Archive for year: 2017

Trickling Down to Authoritarians, Out Like Flynn, Virtual Singer Killed the Video Star

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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Chinese Wages, State of Carbon & is Life Better or Worse?

We’ve long wondered how cats planned to subvert humankind and complete their take over of the world. They’ve made a good start by conning us into feeding them, massaging them and playing with them with fake mice and feathers attached to sticks at their whim. But now they are fully implementing their devious and cruel plan with the game, CryptoKitties, which was released on November 28th on one of the more popular blockchain cryptocurrencies, Ethereum (second largest after Bitcoin). The game, which involves the trading and breeding of virtual cats, has seen $6.6 million spent on these felines since its launch. The average cat costs $130. However, the most expensive virtual feline went for $117,712. The Engineering and Technology website reports that the creation of new virtual cats will cease–the spaying and neutering of the cryptocurrency–next November to “prevent runaway inflation.” The inevitable backlash has begun, however, leading to perhaps the greatest headline of the year: “Service dog causes chaos at ‘Cats’ performance.” Yes, a service dog escaped its owner during the performance, rushed the stage and attacked one of the performers pretending to be a cat. A spokesperson for the musical told the New York Post that “in the storied history of ‘Cats’, this is the first time one of the actual cats was involved in an incident with a dog.” We are unsurprised that 2017, this year that has seen so much chaos and nonsense, would mark the beginning of the great cat uprising, and a rebellion against it. Meanwhile, as we attempt to monetize our two cats before November 2018, we examine the complexities that are China, look at the state of CO2 emissions and ask who thinks the world is better than fifty years ago. It’s this week’s International Need to Know, loyally like a dog bringing international news and data to you right to  your lap.

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

Chinese Wages, SOEs & Translation

The tyranny of narrative is strong with China. Too many analysts want to tell one story–China is either an economy prepared to fall apart or an unstoppable machine. It is a land of copycats (ah, even in China the felines rise) or a hive of innovation. It is working to fill the leadership gap left by the U.S. vacuum or is an authoritarian state setting a bad example for international trade and investment norms. If we were more accurate and honest in our test giving on any issue, including China, “All of the above” should be the most frequent answer. So we turn to a few different aspects of China as we head to towards the end of the year. First, is an interesting article in the South China Morning Post claiming that wages are falling in China save for a few professions: “monthly salaries dropped 16 per cent to 4,014 yuan this year, according to the recruitment website” The article also notes that nearly 8 million students will graduate university this summer (the population of Switzerland), and these students continue to be attracted to first tier cities such as Beijing and Shanghai (where housing costs continue to increase). At the same time, one of the professions where wages continue to increase in China is in artificial intelligence, a sector we have noted previously China is betting big on. The UK website The Register notes how important real time translation, powered by progress in AI, is to China. “While it looks to foreigners like a monolithic language and culture, Chinese encompasses a range of generally-not-mutually-intelligible dialects.” The article asserts that AI-powered language translation is thus even more important to China. China’s complexity will drive its innovation, but its political system and regulation of the Internet may retard that innovation, its GDP may grow, but its society struggles with inequality. It’s a complex place.

State of Carbon

We have talked in this space about the possibility of peak oil usage and expressed some optimism, despite challenging U.S. politics around the issue, that progress will continue to be made in reducing climate change emissions. So in the interest of full disclosure we feel obligated to report that after three years of remaining flat, CO2 emissions will likely increase 2 percent by the end of this year over 2016, according to the Global Carbon Project. The developing world is the main reason for the increase, especially China’s increased use of coal in the last year. But there is still reason for hope. For example, as you see in the second chart below, the UK has decreased its carbon intensity (the amount of carbon released per energy generated) by 56% since 2013 (Carbexit is better than Brexit). On a larger scale, solar energy, as we first noted nearly two years ago, is on a Moore’s Law path with the amount of solar generation nearly doubling every two years (see third chart below). Pessimists note that even though the amount of solar energy generated is increasing, so too is the amount of energy consumption. But neither consumption, nor emissions, are increasing at anywhere close to the rate of the increase of clean energy generation. We expect within fifteen years that C02 emissions will have indeed peaked. This is likely too late to avoid very challenging effects from climate change but still better than what could have been.


Is Life Better or Worse?

