The Plugin Hybrid

As a technology nerd, I am excited about the prospect of plug-in hybrid electric vehicles (PHEV). General Motors recently sponsored a Society of Automotive Engineers task force to develop a standardized power connector for recharging electric vehicles.  Several major auto makers have agreed to adopt the technology.

Beyond standardization within the industry, environmentalists and techno-nerds alike have reason to be excited about a bright future for cleaner transportation.  First, one can expect that PHEV's won't single-handedly overload the power grid: the Energy Information Administration's 2009 annual energy outlook predicts "Plug-in electric hybrid vehicles are not expected to reverse the trend of slowing growth in electricity demand, which increases by only 0.1 percent for every 1 million PHEV-40 vehicles in operation." Second, batteries from PHEVs will minimally impact the environment.

However, one long-term issue could diminish the environmental benefits of PHEVs. These vehicles shift most emissions from gasoline to electric power plants.  The US needs to make its electricity sources look more like this, instead of this.  Coal provides the U.S. with half of its power, and no, clean coal is not a viable solution. Strip mining and the disposal of coal ash wreak havoc upon the environment.  Society must not trade its problems, but one can hope that the mass adoption of PHEVs encourages a cleaner power generation.

Global spread of swine flu

The Guardian has a handy interactive feature on the spread of the new swine influenza strain, which the WHO warns could become a global pandemic.

What would shareholders do?

An interesting profile of how shareholder driven capitalism plays out in China.

I have to think there are many parallels in Japan as well. I wonder whether Asian leaders have had a chance to sit down with the new Jack Welch.

(Photo from World Business Forum)

Please, one at a time

Just in case you thought the financial calamity fulfilled our quota of global crises, remember, the food crisis isn't over yet.

If you didn't believe us back then, maybe you will now - Conceicao and Mendoze, two UN economists, have crunched the numbers. Guess what? They concluded that we're only one supply shock (drought, tsunami, you name it) away from encountering a serious global famine.

A drop in the ocean

$100 million here, $100 million there - Paul Krugman

I was surprised that Obama really tried to pass this off as a legitimate money-saving exercise. I was pleasantly surprised that just about everybody called him on it. That presidential honeymoon is pretty much over before Obama has 100 days under his belt...

Climate change legislation

EPA moves toward climate change regulations: "This decision is a game-changer," said Rep. Ed Markey, D-Mass. "It is now no longer a choice between doing a bill or doing nothing. It is now a choice between regulation and legislation. EPA will have to act if Congress does not act."

Financial Journalism Shut out of Pulitzers

Financial Journalism Shut out of Pulitzers - Megan McArdle

I'd be inclined to agree with her assessment... how could they NOT give a Pulitzer to a financial journalist this year? And not one, but TWO sex scandals? COME ON!

Debt to GDP ratios

Which countries have high debt to GDP ratios? Datablog has a handy visualization.

We need a book deal

I (and my mountain of student loans) really need international political economy to go viral.

I can has liberal democracy and economic liberty, right?!

(Photo from Philonoist)

Lehman Brothers: Nuclear power?

Bloomberg broke the story this week that Lehman Brothers Holdings Inc. is sitting on a nuclear bomb's worth of yellowcake uranium. Apparently, the bank physically acquired the uranium after a futures contract matured. It now sits in a secure storage facility in Canada. Which begs the question:

How the hell did Lehman allow this to happen?

Actively traded futures contracts are typically closed out before the contract expires. This absolves the trader/firm from having to take physical delivery of the underlying commodity. It is remarkable that Lehman failed to close such a massive contract. DealBook wonders if the contract simply slipped through the cracks amidst all the chaos of the Lehman bankruptcy.

However it happened, the bankrupt bank is reportedly sitting on the uranium until prices rise; uranium has fallen for five straight months as traders expect delays to nuclear power projects in China and India, and under the expectation that Lehman could dump its stock on the market. Essentially, by holding tight Lehman depresses the very market it needs to recover.

