand for exports from the US. The Chinese stock market had fallen sharply, declining some 40% from its recent high. And China had abruptly devalued the renminbi, potentially contributing to lower import prices – and therefore lower inflation – for the US.

But when it comes to the impact of China’s troubles on the US economy, there is less than meets the eye. China’s import demand is slowing in line with its economic structure’s shift away from industry and toward services and household consumption. This means that China needs less of the iron ore and other raw materials that it imports from Australia and South America and less of the specialized manufacturing equipment that it imports from Germany and Japan. The US accounts for only 8% of China’s imports, and its exports to China represent less than 1% of its GDP. So China’s cut in imports could not shave more than a few tenths of a percentage point from US GDP, and even that would be spread over several years.

As for the stock market – widely viewed as a kind of casino for a small fraction of Chinese households – only about 6% of China’s population own shares. The Shanghai stock market index soared from 2,200 a year ago to a peak of 5,100 in mid-summer and then dropped sharply, to about 3,000 now. So, despite the sharp drop that made headlines recently, Chinese shares are up more than 30% from a year ago. More important, wealth and consumption in China are closely related to real-estate values, not equity values.

Finally, the renminbi’s recent decline against the dollar was only 2.5%, from CN¥6.2 to CN¥6.35 – far below the double-digit declines of the Japanese yen, the euro, and the British pound. So, on an overall trade-weighted basis, the renminbi is substantially higher relative to the currencies with which it competes.

Even more relevant, the decline of the renminbi and other currencies in the past year has had very little impact on US import prices, because Chinese and other exporters price their goods in dollars and do not adjust them when the exchange rate changes. While official US data show overall import prices down 11% in the 12 months through August, this is almost entirely due to lower energy costs. When energy products are excluded, import prices are down only 3%.

So the Fed is right to say that inflation is low because of the sharp drop in energy prices; but it need not worry about the effect of major trading partners’ lower currency values. And, again, when the price of energy stops declining, the inflation rate will rise close to the core rate of 1.8%.

So, unless there are surprising changes in the US economy, we can expect the Fed to start raising interest rates later this year, as Janet Yellen has proposed, and to continue raising them in 2016 and beyond. I only hope that it raises them enough over the next 18 months to avoid the financial instability and longer-term inflation that could result from the long era of excessively easy monetary policy.

Martin Feldstein, Professor of Economics at Harvard University and President Emeritus of the National Bureau of Economic Research, chaired President Ronald Reagan’s Council of Economic Advisers from 1982 to 1984.

Alemania tiene ahora un problema, dos problemas, tres problemas... y los que vendrán

The Limits of the German Promised Land

 

 

SEP 29, 2015

MUNICH – Migrants seeking to escape poverty and war are flowing into Europe by the hundreds of thousands. They are still mostly being welcomed, but the capacity of the reception centers is fast reaching its limits. To staunch the flow of migrants over the Balkan route, Hungary has imposed controls on its borders – and was promptly followed by Germany, Austria, Slovakia, Croatia, Slovenia, the Czech Republic, the Netherlands, and Poland.

Germany is the migrants’ most favored destination. So far this year, half of all asylum applications in the European Union have been filed there, although the country accounts for only 16% of the EU’s population. By September, Germany had probably received some 400,000 applications or more, with the dramatic increase in migration flows since summer and before the reinstatement of border controls expected to push the number of asylum-seekers to 800,000 this year.

Moreover, regular immigration to Germany could again reach the 400,000 mark, as in 2014. The total would represent net immigration of 1.5% of the resident population – an extremely high proportion by historical and international standards.

The reason for the migrants’ strong preference for Germany is that the country, together with Sweden, has Europe’s most liberal asylum system and allocates particularly high levels of funding to accommodate the newcomers. Between €1,000 ($1,120) and €1,200 per person per month is being transferred to the municipalities to cover the costs of accommodating them. The value of the benefits that the immigrants receive in Germany is a multiple of the wages they can earn in their home countries (if they manage to find a job there at all).