Is life better or worse in your country than it was fifty years ago? An intriguing question that the folks at Pew Global asked of “nearly 43,000 people in 38 countries” this year. Somewhat depressingly, barely over half of the countries populations reported life is better than it was fifty years ago with 20 countries saying it is better, 18 that it is worse. Of those 18 claiming life is worse today, we would estimate that perhaps only four can legitimately have that view. But it’s good to see through the dark tinted glasses that many view the world through. It is important to recognize the despair many feel. On the other side, Vietnamese top the list of those who think life is better today than 50 years ago with 88% of the population believing so. They are followed by India, South Korea, Japan and Germany, all of whom are very right to think things are better now. For example, in 1967, real GDP per capita in South Korea was about the same as North Korea’s. Let’s hope in 2067, when the world is ruled by machines,  most people will think life is better than today.


Automation’s Effect, Social Media and Good News

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.


Rise of the Robots, Brexiting the UK, Sexual Violence Stats

New Orleans continues to be the greatest city in the world (and we’ve seen lots of world cities to compare it to) even though like most cities today the finely manicured claws of gentrification are rooting out some of the creative messiness that makes it great. Nearly every one of our Uber, Lyft and taxi drivers–many of whom are musicians, Mardi Gras Indians and other creative types–told us they now live outside the city (more evidence for our theory that suburbs are going to be more interesting than urban cores). But not even gentrification can completely destroy the glorious soul of the Crescent City. Only in New Orleans would we be able to enjoy an extraordinary concert experience on a random Tuesday night in November. After basking in the sounds of a young brass band busking on the street (the future is in good hands), we walked by a club and heard a band laying down a groove so deep and heavy George Clinton beamed happily on the Mothership. So we popped into the Blue Nile, not even paying a cover charge, and listened to Water Seed tear the house down. Until recently, the band members were Katrina refugees living in Atlanta, now they have returned triumphantly to New Orleans. As we advise you to check Water Seed out, we get down on the rise of the robots, boogie to brexiting the UK and try not to go into a funk about sexual violence data. It’s this week’s International Need to Know, the second line of international news and data. (Note: we’ll be making our world famous stuffing next week for Thanksgiving, back on November 30th)

(Never more proud to be a math major: Video gets good at 1:00)

Water Seed performing Arithmetic @ World Cafe…
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Without further ado, here’s what you need to know.

Rise of the Robots

On our flight back from New Orleans we read a sobering article that claims in 40 years robots will take over all jobs. This led us to read with interest the 2017 Industrial Robots report from the International Federation of Robotics. It turns out that last year robotic sales reached a new peak with a 16% increase to nearly 300,000 units. The automotive industry continues to be the largest consumer of robotics followed by the electronics sector. Interestingly, the beverage industry is also seeing a large increase in the use of robotics. Unsurprisingly, given its role in final assembly, Asia is by far the largest purchaser of robots, with nearly four times more than either Europe or the Americas. And, of course, China accounted for nearly a third of all robot sales last year. The top five purchasers of robots are China, Korea, Japan, the U.S. and Germany. Mexico, starting from a relatively low base, is rapidly increasing its use of robots, which should be no surprise given its increased prominence in the automotive manufacturing industry (we need to re-negotiate NAFTA because all our jobs are going to Mexican robots, or, uh, something like that). According to the report, around the world there are now “74 industrial robots installed per 10,000 employees in the manufacturing industry.” South Korea has by far the highest concentration of robots with 631 industrial robots per 10,000 employees. We are a long way from robots doing all work but the report does note that one robotic trend is “smarter” robots, often connected to the cloud–as they become smarter, robots will indeed be able to do more of our jobs. But we must ask: when robots take over will a robot be the executive director of the International Federation of Robots?

Brexiting the U.K.

So what is happening to the UK as it continues to take a long, slow walk off a Brexit cliff? The economy has not cratered but there are many worrying signs as are evident from an economic survey by the Organization of Economic Cooperation and Development (OECD). The UK’s economy is growing but at a much lower rate than the EU’s or other developed economies, per the first chart below.  More ominous, labor productivity has stalled, as you see in the second chart. Net migration to the UK is falling which is apparently what Brexit boosters want but we always believe that people not wanting to come to your country is a bad sign of economic and political health. London, which by a large majority voted against Brexit, continues to spend on infrastructure, much of it from UK funds. But, as you see in the chart below, the parts of the UK which voted for Brexit, received more funds from the EU. And the British education system does not seem to be helping much with the UK doing poorly compared to the OECD average in a number of categories, including the number of students exiting school early. There are reasons for the discontent in much of the British population that led to the Brexit vote. Unfortunately, it is unclear how Brexit fixes those problems. In fact, it exacerbates them. 

