The main source of water for the Gaza Strip is an aquifer that is rapidly becoming depleted and contaminated. In fact, the depletion is so rapid that experts fear that the 1.5 million residents of the occupied territory may run out of water in a matter of years–leading to an unprecedented catastrophe. Finding solutions to the absence of fresh water is extraordinarily difficult and it’s not clear how the issue can be addressed. But what is happening in the Gaza is simply the first example of a looming problem for the world as a whole. A twin feature of the depletion of fresh water is the similarly rapid depletion of fertile soil in various areas of the world.
It’s great to be in the 1%. According to the New York Times, the Chief Executive Officers of the 200 largest corporations in the US had median 2012 pay packages of $15.1 million — an increase of 16 percent from 2011. Lawrence Ellison, the CEO of Oracle, had the highest compensation package of $96.2 million. Aside from the obvious fact (to me, at least, that such compensation is excessive), the real problem is that much of the compensation comes from stock grants and options. This type of compensation creates incentives for CEO to maximize short-term gains without looking at the long-term health of the corporation. Such incentives can lead to disaster, as we saw in the risky behavior of CEOs in the financial markets in 2007-08.
Millions (as many as 14 million out of a total population of 84 million, according to the Egyptian military) protested against the government of Egyptian President Morsi. Even though the temperatures were sweltering, the protests stayed mostly peaceful, although there were scattered acts of violence and four deaths. The size of the protests is a staggering vote of no confidence, but there were no signs whatsoever that Morsi intends to make any changes. Unquestionably, the deteriorating state of the Egyptian economy is a critical determinant of the protests.
Egypt is preparing for a day of protests. Opponents and supporters of President Morsi are trying to demonstrate their views of President Morsi a year to the day after his election. The opponents of President Morsi call their movement “Tamarod” which is the Arabic word for rebellion, and they claim to have petitions calling for Morsi’s resignation signed by 22 million Egyptians. There has been a great deal of violence leading up to the protests, and Sunday promises to be a very difficult day for Egypt.
Der Spiegel is reporting that the US National Security Agency bugged the offices of the European Union. There is not much detail in the report, but is goes without saying that the public airing of these activities is highly embarrassing and damaging to the United States. The Germans, in particular, are quite sensitive to the issue of government surveillance given their histories under fascist and communist rule. THe internaitonal backlash against the US policies will certainly complicate any steps that the US may wish to take to prosecute Snowden.
I’ve noted in previous posts the dangerous new virus–called the Middle East Respiratory Syndrome (MERS)–that has emerged with Saudi Arabia as its focal point. The death toll from the virus so far is quite small, although the death rate is exceedingly high. The situation has become quite acute as Saudi Arabia will host more than 6 million visitors for the annual Hajj. In effect, Saudi Arabia will serve as an incubator for one of the more lethal viruses to ever emerge. We can only hope that MERS does not prove to be highly contagious.
Moisés Naím, a senior economic analyst at the Carnegie Endowment, offers an interesting interpretation of the protests in Chile, Turkey, and Brazil. He revives an old theory, the theory of rising expectations, to explain the discontent. Essentially, the theory suggests that economic improvements lead to expectations about the capability of the state which it is not capable of satisfying. Naim attributes the theory to Samuel Huntington but the theory goes back much further. Naim’s interpretation is plausible, but it ignores the issue of corruption which seems to loom quite large in the minds of the protesters. Indeed, the “rising expectations” hypothesis seems to be so mechanistic that it divests authorities of the responsibility to remember that their primary job is to serve the public good.
The situation in Egypt seems to be heating up again. There are protests scheduled for this weekend against President Morsi, but violence has broken out already. The sentiment seems to be that Morsi and his supporters in the Muslim Brotherhood are becoming too authoritarian (reminiscent of the charges against Prime Minister Erdogan in Turkey), and, unfortunately, Morsi’s government is responding by cracking down on critical elements of the press and media. It could be a very difficult weekend in Egypt. In other protests in the world, Brazilian truck drivers have called for a 72 hour strike to protest government corruption.
