WASHINGTON – The officially atheist Chinese government is surprisingly open to Christianity, at least partially, because it sees a link between the faith and economic success, said a sought after scholar who has relations with governments in Asia.

China believes that Christianity is responsible for much of the historic success of Western Europe and the United States, said Dr. William Jeynes, senior fellow of The Witherspoon Institute in Princeton, N.J., during a presentation at the Family Research Council on Tuesday.

But while the Chinese government is open to Christianity, it also “wants to control Christianity.” Those in authority are very much aware of the Church’s role in bringing down the Berlin Wall and advancing democracy in the Soviet bloc.

“They view Christianity as a belief system that if not controlled will potentially overthrow the government,” said Jeynes during his lecture titled, “God, China & Capitalism: Is Christianity in China the Key Ingredient for Economic Success?” “But on the other [hand], they see that if you try to oppress Christians that it could lead to this explosion as it did in Eastern Europe and [they could] lose control that way.

“So they want Christianity for the benefits but they want to control it, and that is the balance they are currently trying to achieve.”

The scholar, who has multiple degrees in different disciplines and graduated first in his class at Harvard University, recalled an incident that confirms that China believes Christianity is responsible for the economic prosperity in the U.S. At a Harvard Business Conference years ago, Jeynes recalled top Chinese CEOs one after another asking Harvard scholars not about their talking points but about the relationship between Christianity and economic prosperity in the United States.

The Harvard scholars, Jeynes noted, were baffled and did not know how to respond.

China, however, is not the first to make a connection between the Christian faith and economic prosperity. German sociologist and political economist Max Weber wrote the book The Protestant Ethic and the Spirit of Capitalism in which he argued that ascetic Protestantism was a major reason behind the rise of capitalism and the economic success of the Western world.

Weber observed that Christianity produces good work ethic and subsequently economic prosperity because it instills a sense of calling and people are more determined and more passionate about their work. The German economist also contended that Christianity promotes honesty, which is necessary to build trust that is essential in economic transactions; encourages people to be their best and be concerned about their neighbors’ standard of living; and discourages materialism.

Other world religions do not promote economic prosperity like Christianity, contended Weber.

Hinduism believes Hindus are born and not made so there is a large degree of passivity in the religion, Weber observed. Also, the Hindu caste system is not conducive to instilling a work ethic where people push themselves harder with the hope that they can rise above their current situation.

In Buddhism, which shares many similarities with Hinduism, followers are taught the importance of respect and deference to the point that they support the status quo instead of change. Buddhism also defines “desire” as fundamentally wrong, whereas in Christianity there is a distinction between the desire to glorify God and love people versus selfish and evil desires.

Meanwhile, Confucianism, dominant in East Asia, leaves less room for social mobility than Christianity because it emphasizes hierarchy. It also is more supportive of dominating forms of government than Christianity, Weber noted.

And with Islam, the hierarchical value is even more emphasized than in Confucianism. Islam emphasizes compliance rather than freedom of grace that Jesus brings. Christianity’s teaching of God’s love encourages followers to help raise the living standards of others, the economist also observed.

As Weber, other scholars, and now the Chinese government observe, where Christianity is dominant there is economic prosperity.

American Orthodox Rabbi Daniel Lapin, who is a political commentator, noted that 90% of scientific discoveries over the last 1,000 years were in nations where Christianity was dominant.

Many in the Chinese government, said Jeynes, believe that Christianity might be China’s best hope to establish morality as well as economic prosperity. Immorality is so “out-of-control” in China that a Chinese leader confided to him that if one were to randomly call someone from the Beijing phone book and offer the person $2,500 to come to a hotel room for sexual relations, then one out of three strangers would agree.

“The Chinese believe that if the level of immorality that exists today, sexual immorality especially, persists, then the economic strength of the country cannot continue,” said Jeynes. “So they very quickly want to teach morality, especially to the young before their economy might indeed collapse.

“It is not that they embrace Christianity with the most pure motive,” Jeynes noted. “A lot of their motive is it is good for our country, the morality of the country, and if we want economic prosperity to continue we need to have a more invitational approach to those who are Christian.”

There are an estimated 100 million Christians in China, about 75 million of whom are in the “underground” church, said Jeynes, and the number of believers is growing by six to seven million a year.

The professor of education at California State University in Long Beach also spent time talking about arrests and persecution of house church Christians in China. He ascribed the crackdown to China being nervous about Christianity and its potential threat to the government’s power.

Christians in China are divided into two groups: those in the independent house church and those in the government-approved registered church. Jeynes revealed that the key difference between the two is whether the Gospel can be shared with minors, those under 18. Christians in registered churches are not allowed to share the Gospel with minors.

