Why the EU Will Never Be an Economic Threat to the US

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Why the EU Will Never Be an Economic Threat to the US

Post by Corlyss_D » Thu Jan 03, 2008 9:43 pm

Europe’s Philosophy of Failure

By Stefan Theil

January/February 2008
In France and Germany, students are being forced to undergo a dangerous indoctrination. Taught that economic principles such as capitalism, free markets, and entrepreneurship are savage, unhealthy, and immoral, these children are raised on a diet of prejudice and bias. Rooting it out may determine whether Europe’s economies prosper or continue to be left behind.

Millions of children are being raised on prejudice and disinformation. Educated in schools that teach a skewed ideology, they are exposed to a dogma that runs counter to core beliefs shared by many other Western countries. They study from textbooks filled with a doctrine of dissent, which they learn to recite as they prepare to attend many of the better universities in the world. Extracting these children from the jaws of bias could mean the difference between world prosperity and menacing global rifts. And doing so will not be easy. But not because these children are found in the madrasas of Pakistan or the state-controlled schools of Saudi Arabia. They are not. Rather, they live in two of the world’s great democracies—France and Germany.

What a country teaches its young people reflects its bedrock national beliefs. Schools hand down a society’s historical narrative to the next generation. There has been a great deal of debate over the ways in which this historical ideology is passed on—over Japanese textbooks that downplay the Nanjing Massacre, Palestinian textbooks that feature maps without Israel, and new Russian guidelines that require teachers to portray Stalinism more favorably. Yet there has been almost no analysis of how countries teach economics, even though the subject is equally crucial in shaping the collective identity that drives foreign and domestic policies.

Just as schools teach a historical narrative, they also pass on “truths” about capitalism, the welfare state, and other economic principles that a society considers self-evident. In both France and Germany, for instance, schools have helped ingrain a serious aversion to capitalism. In one 2005 poll, just 36 percent of French citizens said they supported the free-enterprise system, the only one of 22 countries polled that showed minority support for this cornerstone of global commerce. In Germany, meanwhile, support for socialist ideals is running at all-time highs—47 percent in 2007 versus 36 percent in 1991.

It’s tempting to dismiss these attitudes as being little more than punch lines to cocktail party jokes. But their impact is sadly and seriously self-destructive. In Germany, unemployment is finally falling after years at Depression-era levels, thanks in no small part to welfare reforms that in 2005 pressured Germans on the public dole to take up jobs. Yet there is near consensus among Germans that, despite this happy outcome, tinkering with the welfare state went far beyond what is permissible. Chancellor Angela Merkel, once heralded as Germany’s own Margaret Thatcher, has all but abandoned her plans to continue free-market reforms. She has instead imposed a new “rich people tax,” has tightened labor-market rules, and has promised renewed efforts to “regulate” globalization. Meanwhile, two in three Germans say they support at least some of the voodoo-economic, roll-back-the-reforms platform of a noisy new antiglobalization political party called Die Linke (The Left), founded by former East German communists and Western left-wing populists.

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Many of these popular attitudes can be traced to state-mandated curricula in schools. It is there that economic lessons are taught that diverge substantially from the market-based principles on which the Western model is based. The phenomenon may hardly be unique to Europe, but in few places is it more obvious than in France and Germany. A biased view of economics feeds into many of the world’s most vexing problems, from the growth of populism to the global rise of anti-American, anti-capitalist attitudes.

“Economic growth imposes a hectic form of life, producing overwork, stress, nervous depression, cardiovascular disease and, according to some, even the development of cancer,” asserts the three-volume Histoire du XXe siècle, a set of texts memorized by countless French high school students as they prepare for entrance exams to Sciences Po and other prestigious French universities. The past 20 years have “doubled wealth, doubled unemployment, poverty, and exclusion, whose ill effects constitute the background for a profound social malaise,” the text continues. Because the 21st century begins with “an awareness of the limits to growth and the risks posed to humanity [by economic growth],” any future prosperity “depends on the regulation of capitalism on a planetary scale.” Capitalism itself is described at various points in the text as “brutal,” “savage,” “neoliberal,” and “American.” This agitprop was published in 2005, not in 1972.

When French students are not getting this kind of wildly biased commentary on the destruction wreaked by capitalism, they are learning that economic progress is also the root cause of social ills. For example, a one-year high school course on the inner workings of an economy developed by the French Education Ministry called Sciences Economiques et Sociales, spends two thirds of its time discussing the sociopolitical fallout of economic activity. Chapter and section headings include “Social Cleavages and Inequality,” “Social Mobilization and Conflict,” “Poverty and Exclusion,” and “Globalization and Regulation.” The ministry mandates that students learn “worldwide regulation as a response” to globalization. Only one third of the course is about companies and markets, and even those bits include extensive sections on unions, government economic policy, the limits of markets, and the dangers of growth. The overall message is that economic activity has countless undesirable effects from which citizens must be protected.

No wonder, then, that the French default attitude is to be suspicious of market forces and private entrepreneurship, not to mention any policies that would strengthen them. Start-ups, Histoire du XXe siècle tells its students, are “audacious enterprises” with “ill-defined prospects.” Then it links entrepreneurs with the tech bubble, the Nasdaq crash, and mass layoffs across the economy. (Think “creative destruction” without the “creative.”) In one widely used text, a section on technology and innovation does not mention a single entrepreneur or company. Instead, students read a lengthy treatise on whether technological progress destroys jobs. In another textbook, students actually meet a French entrepreneur who invented a new tool to open oysters. But the quirky anecdote is followed by a long-winded debate over the degree to which the modern workplace is organized along the lines imagined by Frederick Taylor, the father of modern scientific management theory. And just in case they missed it in history class, students are reminded that “cultural globalization” leads to violence and armed resistance, ultimately necessitating a new system of global governance.

This is a world apart from what American high school students learn. In the United States, where fewer than half of high school students take an economics course, most classes are based on straightforward, classical economics. In Texas, the state-prescribed curriculum requires that the positive contribution of entrepreneurs to the local economy be taught. The state of New York, meanwhile, has coordinated its curriculum with entrepreneurship-promoting youth groups such as Junior Achievement, as well as with economists at the Federal Reserve. Do American schools encourage students to follow in the footsteps of Bill Gates or become ardent fans of globalization? Not really. But they certainly aren’t filling students with negative preconceptions and suspicions about businesses and the people who run them. Nor do they obsess about the negative side effects and dangers of economic activity the way French textbooks do.

French students, on the other hand, do not learn economics so much as a very specific, highly biased discourse about economics. When they graduate, they may not know much about supply and demand, or about the workings of a corporation. Instead, they will likely know inside-out the evils of “la McDonaldisation du monde” and the benefits of a “Tobin tax” on the movement of global capital. This kind of anticapitalist, antiglobalization discourse isn’t just the product of a few aging 1968ers writing for Le Monde Diplomatique; it is required learning in today’s French schools.

Germans teach their young people a similar economic narrative, with a slightly different emphasis. The focus is on instilling the corporatist and collectivist traditions of the German system. Although each of Germany’s 16 states sets its own education requirements, nearly all teach through the lens of workplace conflict between employer and employee, the central battle being over wages and work rules. If there’s one unifying characteristic of German textbooks, it’s the tremendous emphasis on group interests, the traditional social-democratic division of the universe into capital and labor, employer and employee, boss and worker. Textbooks teach the minutiae of employer-employee relations, workplace conflict, collective bargaining, unions, strikes, and worker protection. Even a cursory look at the country’s textbooks shows that many are written from the perspective of a future employee with a union contract. Bosses and company owners show up in caricatures and illustrations as idle, cigar-smoking plutocrats, sometimes linked to child labor, Internet fraud, cell-phone addiction, alcoholism, and, of course, undeserved layoffs. The successful, modern entrepreneur is virtually nowhere to be found.