I highlight this story because it underlines just how disastrous, and far-reaching, the Lehman bankruptcy has been. Lehman was an active commodities trader in the broker-dealer and exchange markets, and it got caught on the wrong side of a massive trade that continues to depress an illiquid market. The ripple effects of Lehman's failure haunt us in the most improbable of areas.

(photo source)

Efficient institutions

Non-profit and development institutions have long been (fairly) critiqued for their inefficiency. Seemingly guaranteed funding tends to breed employee complacency and supplant any urgency or incentive to perform beyond expectations.

We've all heard the (impossible) assertion that government should be run like a business. Can one man actually make non-profits run like a business?

Democracy and accountability

Megan McArdle has a very interesting piece addressing the legitimacy of the Fed's aggressive, central role in the policy response to the ongoing financial crisis:

But here's the problem: the Fed has performed vastly better on any
metric except "being elected" than the Congress. There's little doubt in
my mind that if we had not had an independent central bank, unemployment would
be many percentage points higher, GDP would have contracted much more strongly,
and we wouldn't now be making optimistic noises about the thing bottoming
out...

I think that the political process will hopelessly screw up the
management of this crisis (something which libertarians are perfectly able to
see when the government screwing things up is a left-wing populist one in Latin
America). But maybe The People, God bless them, deserve to screw up their
economy if they want. On principle, I am opposed to saving people from
themselves. And anyway, maybe I'm wrong and the wisdom of crowds will
prevail.

On the other hand, do they have a right to screw things up for everyone
else? Should a populist 60% be allowed to plunge their neighbors deeper
into crisis? In the case of America, to plunge the whole
world deeper into crisis?

The uncomfortable conclusion I'm coming to is that yes, they
should. Ben Bernanke should be hamstrung even though it's likely that this
would make everyone worse off. And people who advocate for ending the
independence of the central bank should be willing to accept all that this
entails: inflationary monetary policy (the people love inflation!), bad
and unpredictible banking policy, the collapse of the US economy. I just
wish I didn't have to go along for the ride.

Huh? I don't follow her logic at all. A modern democracy is a sophisticated political system. For some specialist functions like monetary policy, undemocratic actors do a much better job. In such cases, democratic lawmakers can voluntarily cede authority to an institution that's insulated from political pressure.

But here's the catch. No one's saying they couldn't take that power back if they wanted to. The Fed's only independent because elected lawmakers chose to make it so. They did this because they judged it to be in the long-term interests of the country.

So do we still have to hamstring Ben Bernanke? I'm just asking. He seems like a pretty nice guy.

Update: By sheer coincidence, Dave writes almost the exact same post at IPE Journal. Really, it's kind of spooky how similar they are.

About that money under the mattress...

Via Bloomberg: "The London interbank offered rate for three-month dollar loans is dropping at the fastest pace since January." This is one positive indicator that credit is starting to flow again in financial markets. At the same time, Goldman Sachs announced that it would sell stock to facilitate repayment of $10 billion in TARP funds to the US government, ostensibly to avoid some of the more prickly (compensation-related) strings attached to the government funds. Goldman Sachs also posted a $1.66 billion profit in Q1.

Good news is welcome news, but two happy stories do not make a turnaround. The Goldman Sachs development may even be counterproductive if other banks rush to pay back their own TARP funds so as not to appear weak, in what would amount to a very public stress test. There is also a danger that Congress, already suffering from bailout fatigue, will become even less inclined to authorize more financial stabilization spending. That's worth keeping in mind, because not everyone is as optimistic as this.

Rags to rupees

India wants its own currency symbol.

The rupee is certainly a strong, and storied, currency, but if China doesn't even have a standardized keyboard and the euro sign isn't yet really universal, what chance does the rupee have of making it as a globally recognized symbol?

