Archive for year: 2017

Stop blaming trade, Chinese Influence and Happiness or Success?

On the second afternoon of the Directed Energy Conference we attended last week in Washington, DC, we kept an eye on an old man wearing a seersucker jacket. The day before he had been dressed equally nattily and somewhat extravagantly. But it wasn’t his sartorial style that caught our attention, it was his nametag informing us and anyone else who looked that he was with the NSA that had us curious. Why was a near-80-year old man working for NSA and why was he publicly acknowledging what was once known as “No Such Agency” it was so secret? We, of course, struck up a conversation with him. It turns out he’s retired but still acts as historian for the agency, chronicling the super secret organization’s activities, technologies and efforts from the 1960s, 70s and 80s, all recorded, we hope, as stylishly as he is dressed. But we are unlikely to ever find out since even information from so long ago is still classified and likely to remain so beyond our lifetimes he informed us. But we keep no secrets about international trade being unfairly maligned, the growing influence of China and whether to choose happiness or success. It’s this week’s International Need to Know, presenting seersucker suits of information in an often button downed world.

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

Stop Blaming Trade

Ironies are in full bloom in the world today, watering our eyes and causing us to sneeze in amusement. One is that though the political world is perhaps more divided than ever, the two sides are united in blaming international trade for why we have arrived at this point in history. It is the reason Trump was elected we are often told, or why Brexit happened or for any number of other problems plaguing our world–the suffering of the middle class is due to trade between nations, or at least that is the theory.  But much like the love of the recent Star Wars movie or the sudden emergence of rosé as the hip new drink, the masses often make mistakes. We cannot arrest today’s global problems when we are chasing the wrong suspect. Additional evidence that the policy detectives have mis-fingered trade as the culprit arrive in a new report by the Bank of Settlements (although this report is unlikely to settle the argument about trade). The report notes that “in practice, trade and financial openness appear to have made only a fairly small contribution to the increase in income inequality (see the right most graph below). Rather, technology appears to have been the dominant factor: the returns to skilled labour, which uses technology more intensely, have increased substantially.” This makes sense when one steps back and thinks about it clearly without ideology or preconceived notions clouding the mind. Trade adds value, it does not subtract. Give a class of 25 students each a bag of candy  and ask them to trade the candy in their bags. When they are finished, 99 percent will put a value on their new bag of candy higher than the pre-trade bag.* Once we stop blaming trade perhaps we can get on with concentrating on the real challenges that are harming middle classes around the world. 

*We have done this exercise a number of times in real classrooms as have others. The result is always the same, the vast majority of students benefit from trade with there being but a few losers.

China’s Increasing Influence

China is increasingly influential in culture, the economy and in many other ways. They are not yet the world’s largest economy and it will likely be a while before they are. They can’t lead on free trade issues as some think since they have one of the world’s most closed economies. But they are big. Darn big. And China increasingly exerts itself around the world in many spheres.  For example, China now has the world’s fastest super computer (and second and third as well). They are making a huge push into esports with their largest ICT company leading the way: “entertainment giant Tencent has accelerated its e-sports expansion with the unveiling of a new five-year plan…The plan is based on Tencent’s expectations that China is set to become the world’s largest e-sports market. Tencent predicted there will be 220 million e-sports players in China and 335 million globally by the end of this year.” Or look at international students where the U.S. has been dominant. China is now home to more students from Africa than is America. China’s ascent was likely to happen anyway due to their sheer size and growing economy but recent American political events have accelerated the trend. We wonder what the world will be like with the Chinese business culture prevailing in the world rather than America’s?   

Happiness or Success?

In an interesting article on which countries spend the most on education, we came across data on whose parents prefer happiness for their children and whose prefer they have a successful career. As you see in the graph below, French parents by far wish for happiness for their kids and are much less concerned over whether they have a successful career. Of course, does a successful career for Amelie mean she makes lots of money or does it mean she derives happiness from her job? If the latter, maybe Amelie can be happy and have a successful career.  Putting semantics aside, Canada, U.K., Australia and U.S. parents all put a much higher premium on happiness over successful careers. For India and Malaysia, happiness and success are a toss up. We hope you will happily peruse the graph below. 

The Economic Yin, the Three Body Problem Yang and India

We write this as we prepare to head to Washington, D.C. for both our Uncle’s 80th birthday celebration (happy birthday, John!) and later to attend a conference on Directed Energy Weapons (i.e., really cool ways to blow things up). Many years ago we lived in the nation’s capital at a time when it was one of the crime capitals of the country. We were mugged twice while there, once at gun point (it was a surprisingly polite conversation with the mugger–we even both wished each other a “good evening” at the end of the forced transaction) and once we were jumped over a Kentucky Fried Chicken two-piece dinner (that engagement was not nearly as polite). Back then we even had a friend who was mugged in front of the Supreme Court. Today, although the politics are much more riotous, the city itself, like many big cities, has been gentrified into a fog of calm.The crime rate is not much to worry about, the restaurants are fancier and real estate is far more pricey. We are looking forward to seeing our old haunts, including the venerable Tune-Inn, one of America’s great bars. So we will take next week off in honor of our Uncle and learning about blowing things up with phasers and lasers. But this week neither the White House or Congress dissuade us from bringing you the Yin of China’s economy, accompanied by the Yang of its innovation, finishing with a brief comparison of emerging economies. It’s this week’s International Need to Know, a soft wind of knowledge in the heat and humidity of the East Coast.

