Archive for year: 2017

We had just returned to campus from the Christmas holiday during our sophomore year of college when it happened. We were playing in a pick-up basketball game in the university’s main gym and our team kept winning so we kept playing, taking on all comers on the court. We were getting tired and a little post holiday celebration the night before surely did not help. We went up for a rebound and landed on one of our opponent’s two left feet. And this was when our kneecap dislocated. Now it was certainly painful but the thing we most remember is two guys sitting on the sideline screaming, “Look at his $#%ing knee, look at his $#%ing knee.” Even granting that a knee sticking out an unnatural angle would surely trigger their alarm, we were scared enough without their added hysterics. The kneecap soon moved back into the correct position, which was nice, our knee swelled up and we commenced to having a “bad knee” for the rest of our life, which for many years didn’t stop us from playing lots more basketball and other high impact sports. But it does mean even at our tenderly young age, next week we are getting knee replacement surgery. Earlier this week, our surgeon emailed to inform us to “expect extreme pain for two to three weeks.” We equate such a message to the one screamed by the two guys on the sidelines those many years ago, though we will not inform the surgeon of our judgment ’til after the surgery. So, this will be the last INTN of 2017 as we’re guessing opioid-fueled international stories may not be the best ones. But we hope to return on January 4th (or the 11th at the latest) with everything you need to know about the world. Still, this week we bring a dose of authoritarian economies, check up on the reverse Flynn Effect and do an MRI on China’s virtual singing sensation. It’s this week’s International Need to Know, wishing you and yours a healthy and happy holidays.

Without further ado, here’s what you need to know.

Trickling Down to Authoritarians

As we have noted before, democracy is not as popular around the world as it once was. And as people such as Tyler Cowen point out, this is partly because of the economic success of China and other authoritarian regimes. The Philippines is another example. President Duterte is a less than savory character with a waterboard load of human rights problems. But the Philippine economy is doing as well as it has in the last 30 years. The country is on pace to have the 10th-fastest growing economy in the world, according to the World Bank, with GDP growth of around 7 percent. Its debt to GDP level is decreasing, non-performing loans down to 1.8% and its inflation rate at a reasonable 3.3%. The World Bank notes that fiscal expansion has “boosted capital formation and private consumption.” Unlike many Asian economies, currently the Philippines’ economic growth is being built on domestic demand even as its exports grow. The world is cyclical and as long as authoritarian governments are in an economic up cycle, liberal democracies’ brand will suffer. But someday, perhaps sooner than their rulers think, their economies will spin into less favorable waters, washing ashore challenging political flotsam and jetsam.

Out Like Flynn?

If you watch the news, scan through Facebook or read your Twitter feed, it would be very easy to come to the conclusion that we humans are becoming dumber. And, there is indeed evidence this is so! At least in some places, where there is an anti-Flynn Effect taking place. You may remember that the “Flynn Effect” is a phenomenon where IQ scores have been rising with each successive generation, at least since 1930, when such standardized testing began. There may actually be a reason that children think their parents are idiots. Comparatively, they are. But, now a new paper asserts the Flynn Effect is in reverse in a number of countries, including all the Scandinavian countries, Britain and Germany (Germans are actually better at verbal parts of these tests but are doing worse on spatial). But if you are about to say, “Aha, this explains politics in America,” actually U.S. IQ test scores continue to increase. Korea is not going in reverse either. In fact, the study states South Korea “is gaining at twice the historic U.S. rate.” The beginning of the reversal appears, according to the study, to date to 1995. Hmm, what really started to take off around the world in 1995?