German students will be well-versed in many subjects upon graduation; one topic they will know particularly well is their rights as welfare recipients. One 10th-grade social studies text titled FAKT has a chapter on “What to do against unemployment.” Instead of describing how companies might create jobs, the section explains how those without jobs can organize into self-help groups and join weekly anti-reform protests “in the tradition of the East German Monday demonstrations” (which in 1989 helped topple the communist dictatorship). The not-so-subtle subtext? Jobs are a right to be demanded from the government. The same chapter also details various welfare programs, explains how employers use the threat of layoffs as a tactic to cut pay, and concludes with a long excerpt from the platform of the German Union Federation, including the 30-hour work week, retirement at age 60, and redistribution of the work pie by splitting full-time into part-time jobs. No market alternative is taught. When fakt presents the reasons for unemployment, it blames computers and robots. In fact, this is a recurring theme in German textbooks—the Internet will turn workers into “anonymous code” and kill off interpersonal communication.

Equally popular in Germany today are student workbooks on globalization. One such workbook includes sections headed “The Revival of Manchester Capitalism,” “The Brazilianization of Europe,” and “The Return of the Dark Ages.” India and China are successful, the book explains, because they have large, state-owned sectors and practice protectionism, while the societies with the freest markets lie in impoverished sub-Saharan Africa. Like many French and German books, this text suggests students learn more by contacting the antiglobalization group Attac, best known for organizing messy protests at the annual G-8 summits.

One might expect Europeans to view the world through a slightly left-of-center, social-democratic lens. The surprise is the intensity and depth of the anti-market bias being taught in Europe’s schools. Students learn that private companies destroy jobs while government policy creates them. Employers exploit while the state protects. Free markets offer chaos while government regulation brings order. Globalization is destructive, if not catastrophic. Business is a zero-sum game, the source of a litany of modern social problems. Some enterprising teachers and parents may try to teach an alternative view, and some books are less ideological than others. But given the biases inherent in the curricula, this background is unavoidable. It is the context within which most students develop intellectually. And it’s a belief system that must eventually appear to be the truth.

Can Old Europe Do New Tricks?

This bias has tremendous implications that reach far beyond the domestic political debate in these two countries. These beliefs inform students’ choices in life. Taught that the free market is a dangerous wilderness, twice as many Germans as Americans tell pollsters that you should not start a business if you think it might fail. According to the European Union’s internal polling, just two in five Germans and French would like to be their own boss, compared to three in five Americans. Whereas 8 percent of Americans say they are currently involved in starting a business, that’s true of only 2 percent of Germans and 1 percent of the French. Another 28 percent of Americans are considering starting a business, compared to just 11 percent of the French and 18 percent of Germans. The loss to Europe’s two largest economies in terms of jobs, innovation, and economic dynamism is severe.

Attitudes and mind-sets, it is increasingly being shown, are closely related to a country’s economic performance. Edmund Phelps, a Columbia University economist and Nobel laureate, contends that attitudes toward markets, work, and risk-taking are significantly more powerful in explaining the variation in countries’ actual economic performance than the traditional factors upon which economists focus, including social spending, tax rates, and labor-market regulation. The connection between capitalism and culture, once famously described by Max Weber, also helps explain continental Europe’s poor record in entrepreneurship and innovation. A study by the Massachusetts-based Monitor Group, the Entrepreneurship Benchmarking Index, looks at nine countries and finds a powerful correlation between attitudes about economics and actual corporate performance. The researchers find that attitudes explain 40 percent of the variation in start-up and company growth rates—by far the strongest correlation of any of the 31 indicators they tested. If countries such as France and Germany hope to boost entrepreneurship, innovation, and economic dynamism—as their leaders claim they do—the most effective way to make that happen may be to use education to boost the cultural legitimacy of going into business.

The deep anti-market bias that French and Germans continue to teach challenges the conventional wisdom that it’s just a matter of time, thanks to the pressures of globalization, before much of the world agrees upon a supposedly “Western” model of free-market capitalism. Politicians in democracies cannot long fight the preferences of the majority of their constituents. So this bias will likely continue to circumscribe both European elections and policy outcomes. A likely alternative scenario may be that the changes wrought by globalization will awaken deeply held resentment against capitalism and, in many countries from Europe to Latin America, provide a fertile ground for populists and demagogues, a trend that is already manifesting itself in the sudden rise of many leftist movements today.

Minimal reforms to the welfare state cost former German Chancellor Gerhard Schröder his job in 2005. They have also paralyzed modern German politics. Former communists and disaffected Social Democrats, together with left-wing Greens, have flocked to Germany’s new leftist party, whose politics is a distasteful mix of anticapitalist demagoguery and right-wing xenophobia. Its platform, polls show, is finding support even among mainstream Germans. A left-leaning majority, within both the parliament and the public at large, makes the world’s third-largest economy vulnerable to destructive policies driven by anticapitalist resentment and fear of globalization. Similar situations are easily conceivable elsewhere and have already helped bring populists to power in Latin America. Then there is France, where President Nicolas Sarkozy promised to “rupture” with the failed economic policies of the past. He has taken on the country’s public servants and their famously lavish benefits, but many of his policies appear to be driven by what he calls “economic patriotism,” which smacks of old-fashioned industrial protectionism. That’s exactly what French schoolchildren have long learned is the way the world should work.

Both the French and German cases show the limits of trying to run against the grain of deeply held economic ideology. Yet, training the next generation of citizens to be prejudiced against being enterprising and productive is equally foolhardy. Fortunately, such widespread attitudes and the political outcomes they foster aren’t only determined by tradition and history. They are, to a great extent, the product of education. If countries like France and Germany hope to get their nations on a new economic track, they might start paying more attention to what their kids are learning in the classroom.

Stefan Theil is Newsweek’s European economics editor. He completed his research of American, French, and German textbooks and curricula while a trans-Atlantic fellow at the German Marshall Fund of the United States.
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Post by Ralph » Thu Jan 03, 2008 10:07 pm

I am so relieved. Phew!
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Post by DavidRoss » Thu Jan 03, 2008 10:12 pm

I disagree and believe that there's little difference between the values promoted in American public education and those Mr. Theil ascribes to Europe. Maybe the rest of the country is more interested than California in education rather than indoctrination? I would sing Hallelujah for convincing evidence that I am wrong.
"Most men, including those at ease with problems of the greatest complexity, can seldom accept even the simplest and most obvious truth if it would oblige them to admit the falsity of conclusions which they have delighted in explaining to colleagues, which they have proudly taught to others, and which they have woven, thread by thread, into the fabric of their lives." ~Leo Tolstoy

"It is the highest form of self-respect to admit our errors and mistakes and make amends for them. To make a mistake is only an error in judgment, but to adhere to it when it is discovered shows infirmity of character." ~Dale Turner

"Anyone who doesn't take truth seriously in small matters cannot be trusted in large ones either." ~Albert Einstein
"Truth is incontrovertible; malice may attack it and ignorance may deride it; but, in the end, there it is." ~Winston Churchill

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Post by Madame » Fri Jan 04, 2008 12:27 am

France and Germany ... together at last :)

Do you have a link to this article? I'd like to share it if possible.

Thanks.

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Post by Ralph » Fri Jan 04, 2008 12:59 am

Madame wrote:France and Germany ... together at last :)

Do you have a link to this article? I'd like to share it if possible.

Thanks.
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You need a paid subscription to get the full text:

http://www.foreignpolicy.com/users/logi ... ry_id=4095
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Post by Kevin R » Fri Jan 04, 2008 1:21 am

I see economic illiteracy is not just confined to the American left.
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Post by Corlyss_D » Fri Jan 04, 2008 1:28 am

DavidRoss wrote: I would sing Hallelujah for convincing evidence that I am wrong.
How about this for structural evidence: in Europe there are strict rules against borrowing money against your house to start a business. The regulatory framework in Europe is so hostile to startups that companies have to go overseas where there are no such regulations in order to be successful. Can you imagine what the US would be like if people couldn't mortgage their property to fund a business start up?
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Post by Corlyss_D » Fri Jan 04, 2008 1:30 am

Madame wrote:France and Germany ... together at last :)

Do you have a link to this article? I'd like to share it if possible.