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

The Yin

It’s time for another episode of the Yin and Yang of China, everyone’s favorite, large, complicated, nobody-really-knows-what’s going-on country. We start out with the yin–what the heck is going on with China’s economy? We’ve been generally more positive than others about the prospects for China’s continued prosperity. The economy seemed to stabilize this year after worrisome signs in 2016. In fact, the latest China sales index is at a 20-month high, driven mostly by the manufacturing sector. But a few weeks ago we noted in passing that the yield curve had inverted in China. Since then the inversion has become more pronounced (see graph below). Inverted yield curves often predict a recession. Not coincidentally, as Reuter’s notes, China’s central bank has been injecting lots of liquidity into the financial system. In fact, the amount of money sloshing around in the Chinese economy does appear to be leading to an increase in prices. For example, land prices are up 39% year to date (they rose 18% in the moderation of 2016). On the other hand, the South Morning China Post reports that “more than 80 per cent of Beijing owners are reducing their asking prices, while just three months ago, 80 per cent were raising prices, according to property agent Homelink.” That’s a lot of volatility and some of this may be reflecting the difference between official statistics and what is occurring on the ground. What’s happening in China? We’re not sure but we’re keeping an even closer eye than usual–and we may need to see an economic ophthalmologist to get a real clear view.


The Yang: Three Body Problem in Real Life

It’s a long story but a meeting with a friend trying to help send people to Mars led to our reading the science fiction novel, The Three Body Problem, by Chinese author Liu Cixin.  The sections of the book we like the best have nothing to do with science fiction but rather depict life during the Cultural Revolution. Nonetheless, the science part of the novel seems to be coming true with news that Chinese scientists beamed back “entangled” photons from space.  The breakthrough is important in its own right, of course, but is also another refutation of those who claim that China does not innovate. There is a tremendous amount of innovation taking place in China. At any rate, the Chinese scientists reported “a successful transmission of entangled photon pairs from space to ground stations separated by 1,200 km, a major technical breakthrough towards quantum communication over great distances.” Previously such transmissions weren’t possible beyond 100 km. This work is continuing to lay the foundation for quantum computing and communications, two new technologies that as we discussed last week could help the world reckon with the end of Moore’s Law.

India Compares Well

We will be brief as our flight is about to depart, but courtesy of the great Jon Bensky we show you the McKinsey Global Institute’s economic comparison of emerging markets. Jon, who is our go-to person on India (and other international issues for that matter), notes that India comes out well in these comparisons. Its GDP growth rate matches official Chinese numbers and McKinsey’s assessment of their risk is that it is much lower than other emerging markets. India, like China, is a place to always keep your eye on.


Mind the Gap, Canadian Cows & Climate Change and the Price of Fun

Incentives are a funny thing. They drive so much in our world and yet often have unintended consequences. A few years ago, like many in our socio-economic demographic, we bought a Fitbit to measure our exercise, sleep and other such metrics. We lost it fairly quickly but then our wife gave us another one as a gift. We have not lost that one, which speaks to a certain incentive in itself. But the Fitbit has changed our behavior. Where once we would worry about getting the best–read nearest–parking spot, now we park further away just to get more steps recorded on our Fitbit. That is a good thing. On the other hand, we are often less efficient nowadays. Where once we maximized our trips back and forth from our car to our house, carefully carrying many things at once, now we purposefully make many trips between house and car, again in order to record more steps. We do the same kind of thing on house projects, going back and forth to get different tools. Perhaps this is more physically healthy for us and there may even be a Zen-like aspect to it leading to more mindfulness, but by being less efficient we are surely getting less done in life. It occurs to us that the optimal use of a Fitbit is someone who walks in their sleep. But, we don’t recommend taking that step. We do recommend minding the employment gap, examining the case of the Canadian cow and analyzing the cost of fun. It’s this week’s International Need to Know, throwing no-look passes for data and knocking down three pointers of analysis as we try to be the Golden State Warriors of international information.

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

Mind the Gap

Political volatility around the world continues to be high as we saw in the recent UK elections. Some may think voters are making unwise choices but there is a reason for the angst and sturm of the voting class with further evidence coming from an Organization for Economic Cooperation and Development (OECD) study on employment this week. The good news is that in OECD countries the “employed share of the population aged 15 to 74 years rose for the third consecutive year,” finally reaching pre-financial crisis levels. The bad news is that the share of middle-income level jobs has fallen. There are more high income and low income jobs in OECD countries, but the kind of jobs that have been the foundation of liberal democracies are eroding away. This is due mainly to demand for high skill jobs. The OECD reports that “Between 1995 and 2015, the middle-skill share of employment fell by 9.5 percentage points in the OECD area, while the shares of high- and low-skill occupations rose by 7.6 and 1.9 percentage points, respectively.” In the chart below you can see how in every OECD country high skill jobs have increased while middle skill jobs decreased. Low skill jobs increased in all these countries except Hungary and the Czech Republic. We note the UK is home to one of the larger gaps of jobs though not nearly the largest. The world is in the midst of a large economic transition and political volatility is likely to remain high throughout the transition.


