Switzerland: the Safe Investment that Isn't?

Economic conservatives often fret that loose monetary policy (low interest rates), like that seen in the US, Japan, the UK, and, to a certain extent, the eurozone, can be dangerous as it causes bubbles as investors seek higher returns in more risky assets elsewhere. It's been hard to see any bubbles in the economies mentioned, however, as they continue to stagnate and have difficulty digesting debt and uncertainty.

For a while, it seemed that stocks in emerging markets as well as global commodities might be the bubble. Emerging economies have cooled, however, and this has caused commodity prices to come down as well. The relaxed pace of both means that neither seems to have been a bubble in hindsight.

Well, I have a bubble prospect: Switzerland. The central bank in Switzerland has set its interest rate to between 0 and 0.25% (just like America). At the same time, I recently read that rents for shops on one of Zurich's main shopping streets have tripled over the past few years (real estate prices in the US have trended downwards, though there's been some pickup as late). This one anecdote is far too little information to spot a general real estate boom or bubble, of course, though a quick check of an online resource suggests that Swiss house prices are rising significantly faster than inflation. In addition, the currency is riding high as money floods into Switzerland seeking safety. Apparently not all that money has stayed in bank accounts but is instead flowing into investments within the country. The danger is that, when things finally calm down, the capital flow will reverse and the Swiss franc will lose value quickly.

Whether this will damage the economy on the whole is harder to say, as it will depend on whether exporters are able to survive the high currency value to then get a boost from a falling one and whether the economy turns to rely too heavily on consumption and imports during the current inflow boom. I wouldn't put my money there, though.

On the Way to War? NATO May Follow Turkey into War with Syria

"It's always a ship somewhere," a friend and former US diplomat once told me, referring to the point when the US enters wars. It's staggering how often this has been the case. This list covers all the incidents I can think of, but there may very well be more (I encourage comments to help make the list more comprehensive):

• The Spanish-American War of 1898 began when the USS Maine exploded in the harbor of Havana, Cuba (then a colony fighting for independence from Spain). It later turned out that the ship had almost certainly blown up of its own accord, but that was of little interest to propagandists in the yellow press at the time.
• The US entered WWI after the sinking of the passenger ship Lusitania by a German U-boat (though this was not the main reason and did not occur immediately).
• In an example that doesn't fit the bill 100%, the US entered WWII when the Japanese sank a large number of US naval ships in Pearl Harbor.
• The "Gulf of Tonkin" incident, which included an attack that was probably just radar "ghosts," provided the impetus for the US Congress to authorize President Johnson to use conventional military forces in Southeast Asia, essentially beginning the Vietnam War (Wikipedia referenced for all of these).

Why always ships? My diplomat friend suggested, obliquely, that the reason was that ships are isolated and so it is hard to deny the official story of what happened. Pretty cynical, but pretty believable, too. In any case, that description fits aircraft, too, especially aircraft flying over the ocean.

You may have heard that Syria shot down a Turkish fighter jet allegedly flying in international airspace. The jet "had strayed over Syria very briefly and had been shot down after leaving Syrian territory." When it was shot down, it was located "13 nautical miles out of Syria, when Syrian territorial space is 12 miles," according to Turkey's Foreign Minister Ahmet Davutoglu.¹ So far, this has not led to Turkey invoking NATO's article 5, which would require all NATO members to join in to protect Turkey (the last invocation of this clause came after 9/11, when the US used it to start the NATO war in Afghanistan). But it's not over yet. Syria has apparently since opened fire on a second Turkish aircraft, this time a "reconnaissance plane searching for wreckage of the fighter jet downed last week." Although Syria claims it has "no intention of going to war over the matter," that is not entirely up to Syria. Turkey is apparently asserting that it could invoke Article 5 of the NATO treaty, dragging much of Europe, Canada, and the US into a war with Syria.² This is ominous.

This all could be a way for Turkey to act tough in the face of a Syrian attack (and it most likely is). Few in NATO look forward to getting involved in yet another Middle Eastern quagmire. Syria is a heavily divided country without a clear opposition that could be supported. Al Qaeda fighters have also moved in. Intervention there would not quickly bring peace. Although it might be possible to knock out the Assad regime, it is not clear what, if anything would take its place. It might simply lead to a long and bloody civil war (much as seems to be happening now, anyway). As the German newspaper Die Zeit put it, bloodshed will happen whether we intervene or not, and intervention might make it worse.