For those who follow the news closely, the sharp rise in the interest rates Chinese banks charge each other (the so-called Shibor, the Chinese counterpart to the Western Libor) was unsettling. The increase meant that the Chinese government had decided, for whatever reason, to stop lending money to banks on very easy terms. Interest rate increases almost inevitably lead to slower economic growth, so the rest of the world took the action seriously, worried that a slower Chinese economy would undoubtedly have negative effects on the rest of the world. But to understand the motives of the Chinese government in restricting money to lending institutions one also has to understand “shadow banking”, a term that refers to financial institutions that offer loans without having the deposits to back them up like traditional banks do. Such institutions often lack the financial discipline (and government regulation) imposed by having deposits to honor and tend to lend in a more speculative and dangerous way. And this is precisely the problem in China right now: there is too much lending of money that is not guaranteed by some sort of collateral. If people begin to default on these risky loans, then the Chinese economy is at great risk. We will have to see how the Chinese government navigates these treacherous waters.
There is yet another protest movement going on. This time it is in Chile. Actually, the student strikes in Chile have been going on for years, and they have been very vibrant and well-organized. But like the student stirkes in Canada last year, the protests focus almost exclusively on the quality and cots of higher education. These are important issues, but do not necessarily indicate widespread social unrest. However, the labor movement is now joining in the student protest and the concerns articulate by the unions correlate almost perfectly with the other protest movements going on in the world.
The Russian Times is running a story that the US CIA is stockpiling weapons in Jordan to be used by Syrian rebels in a planned offensive scheduled for August. The suggestion is that the CIA is being used in order to avoid public scrutiny of the move. Although President Obama did signal that the US would step up support for the rebels after the announcement that the Syrian government had used sarin gas, this is the first hint of how the policy was changed. If the report is accurate, the move is not well-considered. Although the CIA claims that it is being very careful as to which rebel groups are getting arms, there is no combination of rebel forces strong enough to govern all of Syria. The only possible way out of the violence in Syria is a negotiated settlement.
The National Weather Service office in Phoenix released this graph today.
Protests in Brazil continue as the government of Dilma Rousseff scrambles to make concessions to defuse the tension. Perhaps the key concession was the withdrawal of a constitutional amendment that limited the power of federal prosecutors to investigate crimes. The amendment seemed to most protesters as a “get out of jail free” card to politicians, and served to convey a sense that corruption in Brazil was intractable. The protests remain leaderless and seemingly without direction which runs the risk of ultimately diffusing the discontent of the people. It further opens up the possibility of some politicians exploiting the protests for their own personal agendas. At some point, the protests need to coalesce around some positive changes to address the issues raised.
Ethnic riots have broken out again in China’s northwest. The Uighurs, who are primarily Muslims of Turkic origin, populate the Xinjiang province and resent the control of the Han Chinese that threatens their identity and limits their opportunities within China. Such unrest flares up periodically, and this particular episode has been similar to previous outbreaks. So far, however, the violence seems to be more limited, although it is difficult to predict how it might unfold. China contains a large number of different ethnic groups, and the central government is quite sensitive to any movements that threaten its control.
The revelations that both the US and Great Britain have been conducting massive data sweeps surreptitiously have soured relations with many countries, and undermined the claims of both countries as representatives of personal rights and freedoms. The German response to these activities is quite interesting, given the misuses of state power in that country’s past. Der Spiegel has collected editorial statements from a number of German media outlets, and the negative response is deep and strong.
One of the causes of the rise of income and wealth inequality in the world is the declining share of economic growth that goes to labor. Globalization has certainly rewarded those with capital as there have been extraordinary gains for those who can increase their productivity by tapping into the technological revolution. Bruce Bartlett, a former adviser to Presidents Reagan and George H.W. Bush, has an essay in the New York Times, which outlines the size of the shift from labor to capital. This chart captures the size of the shift internationally:
If you wish to pursue this idea more technically, then check out this post from the blog, Zero Hedge. It outlines how much financial trading is being done by the purely speculative “shadow” banks–financial institutions that trade in money without having deposits to back up their trades.
The global economy seems to be slowing down. Europe is clearly in a recession and the economic situation in China looks increasingly dicey. In order to avoid a slowdown, there has to be a sharp increase in demand somewhere, but it is difficult to see any region in the world that could supply that consumption stimulus.
The Syrian Civil War continues to evolve into the world war in Syria. The great and medium powers are all now involved in some way, and the violence spills over into other countries. The most vulnerable state is Lebanon which persists only because of an acute sensitivity to the fragility of the social bonds within the state. But the Lebanese army has now begun to fight the followers of a Sunni Sheikh, Ahmad al-Assir, who has opposed Hezbollah’s support for Assad in Syria. If the political situation in Lebanon deteriorates, it is fertile crowd for an extension of the schisms in Syria.