Jeynes concluded by saying that the key message he wants to convey is that China is both open to Christianity and nervous about the religion because of the potential problems it could bring to the communist government.

==============================

>>Grim Lies About Economy Are the Real “War on the Middle Class” (townhall.com, 071121)

By Michael Medved

Lou Dobbs, the carefully coiffed Cassandra of CNN, regularly proclaims the death of the American dream.

In “The War on the Middle Class,” his best-selling rant from 2006, the Harvard-educated, multi-millionaire broadcaster declared that “our political, business and academic elites are waging an outright war on Americans, and I doubt the middle class can survive the continued assault by forces unleashed over the past few years if they go on unchecked…In my opinion we are on the verge of not only losing our government of the people, for people, and by the people, but also standing idly by while the American Dream becomes a national nightmare for all of us….Middle class working men and women and their families have been devastated.”

As it happened, I read these words in Las Vegas, Nevada, during a bloggers convention I had been compelled to attend. On a weeknight in early November (not a particularly busy season for Sin City) every major hotel had been booked and overbooked—so much so that the Hilton failed to provide me with the room I had reserved in advance. Masses of my fellow Americans (most of them “middle class working men and women”) jammed the casino floors day and night, depositing their hard-earned cash into cunning machines devised to induce gambling addiction.

Statistics from the local tourist authorities indicate that more than 40 million visitors will crowd Las Vegas in the course of 2007. While some foreigners manage to make the trip, the tourists are 87% American, with an average age of 48, and socio-economic status that is solidly, undeniably middle class. Only 24% of all visitors boast household income above $100,000 a year; 46% never graduated from college, 15% are non-white. Nevertheless, Las Vegas thrill-seekers spent an average of $662 on their hotel packages, $261 on food and drink, $141 on shows and shopping, and a startling $652 (in net losses) on what the local businesses so tenderly call “gaming.”

On the other side of the country, the nation’s other gambling Mecca, Atlantic City, drew 33 million pilgrims, with an even more modest median household income of $51,000. Only 60% of these devotees stayed overnight at the sea shore resort, yet they still managed to average gaming losses of $406 per trip.

Given the steadily increasing popularity of such amusements (for better or worse) in countless card parlors, Indian casinos and race tracks across the country, and a clientele that overwhelming identifies itself as “middle class,” it seems difficult it seems to credit the Dobbsian declarations that such families have been “devastated” and now find themselves engaged in an increasingly futile struggle for the survival in the midst of “a national nightmare for all of us.”

Nevertheless, leading candidates for President take up the claim that malevolent forces oppress embitter the lives of ordinary Americans. Most famously, the fabulously wealthy trial lawyer John Edwards regularly warns: “Over the last twenty years, American incomes have grown apart…The result is Two Americans, one struggling to get by and another that has everything it could want…I believe we cannot go on as two Americas – one favored, the other forgotten. I want to live in an America where we value work as well as wealth.” Stressing similar themes, Senator Hillary Rodham Clinton (graduate of Wellesley and Yale) campaigned in Iowa in a bus labeled “The Middle Class Express,” telling her eager audiences that “America’s middle class is under siege and ready for a change. People are working harder and longer for less and less… For six long years, it’s like America’s middle class and working families have been invisible to our president. He’s looked right through them.”

Such rhetoric inevitably plays a role in every campaign season and yet the idea of the sinking, suffering middle class, victimized by callous of not downright hostile corporate forces, has take on a stubborn life of its own. This self-pitying and paralyzing notion has, in fact, managed to survive all statistical evidence to the contrary, regular attempts at logical rebuttal, numerous shifts in the business cycle and political leadership, and the real-life, personal experience of tens of millions of actual middle class Americans.

REPORTS OF PUBLIC GLOOM CONFLICT WITH PROCLAMATIONS OF PRIVATE HAPPINESS

Nearly all books, articles and stump-speeches that bemoan the dire state of ordinary Americans feature polling data meant to convey the overwhelming anxiety and insecurity of working Americans. One typical example appeared on the front page of USA TODAY just two days before Thanksgiving (November 20, 2007) under the headline: POLL PAINTS LOUSY ECONOMIC PICTURE. The subhead cheerfully offered “78% Say Conditions Are Getting Worse” while the graph featured a caption simply describing its “Pessimistic Outlook.” After all, the Gallup Poll reported in Sue Kirchoff’s article found that only 20% of respondents reported themselves “satisfied with the direction of the country….The poll numbers indicate that although the unemployment rate in October was a low 4.7%, conditions feel increasingly lousy.” A mere 13% thought that “economic conditions are getting better” while an overwhelming 78% believe they are “getting worse.”