The development of a common market (Pakistan, Sri Lanka, and Nepal) would certainly help; bringing together more than a billion people using the same currency in a volatile region would promote greater market integration and freer trade within South Asia. Though not very likely, if implemented, such a momentous change would help to ensure a little more political stability in the 'hood and it just might make for a lasting rupee (and symbol).

(Photo from 8en)

Game Show Network: Your days are numbered

As media providers like Hulu continue to offer highly customized and unbundled entertainment options, Rob Pegoraro writes a timely article on a la carte cable pricing.

I agree with Pegoraro, and his argument for a flexible cable pricing model highlights an important trend that affects many industries.

The decomposition of a product or service into discrete parts, or what many call the “great unbundling,” developed recently in modern business. We have all witnessed traditional bundles: a music CD, a newspaper with many sections, and a cable package with hundreds of channels. Implicit in these bundles is the decision about what gets bundled together in the first place. Rob rightly notes one bundle does not fit all. I don’t like the style section in the newspaper, I don’t like the game show network, and I don’t like the 13 songs on a CD that aren’t the hit single. Fortunately, successful enterprises such as Apple’s iTunes have discredited this anachronistic approach to product bundling.

Unbundling has a powerful implication: personalized aggregation. Examples of personalized aggregation include Google reader for news, Boxee for media consumption, and Amazon MP3 and iTunes for music. With these tools the consumer assembles a custom package of content, cobbled together from a variety of sources. Personalized aggregation empowers the consumer to pay for only what one chooses to consume. The cable industry should note that companies which honor this philosophy will ultimately thrive.

P.S. – Let's not be rash and unbundle the Oxygen channel. Hidden Gem.

Failsafe finance?

Dani Rodrik agrees that the IMF is changed, but does not agree that the Fund is now a true lender of last resort. 

Mr. Rodrik's call for stronger national regulation is, in my eyes, (somewhat) correct. Context requires nuanced solutions beyond those that a blueprint framework can provide: this applies from everything from finance to film. His skepticism is healthy, but I remain more hopeful than he that these reforms are at least a step in the right direction. International finance may not be safe, but was it before this mess?

The Associated Press takes on Silicon Valley

A interesting debate:

http://www.politico.com/news/stories/0409/21136.html

and 

http://www.techcrunch.com/2009/04/06/behind-the-aps-plan-to-become-the-webs-news-cop/

The politics of geoengineering

In an interview this week, John Holdren, Director of the Office of Science and Technology Policy in the White House, indicated that “the Obama administration is discussing radical technologies to cool Earth's air.” They probably are talking about it, but it was a huge mistake for Holdren to mention so publicly, for three reasons.

The "radical technologies" that Holdren references are collectively known as geoengineering. In a nutshell, geoengineers propose to purposefully manipulate the environment to counteract the effects of global warming. The idea has gained traction as a relatively painless way to fight climate change without taxing carbon or raising the cost of doing business. However, there is disagreement over whether it is actually possible and whether it risks making things much worse. Modern climate science is still relatively primitive – there are many things that we simply don’t yet understand. Geoengineering is the scientific equivalent of a Hail Mary pass.

By acknowledging it as a viable option, Holdren risks undermining international negotiations on combating climate change. Currently, the best solution available to climate change is to reduce carbon emissions, most commonly through some form of cap-and-trade system. But by pricing carbon, you raise the cost of goods and services at least in the short run. This is a tough enough pill to swallow, and geoengineering gives naysayers more ammunition to lobby against it. Negotiations are going to be hard enough as is – remember that it’s been seven torturous years of Doha Round negotiations that would produce a net economic gain, and we’re still not done.

Finally, geoengineering does not eliminate international coordination challenges. As a global problem, climate change requires a global solution. There are significant collective action problems to address. But even if we decide to geoengineer our way out of this mess, these problems will remain. Who gets to pick which geoengineering scheme gets used (there are many)? What if different nations choose to go forward with different geoengineering strategies? And most importantly, who pays for it?