The Dublin Regulation, according to which the first EU country that a migrant reaches is obliged to register and process the migrant’s application, has long been disregarded. Greece and Italy are simply waving the refugees on. Germany accepted, with much fanfare, a large number of unregistered refugees from Hungary and offered them a warm welcome. This decision arguably tempted so many more refugees from the Arab countries that soon thereafter Germany was forced to impose border controls.

What the German government had not reckoned with is that every refugee who manages to make it to Germany immediately texts the good news back to the home country, fueling a fresh wave of migrants. The UN refugee camps in the countries surrounding Syria are thus being gradually relocated to Germany.

Only a fraction of asylum-seekers’ applications are ultimately approved, because most applicants are not politically persecuted but simply economic migrants (?). In the first half of 2015, for instance, only about one-quarter of applicants came from Syria and Iraq, a significant proportion of whom had already found shelter in the UN camps in or around those countries. But the proportion of Syrian refugees subsequently ballooned quickly, in part because the news spread that Germany approves most Syrian applications.

If an application is successful, a refugee has the right to bring along his or her family members as well. Frequently, Arab families send their minors to Germany (? EU?) in the not-unjustified hope that they will obtain the right for other family members to follow later. Germany will have to deal with the consequences of this refugee wave for years to come.

In order to distribute the burden more equitably, Germany tried to have a European quota system instituted to allocate applicants among the EU’s member countries. But Germany’s EU partners (?) rejected this as “moral imperialism.”

Germany thus failed to have a system adopted that would have provided it with some relief. Instead, a quickly convened summit has now agreed on a limited quota system that will cover barely 120,000 people, aimed at providing relief to Hungary, Italy, and Greece; it will bring a further 31,000 refugees to Germany. 

In order to avert chaos, Germany has no choice but to impose restrictions. Among the most urgently needed steps is to develop the capacity to distinguish quickly – and ideally at the border – between refugees (who face political persecution) and economic migrants. Germany’s Federal Office for Migration and Refugees could set up border outposts to clear baseless asylum claims and send the rejected applicants, in accordance with the Dublin Regulation, back to the first safe country they reached. 

This would allow Germany to concentrate on the task at hand: providing those granted refugee status the schooling and language lessons they will need to allow them to find employment as quickly as possible.

Hans-Werner Sinn, Professor of Economics and Public Finance at the University of Munich, is President of the Ifo Institute for Economic Research and serves on the German economy ministry’s Advisory Council.

Normativas y Regulaciones ¿para qué si ellos las hacen? Estamos en manos de monstruos

The Decadence of the People’s Car

SEP 26, 2015 

PRINCETON – So far, the Volkswagen scandal has played out according to a well-worn script. Revelations of disgraceful corporate behavior emerge (in this case, the German automaker’s programming of 11 million diesel vehicles to turn on their engines’ pollution-control systems only when undergoing emissions testing). Executives apologize. Some lose their jobs. Their successors promise to change the corporate culture. Governments prepare to levy enormous fines. Life goes on.

This scenario has become a familiar one, particularly since the 2008 financial crisis. Banks and other financial institutions have enacted it repeatedly, even as successive scandals continued to erode confidence in the entire industry. Those cases, together with Volkswagen’s “clean diesel” scam, should give us cause to rethink our approach to corporate malfeasance.

Promises of better behavior are clearly not enough, as the seemingly endless number of scandals in the financial industry has shown. As soon as regulators had dealt with one case of market manipulation, another emerged.

The trouble with the banking industry is that it is built on a principle that creates incentives for bad behavior. Banks know more about market conditions (and the likelihood of their loans being repaid) than their depositors do. This secrecy lies at the heart of financial activity. Polite analysts call it “management of information.” Critics consider it a form of insider dealing.

Banks are also uniquely vulnerable to scandal because many of their employees are simultaneously behaving in ways that could influence the reputation, and even the balance sheet, of the entire firm. In the 1990s, a single Singapore-based trader brought down the venerable Barings Bank. In 2004, Citigroup’s Japanese private bank was shut down after a trader rigged the government bond market. At JPMorgan Chase, a single trader – known as “the London Whale” – cost the company $6.2 billion.