Like nearly all such surveys, this Gallup study (conducted among 1,014 adults November 11-14) concentrated on overall assessments of economic conditions, giving people the chance to recycle the conclusions they’ve heard on television, read in newspapers, or discussed at the lunch room at work or kitchen tables at home. On the other hand, whenever pollsters ask Americans to rate their own status or prospects, rather than considering the situation for the nation at large, they get vastly more encouraging and optimistic results.

For instance, Investor’s Business Daily reported on an IBD/TIPP poll conducted just a week before the angst-ridden Gallup Survey (November 2-9, with a sample size of 924) that showed that fewer than one in five Americans considered themselves disadvantaged or victimized in economic terms. The researchers asked the question: “All things considered, do you consider yourself to be part of America’s haves or part of America’s have-nots?” Only 19% described themselves as “have-nots” – placing themselves in the luckless segment of John Edwards’ “Two Americas.” An amazing 75% of the overall sample saw themselves as “haves” – including 83.5% of those with relatively modest household incomes of $50,000 to $75,000, and even 60% of those who earn below $30,000 a year. Even among self-identified Democrats, whose leaders make a fetish of bemoaning the grim fate of the working man, partisans described themselves as “haves” rather than “have-nots” by an overwhelming ratio of 68% to 27% (compared to 82% to 12% among Republicans).

Moreover, the IBD/TIPP survey gave the lie to the common notion that middle class Americans see themselves falling further and further behind in their quest for the American dream. In a 1988 Gallup survey with similar demographics, only 59% described themselves as “haves,” but after nineteen years of steady economic progress that number had soared to 75%.

Other surveys show similar satisfaction and optimism whenever Americans consider their own specific circumstances, as opposed to evaluating the state of the nation. Between July 10 and 16th, 2007, the Harris Poll interviewed 1,010 U.S. adults and asked, “On the whole, are you very satisfied, fairly satisfied, not very satisfied, or not at all satisfied with you life you lead?” A staggering 94% considered themselves satisfied (with a majority—fully 56% — choosing the highest rating, “very satisfied.”) Only 6% considered themselves “not satisfied” with a mere “2%” picking “Not at all satisfied,” despite media rhetoric about the “devastated middle class” and our “national nightmare.”

More striking still, crushing majorities saw no evidence at all that their personal conditions had suffered in recent years. Asked the question, “If you compare your present situation with five years ago, would you say it has improved, stayed about the same or gotten worse?” fully 82% said it had improved or held steady (a majority- 54%- reporting improvement). Only 17% saw their situations worsen, despite all the alarmist reports about the state of the nation at large.

Similarly, in response to the question “In the course of the next five years, do you expect your personal situation to improve, to stay about the same or to get worse?” people overwhelming expected a sunny future. Sixty-two percent anticipated improvement, with only 7% expecting their conditions to “get worse.” – an optimistic ratio of nine-to-one.

The consistent and powerful contrast between public despair and private confidence remains one of the most perplexing elements of prevailing opinion. In survey after survey, the same citizens who expect great things for themselves and their families remain convinced that the nation’s headed in the wrong direction with an economy that gets inexorably worse.

We display a distinctively American tendency to view ourselves as dwelling on isolated islands of intimate success and good fortune, while surrounded by dreary seas of generalized misery. Like the fictional citizens of Garrison Keillor’s legendary Lake Woebegone, we assume that we enjoy the privilege of circumstances in which “all the women are strong, all the men are good looking, and all the children are above average.”

Every American can speak most authoritatively about his or her own life, so it’s profoundly significant when 75% of us consider ourselves “haves.” We know much less about our neighbors, or the residents of other cities, and least of all about the abstraction called the generalized “state of the nation.” How can ordinary citizens comment meaningfully about the economic well-being or family suffering of some 300,000,000 souls? Instead of reporting impressions digested from personal experience of even the stories of friends, we naturally rely on messages from ass media. Those accounts in turn stress dysfunction and negativity: there’s no real news business in the United States, but rather a bad news business.

In this sense, most Americans see no contradiction in reporting their own satisfaction and progress at the same time that they perceive general decline and decay. Crediting the idea that “big business and big government are unchecked in their attacks on the common good” (Dobbs) may allow credulous observers to feel sophisticated, knowing, and appropriately cynical, even while they celebrate their own positive progress. In a media saturated nation, no one wants to appear to be a simple-minded Pollyanna, a starry-eyed America-booster or, worst of all, a malleable dupe. Expressing regret and indignation over the presumed prevailing misery while acknowledging your personal success may also alleviate any sense of guilt by indicating compassion, even solidarity, for the less fortunate.