Thanks.
I can email you the article. I subscribe. Will that do?
Kevin R wrote:I see economic illiteracy is not just confined to the American left.
It's worse in Europe because the entire mind-set over there is risk-aversion: people might who might want to start businesses might trip and hurt themselves, so they have to lie about the American economy, scare them with the bete noire of the American-Anglo economic model and the number of people the model leaves starving in the gutter, the number of poor here, the number on welfare, and what the median income is in the US. Otherwise, their publics might become restive and want to try stuff; they might become successful and wealthy without the government. Then what would all those bureaucrats do for their pay?
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Post by DavidRoss » Fri Jan 04, 2008 8:39 am

Corlyss_D wrote:
DavidRoss wrote: I would sing Hallelujah for convincing evidence that I am wrong.
How about this for structural evidence: in Europe there are strict rules against borrowing money against your house to start a business. The regulatory framework in Europe is so hostile to startups that companies have to go overseas where there are no such regulations in order to be successful. Can you imagine what the US would be like if people couldn't mortgage their property to fund a business start up?
I referred specifically to Mr. Thiel's thesis that "In France and Germany, students are being forced to undergo a dangerous indoctrination. Taught that economic principles such as capitalism, free markets, and entrepreneurship are savage, unhealthy, and immoral, these children are raised on a diet of prejudice and bias..." and that "This is a world apart from what American high school students learn." I suspect the difference is more of extent rather than kind, but would be overjoyed to learn that American high school students nowadays are receiving a solid grounding in economics that's not ideologically driven.
"Most men, including those at ease with problems of the greatest complexity, can seldom accept even the simplest and most obvious truth if it would oblige them to admit the falsity of conclusions which they have delighted in explaining to colleagues, which they have proudly taught to others, and which they have woven, thread by thread, into the fabric of their lives." ~Leo Tolstoy

"It is the highest form of self-respect to admit our errors and mistakes and make amends for them. To make a mistake is only an error in judgment, but to adhere to it when it is discovered shows infirmity of character." ~Dale Turner

"Anyone who doesn't take truth seriously in small matters cannot be trusted in large ones either." ~Albert Einstein
"Truth is incontrovertible; malice may attack it and ignorance may deride it; but, in the end, there it is." ~Winston Churchill

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Post by BC » Fri Jan 04, 2008 10:15 am

Corlyss_D wrote:
DavidRoss wrote: I would sing Hallelujah for convincing evidence that I am wrong.
How about this for structural evidence: in Europe there are strict rules against borrowing money against your house to start a business. The regulatory framework in Europe is so hostile to startups that companies have to go overseas where there are no such regulations in order to be successful. Can you imagine what the US would be like if people couldn't mortgage their property to fund a business start up?
I live in Europe where I own a company that, among other things, provides financial advisory services to small businesses. I am not aware of any such rule: it's perfectly normal practice for small business loans to be secured against equity in the business owner's house.

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Post by absinthe » Fri Jan 04, 2008 11:33 am

BC wrote:
Corlyss_D wrote:
DavidRoss wrote: I would sing Hallelujah for convincing evidence that I am wrong.
How about this for structural evidence: in Europe there are strict rules against borrowing money against your house to start a business. The regulatory framework in Europe is so hostile to startups that companies have to go overseas where there are no such regulations in order to be successful. Can you imagine what the US would be like if people couldn't mortgage their property to fund a business start up?
I live in Europe where I own a company that, among other things, provides financial advisory services to small businesses. I am not aware of any such rule: it's perfectly normal practice for small business loans to be secured against equity in the business owner's house.
Quite. They don't get the whole story in America. The article is a typically arrogant American viewpoint, assuming that America is right (ie correct). Talk about indoctrination.

Looking at recent stuff on Detroit, welfare, crime etc, I don't know if Americans are in any position to pontificate on success.

Their banking system is just as crazy. Targeted lending? ....What??? Get yer bonuses on what yer lend, boys, not what's paid back... :lol:
No wonder the place is in economic crisis!
.
.

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Post by Seán » Fri Jan 04, 2008 11:46 am

Corlyss_D wrote:
DavidRoss wrote: I would sing Hallelujah for convincing evidence that I am wrong.
How about this for structural evidence: in Europe there are strict rules against borrowing money against your house to start a business. The regulatory framework in Europe is so hostile to startups that companies have to go overseas where there are no such regulations in order to be successful. Can you imagine what the US would be like if people couldn't mortgage their property to fund a business start up?
Corlyss, Europe consists of a myriad of different nations, for example. Ireland, Geat Britain, Portugal, France, Spain, Germany, The Netherlands, etc, etc. Europe is not a single political and economic unit. What part of Europe are you talking about? Where is the legal and regulatory framework to support your thesis?
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Post by absinthe » Fri Jan 04, 2008 12:15 pm

Did you write that article yourself, Corlyss_D? It's an excellent style and we atandard europeans were wondering if we could commission you to make this address to our London School of Indoctrination...tch, sorry, I meant Economics. They could do with a bit of indoctrination or if that guy in the pic is anything to go by, they could get the cane!

;)

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Post by BC » Fri Jan 04, 2008 2:27 pm

absinthe wrote: Quite. They don't get the whole story in America..
Well Absinthe, I'd certainly be interested to hear specifically how, in toto, our regulatory framework is more hostile to startups. If European clients are becoming established in the US, standard advice is to avoid or defer becoming taxable in the US if possible - better to pay significantly lower and more easily understood taxes in Europe, where tax authorities tend to be less intrusive, less aggressive and more business friendly than the IRS. On the other hand US clients coming here are advised to form local subsidiaries to take advantage of more favourable tax rules. (I'm not being partisan: my job is to minimise my clients' tax bills, irrespective of where they pay tax. That means making profits taxable in Europe rather than America where legally possible).

For medium and large companies the SEC regulations and reporting requirements in the US are notoriously tougher than in Europe.

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Post by BWV 1080 » Fri Jan 04, 2008 3:06 pm

Interesting irony. The presupposition underlying corylss's post title (which is not reflected in the body of the article) shows she is captive to the same sort of statist, zero-sum mentality that the article pillories in French textbooks. She infers that the EU is not a threat to the US because it is not a vibrant, entrepeneurial economy - if it was then there would be a potential threat. Of course any real conservative economist would say that the opposite is true. The US would do nothing but gain from trading with a vibrant EU economy, whereas we lose if the EU economy, fettered by overregulation and statist dogma, grows slowly.

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Post by Corlyss_D » Fri Jan 04, 2008 5:25 pm

BC wrote:it's perfectly normal practice for small business loans to be secured against equity in the business owner's house.
That is not the practice in Britain or on the continent.
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Post by Corlyss_D » Fri Jan 04, 2008 5:27 pm

absinthe wrote:No wonder the place is in economic crisis!
The only place the US has an "economic crisis" is in the media. There's no economic crisis here.
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Post by Corlyss_D » Fri Jan 04, 2008 5:29 pm

Seán wrote:Corlyss, Europe consists of a myriad of different nations, for example. Ireland, Geat Britain, Portugal, France, Spain, Germany, The Netherlands, etc, etc. Europe is not a single political and economic unit. What part of Europe are you talking about? Where is the legal and regulatory framework to support your thesis?
Don't you guys read the Economist?
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Post by Corlyss_D » Fri Jan 04, 2008 5:41 pm

BWV 1080 wrote:Interesting irony. The presupposition underlying corylss's post title (which is not reflected in the body of the article) shows she is captive to the same sort of statist, zero-sum mentality that the article pillories in French textbooks. She infers that the EU is not a threat to the US because it is not a vibrant, entrepeneurial economy - if it was then there would be a potential threat. Of course any real conservative economist would say that the opposite is true. The US would do nothing but gain from trading with a vibrant EU economy, whereas we lose if the EU economy, fettered by overregulation and statist dogma, grows slowly.
Actually, Steve, that is my position. The title was aimed deliberately at Absinthe because I haven't finished mulling over my response to her in another thread in which she posited that the US was afraid of European competition therefore we are pleased that the EU is so feckless. Quite the contrary: the US has been trying for decades to get the EU countries that matter economically, i.e., Britain, France, Germany, and Italy to do something about their constipated regulatory structures that surpress business start-ups, promote joblessness, and strangle economic growth in favor of a cradle to grave safety net. Only Britain has done so. These structures are pretty well documented regularly in the Economist whenever they report on those nations' stagnating economies. The US position has always been "the pie is a lie." World trade and economic progress is not a zero-sum game in which if the US wins everybody else loses. Globalization is our bag. Only some of us in the US don't understand that.