Help the Toos

Given recent high profile news, it seems a good time to highlight the chart below detailing reported cases of violence against women around the world. Such data is, of course, incomplete, given that not all countries reported data to the United Nations (only 128 countries reported) and even in countries that did report, there may be underreporting. But of the countries that did report to the UN, Sweden, the UK, Botswana and Australia “had the highest reported rates of sexual violence.” The United States is especially high in rape. In addition to the basic human rights issues, gender inequality is a drag on economic growth. A McKinsey report calculated that improving gender equality would add $12 trillion to the global economy (see 2nd chart below). Me too is both a social and economic matter.

Asia and China, Brains of the Operation, & Billionaires

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.


State of Digital World, China’s 19th Party Congress & Dubai Flying Bikes

We are a big NBA fan despite losing our Seattle Sonics basketball team to Oklahoma City. So before headed to dinner with friends we were happily watching the opening game of the season between the Cleveland Cavaliers and the Boston Celtics and unfortunately saw live the gruesome injury suffered by Celtic forward Gordon Hayward. Having dislocated our kneecap while playing basketball in college, perhaps our capacity for watching such injuries is less than others–we literally fled the room after the injury. The next morning while scanning the news we came across the photo below. Don’t worry, it does not show the injury but it does show the horrified reaction of fans sitting behind the basket, one holding his hands up to his mouth, another grimacing, another covering her eyes. And then there’s one guy holding up his smartphone smiling somewhat evilly and either taking a photo or video of Hayward. Who is this man? Why is he so happy about this horrible injury? Why does he feel the need to record the moment? At the same time he smiles and records, a man, presumably from the team’s medical staff, is running up to help Hayward. This photo seems to sum up humanity in all its glory, flaws and depravity. Meanwhile we record more edifying happenings, including the state of the digital world, China’s 19th Party Congress and flying bikes (!) in Dubai. It’s this week’s International Need to Know where not even driving rain and power outages  in Seattle prevent us from delivering international news and data to illuminate our world. (But not next week when we’ll be on the road at a conference–we’ll be back on November 1)

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

Who is Exporting Connections?

Approximately 50 percent of you are reading this on your mobile devices according to our data analytics (apologies to you for the difficult formatting on mobile–we hope to improve that soon). We have a number of readers in Japan and it’s no wonder since according to the Organization for Economic Cooperation and Development’s (OECD) recently released Digital Economic Outlook 2017 report, Japan is number one in mobile broadband digital subscriptions (see table below). Finland, Australia, the U.S. and Estonia are among a number of countries well above the OECD average with Greece, Hungary and Colombia bringing up the rear. Surprisingly, high tech start-up nation Israel is below the OECD average. Pivoting from users to producers, Korea is tops for highest share of employment devoted to IT, followed by Estonia, Luxembourg and Finland. Estonia is famous for its digital prowess even as its Baltic neighbors lag far behind–policy matters more than geography. The report also examines the largest exporters of ICT services. Ireland is tops, followed by India, the Netherlands and the U.S. Interestingly your broadband speeds, subscriptions and penetrations are not always correlated with the size of your industry and exports.

China at the 19th Party Congress

Earlier this week, at the opening of China’s 19th Party Congress, President Xi Jinping gave a three and a half hour speech promising “a new era,” one in which we hope speeches will be shorter. For those trying to understand China’s political structure in the wake of the Party Congress, below you will find a handy infographic (click on it to make it larger and readable) produced by M.Taylor Fravel of MIT. China’s economy has been relatively robust leading up to the Congress. It appears that some of the growth was bolstered by large deficit spending as can be seen in the second chart below. Current government stimulus is higher than even during the height of the financial crisis in 2009 as Kyle Bass of Hayman Capital Management reports. Not coincidentally, Natixis reports on the required money that will need to be spent to support China’s “zombie state owned enterprises” (those unable to pay their interest expense with their revenues). China has been deferring dealing with some of their economic challenges in the interest of having a strong economy leading into the Congress. As this week’s meetings end, what will China’s approach now be? Perhaps their AI’s will assist them in determining how best to allocate resources.

Flying Police

The new Star Wars trailer came out last week. Star Wars appears to have taken on the traits of a religion for many. And while if a new religion is to emerge we prefer it to be based on Bill Murray, even we were captivated by news this week that Dubai is testing “Star Wars-style hover bikes that would be used by their police force. The Russian-made bikes were unveiled at a tech show last week and “Hoversurf CEO Alexander Atamanov posted on Facebook to say the company and Dubai police had signed a memorandum of understanding to mass produce the craft in the Dubai area.” The bikes are reported to fly up to 70 km/hour, fly at a height of 5 meters and have a range of six kilometers. Interestingly they are designed to fly “with or without a passenger.” The Dubai police wish to be able to zip over traffic in emergencies and perhaps more worrisomely, “It can recognize people in any area and identify suspicious objects and can track suspects,” Brigadier Khalid Nasser Al Razooqi, director of the Smart Services Department at Dubai Police, told Gulf News. Al Razooqi also told Gulf News that the hover bikes will be fitted with cameras connected to a command center and be used at tourist attractions in Dubai. We would have completely failed you if we did not provide video of the hover bikes complete with dramatic music, which you find below.