What these repeated scandals show is that apologies are little more than words, and that talk about changing the corporate culture is usually meaningless. As long as the incentives remain the same, so will the culture.

The Volkswagen case is a useful reminder that corporate wrongdoing is not confined to the banking industry, and that merely levying fines or ramping up regulation is unlikely to solve the problem. Indeed, it is one of the iron laws of corporate physics: For every regulation, there is a proportionate proliferation of innovations to circumvent it.

It should come as no surprise that there were incentives in the automobile industry to game the system. Everyone knows that actual fuel economy does not correspond to the numbers on the showroom sticker, which are generated by tests carried out with the wind blowing from behind or on a particularly smooth road surface. Similarly, anyone who has stood next to a diesel vehicle, even one proclaiming the virtues of “clean diesel,” could tell that it was smellier than cars powered by gasoline.

There are two important similarities between the scandals in the finance industry and at Volkswagen. The first is that large corporations, whether banks or manufacturers, are deeply embedded in national politics, with elected officials dependent on such firms for job creation and tax revenues. Volkswagen in particular is an icon of German manufacturing. Chancellor Angela Merkel has gone out of her way to support the company, as did her predecessor, Gerhard Schröder, who came to its defense in 2003, when the European Commission challenged the legality of its holding structure.

The second similarity is that both industries are subject to multiple regulatory objectives. Regulators may want banks to be safer, but they also want them to lend more to the real economy, which often means taking more risks. As a consequence, they impose rules that do not clearly push banks in one direction or the other.

The regulation of automobile emissions faces a similar problem. As regulators’ focus turned toward limiting global warming, there were tremendous incentives to manufacture vehicles that produced fewer greenhouse-gas emissions, even if that meant, as with diesel engines, emitting other gases and micro-particles that are much more harmful to humans in their vicinity. There was never a discussion of the tradeoff between limiting local pollution and fighting climate change.

As the Volkswagen crisis so vividly illustrates, we need more than corporate apology and regulatory wrist slapping. It is time for a sustained discussion about how to craft regulations that provide the proper incentives to achieve the objectives we truly desire: economic and social wellbeing. It is only when that discussion takes place that we will get the banks, cars, and other goods and services that we want.

Harold James is Professor of History and International Affairs at Princeton University, Professor of History at the European University Institute in Florence, and a senior fellow at the Center for International Governance Innovation. A specialist on German economic history and on globalization

La irrelevante Europa

The Irrelevant Seven

JUN 23, 2015

BERLIN – The latest G-7 summit, in the beautiful Alpine setting of Garmisch-Partenkirchen in Germany, has come and gone. No longer the G-8, owing to Russia’s suspension, the forum is again composed exclusively of traditional Western powers. At a time when the emergence of large, densely populated economic powerhouses like Brazil, China, India, and Indonesia is challenging Western dominance, many believe that the current international system is due for an overhaul. 

In fact, a new world order is almost certain to emerge – and very soon. The shape it takes will be determined by two key phenomena: globalization and digitization.

Globalization is enabling economies that are not yet fully industrialized to reap the benefits of industrialization and become integrated into global markets – a trend that has redefined the global division of labor and transformed value chains. The revolution in digital communication technology has underpinned this shift.

Of course, the impact of digitization extends beyond economics; it has broken down many cultural barriers, giving ordinary citizens in even remote regions access to information and ideas from all over the world. As globalization-enabled economic development continues to raise incomes, this cultural integration will undoubtedly lead to broader political participation, especially among an increasingly large – and increasingly demanding – middle class. Already, this trend is complicating governments’ efforts at domestic monitoring and control.

In terms of the global economic balance of power, however, the impact of globalization and digitization remains difficult to predict. While these trends have undoubtedly fueled the economic rise of some developing countries, the West – especially the US – retains a technological and innovative edge. Indeed, America’s technological lead – together with its enormous capital assets and dynamic business culture, exemplified in Silicon Valley – could ultimately reinforce its global standing.