I am somewhat of an international cooperation sceptic, and I worry that the global community won’t reach a consensus on climate change. For that reason, President Obama really ought to be exploring every contingency plan, geoengineering included.

But he and his team need to keep it to themselves.

Holbrooke's heroes

Obama's Afghanistan policy review and the following talks at the Hague are being praised for the inclusion of Iran. I've long advocated the inclusion of Iran in Afghan dealings; but a regional solution will only work if every country is involved in shaping strategy. Instead of opening the table to debate, Holbrooke and his team are essentially dictating policy. Apparently, they expect India to accept the notion that Pakistan is a victim of terrorism and a trustworthy partner. Guess what? They're not buying; nor should they be.

The fact that the Obama administration is still supporting Pakistan and now talking with Iran, without any significant conditions, is a huge slight in the eyes of India. Prime Minister Singh has essentially banked his career on the new strategic relationship with the US he helped usher in with the nuclear deal. India, after reorienting their entire foreign policy to align with the US, is being cornered into supporting their enemy, who have still not pursued the planners of 26/11 or even shared evidence.

Treating our strongest ally and partner in South Asia as an afterthought is a huge mistake. Indian elections are this month; the economy is obviously the central issue, but if Mr. Holbrooke continues to talk to India instead of with it, you better believe we will have a much less sympathetic ear in Delhi. Replacing a centrist, liberalized government with a nationalist, populist alliance hostile to most US activity isn't exactly a good change.

(Photo from Politics and Meetings)

A false dawn

April is the cruelest month - if you're an economist. Seriously, the dismal science has outdone itself in the past week. Here are some graphs charting the collapse in trade flows. (Bonus: here are some related statistics and graphs tracking the slowdown of bilateral US-UK trade). Here are some measuring the even faster disintegration of capital flows. Here are some which show that by every indicator, the global economy is tracking or doing worse than during the Great Depression. And here is the impossible (to paraphrase Felix Salmon) list of things we would need to do to avoid another Black Swan like this occuring in the future.

I am most troubled by the argument that current aggressive policy responses may eventually end the recession without addressing the fundamental problems which caused it in the first place. Green shoots? Try cold snap.

After 2 days of communism, Moldova falls apart

Moldova, a small country between Ukraine and Romania, doesn’t get much serious international news coverage and for good reason – most of what they do is inherently hilarious. For instance, last December, the country got a small mention when police arrested a Christmas tree in Chisinau, the Moldovan capital. Other than that, they don’t get much attention, until now.

Moldova exploded this week after the communists won 50% of the parliamentary vote on April 5, which was enough for them to choose a new president and amend the Constitution. OSCE and the EU maintain the elections were mostly free and fair, but many within the country assert that the elections were rigged.

So, unhappy with this democratic decision to curtail democracy, 10,000 people mobilized using SMS, Facebook and Twitter and staged protests on Tuesday in the main square of Chisinau. However, not everyone was there for the same reason. Some called for support from the EU. Some called to join the country with Romania. Others just plain don’t like communism. Together, they put the MOB in mobilization. They ransacked and torched government buildings. 193 people were arrested, including eight minors. 96 police officers were wounded. People again assembled on Wednesday to continue ransacking and torching government buildings. Moldovan president Voronin was quick to blame Romania for inciting the violence. Romanian leaders, for their part, were quick to deny this.

It’s hard to say what ultimately led to this outbreak of violence. It seems to be a culmination of negligence, ignorance, lack of true democratic structure, rampant corruption, and economic hard times (to name a few). In fact, the country’s recent history reads like “What Not to Do” manual. Without solid democratic structures, civic education, transparency and responsible reporting, hard times become impossible to cope with and failure is inevitable, which is either hilarious or tragic to the international community.

Fund-amentals

Plenty have highlighted the promises to the IMF as one of the greater success of the G20 Summit. Free Exchange doesn't agree:

In the quest for a big headline number to throw at the world and the press, and in an attempt to equate this to the missing globally coordinated fiscal stimulus, there's been a fair amount of hand-waving. Of the money that the IMF is supposedly getting, the only clear new commitment is a relatively small $40 billion from China.