Climate Change & the Case of the Canadian Cow

A new book, Drawdown, lists the top ten solutions for addressing global warming. You are likely to be surprised by the list, as we were, or at least by some of them. We were not surprised by number 4, however–eat a plant rich diet. After all, we are aware that cattle flatulence is a major emitter of global warming gases. In fact, the book notes that “if cattle were their own nation (and what a boring nation it would be, animals standing around eating a lot and farting–wait, there are large swathes of America just like that), they would be the world’s third-largest emitter of greenhouse gases.” Alas, we like BBQ too much and relish our Five Guy burgers (though relish is not one of the condiments we use) to become a vegetarian. But then comes news from Canada of an effort to genetically engineer a cow so it does not pass gas. “The Genome Canada project, led by Filippo Miglior at the University of Guelph and Paul Stothard at the University of Alberta, harnesses labs in the US, UK, Denmark, Australia, and Switzerland to help identify cows that produce fewer greenhouse gases, with the ultimate goal of distributing the responsible genes—conveniently transported in the form of bull semen—to areas that don’t have the resources to develop their own greener cows.” Perhaps someday we will be able to enjoy our beef without there being a beef about what it is doing to the environment.

The Price of Fun

Fun, as that great philosopher Ferris Bueller could tell you, is an underutilized commodity, perhaps more so than ever today. Children, who by all rights should be in their prime for having fun, are instead sent on forced marches of activities organized to the last second and given mounds of homework one would expect in a chemistry PhD, but not for a ten-year-old. And, our politics today are certainly not much fun unless you are of the same bent as the Marques de Sade. So perhaps it is high time to examine the price of fun. No not the metaphorical consequences of having fun you killjoy, but the actual cost. For that we turn to the World Economics Cost of Fun Index which as you see in the first chart below has gone up considerably since 2011. The index “is based on average end-user prices for typical recreational activities and items in national currencies indexed to January 2011 = 100.” When looking at individual countries it should be no surprise that the cost of fun has spiked in Russia in recent years  Does Vladimir Putin look fun? I don’t think so.* Fun is still affordable in China though it has gone up by 13% in the last year. In the last 12 months, fun has become cheaper in Japan and in the U.S. as well. So even as you work at your job this week, take care of your chores this weekend and help out your community in whatever way you see fit, take a moment and have a little fun. You never know, it could be more expensive tomorrow. 


*though fun in Russia is cheaper in the last year–good times hacking into other countries apparently.

Germans Wore Grey, the End of Moore and the Spread of Intelligence

Perhaps there is no greater mystery in the universe than intelligence and consciousness. The latter is, in fact, impossible to define and test scientifically. We were reminded of this not just from our current political world but also from the work of an evolutionary biologist who asserts that spiders store information in their webs. He claims “that a spider’s web is at least an adjustable part of its sensory apparatus, and at most an extension of the spider’s cognitive system.” We did not entirely understand the biologist’s argument though we are now even more wary of stepping through spider webs in our yard. He also notes that octopi have 500 million neurons in their arms (which we did know). So where does the consciousness of an octopi reside? In its arms or its central brain? Even as we learned about cognitive spider webs, we read an article about scientists studying macaque monkeys  and their ability to distinguish faces. The researchers “watched as monkeys looked at a series of 2,000 different faces and recorded which neurons were active in the so-called ‘face space’ of their brains.” The scientists then worked backwards and reassembled depictions of the faces from information contained in the firing neurons. And, they were amazingly successful as you see in the images below. We are pretty good at remembering faces but names not so much. So our intelligence is at least as good as a monkey’s. All this leads us to a special technology week at INTN, where we examine why technology is making us forget about Paris, worry about the end of Moore’s Law and examine the status of artificial intelligence around the world.  It’s this week’s International Need to Know, your digital source of information in an analog, digital and spider web world of information.

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

The Germans Wore Gray

For many reasons, we think the U.S. Administration pulling out of the Paris Climate Agreement was unwise and short sighted. As Major Strasse might have said in Casablanca, “we know why you left Paris, Mr. President,” But like Humphrey Bogart, our sporting interest gives us hope that the U.S. leaving the agreement will not have a big impact on the fight against climate change. That’s because, as we have noted before, the world is already reaching a tipping point on renewables. In India, for example, as you see in the first graph below, solar energy is competitive price wise with coal. As a recent Bloomberg article reports, “the cost of solar generation in India has fallen by more than half. The country’s competitive auctions for solar power have pushed prices below 2.5 rupees ($0.04) per kilowatt-hour. In fact, the levelized cost of solar—“ a measure of an energy project’s lifetime costs divided by its lifetime energy production—is now lower than coal-fired power. At the same time, China, already the largest producer of renewable energy, “will install 7 to 8 gigawatts of rooftop solar in 2017 — an amount equal to the cumulative installed rooftop solar base up to 2016,” according to Bloomberg New Energy Finance. The challenge is NOT renewable energy generation, it’s storage, and there too we see much progress. According to a McKinsey report, “battery-pack costs are down to less than $230 per kilowatt-hour in 2016, compared with almost $1,000 per kilowatt-hour in 2010.” These technological breakthroughs are why we are hopeful that Paris won’t amount to a hill of beans in this crazy world.


Is this the End of Moore?

Last year, we noted the possibility of the end of Moore’s Law—the idea that transistor density doubles every two years or less–and now the head of a semiconductor company confirms it. Jensen Huang, the CEO of Nvidia recently gave a presentation where he stated, “Microprocessors no longer scale at the level of performance they used to — the end of what you would call Moore’s Law.” Intel, however, disputes Huang’s contention even though they themselves are not meeting the requirements of Moore’s Law: “To get from 45 nm to 32 nm took about 27 months, 28 months to go down from there to 22 nm and 30 months to shrink to the current 14 nm process. And that’s where Intel has been stuck since September 2014.” In fact, Huang says only a handful of companies can now afford the multi-billion dollar investment to create these kinds of new chips. The expensive nature of today’s chip work has led to a consolidation of the industry (or maybe it’s the other way around?) so now there are only five companies making the most advanced chips, down from 13 a decade ago. As we look around the world, the companies are fewer and larger and the innovation smaller. 