Virtual Singer Killed the Video Star…

It has come to our attention, much later than one would hope, that there is a virtual music star in China named Luo Tianyi. Such a creature, we learned, is called a “vocaloid”, i.e. a “singing voice synthesizer.” It is unsurprising that such a digital creature was created by a Japanese company, the place of origin of so much kawaii (lovable, cute) culture, but it is both a bit surprising and hope inducing that Japan and China collaborated on this pop culture project. An article in The Global Times–the People’s Daily’s tabloid–notes that Luo Tianyi has come to “special attention from the Communist Youth League of China (CYLC) and other governmental organizations, who try to instill correct thinking into the younger generation with her singing.”  Nothing speaks to young people like governmental organizations promoting the right way to think. As CYLC states in an article on the mobile platform WeChat, “Although CYLC is 95-years-old, our heart is always with you, the young people.” And we can’t think of a better way to leave 2017 than with Luo Tianyi, singing “In the Center of the Peculiar Storm.” See you next year.

【洛天依】Luo Tianyi – 在異樣的風暴中心 In the Centre of t…
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Last year for a client we interviewed a variety of small companies regarding their challenges and opportunities in doing business. It was remarkable how many of them commented on the difficulties they faced in competing with large companies. And not natural differences stemming from economies of scale but rather from rent seeking that has been unfairly built into our regulatory and legal systems. So we recently read with interest and focus the most important book of 2017, The Captured Economy: How the powerful enrich themselves, slow down growth and increase inequality* by the libertarian leaning economist Brink Lindsey and the politically liberal Steve Teles (theirs is not a partisan treatise, both parties are guilty in not addressing the central problems outlined in the book). The Captured Economy details–using data, case studies and anecdotes–how rent seeking is out of control in the United States, at all levels of government–federal, state and local. It explains how and why the finance industry has become too large a part of our economy, why doctors, lawyers and dentists are so expensive and why it costs too much to buy a house or rent an apartment. It explains how rent seeking is a large reason for the increasing income inequality in our country. One hopes political leaders of all stripes, at all levels of government, will read the book, absorb its lessons and apply them. We hope you, dear readers (some of whom are political leaders yourselves) will too. The issues and solutions outlined in this book are among the top four most important facing our country. So even as we work to become part of the one percent without the benefit of rent seeking, we present more information on automations effect around the world, examine restrictions on social media globally and continue our efforts to remind people of good news. It’s this week’s International Need to Know, switching the channel from CBS Morning News to the Today Show–er, uh, turning on the radio to NPR–oh crap, we give up.

*Our PhD thesis is an examination of the steady lengthening of book’s subtitles.**

**The subtitle of our thesis is too long to print here.

Without further ado, here’s what you need to know.

Automations Effect Around the World

Last week we linked to a report predicting that in 40 years all jobs will be taken over by robots. Perhaps, but even if this does not occur, continued automation of certain jobs will take place over the coming years. Which countries will be most effected? McKinsey attempts to quantify this in an update to an earlier report on automation. It states that China is at risk for the most people losing jobs to automation between now and 2030 with 102 million Chinese workers predicted to lose jobs to automation during that time period. But that’s partly a function of China’s size. When looking at percentage of workforce, Japan sees the largest job loss, followed by Germany and the U.S. Japan is at risk of 46% of their workforce losing jobs to automation. This is a startling number but salved somewhat by the fact that Japan’s overall workforce is shrinking due to aging demographics. McKinsey speculates that with new job category creations, Japan may not suffer as badly as that 46% figure indicates. Nonetheless, unless automation creates huge increases in productivity (GDP, as we have noted before, increases only through growth of working age population and increases in productivity), Japan is likely to continue to have slow GDP growth. And most countries will face economic adjustments due to automation over the next decade.