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Ties to China’s Economy, Digital Leninism and AI Rankings

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.        

A Tribute to John Miller, Good Economic News, China Challenge & Housing Prices

One of my first adult jobs was working for U.S. Representative John Miller. Even then I knew I was working for a special man, but as the years passed and political fashions changed to the loud, extreme and shallow, it became even more clear how special was the moral and intellectual clarity John brought to serving Americans, and really humans around the world, in what is sometimes called the people’s house. John was an early supporter of gay rights, played a role in the passage of the Japanese-American reparations bill, and worked for human rights around the world, often at great political risk to himself. He was fiscally conservative, a great environmentalist and as a local politician helped save the Pike Place Market. But it’s not his policy positions that distinguished him–fair minded people can disagree on what the best policy prescriptions are and even the best proposals contain trade-offs and unintended consequences. No, what set John apart was his integrity, diligence and willingness to change his positions in light of new information. I can remember many a discussion with John and his other advisors of what to do on an issue, a conversation full of facts, as well as philosophical discussions on how to balance different ideas and interests. He truly wanted to do what was best for America, the world and his constituents. During one reelection campaign, researchers discovered salacious material about his opponent. John refused to use it. He wanted the campaign to be about the issues, not his opponent’s personal life. Later, after leaving Congress, John became the US Ambassador-at-Large to combat human trafficking. He fought tirelessly to advance human rights around the world and arguably no one is more responsible for raising awareness of the sex slavery trafficking issue than John. David Simon’s new show, The Deuce, whether it knows it or not, is partly informed by John’s work. In his last public act, John wrote and published a novel about George Washington, celebrating our first president’s resistance to the corruption of power. At a perilous time when we need more leaders like John, the world has one fewer. John Ripin Miller died yesterday at age 79. RIP.

The Good News

In a week of tragedy and death, perhaps it’s time for a ray of economic sunshine. In the chart below you’ll see, courtesy of the Long View, that “every single manufacturing measure in the world is in growth territory.” This is taken from the Global Purchasing Managers Index which measures manufacturing activity of economies. Anything above 50 portends growth. And as you see, every single country, like customers at Applebees, is above that magic 50 line. Developed markets, at 54.2, are doing even better than emerging markets, who are at 51.7. But right now the entire world is in a synchronized march upwards. The Euro area is looking particularly strong as it recovers from a long slog of economic doldrums. Even Greece is showing signs of life. Now the worry is what goes up will eventually go down and it could be a synchronized swan dive as well, but for now, the world economy is a hopeful place to avert one’s gaze from the rest of the craziness.

Making the High Income Leap

Last week in analyzing China’s rural-urban divide, we noted that the education deficit in China poses a challenge to the country making the leap from middle income to high income status.* Over the last 70 years, 15 countries have made the leap to high income status. As Stanford’s Scott Rozelle points out, every single one of these fortunate fifteen had “three quarters or more of the working population completing high school while the country was still in the middle-income bracket.” But if, as we worried about last week, 400 million Chinese will be “cognitively handicapped,” that three-quarters figure will be difficult to obtain and breaking the high income status threshold difficult to achieve. As Rozelle says, “in the 79 current middle-income countries, only a third or less of the workforce has finished high school. And China is at the bottom of the pack.” But, as we also noted last week, China is well aware of the challenge and working to meet it. Whether China meets the challenge has huge ramifications not just for their country, but for the world economy as we’ll detail next week (we’re becoming like a serialized TV show all of a sudden–but we promise a better ending than Lost).

*The World Bank divides countries into low income, middle income and high income based on gross national income per capita, adjusted for inflation over time. 

Housing the Wealthy

In our spare time, we’ve been fixing up a hobby house structure in our backyard. We have built a wall, installed a window and soon will be installing a floor. As of yet, we still have all ten of our fingers, but we are willing to risk limbs because the price we can get for renting the humble structure are high. Here in Seattle, worldwide headquarters of INTN, housing has become increasingly expensive. Many blame rising housing costs on Amazon’s explosive growth, and certainly nearly 30,000 new employees are going to have an effect. But compared to other world cities, Seattle is a piker (a Pike Place piker). In fact, even the most expensive U.S. cities are cheap compared to the leading world cities. As you see in the chart below, Hong Kong has the highest price to income ratio in the world, followed by Beijing, Shanghai and London. There are more rich people in the world today and they are more widely dispersed throughout the world. The wealthy are driving up prices both in their home towns, but also in cities where they want to live. This is more evidence for our theory that cities are becoming far less interesting. Creativity and new things come from the muck, which increasingly will be outside of the big, shiny, everything looks the same blandness of today’s Ikea-like cities.