The Spread of Intelligence

In recent years there has been much excitement over progress in artificial intelligence (AI). A computer beat one of the leading GO players in the world earlier this year, progress is being made on autonomous vehicles and AI is increasingly diagnosing cancer better than humans. Now comes a survey of AI engineers and researchers asking them when they think various AI milestones will be met. The more than 350 AI researchers surveyed believe machines will be able to translate foreign languages better than humans within 10 years, perform better as retail sales people within 15 years (better than Nordstrom?!!), generate a top 40 pop song within 12 years (Taylor Swift obsolete?) and fold laundry in 6 years (we give up that chore willingly but wonder if our cats will still jump onto the clean towels when a robot is folding them). In fact, these researchers believe all human jobs will be automated within the next 120 years. Interestingly, Asian researchers are more optimistic than American and European researchers as you see in the second chart below. How their optimism squares with the death of Moore’s Law is an interesting question though it may have to do with the emergence of quantum computers and 3-D chips. Although we are not necessarily more pessimistic than these researchers we look at AI advances somewhat differently. First, as jobs are automated, new type of jobs, more suitable for human intelligence, will emerge. Second, we expect, like spiders and octopi using external intelligence, that humans and machines will merge, so the world will not necessarily develop a human vs. machine battle (the true fight will be against flying cockroaches). We await this new world, as we await many things, with a mixture of wonder and worry (and a strong cocktail in hand). 


Japan is Different, Will China Become Japan, the Air Up Here

As you may have noticed, music is important to us and we make a point of getting to live shows when we can. You may also have picked up that we are big fans of New Orleans. So when the Hot 8 Brass Band out of the Crescent City comes to town, you know we’ll be there. They are the Rolling Stones of brass bands to the Rebirth Brass Band’s Beatles, combining funk, hip-hop, bounce and the call backs of the sanctified church with the long tradition of brass bands. One of our favorite shows we’ve ever been to was a Hot 8 second set in NOLA around 1 am in a venue not much larger than our living room. The slide of the trombone nearly hit us. Tuesday night’s show was fantastic too with the guys jamming in top form. With all that divides our world, music often brings us together–whether here in Seattle, down in New Orleans, over in Manchester, or even in Tehran. On the latter, we came across the video below of two Iranian buskers, a woman bassist and a man playing the guitar, covering Radiohead’s Creep. Check out the short video below and then tap your feet as we examine yet again how different Japan is, delve into whether we should worry about China following Japan’s economic path and then breathe in, but not too deeply, the latest data on air pollution. It’s this week’s International Need to Know busking for knowledge and information on the streets of our hustling, bustling world.

Iranian Buskers play a funky rendition of Rad…
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Without further ado, here’s what you need to know.

Japan is Different Part 6,753.5

We love Japan. It has one of the most unique cultures in the world and we are a sucker for those who march to the beat of their own drum, even when it’s an entire nation. Of course, there are trade-offs in everything in life and Japan’s uniqueness can lead to challenges. For example, in Japan, CEOs are far older on average than in other countries. As you can see in the chart below, the average age of a Japanese CEO is 61 while globally it is 53. Further, only 33% of Japanese CEOs worked in another company at one point in their career while globally the figure is 74%. An article in the Nikkei Asian Review notes that “because many Japanese CEOs build their careers in a fairly culturally homogeneous environment, Japanese companies are at a big disadvantage when it comes to competing globally.” That cultural homogeneity makes our world much more heterogeneous, but like Japan’s lack of immigration and its other insular ways, homogeneity also has challenging effects for the country and economy. 

Will China Become Japan?

No we don’t think China’s CEOs will suddenly become old but people are making comparisons between the two countries’ economies. The Financial Times notes a number of eerie similarities between China’s economy and the pre-bubble, late-1980s Japanese economy, just before Japan’s long economic slog. But, the FT, which we esteem as much as the next person, misses two factors that typically, for the ever complicated China, point in various directions. First, is a demographic comparison. China, like Japan, like most of the world, has an aging population and most important has a shrinking working age population. The chart below by Charles Schwab, shows that under current projections China’s aging demographics are closely mirroring Japan’s. As we’ve noted before, economic growth goes up due to a larger working age population and due to productivity increases.* Unless trends change, China will face a future demographic headwind. However, China does not have the same closed society culture that Japan has so it’s possible it’s working age population could increase due to immigration (like America) or perhaps its birth rate will start going up again. Nonetheless, the graph below is worrisome. The other thing the FT article neglects to mention is that although Japan’s economy has been problematic, if one looks at GDP per capita, Japan does not look so bad. Of course, GDP overall is not growing and we shouldn’t expect it to expand with a shrinking population. But, the economy, when discussed in per capita terms, is not so bad. Whether China follows Japan’s path we do not know, but there are plenty of short-term worrying signs.

*China productivity, like the rest of the world’s, is way down in recent years.