The Freedom of Social Media

So we confess: We miss the golden age of blogs and mourn the advent of social media. We are no Luddite but we wonder if social media, so far, is a net negative for humanity. Nonetheless, we also take note of where social media is free and where it is heavily governed, via a new report from Freedom House.  According to the freedom monitoring organization, “Online content manipulation contributed to a seventh consecutive year of overall decline in internet freedom, along with a rise in disruptions to mobile internet service and increases in physical and technical attacks on human rights defenders and independent media.” Freedom House notes, of course, Russia’s efforts at information manipulation, including in the U.S. election, but also reports that the number of governments attempting to manipulate information online has steadily increased since they began monitoring the phenomenon in 2009. “Venezuela, the Philippines, and Turkey were among 30 countries where governments were found to employ armies of ‘opinion shapers’ to spread government views, drive particular agendas, and counter government critics on social media.” The attacks are not all virtual: “The number of countries that featured physical reprisals for online speech increased by 50 percent over the past year–from 20 to 30 of the countries assessed.”There’s a reason why free speech is the first amendment.

Good News Corner

In our continuing attempts to remind ourselves that the world is on the whole continuing to get better (despite the news in the two previous stories!), we point to the latest data on child mortality estimates from the World Bank released earlier this week. This data shows that “between 1990 and 2016, the global under-five mortality rate dropped by 56 percent.” Not too shabby. In fact, the last decade has seen more progress in decreasing child mortality than the previous decade. We are doing better and better. Of course, there is more work to do as still even now 15,000 children die every day. And some places are doing better than others. More than 80 percent of global under-five deaths occur in just two regions–Sub-Saharan Africa and South Asia. The second chart below shows the countries with the highest child mortality rates–Somalia tops the dubious list–and those with the lowest–Iceland!  But even admitting there is more work to do, we should note our darn good progress.

 

   

When someone mentions cutting edge, daring television, the first thought that comes to your mind is probably some dark show on HBO, or a drug drama on FX or a sex comedy on Showtime. But we submit to you that the most daring television show is currently on one of the traditional three networks. It’s The Good Place, which is not particularly dark and has very little sex and violence. But it’s far more daring and cutting edge in both its content and approach than any of the current prestige shows on premium cable. The Good Place stars Ted Danson and Kristen Bell (who will always be Veronica Mars to us) and tackles intelligently and with humor ethics, philosophy and our place in the universe. There simply is no other show on TV like it. We submit it is far more daring and cutting edge to produce a television show tackling existential issues (in a fun and entertaining way) than to make yet another anti-hero, there is no hope viewpoint, violent program. So even as we contemplate the trolley problem, we turn from our role as TV critic to international scribe as we write about what Asia thinks of China, a big advance in AI and the changing of the billionaire guards. It’s this week’s International Need to Know, unindicted but conspiring to bring you important news and data from around the world. (Note: Next week we are in our beloved New Orleans eating alligator cheesecake at Jacque-Imo’s, drinking Pimms Cups at Napoleons and watching the Rebirth at the Maple Leaf–INTN will return Nov 16th)

Without further ado, here’s what you need to know.

What Asia Thinks About China

Despite the perhaps sage advice not to worry what others think about you, as China’s Party Congress ended, Pew Global reminds us of what the rest of Asia’s views of China are. The results are mixed. In terms of the “effects of China’s growing economy,” Australians are quite positive that China’s growth is beneficial for them, with 70 percent saying it’s a good thing. As well they would since Australia’s economy booms when China buys their commodities. Vietnam and India are less sanguine about China’s economic growth (see chart below). China’s growing economy is divisive but its growing military unites Asia with all countries seeing it as a bad thing. Unsurprisingly, South Koreans, Japanese and Vietnamese are most concerned. Those three countries are also most vociferous when asked whether “China’s power and influence is a threat” to their countries. But interestingly, South Koreans are far more concerned about this than Japanese. The Vietnamese too. But all these countries view China at least a little worriedly when asked this question. There is also not a huge amount of confidence in President Xi “to do the right thing regarding world affairs” as you see in the chart below. But Pew also notes that “in two U.S. treaty-allies in the region, Australia and South Korea, people have more confidence in Xi than in Trump.” We are confident such views are having an impact on the world order. 

Who’s the Brains of this Operation?

