Foreign Dispatches

Japan's Mythical Lost Decade

Upon returning from my month-long trip to Japan last year, I noted that the state of the country as evidenced by what I saw was very far from matching the impression one gathers reading about the Japanese economy from afar. The public facilities were as immaculate as ever, the streets remained utterly safe, people were as well-dressed as I'd ever seen them (i.e., much better dressed than the average Londoner or Berliner), and all of the young people seemed to be carrying the same sorts of technotoys which are popular in Europe and the United States: in short, in the course of my travels from Tokyo to Kyoto, Kobe, Tokushima and Nara, nothing I saw gelled in the least with the incessant stories of Japanese stagnation I'd encountered in the Western press. Issues of space aside, I could not find any evidence to support a belief that the Japanese standard of living was lagging behind that of the average Western European in the slightest - on the contrary, the very opposite seemed to me to be true.

China's Real Estate Bubble

As is obvious to everyone by now, much of the Western world suffered from a real-estate bubble over the last decade, and the consequences of the bursting of said bubble are still with us today in the form of low-growth; it isn't out of the question that the malaise of slow-growth which accompanied the bursting of Japan's bubble at the end of the 1980s might also now plague much of the West for a long-time going forward, especially given the need to reduce public debt. Still, for all of the above, the problems in Europe and America seem readily manageable when compared with the scale of the bubble that has arisen in China, as Nourel Roubini explains.

China's real-estate bubble can seem like an abstract problem of economic theory when put across in polite conversation as in the video above, but the following video should bring home just how massive the misallocation of resources has been.

The Chinese government may hold vast quantities of foreign reserves, but given the scale of bad debt which is building up within the country, and the lack of political legitimacy of the government which has allowed it to happen, even $2.5 trillion will likely prove insufficient to staunch the upsurge of discontent which will occur when this bubble bursts - and burst it will, as they always do.

The Folly of European Monetary Union

It's hardly ever the case that I agree with Paul Krugman about anything, but the subject of the Euro is one such rare instance.

Lately, financial news has been dominated by reports from Greece and other nations on the European periphery [...] I’ve been troubled by reporting that focuses almost exclusively on European debts and deficits, conveying the impression that it’s all about government profligacy [...] For the truth is that lack of fiscal discipline isn’t the whole, or even the main, source of Europe’s troubles [...] No, the real story behind the euromess lies not in the profligacy of politicians but in the arrogance of elites — specifically, the policy elites who pushed Europe into adopting a single currency well before the continent was ready for such an experiment.

Whatever Happened to Peak Oil?

It's been nearly two-and-a-half years now since I wrote this piece on why "Peak Oil" was just so much nonsense being peddled by paranoid, market-hating crackpots, and with oil prices now close to their lowest level in more than 5 years - going from a high of more than $140/barrel in July 2008 to $44/barrel as of today - it should now be abundantly clear that my analysis from 2005 was correct.

Bailouts for All!

If Congress is intent on giving handouts of taxpayer money to everyone who comes begging, why not give $5 billion to Larry Flynt and Joe Francis while they're at it? Pornographers have to eat too!

Disaster Looms in Eastern Europe

If anyone was of the belief that the recent bank bailouts across much of the Western world had put a stop to the crisis besetting the world's financial system, now would be a good time to put such notions aside. As both the Daily Telegraph and the Economist are reporting, Western Europe's banks have done a truly stupendous amount of lending in both the former Eastern European states and in Asia, and now the threat looms of extreme economic damage as all those old loans begin to be called in with few new ones being offered in their place. It may shock many in the United States who assume that American banks were poorly regulated to realize that their European counterparts have managed to cook up a crisis big enough to make the US sub-prime crisis look like a fuss over trifles.

Time to Blame the Usual Suspects

As my main difficulty nowadays is fitting all of the things I'd like to do into the limited free time available to me, keeping abreast of all the latest trends in conspiracy-mongering understandably ranks very low on my list of priorities. As such, it was only by accident that I wandered upon this article in Die Welt, explaining how the recent credit crisis had given rise to a boom in crackpot theories which put the blame for the crisis on the supposed machinations of ... well, paranoid types aren't exactly known for their originality, so I think the scapegoats should already be obvious.

Es gibt da einen "sehr ernsten Aspekt der gegenwärtigen Finanzkrise", über den niemand sprechen wolle. Nicht die Wirtschaftswissenschafter, nicht die Medien und ganz sicher nicht die ängstlichen Politiker. So beginnt eine am 3. Oktober im Internet verbreitete Mitteilung eines anonymen Autors, der sich selbst als "Stimme des Weißen Hauses" bezeichnet. Es gehe um "riesige Mengen Geld", die von verschiedenen amerikanischen Instituten in "sichere Gebiete" ausgelagert würden.

Paul Krugman Wins the Nobel Prize!

Read about it in this AP bulletin.

STOCKHOLM, Sweden (AP) — The Royal Swedish Academy of Sciences says that American Paul Krugman has won the Nobel economics prize "for his analysis of trade patterns and location of economic activity."

I expect there'll now be lots of muttering from the right about how this isn't a "real Nobel" anyway, while those on the left who used to say the same with respect to Hayek and Friedman will now suddenly go quiet ...

PS: Here is the official press release explaining the grounds upon which the prize was awarded.

Better Indices of Financial Sentiment

One very striking feature of much of the reporting on the ongoing financial crisis, especially in America, is the emphasis which is being placed on the performance of the Dow Jones Industrial Average; I say that this is striking because if there's one thing any journalist who's been through Finance 101 should know, it is that the Dow Jones is an extremely narrow and unrepresentative collection of stocks which don't necessarily tell one very much about the state of the broader market as a whole.

"Bling Bling" is Low Class

For the life of me, I've never understood the hunger on the part of many people for visible status markers like designer clothes, Rolexes, sports cars and so forth, let alone the gold chains and diamond teeth beloved by rappers: such accouterments have always struck me as marks of vulgarity and - at best - money so new in the hands of those who own it that their taste has yet to start to catch up. Why, say, would anyone in his or her right mind willingly want to look like a pimp or streetwalker in a Versace outfit, or declaring oneself a mindless clone by wearing Abercrombie & Fitch clothing? What's the point of buying a Ferrari which will never go faster than 60 mph?

Fortunately for me, Virginia Postrel has now provided a convincing explanation for why people spend their money in such a manner, the net upshot of which is that my prior intuition was correct: "bling bling" really is a marker of either very recent affluence or (more usually) a financially ruinous pretence to affluence on the part of those partial to it, and the more established and secure one's prosperity tends to be, the less psychologically driven one needs to announce it to the world in as conspicuous a fashion as possible. Ostentation is for the stupid and insecure, and my contempt for all the Gucci-worshipping, Ralph-Lauren patronizing, Prada-flaunting parvenus is eminently well-deserved.

PS: As I really should have expected, Virginia Postrel's article was anticipated by The Onion some years ago ...