Rural-Urban Divide, Tax Havens & More Renewables

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.

Debt is Different, Energy’s Future & the Wettest Countries

We’ve been hearing complaints about kids ever since we were one. From colleagues we hear complaints about millenials and what a pain they are. And yet, in our anecdotal experience, they seem much more mature, wise and put together than we ever were at their age. So while scanning the Internet stuck on a couch not wanting to wake the cat napping on our lap, we were pleased to come across a study backing up our anecdotal evidence. Apparently for the last 50 years scientists have been administering the “marshmallow test” where children are told if they wait 15 minutes, they will be given two treats. If they cannot handle being that patient, they only get one. This year’s testing results show,  “…kids these day are better able to delay gratification than they were in the past, corresponding to a fifth of a standard deviation increase in ability per decade.” The scientists do not know why there has been an increase in the ability to delay gratification.* In one of our favorite sentences of 2017 they write, “Unlike IQ tests changes**, where schools and textbooks have routinely engaged in teaching to the test, we are unaware of any formal training in the marshmallow task for schools.” So even as we search for schools providing formal marshmallow training, gratified that our cat finally awoke, we note that not all debt is the same, examine coal usage forecasts and soak you with the wettest countries in the world. It’s this week’s International Need to Know, gratifying your interest in the world around us without delay.

*We guess the elimination of lead in the environment had some role to play.

** Generational increases in IQ scores, the so-called Flynn effect, have been going up for decades.The kids are smarter than us

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

All Debt is Not the Same

We’ve recently seen a variety of visual depictions of debt around the world. For example, displays sovereign debt in G20 and OECD countries in a nice easy to read map (see below). For your reading pleasure below the map we list the top ten countries with the worst debt to GDP ratios in the world. Japan continues to top that list. Not all debt is the same, however. People have been predicting Japan’s debt doom for nearly two decades now. So far Japan has avoided financial catastrophe, partly because most of the debt is owed to themselves, not to other countries. It’s also worth noting that at least in the last couple years, Japan’s debt has stabilized a bit, halting the rapid increase in debt of the last decade. Greece’s debt (they’re number 2) has obviously caused them problems because they owe other countries, have been bailed out repeatedly and the EU (Germany) have shown no inclination to forgive Greece’s debt. What about the flipside of high debt? Estonia, Saudi Arabia and Russia have some of the smaller ratios of debt to GDP. I’d be willing to buy an Estonian ETF but I’d be far more leery of doing so for Saudi Arabia and Russia. There is no Jeffersonian ideal of debt–it is not all created equal.

The Future, Mr. Gittes

We continue to be less worried about America’s policy retreat on climate change measures than others (which is not to say we aren’t worried). Technological advances continue to point towards a cleaner future. The Energy Information Administration (EIA) recently released their 2017 International Energy Outlook. The report notes that world coal usage began levelling off in 2010. Petroleum usage continues to go up at a steady rate and natural gas at a somewhat faster one. Renewables, on the other hand, has seen a huge increase. That’s the past; the EIA also attempts to forecast the future.  What’s strange is that the organization’s forecast basically maintains current trend slopes. This is generally a smart forecasting technique–things often don’t change much (inertia is the third or at worst fourth most powerful force in the universe). But when technology is improving rapidly as it is in the renewables sector, we expect the Energy Information Administration’s forecasts to be way off. As renewables continue exponential growth and storage problems are solved we expect coal usage to not just level off but decrease. In fact, compare EIA’s forecast from 2013 to today’s reality (see second chart below) where they radically overestimated growth in coal usage. Remind us in four years to investigate how today’s EIA forecast fares (when this missive will be delivered via augmented reality technology).

When the Rain Comes

As you know, the worldwide headquarters of INTN is located in the great Pacific Northwest of the United States where we are known for our rain (we hope someday to open a satellite office in New Orleans). After a remarkably dry summer in which we saw nary a drop for more than two months, the advent of autumn has brought a renewal of our drizzly weather. As we wipe the mist from our glasses, in honor of the return of the rains, we present to you below the wettest countries in the world courtesy of the World Bank. To our surprise, Colombia is the wettest country in the world with 3,240 mm of rain on average per year. But Papua New Guinea is close behind, followed by Indonesia and Malaysia. Peruse at your leisure as we prepare a shipment of bumbershoots to these countries.