It’s been quite a month for artificial intelligence research. Alphabet announced its new Alpha Go Zero computer beat Alpha Go (which last year easily defeated the best human Go player in the world) 100 games to 1. It did so by teaching itself how to play the game, not by just crunching data. This is both remarkable and a little unsettling. But as we reported a couple weeks ago, China has made rapid progress in the AI sphere and is now also creating one of the largest efforts in the world to map the human brain. Located in Suzhou, the lab, which is a collaboration of government funding and Huazhong University of Science and Technology, hopes within three years to be the largest high-resolution brain mapping center in the world. Currently operating at one-fifth capacity, the lab maps five mouse brains a day, up from one mouse brain every 50 days in 2010. Within five years, they hope to start mapping human brains. Ironically, perhaps by the time we understand the human brain, it will no longer be the strongest intelligence on the planet. Meanwhile, Reuters reports that “Bank of Japan Governor Haruhiko Kuroda on Tuesday brushed off the notion that researchers can use artificial intelligence to analyze his facial expressions and predict changes in monetary policy.” It seems that both Microsoft and Nomura Securities are using software to analyze Kuroda’s facial expressions and predict future Japanese Central Bank policy: “Kuroda’s face shows signs of a policy change about six or seven weeks before the central bank’s board actually decided to adjust policy.” We are either all doomed or going to have become very adept at playing poker.

What’s in a Brain? The Lab in China That Want…0 likes13 views

Billionaire Changing Guards

F. Scott Fitzgerald, polishing his ironic quote on the wealthy with the ultimate dab of the clothes brush, once wrote, “The rich are different than you and me, they have more money” (any billionaire INTN readers are encouraged to contribute to our coffers to make us more alike). This year billionaires have more money than last, $6 trillion up from $5.1 trillion. And, to bury the lede, for the first time there are more billionaires in Asia than in the U.S, 637 to 563. Yes, over the last year the number of Asian billionaires rose by 117, whereas only 25 Americans climbed that wealth mountain. But do not look down-in-the-mouth American ultra-wealthy, your overall wealth still tops Asian billionaires, $2.8 trillion to $2 trillion. China, of course, is a big reason for Asia overtaking America, adding 67 billionaires with India chipping in another 16. Check out the progression below.

When I moved to Seattle from Washington, D.C. many years ago, I became friends with a guy who had recently moved to Seattle from Hollywood. Naturally we exchanged stories of our respective experiences in the industries of politics and entertainment. I had a thin magazine of salacious stories of bad behavior by elected officials and their staff. A bartender told me of a drunk Ted Kennedy’s boorish behavior in his bar, Chuck Schumer’s staff detailed his screaming fits and abusive language, and I knew one of the (many) women who Oregon Senator Bob Packwood harassed. Most of my stories, however, were of men and women working conscientiously for the public good. But my friend from Hollywood? He had Dickens sized volumes of tales of viciousness, brutish behavior and the general craziness of Hollywood executives and their enablers. These were stories of people treating other people in the most horrible ways. I came to the realization that the only industry more vicious and cut-throat than politics was Hollywood. This week, both appear to be in a desperate race to the groping bottom. But today we shift our eyes towards more important matters and analyze China from three perspectives: the world economy’s increasing reliance on it, its leadership grasping at a new way to conduct central planning, and its progress in artificial intelligence. It’s this week’s International Need to Know, the source of international information for men and women of all levels of IQ.

Without further ado, here’s what you need to know.