On the other hand, this could be the beginning of a more hawkish stance against Syria that could lead to a relatively slow escalation eventually ending in war. There is also always the possibility of the "tail wagging the dog," that is: that Turkey might drag the rest of the countries in NATO in without them really wanting to get involved. After all, tensions have been rising between Turkey and its southern neighbor for a while, with Turkey making "many veiled threats to move against Syria."³ Maybe it's always a ship--or a plane--somewhere?

1. Arsu, Sebnem, and Rod Nordland. “Turkey to Consult NATO Allies on Jet.” International Herald Tribune. Damascus, June 25, 2012, Kindle edition, sec. World News.
2. Nordland, Rod. “Turkey Says Syria Opened Fire on a 2nd Aircraft.” International Herald Tribune. Ankara, June 26, 2012, Kindle edition, sec. Front Page.
3. “Turkey’s foreign policy: Growing less mild.” The Economist. Ankara, April 14, 2012, Online edition, sec. Europe. http://www.economist.com/node/21552602.

"Compassion? Why bother? Poor People Are Poor Because They Deserve It." A Rebuttal of Neal Boortz's Speech

Right wing advocates are winning the argument on economic morality by using an appealing line of reasoning that seems right on the surface. It is not, and anyone who cares about justice in any form cannot let this stand.

I recently received an email with an alleged "commencement speech" by Texas lawyer Neal Boortz. Maybe you received it, too. It turns out that he never gave that speech at an actual commencement (link). The issue here is not where the speech was given or even the fact that Boortz thinks it was "more widely distributed... than any commencement speech that actually has been delivered at any college or university in the past 50 years" (something the readers of Steve Jobs's speech might find hard to believe). The point is that a lot of people have read and heard the speech (it seems he read it out on his popular radio show). The speech bashes liberals on several fronts for being "imbeciles." There are two main ideas behind his, any many right wing advocates', argument: that government spending beyond a few bare necessities is wasteful and the related idea that people who receive government benefits are undeserving and are little better than thieves.

Let's start with that wasteful spending. All of us who've dealt with governments (the US is certainly included and may even be worse than most) can be pretty sure it is not spending every dollar wisely. Farmers, who are currently doing well, receive massive subsidies. Corn ethanol, which is no solution for energy dependence, is not much better than gasoline for the environment, and the production of which helps drive up world food prices, received loads of government funding, too (though this was sensibly scrapped, I believe). These are just a couple examples, though I'd say the fact that they are both related to agriculture is no coincidence. Our legislature seems to be designed for inefficient and complicated outcomes due to the over-representation of states with small populations in the senate (giving it different priorities from those of the House), the filibuster, gerrymandering of the House, etc. etc. Maybe government spending would be more efficient if Congress were. But I digress.

Boortz talks about the US Government backing dictators with foreign aid, funding stupid research, and paying for artists whose work no one wants to buy. The first argument is a bald-faced lie (or at least a tactical misrepresentation), and I simply cannot believe he doesn't know this. Dictators have received more support in defense spending and favorable weapons deals than with "liberal" foreign aid, spending  for which accounts for around a paltry 1% of the federal budget (and thus only about 0.18% of the US's overall GDP, see link).

But what about all that frivolous research? As someone who has seen the process of applying for funding first-hand (albeit in the UK and not the US, but the UK, a more "social" place, is hardly going to be harsher than the US), I can tell you the idea that people are getting funding for all kinds of ridiculous things is laughable. There are review panels for this sort of thing, and any researcher applying for funding must show that the research is new, that the results will have a large benefit, and that the research provides good value for money (i.e. there isn't a simpler and cheaper way to reap similar benefits).

Government-funded research lead to such creations as the Internet, which has revolutionized the way the world stays in touch and does business, and the Human Genome Project, whose benefits to health and research cannot yet fully be known but which are already showing great promise. This sort of high-risk research that only occasionally brings extremely high rewards benefit lots of people. The economic benefits generally do not come back solely to those who engage in the research, making this sort of work unattractive to private companies. "Unattractive to private companies" does not, by any stretch of the imagination, equate to "not worth it," as just these two examples ought to show. Should we perform stringent tests on funding to determine who should get awards? Absolutely. Should we concentrate only on ones that will bring definite economic returns for the "investors"? Absolutely not.