My apologies to Ireland, the little engine that could, and Britain, which threw off their chains under Thatcher and won't be getting them back just to please the likes of France, Germany, and Brussels. I'm sorry proximity requires you to be lumped in with the Europeans. :lol:
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Post by Modernistfan » Fri Jan 04, 2008 5:48 pm

The only place the US has an "economic crisis" is in the media. There's no economic crisis here.
That's the Bush line, a rerun of Hoover's comments that "the economy is fundamentally sound" made just after the October 1929 Wall Street crash, with the nasty spin of a slap at the media added.

How can you say that there is no economic crisis when job creation is running at an anemic 18,000 per month, gas prices and heating oil prices are at record highs, with food prices about to follow them, we have huge federal deficits and balance-of-trade deficits, the value of the dollar is plummeting, and two million people may lose their homes due to foreclosure in the next year or so? On top of that, the United States has lost something like three million manufacturing jobs since Dubya took office. More happy talk from the idiots who brought us the "cakewalk" in Iraq, torture, the failure to properly respond to natural disasters such as Katrina, and similar incompetence.

Maybe there is no crisis if you own Exxon Mobil or Halliburton, but, from where I sit, we cannot sell our home, our stock market portfolio is in the tank, and my law clients are taking longer to pay and cutting back on new inventions and investments. Sure sounds like an economic crisis to me.

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Post by Corlyss_D » Fri Jan 04, 2008 6:13 pm

Modernistfan wrote:
Corlyss wrote:The only place the US has an "economic crisis" is in the media. There's no economic crisis here.
That's the Bush line, a rerun of Hoover's comments that "the economy is fundamentally sound" made just after the October 1929 Wall Street crash, with the nasty spin of a slap at the media added.
:roll: It's 1929 again! Run for the hills! You must believe what the media believes: if they say it often enough and loud enough, it will be true.
How can you say that there is no economic crisis


Easily.
when job creation is running at an anemic 18,000 per month
Job creation has grown for 5.5 years. 1.8 million jobs were created during the Bush admininstration. You and the Dems can call it "anemic" but considering that everyone predicted a recession after 9/11 and specifically in 2007, that's pretty close to an economic miracle.
gas prices and heating oil prices are at record highs,


So is income growth. That's why people aren't paying much attention to the effects of the oil price increases. Most have already budgeted for it without much difficulty. If the oil price increases were a serious threat to the economy, we would see far more dislocation. The only thing that scares people is the psychological impact of paying $3/gal at the pump when 2.5 years ago it was only $1.60/gal. People still buy gas, drive to work, heat their homes, etc.
with food prices about to follow them
A lot of that increase is because farmers are abandoning food crops and changing over to corn since we have stupidly opted for corn ethanol as a means of offsetting gasoline prices and pollution. That's the energy policy your Congress, both Democratic and Republican, voted for.
we have huge federal deficits and balance-of-trade deficits, the value of the dollar is plummeting, and two million people may lose their homes due to foreclosure in the next year or so?


Yes the deficits are a problem. Too bad FDR and LBJ instituted all those entitlement programs that are the root of the problem.

Balance of trade deficit will go down as the dollar devalues. You can't have it both ways: the US is the economic engine that keeps the rest of the world afloat until China and India succeed us. You better pray that the trade deficit will continue or there really will be a depression.

Unfortunate about the people who overextended on their home purchases. 299,000,000 people did not. Let's keep this in perspective. Whose to blame here? The banks didn't force them to borrow the money they couldn't afford to repay. It's the post-Boomer since of entitlement that Americans have which now will prevent the 2 million from suffering the consequences of their reckless behavior. We will rush to their rescue in order to save the banks instead of letting nature take its course.
On top of that, the United States has lost something like three million manufacturing jobs since Dubya took office.


You and other economic casandras talk like these people don't ever work again. That's just silly. Of course they get jobs. If they didn't, unemployment wouldn't be at an all time low. I suppose you want to claim their lying about the unemployment figures as well. I'll gladly give up low-skill, union jobs for higher-paid white collar jobs any day in the week.
More happy talk from the idiots who brought us the "cakewalk" in Iraq, torture, the failure to properly respond to natural disasters such as Katrina, and similar incompetence.
Gee, you're a veritable font of Democratic bullsh*it!
from where I sit, we cannot sell our home, our stock market portfolio is in the tank, and my law clients are taking longer to pay and cutting back on new inventions and investments. Sure sounds like an economic crisis to me.
I'm genuinely sorry, Nathan. I don't like the idea of anyone I know suffering. You and Dan are in a downright recession by the sound of it. But you are not everyone and public policy needs to be made on a surer basis than the difficulties of one or two individuals.
Last edited by Corlyss_D on Fri Jan 04, 2008 7:47 pm, edited 1 time in total.
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Post by Modernistfan » Fri Jan 04, 2008 6:24 pm

I guess by "higher-paid white collar jobs" you must mean flipping hamburgers at McDonalds. There are no such jobs.

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Post by BWV 1080 » Fri Jan 04, 2008 6:53 pm

Modernistfan wrote:
The only place the US has an "economic crisis" is in the media. There's no economic crisis here.
That's the Bush line, a rerun of Hoover's comments that "the economy is fundamentally sound" made just after the October 1929 Wall Street crash, with the nasty spin of a slap at the media added.

How can you say that there is no economic crisis when job creation is running at an anemic 18,000 per month, gas prices and heating oil prices are at record highs, with food prices about to follow them, we have huge federal deficits and balance-of-trade deficits, the value of the dollar is plummeting, and two million people may lose their homes due to foreclosure in the next year or so? On top of that, the United States has lost something like three million manufacturing jobs since Dubya took office. More happy talk from the idiots who brought us the "cakewalk" in Iraq, torture, the failure to properly respond to natural disasters such as Katrina, and similar incompetence.

Maybe there is no crisis if you own Exxon Mobil or Halliburton, but, from where I sit, we cannot sell our home, our stock market portfolio is in the tank, and my law clients are taking longer to pay and cutting back on new inventions and investments. Sure sounds like an economic crisis to me.
The economy WAS fundamentally sound in 1929 when Hoover made the statement. His policies and FDR's is what made the depression

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Post by Seán » Fri Jan 04, 2008 7:36 pm

Corlyss_D wrote:
Seán wrote:Corlyss, Europe consists of a myriad of different nations, for example. Ireland, Geat Britain, Portugal, France, Spain, Germany, The Netherlands, etc, etc. Europe is not a single political and economic unit. What part of Europe are you talking about? Where is the legal and regulatory framework to support your thesis?
Don't you guys read the Economist?
Corlyss, whether or not I read the Economist is hardly relevant. You are answering a pertinent question with an inane utterance. I repeat, what part of Europe are you talking about? Where is the legal and regulatory framework to support your thesis?
Seán

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Post by Corlyss_D » Fri Jan 04, 2008 7:36 pm

Modernistfan wrote:There are no such jobs.
More populist BS.
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Post by BC » Fri Jan 04, 2008 7:37 pm

Corlyss_D wrote:
BC wrote:it's perfectly normal practice for small business loans to be secured against equity in the business owner's house.
That is not the practice in Britain or on the continent.
Er, yes it is. This is not opinion, it is simple, easily verifiable fact. I am British, and this is my profession. I know what I'm talking about. I don't want to be rude, but you very obviously don't.
Last edited by BC on Fri Jan 04, 2008 7:58 pm, edited 1 time in total.

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Post by Corlyss_D » Fri Jan 04, 2008 7:41 pm

BC wrote:Er, yes it is. I earn my living advising small businesses in Britain. I know what I'm talking about. I don't want to be rude, but you very obviously don't.
Oh, that's okay. If I got my facts wrong, I want to know about it. I got my info from the Economist.
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Post by Corlyss_D » Fri Jan 04, 2008 7:49 pm

You'd think they were listening in our duscussion here . . . .

America's economy

Aspirin, not morphine
Jan 3rd 2008
From The Economist print edition

America's economy will be weak in 2008, but policymakers should dispense the pain-killers with care

Image

MORE drugs do not always speed a patient's recovery. And strong medicine can have unpleasant side-effects. These medical homilies are worth bearing in mind as America's economy enters 2008. With a year of weak growth in prospect and a high risk of recession, the clamour for action is getting louder. Critics charge that the Federal Reserve, which in recent months has cut its short-term policy rate by one percentage point, to 4.25%, has been far too cautious. An economy at risk, the argument goes, needs much cheaper money, and quickly.