But, with major emerging economies like China and India working hard to foster innovation, while still benefiting from technological catch-up, it is also possible that continued globalization and digitization will propel continued “de-Westernization” of the international order. Only time will tell whether these countries will successfully challenge the established powers.

Even if the US – and, to some extent, Western Europe – does retain a competitive edge, it is unlikely to retain the kind of global geopolitical control that it has had since World War II and, especially, since the Soviet Union’s collapse left it as the world’s sole superpower. In fact, even though the US remains dominant in military, political, economic, technological, and cultural terms, its global hegemony already seems to have slipped away.

The reality is that America’s global geopolitical supremacy did not last long at all. After becoming overstretched in a series of unwinnable wars against much weaker – and yet irrepressible – opponents, the US was forced to turn inward. The power vacuums that it left behind have produced regional crises – most notably, in the Middle East, Ukraine, and the South and East China Seas – and have contributed to a wider shift toward instability and disorder.

The question now is what will replace Pax Americana. One possibility is a return to the kind of decentralized order that existed before the Industrial Revolution. At that time, China and India were the world’s largest economies, a status that they will regain in this century. When they do, they might join the traditional powers – the US and Europe, as well as Russia – to create a sort of “pentarchy” resembling the European balance-of-power system of the nineteenth century.

But there are serious questions about most of these countries’ capacity to assume global leadership roles. With the European Union facing unprecedented challenges and crisis, it is impossible to predict its future. Russia’s future is even more uncertain; so far, it has been unable to rid itself of the phantom pains over its lost empire, much less arrest the deterioration of its society and economy. India has the potential to play an important role internationally, but it has a long way to go before it is stable and prosperous enough to do so.

That leaves only the US and China. Many have predicted the emergence of a new bipolar world order, or even a new Cold War, with China replacing the Soviet Union as America’s rival. But this, too, seems unlikely, if only because, in today’s interconnected world, the US and China cannot allow conflict and competition to obscure their common interests.

As it stands, China is financing America’s public debt, and, in a sense, subsidizing its global authority. And China could not have achieved rapid economic growth and modernization without access to US markets. Simply put, the US and China depend on each other. That will go a long way toward mitigating the risks that a new global power’s emergence inevitably generates.

Against this background, it seems likely that the new world order will resemble the bipolar order of the Cold War – but only on the surface. Underneath, it will be characterized by engagement and mutual accommodation, in the name of shared interests.

The G-7 represents a dying order. It is time to prepare for the G-2.

Joschka Fischer was German Foreign Minister and Vice Chancellor from 1998-2005

Pobre vieja Alemania,demasiado grande para Europa, demasiado pequeña para el mundo (Henry Kissinger)

Germany’s Hegemony Trap

SEP 14, 2015

MUNICH – The prolonged Greek debt crisis and the ongoing influx of refugees into Europe have ignited a debate about Germany’s role within the European Union. Has Germany become the European hegemon? And if not, should it assume that role, as some commentators have suggested, in order to prevent the European project from failing? 

‎

The idea of German hegemony – as should be clear to any student of history – is self-defeating. Instead, Germany should assume the position of Europe’s “Chief Facilitating Officer,” as German Foreign Minister Frank-Walter Steinmeier aptly called it, focused on strengthening the EU by working to create the conditions necessary for a truly common European foreign and security policy, one that proactively prepares the continent to meet the challenges it confronts. By throwing its full weight into this task, Germany would not only promote Europe’s influence in the world; it would also deflate the discussion of hegemony.

The 2007 Treaty of Lisbon was based on the idea that the EU’s prosperity and security depend on its members looking beyond their parochial interests and act jointly, in their common interest. In order to achieve this, the treaty created posts, such as the President of the European Council and the High Representative of the Union for Foreign Affairs and Security Policy, whose incumbents could speak and act on behalf of the entire EU.

As former Belgian Prime Minister Paul-Henri Spaak once noted, “There are only two types of states in Europe: small states, and small states that have not yet realized that they are small.” Unfortunately, for the moment, too many of the EU’s member states fall into the latter category.