The Air Up Here

Depending on where you live, the air you’re breathing is full of particulates and other pollution. In recent years, Berkeley Earth began a major project to start tracking such pollution. In the map below you’ll see the worst areas in reds and purples (those colors sure seem to get a bad rep in graphics and metaphors while green just keeps skating on by–like much in life, our perceptions of colors are unfair). Berkeley Earth measures PM2.5 — particulate matter measuring 2.5 microns across or smaller–to determine where air pollution is problematical. Large parts of China, of course, look like Jake Lamotta’s face during a Raging Bull boxing match. But they are by no means alone. India is full of purple and red too. You’ll even see some yellow in parts of Europe and the United States. Berkeley Earth has not mapped Africa yet. Berkeley Earth has calculated “daily exposure to PM2.5 in terms of cigarette equivalents. Red is like smoking five cigarettes a day, purple brings you up to 10 and the brownish purple is the equivalent of Humphrey Bogart in a saloon in north Africa–15 or more Pall Malls a day. During a really bad day in Beijing one might as well inhale a pack of 25. But, as Berkeley notes, China is trying to address air pollution–and the incentive is not so much climate change but because of these localized air pollution health issues. There may be a lesson in here for addressing a variety of transnational issues resistant to solutions.

Unproductive World, Is China Smaller than we Think and Forest Bathing

Nostalgia, memory and quests are funny, tricky, even occasionally dangerous things. Years ago when we were but a teenager, we read a science fiction novel called Space for Hire, which at that age we loved. It was about a hardboiled detective named Sam Space (no relation) and in some ways foreshadowed the Star Wars movies. A sequel to the novel existed but was out of print and extremely difficult to find. A friend and I searched in used book stores but in our small town the sequel proved elusive. Years later we found it in a used book store on the east coast. We eagerly read the book and…it was terrible. A huge let down. In fact, when we re-read the original Space for Hire years later, we discovered to our shock and dismay, that it was not only not very good but also full of racism and misogyny. The quest for the book was far more enjoyable and edifying than the books themselves. Of course, today such quests don’t really even exist with Amazon and the Internet putting everything at our fingertips, eyes and ears instantly and continuously. It is a better world because of these technological developments but as with everything there is a trade-off. Something is lost in not being able to hunt for today’s equivalent of Space for Hire, and in confronting our nostalgia and memories we found our innocence lost as well. But neither technological advances nor nostalgia pry us from continued worries about productivity, the mystery of the missing 90 million in China and the scientific validity of Japanese Forest Bathing (a sentence we could type over and over again).  It’s this week’s International Need to Know your hardboiled look at our increasingly soft boiled world.

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

Our Continued Unproductivity

May you live in interesting times is the alleged curse. More apt, we believe, is may you live in unproductive times, which indeed we are. Last year we warned about the near worldwide slowdown in productivity. The OECD recently published a report adding more fuel to our concern fire. The report, entitled, Compendium of Productivity Indicators (has there ever been a sexier title?), details the productivity slowdown and notes that the UK and Japan are particular laggers in productivity. In addition, “among OECD countries, labour productivity in manufacturing slowed most markedly in recent years in the Czech Republic, Finland and Korea. In business sector services, the slowdown was most notable in Estonia, Greece, Latvia and, to a lesser extent, the United Kingdom.”  Small businesses are seeing greater productivity gains than large companies. And yet large companies are dominating economies more and more (hmm, policy makers might want to think about why this is). Remember that GDP grows two ways–an increase in the working age population (which as we have documented is down in most countries except India and Africa) and rising productivity, which is not rising much at all currently. That means economic growth will continue to be slow around the world with all the consequences that come with it.

Is China Smaller Than We Think?

China is big. Enormous really. But perhaps it is not as large as advertised. Yi Fuxian, a researcher at the University of Wisconsin-Madison, recently reported on his research that claims “China’s real population may have been about 1.29 billion last year, 90 million fewer people than the official figure released by the National Bureau of Statistics.” Yi’s research finds that there were 377.6 million births between 1991 and 2016 rather than the official figure of 464.6 million. Now 377 million is still a big figure, larger than the population of the United States, but Yi’s contention is that 90 million fewer people is a big deal. For instance, it would mean China’s aging demographics are worse than we thought. A small working age population without continued large gains in productivity means slower economic growth as we noted in the first story this week. So it’s a 90 million question of whether Yi’s data analysis is correct, and if so, what that will mean for China’s family planning and economic policies going forward. BTW, China’s yield curve inverted this month. Inverted yield curves often predict a recession. More on this soon.

Forest Bathing

In these tumultuous times, let’s slow down a moment and contemplate something soothing. In this case, the Japanese practice of forest bathing and recent scientific studies showing it is good for your health. Yes, forest bathing, which Japan instituted as part of a national public health program back in 1982 is “basically being in the presence of trees.” Japan not only included it as part of their health program but examined the impact of tree bathing in a study from 2004 to 2012. They studied volunteers who went into a forest and then into a controlled environment and concluded, “Forest environments promote lower concentrations of cortisol, lower pulse rate, lower blood pressure, greater parasympathetic nerve activity, and lower sympathetic nerve activity than do city environments.” This is apparently due to “various essential oils, generally called phytoncide, found in wood, plants, and some fruit and vegetables, which trees emit to protect themselves from germs and insects.” We’re feeling calmer and stronger just writing about it. Have a good Memorial Day Weekend and find some time to hang out among the trees, or since our world is more and more urbanized, at least in the Land of the Glass Pinecones.  Their seeds are made of rhinestones.*

What is Japanese FOREST BATHING by World Econ…
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*There was a time, long ago, when we were obsessed with this song. We are still proud of this.