In recent weeks luminaries such as Larry Summers, treasury secretary in the Clinton administration, and Martin Feldstein, a Republican economist, have also called for fiscal stimulus. Mr Feldstein wants a tax cut that would automatically kick in if employment fell for three consecutive months. Mr Summers wants a fiscal boost worth $50 billion-75 billion. Congressional Democrats are working on a stimulus of temporary tax cuts and spending increases. The White House is said to be exploring a fiscal package.

The political appeal of a stimulus is easy to understand. It is an election year and Americans are feeling increasingly pinched. The economy has soared to the top of voters' priorities; approval of Mr Bush's handling of it has fallen to a record low; and one poll suggests that Americans are already gloomier than they were during the 2001 recession.

But does speedier action make economic sense? In a recent speech Mr Summers argued that America risked the worst downturn since the early 1980s. Failing to deal with this, he argued, would be far costlier than loosening policy too much to avert it. If overly loose monetary policy created “undue inflation pressures”, they could be countered at a “moment of much less financial peril”. A “timely”, “temporary” and “targeted” fiscal boost could complement more monetary easing without compromising America's long-term budget health. This argument hinges on three questions: How vulnerable is the economy? What is the price of overdoing monetary easing? Will politicians design a sensible stimulus package? Each, on closer inspection, argues against rushing to action.

Cold-shower treatment

No one doubts that 2008 will be hard. The combination of a weakening labour market, slipping house prices, tighter credit and higher fuel costs will weigh on domestic spending. The price of oil hit $100 a barrel this week (see article). House prices have fallen by 5% from their peak and by all accounts have far further to go. A pessimistic survey of manufacturing published on January 2nd only deepened the gloom.

And yet, although tumbling house prices and a sharp credit contraction could indeed pull the economy into a noxious downward spiral, the evidence of such an economic disaster is, as yet, slim. The last reading of consumer spending, in November, was surprisingly strong. The stickiness of house prices suggests the drag on consumer spending will be long and grinding, not sudden and sharp. And it is worth remembering that slower domestic spending and higher saving is exactly what America needs to correct its current-account deficit.

Anyway, insuring against calamity can be costly. The last time the Federal Reserve slashed interest rates to shore up the economy, between 2001 and 2003, it sowed the seeds of today's housing mess. Although a housing and credit collapse would be deflationary, pre-empting that risk too dramatically could be inflationary. Consumer prices are rising uncomfortably fast, and people's expectations of future inflation, by some measures, have inched upwards. If central bankers allow inflation expectations to become unhinged, they will have a nasty, protracted problem on their hands. That is why the Fed's measured pace of interest-rate cuts is prudent.

If America's economy falls into a long slump, then of course politicians should grasp the fiscal lever. That is one way to reduce the pressure for extreme monetary easing. Cash-strapped consumers in depreciating houses might respond more forcefully to tax cuts than lower interest rates. And if the mortgage mess gets bad enough, a public bail-out—say by using institutions such as the Federal Housing Administration—may prove a less damaging palliative than heavy-handed government rewriting of mortgage contracts.

But none of this means it is right to act now. With private spending weakening, not slumping, there is no case for a fiscal offset. Although America's budget deficit, at 1.2% of GDP, is not enormous, the room for manoeuvre is smaller than in 2001, when Mr Bush sold his tax cuts as a stimulus. Partly as a result, Congress is contemplating only modest actions—such as a tax rebate, more food stamps, perhaps some infrastructure spending. It is likely to be a vain exercise: unnecessary if the downturn is mild, but insufficient to deal with a truly dire mess. Like good doctors, policymakers ought to plan for the worst. But, for now, they should keep their strongest pills locked away.

http://www.economist.com/opinion/displa ... d=10430273
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Post by Corlyss_D » Fri Jan 04, 2008 8:07 pm

The oil price

Peak nationalism
Jan 3rd 2008
From The Economist print edition


Oil keeps getting more expensive—but not because it is running out

NEW YEAR'S EVE has been and gone, but for oilmen, the party continues. On January 2nd, helped across the line by a New York trader eager for bragging rights, the first business day of the year, the price of their product topped $100 a barrel for the first time. Oil is now almost five times more expensive than it was at the beginning of 2002.

Image

It would be natural to assume that ever increasing price reflects ever greater scarcity. And so it does, in a sense. Booming bits of the world, such as China, India and the Middle East have seen demand for oil grow with their economies. Meanwhile, Western oil firms, in particular, are struggling to produce any more of the stuff than they did two or three years ago. That has left little spare production capacity and, in America at least, dwindling stocks. Every time a tempest brews in the Gulf of Mexico or dark clouds appear on the political horizon in the Middle East, jittery markets have pushed prices higher. This week, it was a cold snap in America and turmoil in Nigeria that helped the price reach three figures.

No wonder, then, that the phrase “peak oil” has been gaining ground even faster than the oil price. With each extra dollar, the conviction grows that the planet has been wrung dry and will never be able to satisfy the thirst of a busy world.

Geography, not geology

Yet the fact that not enough oil is coming out of the ground does not mean not enough of it is there. There are many other explanations for the lacklustre response to the glaring price signal. For one thing, oil producers have tied their own hands. During the 1980s and 1990s, when the price was low and so were profits, they pared back hiring and investment to a minimum. Many ancillary firms that built rigs or collected seismic data shut up shop. Now oil firms want to increase their output again, they do not have the staff or equipment they need.

Worse, nowadays, new oil tends to be found in relatively inaccessible spots or in more unwieldy forms. That adds to the cost of extracting oil, because more engineers and more complex machinery are needed to exploit it—but the end of easy oil is a far remove from the jeremiads of peak-oilers. The gooey tar-sands of Canada contain almost as much oil as Saudi Arabia. Eventually, universities will churn out more geologists and shipyards more offshore platforms, though it will take a long time to make up for two decades of underinvestment.

The biggest impediment is political. Governments in almost all oil-rich countries, from Ecuador to Kazakhstan, are trying to win a greater share of the industry's bumper profits. That is natural enough, but they often deter private investment or exclude it altogether. The world's oil supply would increase markedly if Exxon Mobil and Royal Dutch Shell had freer access to Russia, Venezuela and Iran. In short, the world is facing not peak oil, but a pinnacle of nationalism.

None of that will help consumers or governments. The economic toll of expensive oil is just as high whether geology or politics is to blame—and the best response is just the same. Policy should encourage energy efficiency and support research into alternative fuels. Governments seeking to shield their citizens with subsidies or price caps should instead expose them to the full cost to foster frugality. All this will be hard and unpopular. But politicians might console themselves with the thought that even the most recalcitrant petro-regime is more malleable than the brute realities of geology.

http://www.economist.com/opinion/displa ... d=10430264
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Post by Corlyss_D » Fri Jan 04, 2008 8:25 pm

This kind of story is a lot more worrying to me than the loss of manufacturing jobs:

America's capital markets

Down on the street
Nov 23rd 2006 | NEW YORK
From The Economist print edition

No longer can America take for granted its global superiority as a market for capital. Regulatory reform might let it keep up with the pack

DAVID CHAVERN has been looking at a photograph of hirsute twenty-somethings and fretting. The snap, from the late 1970s, shows a mop-topped Bill Gates and colleagues at what would become the world's biggest software company. Mr Chavern, a capital-markets expert at the US Chamber of Commerce, is concerned that America may no longer be very good at nurturing nascent Microsofts. “You can't help wondering about the hairy people you'll never hear of,” he muses.

He is not alone. There has been much hand-wringing over the state of America's capital markets and their ability to help businesses grow. The main worry is that despite being big, they are no longer competitive compared with the leading financial centres of Europe and Asia. This month Michael Bloomberg, New York's mayor, and Charles Schumer, a senator, showed their concern in an article dramatically titled: “To save New York, learn from London.” But some think it is already too late for Wall Street. “The days of financial hegemony are over,” says one senior American official gloomily.

As arrogance gives way to angst, America is exploring what to do. The Chamber of Commerce has held a series of “town hall meetings” and will publish a report next spring. New York has hired consultants from McKinsey to develop a new strategy. But the initiative attracting most attention is the Committee on Capital Markets Regulation (CCMR). This group of bankers, bosses, academics and investors, headed by Hal Scott, a Harvard Law School professor, is due to release its first set of recommendations on November 30th. These are likely to include scrapping or revising various regulations seen to be holding back American business.