The new offices established by the Treaty of Lisbon have helped the EU achieve some important successes – most notably during negotiations with Iran and with Serbia and Kosovo. But there has been no consistent effort to strengthen their powers. Far too often, when it comes to dealing with foreign-policy crises and strategic challenges, EU institutions are assigned a minor role. The Ukraine crisis, where France and Germany have taken the lead, is but one example of this.

And yet, even as Euro-skepticism has been rising across the continent, there remains widespread popular support for a common, more powerful European foreign policy. In a recent article in the Financial Times, former Polish Foreign Minister Radosław Sikorski outlined how this might be achieved. When a foreign-policy issue arises, member states should assess whether it would be most appropriately addressed by individual states or at the European level.

In the vast majority of cases in which common action would be preferable, member states would provide full support to the EU. As a result, European Council President Donald Tusk, EU High Representative Federica Mogherini, and EU Commission President Jean-Claude Juncker would play leading roles in European foreign policy.

Unfortunately, this is far from established practice. The EU’s members tend to pursue dissonant policies, weakening, rather than strengthening, Europe’s global position. And there are few things the rulers of China and Russia enjoy more than playing the EU’s members off against one another.

Germany has an opportunity to provide a counterweight to long-standing British objections to a unified foreign policy. By putting its considerable influence in the service of a cohesive, strategically focused foreign and security policy, Germany would simultaneously achieve two key objectives: a stronger and more capable EU and a more European Germany.

A good starting point would be to act on longstanding calls for closer integration of EU members’ armed forces. Germany should put its full weight behind “pooling and sharing” military resources, even if the United Kingdom is resistant to such an effort. After all, the time when EU member states went to war alone ended more than three decades ago, with the Falklands War.

“Poor old Germany,” Henry Kissinger once quipped. “Too big for Europe, too small for the world.” Fortunately, Germany has a way out of this trap. As a proactive and constructive part of the EU, Germany is big enough for the world, and at the same time not too big for its neighbors.

As Steinmeier and German Minister of Economic Affairs Sigmar Gabriel, recently wrote, “Only together, and only at the European level, will we be able at all to find rational solutions.” They were writing about the refugee crisis, but they could just as easily have been referring to Germany’s place in the EU today.

Wolfgang Ischinger, former State Secretary of the German Federal Foreign Office and a former German ambassador to the United States and the United Kingdom, is Chairman of the Munich Security Conference.

Europa, Norte, Sur, Este, Far West y el resto

Eastern Europe’s Crisis of Shame

 

BERLIN – As thousands of refugees pour into Europe to escape the horrors of war, with many dying along the way, a different sort of tragedy has played out in many of the European Union’s newest member states. The states known collectively as “Eastern Europe,” including my native Poland, have revealed themselves to be intolerant, illiberal, xenophobic, and incapable of remembering the spirit of solidarity that carried them to freedom a quarter-century ago.

These are the same societies that clamored before and after the fall of communism for a “return to Europe,” proudly proclaiming that they shared its values. But what did they think Europe stands for? Since 1989 – and particularly since 2004, when they joined the EU – they have benefited from massive financial transfers in the form of European structural and cohesion funds. Today, they are unwilling to contribute anything to resolve the greatest refugee crisis facing Europe since World War II.

Indeed, before the eyes of the entire world, the government of Hungary, an EU member state, has mistreated thousands of refugees. Prime Minister Viktor Orbán sees no reason to behave otherwise: the refugees are not a European problem, he insists; they are a German problem.

Orbán is not alone in this view. Even Hungary’s Catholic bishops are following Orbán’s line, with Laszlo Kiss-Rigo, Bishop of Szeged-Csanad, saying that Muslim migrants “want to take over,” and that the Pope, who has called on every Catholic parish in Europe to take in a refugee family, “doesn’t know the situation.”

In Poland, a country of 40 million people, the government initially expressed a readiness to accept 2,000 refugees – but only Christians (Slovakia proposed a similar stipulation). Refugees are not an Eastern European problem, a Polish journalist told National Public Radio in the United States, because these countries did not participate in the decision to bomb Libya (neither did Germany).