True, the new commitments aren't as stellar as the media is reporting. But, the big change is not the new money; it's the Flexible Credit Line. To be fair, the author correctly notes that countries aren't exactly lining up for these IMF handouts. But if Mexico has a decent time with the revamped IMF system, you better believe a few more governments will be putting in a call to Mr. Strauss-Kahn.

Besides, the amount of money isn't that important: it's the fact that after years spent resisting change and asserting their right to essentially dictate monetary policies to countries (ahem, Thailand), the IMF is loosening its grip, albeit slowly. Countries still must have "sound monetary policies" to qualify for these new loans. But the definition of "sound" hasn't been spelled out and more importantly, the loans don't come with IMF staff. With nationalist rhetoric rising in the wake of the financial crisis, taking IMF money is going to be a much easier political sell if it doesn't come with resident Fund officials. The US and Europe may still have de facto veto power within the Bank group, but that's something most people won't know when they head to the ballot box.

(Photo from Kyrion)

International counterfactuals

I thought Jacob Weisberg's piece challenging conventional wisdom on a number of current affairs truisms was good. Compare his thoughts on Chinese stability with some of our own writing.

The Future of Capitalism

For the past couple weeks, the FT has been running an uneven series called The Future of Capitalism. That said, I thought yesterday's entry by Quentin Peel was excellent, and you should read it in its entirety. There's nothing revolutionary here, but it's a remarkably articulate and balanced look at the future of the international political economy.

Track your favorite Senator's salary

Jock Friedly and his congressional staff salary tracking website, legistorm, have become dreaded additions to the Internet database community. A recent Washington Post Article called Friedly "the scourge of capitol hill," but it was hard to tell if the staff writer at the Post agreed with Friedly's motives or just found him a curiously ambitious soldier of public financial disclosure.

The important question that needs to be raised will ask what this project does for the public. So far the Post appears to be passively opposed to disclosure at this level, citing numerous examples of embarrassment and reaffirming that financial matters in America are private (especially if you are filthy rich and your friends are not). Those with their names on legistorm appear to agree. Meanwhile, Friedly lets his hate mail slip passed his conscious and he likely gets some amusement out of keeping congress on the edge of their seats.

The glimmer of hope is that this openness and accessibility will eventually alter the way public officials behave, influence people that run for public office, and draw in the most responsible public servants. Legistorm may also be serving as an interesting social barometer. We still strongly believe that economic inequality will result in social stratification. Should society be pushing for a level playing field with pressure from tools like Friedly's (he doesn't disclose his own profits) or strive for the right to privacy?

Also check out Patentstorm, Stormingmedia, Energystorm, and Sciencestorm.

(Photo from confusedvision's photostream)

A chocolaty financial crisis metaphor

Among all of the recent metaphors used to describe the financial crisis, this one takes the cake (or fudge).

Special thanks to The Browser and The Financial Times.

(Photo from merfam's photostream)

Locally grown analysis

The Olive & the Arrow, was brought to my attention a few weeks ago. This clever Washington based blog has a few eerie similarities to zzzeitgeist. I would start by examining some of the names on the list of contributors. They have their recent G20 commentary and we have ours. Let's not be one to judge, there's always room for more analysis as well as the possibility one might bump into their contributors in a local coffee shop.

(Photo from Dan Shouse's photostream)

The Second Great Depression

Last October, we asked whether or not the world was heading for a Second Great Depression. Today a new piece by Messrs Eichengreen and O'Rourke addresses the question in much more detail. Their findings are sobering.

Say uncle: So much for that commodities rally

In my last post, "The inflation hedge of choice", I highlighted the recent run-up in commodity prices, buffeted by OPEC production cuts and speculative capital seeking a hedge against the Fed's big inflationary adventure. While I expressed deep scepticism over the sustainability of such a rally, I did anticipate a speculative run up in prices over the near-term. Perhaps I should have broadened my outlook.