Although the government insists it is not involved, the treasury secretary, Hank Paulson—a former head of Goldman Sachs—has offered encouragement. This week he said that the 2002 Sarbanes-Oxley act, which toughened up corporate regulation following Enron's collapse, is “being implemented in a way that may be...introducing new risks to our economy”, and forcing companies to spend more on accountants than research.

This might seem an odd time for such anxiety. After all, America's firms and banks, many of them world-class, are making record profits; Wall Street bonuses could be almost a third higher than last year's payout, itself a record; the Dow Jones Industrial Average recently hit a new high; the merger of two Chicago exchanges has cemented that city's dominance in derivatives-trading, while the New York Stock Exchange and Nasdaq are trying to buy their European rivals (see article).

At the right price

Are the fears misplaced? As capital becomes more mobile, investors worry less about where their trades take place, so long as the price is right. America's big investment banks can win business wherever in the world deals are made. And budding Microsofts can always list abroad if their local market cannot provide the financial support they need.

Yet it is not quite as simple as that. Although capital flows more easily, there are additional costs in raising money overseas. And successful financial markets create a “cluster” effect of businesses servicing them. Hence it is in America's interest to encourage a vibrant domestic capital market. And if it raises its game, other centres will have to do the same, which would benefit companies everywhere.

The advocates of reform see plenty of scope for improvement. The problem is not only Sarbanes-Oxley, they argue. Aggressive investigations by Eliot Spitzer forced the financial industry into settlements that curbed innovation as well as sharp practice. Federal regulators, desperate to keep up with the New York attorney-general (and now governor-elect), ran amok. Class-action lawyers have been allowed to wield too much power, and shareholders too little.

Whatever the causes, the numbers bear out America's slippage. It is still well ahead of Europe in hedge-fund and mutual-fund assets, securitisation, syndicated loans, and turnover in equities and exchange-traded derivatives. In all but one of these, however, the gap narrowed in 2005. Europe's corporate-debt market overtook America's last year (see chart 1), although America still leads in high-yield “junk” bonds, a distinction less dubious than it once was.

Image

The loudest sucking sound has been in the market for initial public offerings, a crucial barometer of financial wellbeing. America's share (measured by proceeds) has collapsed since the late 1990s (see chart 2). Five years ago the New York Stock Exchange dwarfed London and Hong Kong. This year it is being beaten by both.

Image

Luigi Zingales, an economist who sits on the CCMR, says the figures suggest something fundamental has changed. He thinks the best guide to the competitiveness of America's markets is the behaviour of overseas firms that choose to list their shares at home and abroad. Even after stripping out factors that might skew the result, America's share of these “cross-listings” has fallen substantially in the past five years. Yet of the growing number of firms which are no longer cross-listing in America, more than 90% still choose to market their shares to investors in the United States under a rule known as 144A. This gives them access to the American market, but without the full registration and compliance costs.

Domestic firms are also fleeing the glare of public markets. According to Dealogic, more of corporate America was taken out of public ownership by private-equity firms (spending $178 billion) in the first ten months of this year than in the previous five years combined. Some cite Sarbanes-Oxley and other post-Enron costs as a reason, although, to be fair, private-equity is booming in the rest of the world, too.

Wall Street's rivals are fighting harder for business. London is now the world leader in the trading of foreign-exchange and over-the-counter (off-exchange) derivatives. It is seen as the natural home for firms from emerging markets: big Russian companies prefer to list there. Goldman Sachs is beefing up its London office, adding functions that it currently has only in New York. Hong Kong has benefited from the emergence of China and become an intra-Asian centre for capital-raising as well as trading. There is also fierce competition to lead regional financial markets, especially with a flashy bid from Dubai to dominate the Middle East and its oil money.

Open outcry

Technological innovation has made it easier for capital and those that need it to go where the best deals are available. As Messrs Bloomberg and Schumer see it, this has upset the “almost exquisite balance between regulation and entrepreneurial vigour” that helped America thrive in the last quarter of the 20th century. But Wall Street's moneymen must take some of the blame: they were slower to embrace electronic trading than those in London.

Problems were compounded with tougher immigration controls after the 2001 terrorist attacks. With work visas harder to obtain, it can be extremely difficult for the managers of a global firm to gather in New York or Chicago at short notice. Meeting in London is much easier.

Aside from the visa question, which is hard to sort because it bumps up against security issues, there are four fundamental problems underlying America's declining competitiveness:

• Section 404. This is the most contentious part of Sarbanes-Oxley. It requires an annual “internal control report”, which must be certified by auditors and personally signed off by two executives. It has concentrated minds, but raised costs considerably. Some say this is because it is being implemented too zealously.

Auditing expenses ballooned soon after the law was introduced. These have since fallen, but can still top several million dollars a year for a firm with a market capitalisation of $1 billion.

Because many of the costs of compliance are fixed, big companies find them easier to swallow. Some small firms cite this as a reason for listing on London's AIM market for young stocks; 50 American firms have done so, most of them since 2004. Hundreds of others are said to be considering it. Another spur has been the decline in coverage of smaller stocks since banks were forced by Mr Spitzer to tighten up their research procedures.

But Sarbanes-Oxley is not just about costs. In theory, a higher standard of corporate-governance should result in a higher valuation, since listing in a well-regulated market shows a commitment from a company that it will not abuse investors. If this premium is high enough, it will offset the costs of compliance. One study, conducted post-Sarbanes-Oxley, found that the premium placed on the value of an emerging-market firm listing in New York can reach 37%; preliminary research suggests the value of a London listing is not as high. Mr Zingales's calculations suggest that the New York premium outweighs costs for companies with a market value of more than $230m.

For the most part, reformers insist they are not out to gut Sarbanes-Oxley, but to make it more “risk-based”. This means keeping the goals largely the same but giving firms and their auditors more leeway in achieving them. That battle may already be won: the Securities and Exchange Commission (SEC), America's chief market-regulator, and the Public Company Accounting Oversight Board, which was created by Sarbanes-Oxley, have both announced reviews of Section 404, hinting strongly that the burden will be eased, especially for smaller firms. On November 16th Christopher Cox, the SEC's chairman, promised “significant changes” in coming weeks.

A more radical recommendation, unlikely to be among the changes, would be to limit prosecutions to individuals rather than companies. This would avoid a repeat of the Arthur Andersen debacle, in which the accounting firm was driven out of business after being convicted of obstructing justice in the Enron case, only for the ruling to be overturned last year by the Supreme Court.

Some believe a wide-ranging rethink is needed on accounting standards. America continues to believe that its accounting rules are better than internationally accepted standards, even though studies suggest there is not a lot to choose between them. Foreign firms would be keener to list their shares in New York if they did not have to reconcile their accounts.

• Litigation. Many businessmen regard America's legal system, with its punitive jail terms and class-action lotteries, even less favourably than they view Sarbanes-Oxley. “For foreign companies we're a jungle,” says a senior regulator. Asian firms, for instance, are still reluctant to risk being sued three years after China Life, an insurer, listed in New York and within days fell victim to a shareholder lawsuit. Most firms involved in mergers in America have to factor possible legal troubles into the costs of the deal, says Dick Langan of Nixon Peabody, a law firm.

By some measures, the worst may have passed—though nobody is betting on it. The tide of post-Enron cases is ebbing. Cornerstone Research reckons there will be some 120 class-action filings this year, down from 179 last year (see chart 3). Aggressive law firms have also come under scrutiny. However, damages have continued to rise, from $1.1 billion in 1999 to $3.5 billion last year (excluding the $6 billion-plus WorldCom settlement).

Image

Doesn't this merely show the legal system is doing its job in a country in which big rewards mean big incentives to cheat? Sensitive to such doubts—and painfully aware of the large political contributions of trial lawyers, predominantly to the resurgent Democrats—those pushing for change are, for now, eschewing a radical approach. The boldest suggestion is that damages should be agreed through arbitration, rather than awarded by juries.