Have Eastern Europeans no sense of shame? For centuries, their ancestors emigrated in droves, seeking relief from material hardships and political persecution. And today their leaders’ heartless behavior and callous rhetoric play to popular sentiment. Indeed, the electronic version of Poland’s largest newspaper, Gazeta Wyborcza, now publishes a stunning notice at the end of every article about refugees: “Because of the extraordinarily aggressive content of remarks advocating violence, contrary to the law, and calling for racial, ethnic, and religious hatred, we will not allow readers to publish comments.”

Not so long ago, in the immediate postwar years, Eastern European Jewish Holocaust survivors fled from the murderous anti-Semitism of their Polish, Hungarian, Slovak, or Romanian neighbors to the safety of displaced persons camps in, of all places, Germany. “Safe Among the Germans” proclaimed the title of an important book by the historian Ruth Gay about these 250,000 survivors. Now Muslim refugees and survivors of other wars, having found no refuge in Eastern Europe, also are fleeing to safety among the Germans.

In this case, history is not a metaphor. On the contrary, the root cause of the Eastern European attitudes now on grim display is to be found in World War II and its aftermath.

Consider the Poles, who, deservedly proud of their society’s anti-Nazi resistance, actually killed more Jews than Germans during the war. Although Poland’s Catholics were cruelly victimized during the Nazi occupation, they could find little compassion for the fate of Nazism’s ultimate victims. In the words of Józef Mackiewicz, a conservative, anti-Communist Polish writer with impeccable patriotic credentials: “During the occupation there was not, literally, a single person who would not have heard the saying – ‘One thing Hitler has done correctly is to wipe out the Jews.’ But one should not talk about this openly.”

Of course, there were Poles who helped Jews during the war. Indeed, the number of Polish “Righteous Among Nations,” recognized by Israel’s Yad Vashem for their wartime heroism, is the largest among all European countries (unsurprisingly, given that prewar Poland had Europe’s largest Jewish population by far). But these remarkable individuals typically acted on their own, against prevailing social norms. They were misfits who, long after the war had ended, insisted on keeping their wartime heroism a secret from their neighbors – afraid, it seems, that their own communities would otherwise shun, threaten, and ostracize them.

All occupied European societies were complicit to some degree in the Nazi effort to destroy the Jews. Each made a different contribution, depending on country-specific circumstances and conditions of German rule. But the Holocaust played out most gruesomely in Eastern Europe, owing to the sheer number of Jews in the region and the incomparable ruthlessness of the Nazi occupation regimes.

When the war ended, Germany – because of the victors’ denazification policies and its responsibility for instigating and carrying out the Holocaust – had no choice but to “work through” its murderous past. This was a long, difficult process; but German society, mindful of its historical misdeeds, has become capable of confronting moral and political challenges of the type posed by the influx of refugees today. And Chancellor Angela Merkel has set an example of leadership on migrants that puts all of Eastern Europe’s leaders to shame.

Eastern Europe, by contrast, has yet to come to terms with its murderous past. Only when it does will its people be able to recognize their obligation to save those fleeing in the face of evil.

Jan T. Gross, Professor of War and Society and Professor of History at Princeton University, is the author of Neighbors: The Destruction of the Jewish Community at Jedwabne, Polish Society under German Occupation, and Fear: Anti-Semitism in Poland After Auschwitz.

Contra el uso fácil de los ANTIBIÓTICOS ¡úsalos bien!

Using Antibiotics Wisely

SEP 2, 2015

 

LONDON – To solve the problem of antimicrobial resistance, the world needs not only new drugs, but also new behavior – by all seven billion of us. Because of the misuse and overuse of antibiotics, common infections such as pneumonia and tuberculosis are becoming increasingly resistant to existing treatments; in some cases, they have become completely immune.

The threat is global in scale. According to the Review on Antimicrobial Resistance, which I chair, drug-resistant infections kill at least 700,000 people every year. By 2050, if nothing is done to address the problem, some ten million people a year could be dying from maladies that were once treatable.