A trip over to Bloomberg.com made me say uncle. Headline: Commodities Head for Worst Slump Since 2001 as Demand Shrinks. D'oh! The Reuters/Jefferies CRB index fell 5.8% in the first quarter, on top of a 50% decline in the second half of 2008. Afshin Nabavi, senior vice president at MKS Finance SA, shot down the idea that speculative capital would contribute to a commodities rally, “For commodities, the main mover is demand and supply and if demand is down, then the price comes down, no matter how many speculators are in the market.”

True, in a perfect market. But speculative capital often drives prices beyond levels justified by supply and demand fundamentals. No one still believes that $150 oil was driven solely on the strength of Chinese demand. Right? Mike Wittner, head of oil-market research at Societe General SA, makes the point that, while we have seen speculative inflows driving certain commodities higher (oil, for instance), the focus will quickly shift away from long-term inflation and back towards "the global recession, weak demand, and still-high stocks." Copper, which I cited as one of the highest-performing commodities, is still expected to decline by over 9% in 2009, in spite of the 30% run-up thus far. This would mean another price collapse is right around the corner.

I draw two important points from these experts. One, this commodities rally is likely to be shortlived. Two, it is misleading, financially speaking, to speak of "commodities" as one monolithic asset-class. As the article notes, while copper and gasoline have experienced a significant recovery this year, it was more than overwhelmed by further declines in natural gas, wheat and nickel. That is the mistake I made in my last post: I took a particular segment of market as indicative of a broader trend.

So beware of false rallies, bet on gold instead and don't take investment advice from me. Or this guy.

(photo from the following photo stream)

G20 deliverables

There's been some grumbling about how the G20 London Summit's deliverables are disappointing. Regardless, I feel like one substantial achievement has been underreported: the G20 pledged $250 billion in new trade financing to help plug a $300 billion worldwide gap. Trade finance isn't as sexy as financial regulation, new global reserve currencies or fiscal stimulus coordination, but it is absolutely essential to world commerce, the engine of economic growth. As an added bonus, it will disproportionately benefit developing nations.

Sponsored Link: Earn big money by sitting in your car trunk!

I've grown weary of sponsored links littering the web but I thought that advertising had earned a permanent home on the Internet. Or has it?

Wharton Professor Eric Clemons made a controversial claim recently: that Internet advertising will ultimately fail. His article elicited a strong response and even a full rebuttal from Danny Sullivan.

Regardless of where one stands in the debate, Clemons makes three excellent points about advertising in general:

First he realizes that "consumers do not need advertising." Consumers spend time researching products and then making purchasing decisions based on recommendations and reviews. His observation affirms the common assertion that product excellence is the best form of advertising.

Second he argues that "Consumers do not trust advertising". Common sense kicks in: one cannot trust a company as a source of information on its own products and services because a company is inherently biased in favor of its own products! Recommendations from friends or trusted reviewers have more impact. I'm amazed that social networks have not yet found a way to profit from friend to friend recommendations and the resulting commerce.

Third, he notes that "Alternative models for monetization are available". That is a refreshing statement: advertising is a lazy man's revenue stream and a cliched business model. The Internet must not rely on a single revenue stream and I would love to see more variety in how start-ups attain profitability.

On the G20

On the G20:

One risk is that the group, if it seeks consensus, will produce an anodyne statement that adds little or nothing to the existing efforts to respond to the global slump. A greater risk is that the summit is so badly divided, and the outcome is so feeble, that dashed expectations actually worsen confidence.

Unfortunately, I don't see the two as mutually exclusive. I have a feeling "confidence" - whether of investors, politicians, or pundits - is going to be eroded either way. In fact, the only people coming away with a morale boost will be either the protesters or the police.

(Photo from G20London2009)