Red Links, 7-31-10

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Jon BerkeleyYes, I missed last week – apologies. This week brings disappointment leavened with hope – for carbon taxes, CCT’s, and sorting out the banking system and the world economy in general. I am, however, partial to a counter-terror strategy in Afghanistan. But, maybe I should read the WikiLeaks’ trove of documents now.

  • The Rising Power of the Chinese Worker

  • Higher Chinese wages would also be good for the West. This may seem odd, given how much the rich world has come to rely on cheap Chinese labour: by one estimate, trade with China has added $1,000 a year to the pockets of every American household, thanks to cheaper goods in the country’s stores, cheaper inputs for its businesses and stiffer competition in its markets. Just as expanding the global labour force by a quarter through the addition of cheap Chinese workers helped to keep prices down in the West, so higher Chinese wages might start to export inflation. Furthermore, from the point of view of the global economy, labour is a resource, like land or oil. It would not normally benefit from the dwindling of China’s reserves of labour any more than from the drying up of Saudi wells.

  • Give the Poor Money

  • Governments tend to treat [Conditional Cash Transfer Programs]CCTs as a panacea. They imagine that, if they don’t have one, all they need to do is introduce it; if they do, they have sorted out the problems of social protection. A few have woken up to their limitations, and are thinking about the next generation of programmes, which might require children who are about to leave school to go for vocational training in exchange for continuing to receive the stipend, or encouraging cities to add an urban top-up to the nationwide scheme, perhaps paid for by the municipal authority. The more that follow, the better. CCTs are a good start. But they are only a start.

  • Don’t Go Back

  • Just now, Afghanistan needs foreign troops to undertake COIN. In a few years newly trained Afghan forces may be able to take over the job. Meanwhile, development and diplomacy are needed to reform the frustratingly poor Afghan government. It is not pretty and there is no guarantee that it can be done before voters lose patience, if ever. But it looks less ugly and less dangerous than the Afghanistan found in WikiLeaks’ War Diary.

  • Capped

  • Now that cap and trade has proved unacceptable, expect a swing back towards carbon taxes in policy circles. During a wholesale revision of the tax code they might yet have their day. But expect, too, that the country’s emissions will come down only slowly; and that the world’s will continue to rise.

  • More Stress Ahead

  • Some firms are still being stigmatised, and have to borrow from the ECB even as American rivals have been weaned off public money. The unspoken assumption of the regulators’ stress tests, the results of which were announced on July 23rd, is that this is due to “one-off” problems: the risk that some governments in the euro zone might go bust and the perception that the murkier bits of the system, particularly unlisted banks in Spain and Germany, are hiding their risks. If reassured that banks have enough capital and are not fibbing, the logic goes, investors will start lending freely to them again. After all, the stress tests in America in 2009 helped restore confidence there.

    Judged on this basis, the tests get half marks. They do not prove that banks could withstand another severe shock. The worst-case scenario envisions that banks’ capital ratio falls by only one percentage point, to 9%. Yet typically banking crises eat up some four percentage points in net losses; America’s tests assumed a three-point hit over two years. On the plus side, the tests have at least led to lots of new disclosure, which should reassure investors that there are no ticking bombs at individual firms.

Filed under: Business/Economy, East Asia, Globalization, Quick Posts, Subscriptions Tagged: afghanistan, banking, basle 3, cap and trade, carbon taz, cct, china, climate change, prc, the economist, wikileaks


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