•Shareholder rights. America may be the land of the free float, but its shareholders lack certain basic rights. For instance, they have only a limited say in electing company boards, unlike investors in Britain, and they have to contend with staggered boards (where only a fraction of the directors stands for re-election in a given year, making it impossible for a majority of shareholders to sack the board in one go). Add to that a proliferation of poison-pill takeover defences and the fact that it is boards, not shareholders, who vote on executive pay (again, unlike Britain).

• Regulation. There are three main areas of concern: how financial supervisors interact with the private sector; how they arrive at their decisions; and the fragmented nature of the rules. At the centre of all three sits the SEC. Once accused of being too slow to act, these days its perceived problem is hyperactivity, caused by what a senior regulator caustically calls the “Spitzerisation” of the agency.

This tough-guy approach is not entirely misplaced. The SEC has unparalleled numbers of retail investors to protect and it does not want to be outflanked by aggressive state prosecutors. But in striving to be tough, it may be losing sight of the need for markets to be efficient as well as clean.

Among the SEC's most vocal critics is Harvey Pitt, a former chairman. Most of its employees, he said recently, see it as an enforcement agency with regulatory powers, rather than the other way round. This shows up in salaries: the pay of its enforcement lawyers has shot up relative to other departments; by one estimate, over 700 of them now earn more than their chairman.

Part of the problem, says Peter Wallison of the American Enterprise Institute, is that the hard line sometimes takes on a life of its own. When wrongdoing is suspected or alleged, for instance, the SEC will open a so-called “matter under inquiry”. If this is not actively terminated within 60 days, it automatically becomes an informal investigation. Sometimes, says Mr Wallison, investigations open, and the companies involved suffer negative publicity, simply because nobody bothered to close the file.

Some would like to see the SEC become more like Britain's super-regulator, the Financial Services Authority. The FSA has won plaudits for an approach based more on principles than hard rules. It prefers to nudge rather than bully. Moreover, it is widely considered to be better at analysing the potential costs and benefits of proposed regulatory changes. That may be because it employs a higher proportion of economists to lawyers.

The SEC, however, operates in a regulatory regime that is much more fragmented than in Europe. The number of federal and state bodies scrutinising a particular bit of the financial markets in America can lead to duplication and then to turf wars.

Rick Ketchum, head of regulation at the New York Stock Exchange, (and a former president of Nasdaq) says America's various regulatory bodies are now better at working with each other. But in some cases, he thinks, they might want to merge. A merger of the SEC and the Commodity Futures Trading Commission, for instance, would provide one agency to regulate the cash and derivatives markets, where boundaries are already becoming blurred.

All eyes on Capitol Hill

Whether these concerns are acted upon will depend largely, as ever, on politicians in Washington, DC. The Democrats, who retook control of Congress in the recent elections, are less likely to want to loosen financial-market laws than Republicans, and slightly more inclined to toughen up hedge-fund regulation.

That said, leading Democrats portray Sarbanes-Oxley as the other party's doing (even though it was a bipartisan bill) and may be prepared to see it tweaked. Barney Frank, a Democrat in line to run the House Financial Services Committee in the new Congress, has said he does not want to rewrite the law but would be willing to see regulatory agencies adjust their rules so that it is not applied so stringently. The CCMR also favours this milder type of non-legislative reform, because it would not require congressional approval.

But reformers must be careful not to appear to be pushing changes through the back door. Even before the CCMR's report is out, it has been denounced by some on the left as a self-interested attempt by big business and its Republican supporters to claw back lost ground now that the big post-Enron trials are largely over. Some in Washington refer to it as “the 7% committee”—a reference to the underwriting fees charged on Wall Street. Mr Scott, the committee's leader, denies any such bias.

Even if the angst is overdone, the competitive threat to America is real—as the Big Apple's hoarier financiers know only too well. They still sigh when recalling restrictions introduced in the 1960s that drove lenders and borrowers to London, where the Eurobond market promptly took off. The American government loosened the rules a decade later, but by then it was too late and London ran off with the business. This time they hope it will be different.
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Post by Seán » Sat Jan 05, 2008 4:11 am

Seán wrote:
Corlyss_D wrote:
Seán wrote:Corlyss, Europe consists of a myriad of different nations, for example. Ireland, Geat Britain, Portugal, France, Spain, Germany, The Netherlands, etc, etc. Europe is not a single political and economic unit. What part of Europe are you talking about? Where is the legal and regulatory framework to support your thesis?
Don't you guys read the Economist?
Corlyss, whether or not I read the Economist is hardly relevant. You are answering a pertinent question with an inane utterance. I repeat, what part of Europe are you talking about? Where is the legal and regulatory framework to support your thesis?
You have not answered my questions.
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Post by absinthe » Sat Jan 05, 2008 1:03 pm

I love it when we read a paper claiming that Euprope is not prepared to take risks, then later another article appears claiming

"It is still well ahead of Europe in hedge-fund and mutual-fund assets, securitisation..."

which looks to me like America is more ready to take risks as long as the risk can be reduced, nulled even!!!

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Post by Kevin R » Sat Jan 05, 2008 3:31 pm

Modernistfan wrote:
The only place the US has an "economic crisis" is in the media. There's no economic crisis here.
That's the Bush line, a rerun of Hoover's comments that "the economy is fundamentally sound" made just after the October 1929 Wall Street crash, with the nasty spin of a slap at the media added.

How can you say that there is no economic crisis when job creation is running at an anemic 18,000 per month, gas prices and heating oil prices are at record highs, with food prices about to follow them, we have huge federal deficits and balance-of-trade deficits, the value of the dollar is plummeting, and two million people may lose their homes due to foreclosure in the next year or so? On top of that, the United States has lost something like three million manufacturing jobs since Dubya took office. More happy talk from the idiots who brought us the "cakewalk" in Iraq, torture, the failure to properly respond to natural disasters such as Katrina, and similar incompetence.

Maybe there is no crisis if you own Exxon Mobil or Halliburton, but, from where I sit, we cannot sell our home, our stock market portfolio is in the tank, and my law clients are taking longer to pay and cutting back on new inventions and investments. Sure sounds like an economic crisis to me.
Not so

Job creation: Check out recent BLS data. For example, look at the stats from Nov. 2007 and compare them to Nov 2006. What do you find as to the creation of higher paying jobs?

Manufacturing jobs are disappearing all over the world and they are not coming back (and we should not want them back). And besides, the manufacturing sector is still fairly healthy in the US. And for every manufacturing job lost, many others are created. It is called creative destruction. No crisis.

The deficit is very low by historical standards. Again, no crisis here.

Balance of trade is a smokescreen, as American history has shows us.
"Free trade, one of the greatest blessings which a government can confer on a people, is in almost every country unpopular."

-Thomas Macaulay

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Post by Corlyss_D » Sat Jan 05, 2008 5:00 pm

Seán wrote:You have not answered my questions.
I'm looking back over the Economists from the time period to answer. Off the top of my head, I'd say it was the EU generally, but it could have been individual countries' requirements for start-ups, employee compensation and benefits packages, provisions for funding of laid off workers, taxes, and banking regulations in Britain, France, Germany, and Italy. If memory serves, those are the Big 4 as far as the picture of EU economic health is concerned.
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Post by Seán » Sat Jan 05, 2008 7:37 pm

Corlyss, you still have not answered my question. The first line of your original statement is
Corlyss_D wrote: How about this for structural evidence: in Europe there are strict rules against borrowing money against your house to start a business.
You did not provide any structural evidence to support your assertions when you made your original statement nor have you done so since. What you have done is to make a statement that you can not support with evidence. Do you know what legal and regulatory regimes exist within the different nations in Europe?
Seán

"To appreciate the greatness of the Masters is to keep faith in the greatness of humanity." - Wilhelm Furtwängler

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Post by Corlyss_D » Sun Jan 06, 2008 2:15 am

Seán wrote:Corlyss, you still have not answered my question. The first line of your original statement is
Corlyss_D wrote: How about this for structural evidence: in Europe there are strict rules against borrowing money against your house to start a business.
You did not provide any structural evidence to support your assertions when you made your original statement nor have you done so since. What you have done is to make a statement that you can not support with evidence. Do you know what legal and regulatory regimes exist within the different nations in Europe?
You're repeatin' yourself, Sean. So I'll repeat myself: I said I was looking for the Economist articles. I've posted dozens of them here on these very issues. When I find them, I'll supply the links. Then you can write the Economist editors and tell them they don't know what they are talking about.
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Post by Seán » Sun Jan 06, 2008 4:38 am