Drones Gone Wild, One Belt One Road and Who Votes

Our favorite current TV show is Better Call Saul, a kind of prequel to Breaking Bad. We in fact prefer it to its antecedent. Its quietness, more sophisticated character study, more complicated moral compass we find far more intriguing. The main character, Saul/Jimmy, is at odds with his brother, Chuck, who spends considerable time trying to harm Saul. Chuck is mentally ill, manifesting itself in an irrational fear of electricity. In the most recent episode, Saul wins a minor victory over his brother which leaves Chuck holed up alone in his house, apparently in the depths of despair. A character sympathetic to Chuck asks Saul to talk to his brother. He refuses–after so many years of turmoil with his brother, he turns his back on him in perhaps his brother’s greatest time of need. The character sympathetic to Chuck says to Saul, “Chuck was right about you all along. He’s mentally ill, what’s your excuse?” She finishes her rejoinder to Saul, who is sipping a celebratory drink, by saying “Enjoy the champagne.” It is a devastating moment. Our sympathies are with Saul but the show reminds us that no battle, especially those involving mental illness, is won without loss. So far, society and science have proven themselves inadequate to the challenge of dealing with mental illness. Mental illness does not discriminate–it afflicts every race, every gender, the poor and rich alike, the downtrodden and even the most powerful. So as we watch rapid fire events in this world, we will remind ourselves of the devastating rejoinder, enjoy the champagne. Our glass is neither half full or half empty but Waterford crystal clear as we examine drones gone wild, the shifting political alliances with China and who votes the most (no not Chicago graveyards). It’s this week’s International Need to Know providing sunshine on happenings around the world even under continuous gray skies (c’mon Seattle, where’s spring?).

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

Drones Gone Wild

One of our earliest posts on this platform was about drones and how the U.S. needs to remember that we will not have a monopoly on them forever. We noted that many other countries now have drones. Turns out nowadays criminals do too. So much so that The Telegraph reports “a British prison has become the world’s first to use a new system designed to stop drones flying over perimeter walls to drop contraband into jails.” The prison is creating a drone shield consisting of sensors that can jam drones and prevent them from delivering drugs, weapons, cell phones and other items the jailers don’t want their prisoners to have access to. The name of the system, created by the UK companies, Drone Defence and Eclipse Digital Solutions, is Sky Fence, a science fiction overlord type of name which invokes as much fear in us as the prisoners do in the jailers. We live in interesting times.

Who are you With?

The world is changing in ways that can seem uncomfortable to many. China’s growing importance in the world, coupled with political turmoil in the United States and Europe, is informing how the world interacts with China. We offer two recent examples. First, at the One Belt One Road summit (see our post last week about it), a number of final communiques were released. But EU members did not sign onto a trade statement “because a series of concerns they had raised with the Chinese government were not incorporated into the draft text.” These concerns focused on a lack of environmental protections and an unfair tendering process. The EU has been increasingly concerned about China’s closed markets. In fact, the EU recently imposed anti-dumping duties on steel and other products from China. China and the EU’s relationship will continue to evolve. At the same time, China’s relationship with North Korea also appears to be changing. China apparently prevented North Korea from conducting a nuclear test on April 20th. This is the first time China has exerted such pressure on North Korea. Experts note it is difficult to take action against North Korea because they could easily attack South Korea with nuclear weapons in a matter of moments. Less noted is that China is also vulnerable to such attacks. So their willingness to take action is notable. As China strides larger across the world stage, they will find the same challenges and complications that confronted other world powers throughout history. There is no free or easy ride.

Who Votes?

There have been a number of high stakes elections over the last year, some of them with surprising results. They have been influenced by everything from worries about transformative technology, concerns about immigrants, reactions to income stagnation and even by Russian interference. The political pros will tell you (often for a hefty price) that voter turnout is a big factor in who wins elections. They break down turnout in a myriad of ways, from income and education levels to race and gender. But overall in which countries is there the highest voter turnout? Belgium comes in first according to the Pew Research Center which is ironic given complaints that the European Union (EU) is not a very democratic entity and Brussels is home to the EU.  Belgium is followed by Sweden, South Korea, Denmark and Australia. In this Pew list, Turkey brings up the rear although given recent events in that country those poor voters may not matter at all (and could be viciously attacked in Washington D.C.)


Fast & Furious, China Belt with Indian Suspenders and where CO2 Emissions are Decreasing

This week we head to Canada. In fact, we leave for the border shortly and plan on remembering our passport unlike a trip we took to Vancouver BC a few years ago for our wedding anniversary. On that trip, we remembered five minutes from the border that we had left our passport at home. We explained to the Canadian border guard that we were coming to celebrate our wedding anniversary and asked if was there any chance he would let us in without my passport. The guard good naturedly quizzed me on what year we were married . When I hesitated trying to remember when we were wed and our wife made a face at our hesitation the guard laughed and said it was obvious we were married and he would let us into Canada but he couldn’t guarantee what our country would do when we tried to return. Sure enough when re-entering America we were lectured sternly by the American border guard and told we were being put on a list; there was none of the joviality and accommodation of the Canadian guard. But for good or bad for America and for us, after a long lecture, we were permitted to reenter the country. So as we double check our passport is in hand, we examine the Fast and the Furious, catch up on China’s One Belt Initiative and ponder whether countries have made any progress on greenhouse gas emissions. It’s this week’s International Need to Know, providing comity, not Comey, on international affairs.