Finally, those awful artists. I suspect Boortz is annoyed with the National Endowment for the Arts (NEA). It funds "projects exhibiting artistic excellence." That means it's REALLY hard to get funding. And there isn't much funding to get: It's 2011 annual budget was just under $154.7 million. That may sound like a lot, but consider that the entire US federal budget for 2011 was $3,598,000 million (that's right: take the NEA's budget and multiply it by nearly 23,258!!!)! You might also consider the number of billionaires living in the US and note that the NEA's funding is likely to be less than 10% of any individual billionaire's net worth. Just to put things into perspective. For a final perspective: The US Government spent $227,000 million just paying interest on debts it had incurred previously. What's more likely to be bothering Boortz is the NEA's funding, from time-to-time, of art that conservatives don't like. (Wikipedia was my, admittedly somewhat unprofessional, source for all information in this paragraph.) If that's the issue, say so, rather than attacking "hippie artists" no one cares about.

So the government doesn't really waste as much as many seem to think (even if you consider measly spending on the arts and foreign aid a waste (the latter can be a helpful foreign policy tool as well)). But social security, medicaid, and medicare together make up about 43% of the federal budget, and I believe states pitch in some money for healthcare, too. Unemployment benefits come on top of that. That means something like 50% of spending is on so-called "entitlements." Boortz argues you're not entitled. "That bum sitting on a heating grate, smelling like a wharf rat? He's there by choice. He is there because of the sum total of the choices he has made in his life."

This is where the real problem is. Is it annoying to watch people constantly screw up and then ask us to bail them out? Sure it is. But there are two problems with this line of reasoning, and I'm sure Boortz is aware of this but just does not wish to accept it: That homeless guy is not receiving government money, and our lives are more than the sum total of our choices. Boortz is a successful guy. He points out that "nobody really wants to accept the blame for his or her position in life." The thing is, the opposite seems to be true for credit. Boortz believes he is successful because he is just so damn awesome. If he had been born in the vacuum of space, he undoubtedly would be at least as successful as he is now. After all, no hand-out receiving freeloaders would have taken his hard-earned money to line their own pockets. It was just his good choices. Just as it is always bad choices that make people poor.

Is there personal responsibility? Absolutely, and philosophizing to the point where we question free will would cause society to collapse because the justice system could not function. People must take responsibility for their choices. But this only goes so far. What about the girl born into a poor family? What choice does she have? Can she choose to go the worst school in town? Can she choose to walk past drug dealers and gangs on her way home? Can she choose to do her homework by herself because her single father has to work long hours to pay rent and put food on the table? Is it any wonder that her teachers, who have long ago given up, partly out of fear of their own students, are not able to bring her to the next level? Maybe Boortz, who was born with an infinitely strong will and determination to succeed, which I guess had nothing to do with luck at all, would have thrived anyway. After all, some people do. That's the American Dream.

But how many actually do? The American Dream, it seems, is more of a reality in Scandinavia than in America. One very important factor correlated with economic success in later life in America (and Britain) is how much your parents earn. In Scandinavia and Canada (Germany's pretty good, too), this is much less important, meaning that more poor kids grow up to be wealthy and middle-class adults than in America. At the same time, more rich people move down the scale in Scandinavia than do in America. Are rich Scandinavians choosing to be poor more often than rich Americans? Obviously, the system makes a difference. The condition the American Dream requires is equality of opportunity (NOT equality of outcomes!). Everyone cannot and should not earn the same. It is also hard to see how everyone could be given the same opportunities in life. Surely it is rich parents' right to send their kids to private schools. The fact is, though, that opportunities in America are nowhere near equal. In fact, they're not even decent for the poorest 20%. (Source)

Boortz's attack on liberals' compassion for those undeserving of successful people's money is disingenuous. It is nice to be alleviated of the feeling of moral responsibility for those around us who are suffering. Unfortunately, though, we are all responsible for the government system we have helped to create, the same system that makes it extremely difficult for around 20% of the US population to get ahead in life. This doesn't mean the end of personal responsibility. On the contrary, we are ALL personally responsible for this sad state of affairs and the slow death of the American Dream. Do something about it. Do not let superficially plausible arguments convince you and your friends that people are rich because they deserve to be and poor for the same reason and that we should therefore cut off the poor leaches and leave them to their own devices. That's not just a lack of compassion, but the sort of lack of foresight that has brought down arrogant ruling classes throughout the centuries.