Help Me Obi Wan

Last week we detailed positive economic growth in the global economy, with nearly every market currently seeing increases in their GDP. We also noted that what goes up will eventually go down and the risks of a synced world economy is there could be a simultaneous swan dive in our future. Which brings us to the increasingly prominent role China plays in the global economy. Shaghil Ahmed of the Federal Reserve Board recently detailed China’s growing importance, its opportunities, its risks, and what would happen to other economies if China runs into economic trouble. In regards to the last point, Ahmed notes that “if China went into a crisis, which admittedly is a tail risk, the effects around the globe would be substantial…aggregate emerging economies would drop 4 percent below the baseline, roughly equivalent to what transpired in the Mexican 1994-95 crisis.” Advanced economies would suffer too, with Ahmed estimating a 3 percent decrease in GDP growth. Even the U.S. would see growth reduced to 1 percent in Ahmed’s models. Ahmed’s is a fascinating, if complicated paper, and I urge you all to check it out. Ahmed does not expect a China economic crisis but the world’s increasingly intricate ties to the Chinese economy are why people worry over Chinese debt levels, liquidity and other economic challenges. Which brings us to our next story: China’s central command fetish.

Digital Leninism?

A problem for those advocating for an economic system based on communism or socialism is the real world results of the past 100 years.These economic systems have repeatedly failed throughout history. But China, according to Sebastian Hellmann of the Mercator Institute for China Studies, believes successful central planning is now possible due to technology and big data. With the advent of more powerful computers and new artificial intelligence methods, Hellmann asserts that “With the help of Big Data, China’s leadership strives to eliminate the flaws of Communist systems. In the former Soviet bloc, administrative planning created a shortage economy due to a lack of price signals and reliable feedback on supply and demand. Today, a growing number of Chinese economists and technology experts believe that Big Data will fix these deficiencies of national economic co-ordination.” President Xi’s team terms this new technological central command “top-level design.” We are tempted to conjure up Hemingway’s words, “Isn’t it pretty to think so?” but it is worth wondering what AI and big data will allow in the future. Perhaps technology will allow central planning of an economy to be more efficient than markets–we doubt it but as significant progress is made in AI, our lives will change in all sorts of ways, and maybe this will be one of them. Also, China is pretty successful already with, while not a central command economy, not exactly one based on western liberal economic philosophies either. As the economist Tyler Cowen recently noted, “For the first time in my lifetime, America finally has a peer country… in terms of human talent, GDP, China right now is in most ways a peer country to the United States.” Which leads us to this week’s last story on China.

Ranking the HALs of the World

There has indeed been lots of progress in artificial intelligence in recent years with promise of more to come. For China to achieve its digital central planning dreams, their AI capabilities will need to become better yet. Interestingly three AI researchers from the Chinese Academy of Sciences (one of them is also associated with the University of Nebraska of all places) recently published a paper to evaluate where AI currently stands with human intelligence. They conducted this research to assess the risk of AI to humanity but the rankings are interesting regardless of that angle. In 2014, they developed a “standard intelligence model” that claims to allow the researchers to test IQ levels of both machine and humans in a standard way. In their rankings (see table below), machines still lag far behind humans. But three of the top four ranked machines are all Chinese based, followed by three in America (all mighty, all knowing, all invasive Google ranks first, though still behind a six-year-old). We’ve discussed China’s intense efforts in AI before. Regardless of whether AI progress allows them to accomplish central planning and/or leap to high income status, it is likely to have a large impact on China and the world one way or another.        

National anthem posture is capturing all the attention but news far more impactful for the future of American football emerged this week. Scientists now believe they can diagnose chronic traumatic encephalopathy (CTE) in living people where before one could only know that someone had the disease by doing an autopsy. But if doctors will be able to test for CTE in living football players, and if CTE is as prevalent in players as autopsy data indicates, then isn’t American football in big trouble? In the future won’t part of your teenage football players routine physical include testing for CTE? If the test indicates they have CTE, presumably the player would not be cleared to play high school football, or later college football or after that in the NFL. It’s one thing for we fans to push to the corner stories of players determined to have CTE after they die. It’s another for parents, friends, doctors, coaches and fans to confront living athletes we root for who have been diagnosed with CTE. At the least, athletes at a younger age would turn to other sports diluting the talent in football. Of course, sports such as soccer and hockey are also vulnerable to the CTE plague (ironically the fake sport of wrestling is especially prone to the real health problem of CTE). Obviously this means cricket will be the dominant sport of the future. In the meantime we take a knee to examine more closely the rural-urban divide in China, who uses tax havens the most and the emergence of renewable energy in, well, emerging economies. It’s this week’s International Need to Know taking headers for the goal of international knowledge and data.