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

Movies Moving Fast & Furiously Overseas<

The closest we have come to seeing a Fast and Furious movie is when someone ran a red light and totaled our car last summer. But we could not resist the chart below showing the overseas revenue for each of the Fast and Furious movies since 2001. The chart is essentially shorthand for globalism. In 2001, overseas revenue accounted for 30 percent of the first movie’s overall take but for this year’s eighth(?!!) installment in the series, overseas revenue is so far accounting for 81.8 percent. The importance of international revenue has been cited for the dumbing down of Hollywood movies (Hollywood believes you can’t have complicated dialogue, plots or character development when it is being translated into many languages and cultures). Fortunately, Amazon, Netflix and other streaming services are catering to more niche markets allowing for films of a different bent than F&F and at budgets more manageable. But for big tent pole pictures–the superhero movies, the F&F franchises–the kind of big budget spectacle Hollywood specializes in, movie goers overseas are more important than American movie lovers. This will be increasingly the case in other areas of commerce and culture going forward.

One Belt, But Indian Suspenders

Last year we brought you news of China’s One Belt Initiative, an ambitious project of the Chinese government to further trade and economic integration across Asia, Europe, and Africa. As Sarah Zheng writes in the South China Morning Post, “The strategy uses free-trade agreements and infrastructure projects – including roads, ports and railways – to create a modern Silk Road spanning some 65 countries, which have a combined gross domestic product of US$21 trillion.” The One Belt initiative really consists of two belts–an economic “land belt through Eurasia, and a maritime belt that connects coastal Chinese cities to Africa and the Mediterranean.” A major summit takes place next week in Beijing at which 28 heads of state of the countries making up the notches of the belt will attend. But, one prominent notch, India, refuses to attend. Among the reasons for India’s absence is the One Belt Initiative includes a China-Pakistan Economic Corridor which India is not keen on. India is also concerned about the security implications of the One Belt initiative and its potential to align economic standards around a Chinese model. The battle to fill the vacuum we referred to last week Hoovers on.


Update!!!: Just as we were about to hit “send” on this week’s missive, we came across the video below produced by China promoting the One Belt One Road Initiative. It’s our favorite video of 2017 so far! And, the rap towards the end of the video proves utterly and convincingly that rap, like rock before it, is dead. Enjoy!

Lies, Damned Lies and Charts

A new New York Times columnist who has caused much consternation for his dismissiveness of climate change in his debut columns posted this chart of Germany’s greenhouse gas emissions since 2009 in his most recent column. His point is that Germany has made no progress on lowering emissions since the 2016 level is essentially the same as the 2009 level.

Music Video: The Belt and Road is How

Kevin Drum and others point out that the columnist was able to make Germany look like it has accomplished little in lowering greenhouse gas emissions by cherry picking the starting date of his chart. Here’s a chart Drum drums up for emissions going back to 1990 which shows Germany having pretty good success in lowing greenhouse gas emissions.

We are not wading into this fight but it got us to wondering how other countries have done in lowering emissions during that time period. The OECD gives us the answers. China’s emissions have, of course, gone up. But, France, the U.K. and the U.S. have all seen their emissions decrease as have a number of other developed countries (you can choose countries and adjust dates at the link). The OECD as a whole is slightly down since 1990, the G20 slightly up. We await our op-ed contract from the New York Times.

Great Vacuum War, Peace in Trouble?, Poor Middle Class

We find ourselves today ruminating about pancakes, Roger Federer and excellence. We were fortunate, thanks to a friend, to attend a charity exhibition match in Seattle last weekend between perhaps the greatest men’s tennis player in history, Roger Federer, and one of the top ranked players in the world, John Isner. Earlier in the evening these two matched up with Bill Gates and Pearl Jam’s Mike McCready in a doubles match. It was a wonderful evening that featured this amazing shot by Federer (fourth video on the page). Federer has lots of talent, of course, but he worked hard mentally and physically to become one of the greats. Before we were married, most Sunday mornings we would make pancakes while listening to Johnny Cash. We still cook pancakes today though not as often as in our weekly bachelor days. And yet, despite our many hours practicing our pancake skills, we cannot claim we are the Roger Federer of pancake makers. We do not know if we have spent Malcolm Gladwell’s 10,000 hours making pancakes but one would think we should be pretty darn good by now. But instead we research pancake schools on the Internet as we serve hot off the griddle more evidence of China trying to fill a vacuum, some worrisome signs about peace in our world and just how global the fall of the middle class is. It’s this week’s International Need to Know, the French Toast of international news, data and information.

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

The Great Vacuum War of 2017*

We talked a few weeks ago about the world’s leadership vacuum. China is continuing to try to fill it. For example, last week China demanded that it be the sole source of financing for a major logistics railway in Pakistan, and the Pakistan government agreed to the demand. Originally, both China and the Asian Development Bank (ADB) were to finance the railway. The ADB is a multilateral development bank funded by both Western and Asian countries. The bank is often involved in projects like the Pakistan railway. However, Pakistani newspaper The Dawn (it’s always reddest before the dawn) reports that the Minister for Planning and Development Ahsan Iqbal said in a news conference, “China strongly argued that two-sourced financing would create problems and the project would suffer.” Originally the ADB was going to provide $3.5 billion for the 1,700 kilometer rail line which is “considered the backbone of the country’s logistics, connecting two major ports with the rest of the country for transporting goods and passengers.” Even before political changes in the United States, China was playing a larger role in world events, including in development. In fact, in 2015 it created an Asian Infrastructure Investment Bank (AIIB) to rival the ADB. The AIIB recently received a big endorsement from Bank of Japan Governor Haruhiko Karoda, “Infrastructure needs are huge and it’s simply not possible for the Asian Development Bank and the World Bank to fill the gap completely,” said Kuroda. Space is full of vacuums. China is trying to fill ours.