Developing new drugs is an important approach in a coordinated response to fight antimicrobial resistance. But it will not be enough. We also need to reduce our demand for antibiotics and understand that they can sometimes do more harm than good. According to one estimate, nearly half of all prescriptions for antibiotics in the United States are inappropriate or unneeded. So the steep rise in antibiotic resistance is hardly surprising.

Improving people’s understanding of the problem will be crucial to reversing this trend. Most people are either completely oblivious to antimicrobial resistance or incorrectly believe that it is an individual’s body that becomes drug resistant – not the bacteria itself. A better understanding of when to use antibiotics, and how to use them effectively, will help people use them responsibly.

We need campaigns like the one introduced by the Australian charity NPS MedicineWise, which held a competition for videos promoting public awareness of antibiotic use. The result was a series of short, witty films explaining simply and humorously how antibiotics can be misused.

These types of efforts are needed worldwide, particularly in the largest and most rapidly growing countries. The BRIC countries – Brazil, Russia, India, and China – consume fewer antibiotics per person than the US. But they are rapidly catching up as the rate of antibiotics consumption outstrips the pace of economic growth.

Pessimists will claim that behaviors are hard to change, especially when doing so depends on explaining the science of germs to uneducated audiences. That line of thinking brings to mind one of the most abhorrent arguments against making HIV medicines affordable for patients in lower-income countries: People in Africa have no watches, so they will not be able to take their antiretroviral medicine three times a day.

The truth, as researchers have shown, is that Africans are perfectly capable of reliably adhering to antiretroviral therapy – often more so than North Americans. Indeed, in July, UNAIDS announced that the goal of having 15 million people on life-saving HIV treatment by the end 2015 was met ahead of schedule.

Every year on December 1, World Aids Day highlights the issue and raises global awareness. We need a similar effort to address the perils of antimicrobial resistance. European Antibiotic Awareness Day, on November 18, is a good start; but we must also find new, creative ways to spread the message.

Technological innovation brings unprecedented opportunities to reach people directly. Roughly 95% of Chinese and 75% of Indians use mobile phones regularly. In areas where literacy rates are high, sending text messages can be a rapid and effective way to spread a message. Research in Europe and the US shows that 90% of text messages are read within three minutes of being received.

Social media are another powerful and relatively cheap tool to reach millions of people. In China – home to the world’s largest Internet base, with 641 million users – 80% of doctors use smartphones for professional purposes, including by providing medical advice via social media, with some practitioners attracting millions of followers. Enlisting these medical social-media superstars to educate the public on the urgency of antimicrobial resistance is an exciting opportunity.

An anti-smoking social-media campaign led by the World Health Organization provides another model that could be followed. Posts by Chinese celebrities were used to increase awareness of a law banning smoking in indoor public spaces.

In some parts of the world, the best way to combat drug resistance will be to encourage changes in behavior that reduce the spread of infections and minimize the need for treatment. Proper hand washing is a great place to start. In India, a clever campaign called SuperAmma used images of people exposed to unsanitary situations to encourage hand washing. The campaign successfully and sustainably increased regular hand washing from 1% of the groups involved to about 30%.

The cost of a global effort to raise awareness of the threat of antimicrobial resistance would be miniscule compared to the amount being spent to develop new drugs and technologies, which in any case will take years to become available. Countries should urgently put in place educational campaigns and begin to change behaviors. Together, we can break our bad antibiotic habits.

 

 

Jim O'Neill, a former chairman of Goldman Sachs Asset Management, is Commercial Secretary to the UK Treasury, Honorary Professor of Economics at Manchester University, a visiting research fellow at the economic think tank Bruegel, and Chairman of the Review on Antimicrobial Resistance.

El ARTE: ¡¡ próxima burbuja !!