Corlyss_D wrote:
Seán wrote:Corlyss, you still have not answered my question. The first line of your original statement is
Corlyss_D wrote: How about this for structural evidence: in Europe there are strict rules against borrowing money against your house to start a business.
You did not provide any structural evidence to support your assertions when you made your original statement nor have you done so since. What you have done is to make a statement that you can not support with evidence. Do you know what legal and regulatory regimes exist within the different nations in Europe?
You're repeatin' yourself, Sean. So I'll repeat myself: I said I was looking for the Economist articles. I've posted dozens of them here on these very issues. When I find them, I'll supply the links. Then you can write the Economist editors and tell them they don't know what they are talking about.
Why should I write to the Economist? You said that you have the structural evidence, not I. I asked you what countries have these rules and you haven't answered me. These restrictions do not exist in the UK or Ireland, both nations are in Europe and are members of the EU.
If you are relying on the Economist magazine to provide you with evidence on a country by country basis so be it. When you do get the evidence I'd like to see it, thanks.
Seán

"To appreciate the greatness of the Masters is to keep faith in the greatness of humanity." - Wilhelm Furtwängler

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Post by Corlyss_D » Sun Jan 27, 2008 6:11 pm

Seán wrote:I asked you what countries have these rules and you haven't answered me. These restrictions do not exist in the UK or Ireland, both nations are in Europe and are members of the EU.
They do, at least in the UK, but to a far lesser degree in both the UK and Ireland than they do in the rest of the EU countries, particularly the big 3, France, Germany, and Italy. I'll tell you why I focus on those below. And of course, because the issues are structural, nothing material has changed since the dates of these articles. Sarkozy has threatened/promissed to do something about the labor situation so unemployment among the under 25 set doesn't remain at 50%+ or worsen. But he ain't done it yet.
When you do get the evidence I'd like to see it, thanks.
You asked for it!

After about 3 weeks of diligent searching on the Economist website for stories in the timeframe when I read the article about what BC says is impossible, i.e., that in EU countries including Britain homeowners are not permitted to borrow against the equity in their houses to start their own businesses because the regulations presuppose that such borrowing will result in homeless citizens when their businesses fail as they invariably will (the EU reg writers assumption, not mine). I have not been able to find that article but if and when I do, I will post it here.

However, I have found quite a bit of literature on the very kind of structural impediments to robust economic growth I have referred to elsewhere in this thread. So without further adieu, here's enough to keep you busy for an hour or two:

Structural reasons for European economic sluggishness:

Why France, Germany, and Italy? They account for 70% of the Euro-zone's GDP

What Are Europe's worst structural problems: high taxes, high unemployment, too strict labor regulations discouraging business start-ups, too large government sector as compared to public sector, unfriendly capital policies, lack of relevant education/training, and too much regulation causing anemic economic growth

http://www.economist.com/world/europe/d ... E1_PGNPPDJ
http://www.economist.com/world/europe/d ... E1_PGNPPDJ
http://www.economist.com/opinion/displa ... E1_PQNSNVD
http://www.economist.com/theworldin/dis ... E1_VTPQDTJ


European taxes, with the exception of Ireland and Britain, are high to secure their "safety net" programs but simultaneously discourage capital investment. In 2000-2001 high-tax European nations attempted bootstrap high tax "harmonization" on the back of anti-terrorism to stop capital flight to lower tax nations.

http://www.economist.com/research/backg ... id=3784734
http://www.oecd.org/pdf/M000014000/M00014130.pdf

Sizeable Debt as a percentage of GDP to maintain the social safety net:
France: http://www.economist.com/research/backg ... id=9833329
France: http://www.economist.com/research/backg ... id=9867278
France: http://www.economist.com/research/backg ... id=5471712
EU: http://www.economist.com/agenda/display ... E1_QDDGDQJ
EU: http://www.economist.com/agenda/display ... E1_QQVNJPJ
EU: http://www.economist.com/surveys/displa ... E1_QPJJPSS

Even with high taxes to support the safety net, pension reform in OECD countries is crucial because of demographics:
http://www.economist.com/research/backg ... id=2084916
http://www.economist.com/research/backg ... id=2085219
http://www.economist.com/research/backg ... id=5522173
http://www.economist.com/research/backg ... id=9304314


Chronically high unemployment
OECD: http://www.economist.com/finance/displa ... id=3715859
France: http://www.economist.com/research/backg ... _id=922843
Germany: http://www.economist.com/research/backg ... id=3907994
http://www.economist.com/research/backg ... id=5356706
http://www.economist.com/world/europe/d ... d=10567096

Chronic risk-aversion in the EU:
http://www.economist.com/business/displ ... E1_SJDVQGG

Large public sector:
France: http://www.economist.com/research/backg ... id=5471712

Dependence on exports to America to pull up the economy:
Germany: http://www.economist.com/research/backg ... id=3907994

Regulatory rigidity depressing private sector job creation:
OECD: http://www.economist.com/finance/displa ... E1_RDDDRGD
OECD: http://www.economist.com/finance/displa ... E1_SDVGNPT
OECD: https://www.oecd.org/dataoecd/53/30/36899245.pdf
OECD: ftp://papers.econ.mpg.de/egp/discussion ... 006-04.pdf
EU: http://www.economist.com/finance/displa ... E1_VNNDGNR
Britain: http://www.economist.com/world/britain/ ... E1_PSGSQVT
Britain: http://www.economist.com/surveys/displa ... E1_PRPTTRG
France: http://www.economist.com/research/backg ... id=5356706
France: http://www.foreignpolicy.com/story/cms.php?story_id=85
Germany: http://www.economist.com/surveys/displa ... E1_VQGVDVR
Germany: http://www.economist.com/surveys/displa ... E1_VQGVTTS
Germany: http://www.foreignpolicy.com/story/cms. ... ry_id=3334
Sweden: http://www.economist.com/world/europe/d ... E1_SRRDTSP


Problematic Labor markets
http://www.economist.com/world/europe/d ... E1_RTPQJPG
Britain: http://www.economist.com/research/backg ... id=9523423
Germany: http://www.economist.com/surveys/displa ... E1_VQGVDSD
Germany: http://www.economist.com/surveys/displa ... E1_VQGVTQP

Protectionism to keep native businesses under native control
http://www.economist.com/surveys/displa ... E1_PJVJPGS
http://www.economist.com/agenda/display ... E1_VNSVDPG

Lack of technological innovation and patents depresses business competitiveness:
OECD: http://www.economist.com/research/backg ... id=9597461
Britain: http://www.economist.com/research/backg ... id=9601016
Britain: http://87.230.13.240/bin/view/CERIBA/In ... Accounting

Nature of state control of education:
http://www.economist.com/research/backg ... id=9523423
http://www.economist.com/specialreports ... id=4339960
http://www.economist.com/surveys/displa ... E1_VQGVDDV
http://www.economist.com/specialreports ... E1_QPQDDPT
http://www.economist.com/specialreports ... E1_QPQDDTS
http://www.foreignpolicy.com/story/cms. ... ry_id=4095

Italy, a unique set of structural problems
http://www.economist.com/opinion/displa ... id=3992427
http://www.economist.com/opinion/displa ... id=3987219
http://www.economist.com/surveys/displa ... E1_VTGQDGT
http://www.economist.com/surveys/displa ... E1_VTGQTQT
http://www.economist.com/surveys/displa ... E1_VTGQTDT
http://www.economist.com/surveys/displa ... E1_VTGQTPT
http://www.economist.com/surveys/displa ... E1_VTGQTTV
http://www.economist.com/surveys/displa ... E1_VTGQTGP
http://www.economist.com/surveys/displa ... E1_VTGQTVT
http://www.economist.com/surveys/displa ... E1_VTGQTJT


How Ireland succeeded by breaking with the depressive and counterproductive European models
http://www.foreignpolicy.com/story/cms.php?story_id=80

A comparison of the European and American business models with emphasis on how much freer of such restrictions the American model is
http://www.foreignpolicy.com/Ning/archi ... siness.pdf
Corlyss
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