*A title that only Charlie Mitchell will fully appreciate

All We Are Saying

While listening to the remarkable Louis Armstrong cover of Give Peace a Chance (no, really, check it out—peace has never swung so hard) and reading about political protests by both the left and the right, it occurred to us that what is missing from today’s protestors as opposed to those from years gone by is optimism. There was an optimistic bent to long ago protests fueled perhaps by a belief that their agitation would lead to a better world. Today’s protesters fill the optimism void with anger.*  Perhaps this is because although we live in the most peaceful and prosperous time in human history, there are worrisome signs of regress. The last couple years of trouble are either a hiccup or perhaps this long virtuous cycle of peace and prosperity is turning towards something darker. Take peace, for example–the last few years have seen peace take a beating. Looking at one measure—The Global Peace Index—there are now fewer countries in the “more peaceful” part of the spectrum as you can see in the maps below. Much of this is due to increased terrorism:. According to the Peace Index, “Deaths from terrorism increased by 80 per cent from last year’s report with only 69 countries not recording a terrorist incident.” Internal conflicts leading to more displaced people also led to the peace index achieving its lowest score since 2008. Whether this negative data is a short term blip or we are in for a trend of trouble is, of course, one of the more important questions of our time. 

2016 Peace Index



2011 Peace Index

*Or maybe it is anger that is causing the regress.

The Poor Middle Class

There has been much debate about the difficulties that America’s middle class is experiencing but like most trends, including the decline in manufacturing jobs (not unrelated to the fate of the middle class!) this is a global trend. In fact, Thomas Piketty, who authored the famous book,  Capital in the Twenty-First Century, three years ago, recently published new research showing China’s middle class is suffering too. In the chart below, Piketty shows the income share of the middle 40% of the U.S., China and France, all of which are lower than they were a few decades ago. Piketty, in his new paper, writes, “China’s inequality levels used to be close to Nordic countries and are now approaching U.S. levels.” Clearly this is because of NAFTA…wait, maybe these issues are more complicated than those attacking trade deals realize.

The Young and Restless, China vs India, Who’s on First

On the occasions we take public transit, our walk to the bus takes us by a cemetery. It’s a helpful reminder on our way to meetings which may contain challenges, puzzles and even on occasion acrimony, that in the long run, it will not matter. On a recent such walk, we were reading on our smartphone that Seattle has set a 122-year record for rain. It was, in fact, raining while we read this news. As we looked up from our phone, we saw a cemetery worker fixing an automatic sprinkler. We noted that all the sprinklers were turned on, spraying water onto the already damp environment, which we found neither efficient nor smart of the cemetery. Compounding this, one of the sprinklers was spraying directly into the sidewalk upon which we trod. We are one of the few Seattleites who uses an umbrella which we turned from the sky towards the sprinkler to block its rush of water. As we passed by another tombstone, we thought at least stupidity is not dead. But even as close our umbrella we open up the skies to France’s young and restless, to what India is exporting more than China and to who is emitting the most CO2 into the atmosphere. It’s this week’s International Need to Know, coming to you weekly, almost as inevitable as death and taxes, but much more useful, sweet and helpful.

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

The Young and the Restless

Explanations for the results of the French election, like explanations for most election results, like life itself,* are complicated. We could post a myriad of charts about the election but today we choose only two. The first shows who the young voted for, and it was not for the remaining centrist in the race, Macron. No, the populist on the left, Melenchon received the most number of votes from the age 18 – 24 crowd, with the populist on the right, Le Pen, coming in second among hip millennials. This is perhaps not surprising given a) that as in much of Europe, youth unemployment continues to be high in France (23.5%); and b) as we told you last year, democracy’s brand with the young is not as strong as it was with previous generations. The second chart below (courtesy of Ian Bremmer’s Twitter feed) maps high unemployment geographic areas with where Le Pen did best, and the similarities are striking. The French election like many elections in the last year have brought to the fore two crucial issues for the world–economic stagnation and an increasing affinity for authoritarianism. These two issues, of course, are related.

*We find ourselves thinking like a French philosopher.


China vs. India on Exports

China has far outpaced India in merchandise exports over the last 15 years. Everyone knows that. But perhaps not so well known, though obvious when one thinks about it, is that India is a much larger exporter of services than China, service exports being things like software, programming, architecture, engineering and the like. China is trying to transform into more of a services economy and one might expect that services export gap with India to narrow over the coming years. But, for that to happen, we expect China will have to do something about intellectual property theft and other associated issues. It will be difficult to have trust in services provided by China under the current legal and cultural norms there. That is not to say that China does not have a large services industry, including in information technology (Tencent is very large and very innovative), but will these services translate internationally? We expect they will over time and that will eventually compel China to open up its markets to foreign competition. Interestingly, both China and India’s economies are roughly equal in their dependence on exports. For China, exports are 22% of GDP and for India, they are 20%. But, China relies on goods exports, and India relies on service exports.


Who is on First?

We recently came across on Twitter (one of the worst human inventions of all time, and yet one we can’t stop ourselves from using) the first chart below showing China far and away as the largest emitter of CO2 into the atmosphere. China’s environmental problems are a huge challenge. Fortunately, they are working to address these environmental problems, although often it is a one step forward, one step back process. By its sheer size and increasingly developed economy, what China does or does not do, will have a huge effect on climate change efforts. But, it’s important to note China is not even close to being the largest emitter per capita. As you see in the second chart below, Australia takes that dubious prize. The U.S., the second-largest overall emitter, is a much larger emitter than China per capita. Everybody’s favorite northern cousin, Canada, is also, because of its large energy industry, a large per capita emitter.

Emissions per capita (t)