One of the curious things about learning about why certain things happen in the world is that we rarely know all the relevant facts surrounding the incidents. Such is the case with the Turkish protests. I’ve read perhaps hundreds of newspaper and journal articles on the protests, and the references to the changes in Taksim Square that precipitated the protests have usually been described as a “shopping mall.” In today’s New York Times, however, there is an article that outlines some other changes that Prime Minister Erdogan has proposed: a replica of an Ottoman Army barracks and a Grand Mosque. Both are viewed with great suspicion by the secularists in Turkey; indeed, the plans for the mosque led to the arm’s coup d’etat in 1997 (when Erdogan was mayor of Istanbul). The new information available to me makes me think that the religious question in the protests is significantly more complex than I had believed earlier. I now have to find out more information about how these proposed changes are interpreted by the protesters.
Speaking of getting new information, The Irish Independent has just published some audio recordings between two top executives of the Anglo-Irish Bank in 2008 as the financial crisis overwhelmed the international financial system. Anglo-Irish was a bank that was chartered in 1964 and was nationalized by the government of Ireland in 2009. The recordings are simply disgusting. The executives laugh about how they made up statistics to get $7 billion from the government in order to bail out the bank. The number had no basis in reality, the executives joke about the fact that they knew the money could never be repaid, and it is clear that they wanted to entrap the government into a situation in which further bailouts would be required. The corruption within the world financial institutions at that time is simply breathtaking.
Military spending is increasing dramatically in Asia, and by 2020 the region will have the largest military spending in the world. The US has been the dominant part of the global spending pattern for many years, but the budget deficits in the US and the drawdown of US efforts in Iraq and Afghanistan have reduced its role. China, India, and Indonesia will account for the largest part of this shift. US companies, however, will likely remain the dominant military sellers.
The spying by the NSA and other federal agencies has raised all sorts of questions about how the perception of security threats can erode personal liberties. We tend to think that such erosion only occurs in extreme cases and tend to give the authorities the benefit of the doubt. Such complacency is profoundly misplaced. As an example of how the threat of “terror” can be invoked in trivial cases, one need only to look at a public health matter in Tennessee where an official is recorded as saying “…you need to make sure that when you make water quality complaints you have a basis, because federally, if there’s no water quality issues, that can be considered under Homeland Security an act of terrorism.” Now even complaining about something can be considered “terrorism.”
The number of rich people in the world has increased by about a million people from 2011 to 2012. There were 12 million people with investible assets of more than $1 million. The breakdown of residency of those individuals is as follows:
The Guardian has published a fascinating essay on the politics of the global protest movements. The essay acknowledges the large number of protests in the world, and finds that they are correlated with a lack of trust in government. But beyond that, there does not seem to be a unifying message. My personal belief is that the lack of coherence in the movements reflects the absence of a viable left-wing to organize the discontent. In some sense, this absence is a good thing since it avoids the trap of a rigid ideology. On the other hand, the discontent will remain unorganized and the lack of organization will lead to ineffectiveness. We will have to see whether these protests link up in any meaningful way.
Readers of this blog know that I am no fan of the austerity policies currently being imposed on various countries in Europe with large budget deficits. These policies have actually been the standard medicine of international organizations such as the IMF for many years, although they were imposed on poor countries through what was known as “Structural Adjustment Programs.” People in the richer countries benefited tremendously from these programs (largely because the policies demanded lower wages and more reliance on foreign investment), and the pattern persists between the rich-rich countries (like Germany) and the poor-rich countries (like Greece). One of the pre-eminent financial journalists, Martin Wolf, offers a great critique of austerity in the current New York Review of Books.
The Guardian ran an excellent article on the context of the Brazilian protests. Over a million citizens protested yesterday, and the protests remain, for the most part, non-violent. The authorities, however, are using increasingly more draconian techniques of crowd control. It is safe to say that the government of Dilma Rousseff has no idea how to address the issues raised by the protesters–the government seems to be clueless.
Three people have died and almost 100,000 people have been evacuated because of flooding near Calgary in Canada. Ordinarily, I would not report on floods except that this flooding seems to be associated with extremely heavy rain (six month’s worth of rain in two days). Some climate scientists believe that climate change is associated with extreme weather events. If so, New England could be in serious trouble.
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