Without further ado, here’s what you need to know.

The Rural – Urban Divide

In elections in the UK (Brexit), the U.S., Germany and elsewhere we have seen rural and urban populations vote very differently. China doesn’t have democratic elections but it too has a rural-urban divide. The massive migration from rural to urban in China helped lead to the largest reduction in poverty in world history. But even today, a large percentage of the Chinese population is rural, impoverished, and as an article in Science makes clear, has a huge education deficit. More than 70 million Chinese still live on $1 per day. That’s far fewer than 20 years ago but still a lot of people. More worrisome is the lack of education in rural communities. According to Science, “a third or more of rural kids don’t complete junior high school in China.” The article also points out that “many parents who migrate leave children behind in poverty who tend to leave school early, eat poorly and have little cognitive stimulation in the first years of their lives.” This leads to lower IQ scores among rural Chinese students. Scott Rozelle of Stanford calculates that when including “poor, neglected urban children, 400 million future working age Chinese are in danger of becoming cognitively handicapped.” And they will live in an age that will demand more mental acuity not less. China recognizes the problem and is trying to take steps to improve the situation. If they don’t succeed, they will have a challenge making the leap from mid-income country status to high income. More on this next week.

Who Uses Tax Havens the Most

You may remember a couple of years ago when the Panama Papers leaked information about offshore wealth of a variety of leaders, dictators and wealthy miscreants. A new economic paper goes beyond leaks and tries to quantify which countries’ wealthy are most prone to storing their wealth overseas. As you see in the graph below, it is a who’s who of badly run countries, corrupt countries and oil wealthy countries, in some cases all at once. The UAE, somewhat surprisingly to us, tops the list with Emiratis overseas wealth totaling over 70% of the countries GDP. Next comes that ode to socialism, Venezuela, and then everyone’s (or at least the current U.S. President’s) favorite world troublemaker, Russia. The paper estimates that overall about 10% of the world’s wealth is stored in offshore accounts. There are, of course, many sound reasons for someone to store their wealth offshore but which countries wealthy are most prone to storing their wealth outside the country can also be telling. The researchers also used this data to recalculate inequality in countries since previous research focused on tax records and it is likely the wealthy have found ways to evade such taxes, including by storing wealth offshore. They find that when including such data “Offshore wealth has a larger effect on inequality in the U.K., Spain, and France, where, by our estimates, 30%–40% of all the wealth of the 0.01% richest households is held abroad. It has dramatic implications in Russia, where the majority of wealth at the top is held outside of the country.” Technology and globalism has made capital more fluid. It’s likely we’ll see offshore wealth increase in the coming years with effects both good and bad.

Climate Continues to Improve for RenewablesDespite policy headwinds in the U.S, the climate for renewables continues to improve. Moody’s Investors Services has a new report out showing that decreasing prices for renewable energy generation, and crucially also for storage, are driving the market and propelling emerging and developing markets into the lead. The head researcher on the report, Swami Venkataraman, reports that “Emerging markets are a key market for growth in renewables, with countries such as China and India leading the charge as new renewables become competitive with other sources of power even in developing nations.” Moody’s research shows that developing countries now have total installed solar capacity of 272 GW and wind capacity of 307 GW which is 53% and 51% respectively of total world capacity. China by its sheer size but also by its aggressiveness in this sector, accounts for a big share of this capacity, but Moody’s notes that Latin America and the Middle East are both rapidly increasing their capacity. The progress in storage is perhaps most important. Venkataraman notes that “benchmarks in storage projected for 2020 have already been reached.” As we have noted before, we are headed for a cleaner world regardless of current policy debates.