The Art of Capital Flight

SEP 4, 2015

 

CAMBRIDGE – What impact will China’s slowdown have on the red-hot contemporary art market? That might not seem like an obvious question, until one considers that, for emerging-market investors, art has become a critical tool for facilitating capital flight and hiding wealth. These investors have become a major factor in the art market’s spectacular price bubble of the last several years. So, with emerging market economies from Russia to Brazil mired in recession, will the bubble burst?

Just five months ago, Larry Fink, Chairman and CEO of BlackRock, the world’s largest asset manager, told an audience in Singapore that contemporary art has become one of the two most important stores of wealth internationally, along with apartments in major cities such as New York, London, and Vancouver. Forget gold as an inflation hedge; buy paintings.

What made Fink’s elevation of art to investment-grade status so surprising is that no one of his stature had been brave enough to say it before. I am certainly not celebrating the trend. I tend to agree with the philosopher Peter Singer that the obscene sums being spent on premier pieces of modern art are disquieting.

We can all agree that these sums are staggering. In May, Pablo Picasso’s “Women of Algiers” sold for $179 million at a Christie’s auction in New York, up from $32 million in 1997. Okay, it’s a Picasso. Yet it is not even the highest sale price paid this year. A Swiss collector reportedly paid close to $300 million in a private sale for Paul Gauguin’s 1892 “When Will You Marry?”

Picasso and Gauguin are deceased. The supply of their paintings is known and limited. Nevertheless, the recent price frenzy extends to a significant number of living artists, led by the American Jeff Koons and the German Gerhard Richter, and extending well down the food chain.

For economists, the art bubble raises many fascinating questions, but an especially interesting one is exactly who would pay so much for high-end art. The answer is hard to know, because the art world is extremely opaque. Indeed, art is the last great unregulated investment opportunity.

Much has been written about the painting collections of hedge fund managers and private equity art funds (where one essentially buys shares in portfolios of art without actually ever taking possession of anything). In fact, emerging-market buyers, including Chinese, have become the swing buyers in many instances, often making purchases anonymously.

But doesn’t China have a regime of strict capital controls that limits citizens from taking more than $50,000 per year out of the country? Yes, but there are many ways of moving money in and out of China, including the time-honored method of “under and over invoicing.”

For example, to get money out of China, a Chinese seller might 

report a dollar value far below what she was actually paid by a cooperating Western importer, with the difference being deposited into an overseas bank account. It is extremely difficult to estimate capital flight, both because the data are insufficient and because it is tough to distinguish capital flight from normal diversification. As the late MIT economist Rüdiger Dornbusch liked to quip, identifying capital flight is akin to the old adage about blind men touching an elephant: It is difficult to describe, but you will recognize it when you see it.

Many estimates put capital flight from China at about $300 billion annually in recent years, with a marked increase in 2015 as the economy continues to weaken. The ever-vigilant Chinese authorities are cracking down on money laundering; but, given the huge incentives on the other side, this is like playing whack-a-mole.

Presumably, the anonymous Chinese buyers at recent Sotheby’s and Christie’s auctions had spirited their money out of the country before bidding, and the paintings are just an investment vehicle that is particularly easy to hold secretively. The art is not necessarily even displayed anywhere: It may well be spirited off to a temperature- and humidity-controlled storage vault in Switzerland or Luxembourg. Reportedly, some art sales today result in paintings merely being moved from one section of a storage vault to another, recalling how the New York Federal Reserve registers gold sales between national central banks.

Clearly, the incentives and motives of art investors who are engaged in capital flight, or who want to hide or launder their money, are quite different from those of ordinary investors. The Chinese hardly invented this game. It was not so long ago that Latin America was the big driver in the art market, owing to money escaping governance-challenged economies such as Argentina and Venezuela, as well as drug cartels that used paintings to launder their cash.

So how, then, will the emerging-market slowdown radiating from China affect contemporary art prices? In the short run, the answer is ambiguous, because more money is leaking out of the country even as the economy slows. In the long run, the outcome is pretty clear, especially if one throws in the coming Fed interest-rate hikes. With core buyers pulling back, and the opportunity cost rising, the end of the art bubble will not be a pretty picture.

Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief economist of the International Monetary Fund from 2001 to 2003.