STANDARD OF LIVING CONTINUES TO RISE FOR EVERY SEGMENT OF SOCIETY

By any and every measure, Americans are right when they assess their own situations in a positive live, but they’re emphatically and entirely wrong when they guess that their neighbors are suffering.

A wealth of data on every aspect of our lives show that we enjoy more choices, more comfort, more leisure, more food, more buying power, bigger houses, better cars and longer lives.

On the most basic level, life expectancy in the USA has risen dramatically and unstoppably. According to numbers from the Department of Health and Human Services, males gained 7.7 extra years of life since 1970 (to a life expectancy of 74.8) while women added 5.4 more years (to 80.1). Despite incessant (and manifestly absurd) claims of worsening living conditions for working Americans, and daily jeremiads about the shortcomings in our health-care system, Americans of all races and classes live longer, healthier lives every year.

Moreover, we enjoy our lives in vastly larger and more comfortable than those occupied by our parents and grandparents. As National Public Radio reported on November 19, 2007: “The average American house size has more than doubled since the 1950’s. ….Consider: back in the 1950’s and ‘60’s, people thought it was normal for a family to have one bathroom, or for two or three growing boys to share a bedroom.” The figures from the National Association of Home Builders show that in 1950 the average new single family home offered only 983 square feet. In 2004 (the most recent year for available statistics) that number stood at 2,349 square feet— an increase of 240% at the same time our family size dramatically declined.

Though the prevalence of households with children has declined (in part because parents live much longer after their children have left home) the outcomes for those kids continue to improve. A Census Bureau report of January, 2007, showed children decisively better off than a decade earlier. As the New York Times noted: “More are performing at grade level in school, more are taking lessons after class and on weekends and more parents – especially in black households – are imposing limits on television viewing.” This results in vast increases in the number of children who pursue higher education.

In 2007, nearly four times the percentage of fifty year olds have completed four years or more of higher education than in 1967 (31% to 8%). Forty years ago, the majority of fifty year olds (51%) hadn’t even completed high school. Today the number stands at a hugely more encouraging 9%.

Despite the endlessly repeated charge that Americans work longer hours for less and less pay (“Working men and women are working harder than ever simply to keep their jobs, and they are working longer hours at reduced pay with fewer benefits” claims Lou Dobbs) the numbers actually show sharp long term increases in disposal income, purchasing power and leisure time. Economists Mark Aguiar of the Federal Reserve Bank of Boston and Erik Hurst of the University of Chicago examined five decades of time diary surveys administered by research universities and the government. Among their findings (as reported by James Sherk of the Heritage Foundation):

- Since the mid 1960’s, the amount of time that the typical American spends working fell by almost eight hours per week, while the time spent on leisure activities rose by just under seven hours per week. This additional leisure time is equivalent to an extra seven to nine weeks of vacation per year.

- Lower-income Americans have disproportionately benefited from the increase in leisure over the past generation. Less educated and lower-income Americans now work less and enjoy more leisure than Americans with higher incomes. This explains part of why they have lower incomes.

Meanwhile, all Americans spend more time and vastly more money on recreational pursuits. The Census Bureau reports on inflation-adjusted spending on recreation per capita, and sees, with annual expenditures soaring from $854 in 1970 to $2,551 in 2005 (and increase in nearly 300%). Even as a percentage of total consumption, recreation went up dramatically – from 6.5% in 1970 to 8.7% in 2005.

No wonder that the hotels and casinos in Las Vegas fill up in all seasons with middle class and working class visitors. The pricey theme parks in Orlando, Florida (where Disney World has become the world’s most visited tourist attraction) drew 45.1 million visitors in 2007. Average household income (and nearly all these households contained multiple children) was $73,389.

In terms of even more expensive vacations, the percentage of American adults who traveled overseas in a given year has more than tripled since 1970 (12.4% of all adults from 3.7%).

Closer to home, we eat out at an unprecedented rate, regularly patronizing elegant restaurants or shopping center food courts several times each week. The average American household now spends $2,634 on meals away from home—a sharp increase of more than 10% (in inflation-adjusted dollars) in just the three years between 2003 and 2006. As Lou Dobbs himself ruefully admits (in his latest book, INDEPENDENTS DAY, 2007): “Americans are spending as much on meals outside the home as we do for health care- a little over $2,600 per family. We spend almost as much to buy and operate our cars as we do to pay for our homes – about $8,000 a year on each.”

These priorities don’t necessarily represent wise economic decisions —nor does the $426 per year on “alcoholic beverages” or the $319 on “tobacco products and smoking supplies,” or all the hundreds of not thousands a year in gambling losses at Vegas, Atlantic City, Indian casinos, or heavily hyped state lotteries. Obviously, Americans sometimes harm our own best interests with the decisions we make in spending our money: restaurant meals can contribute to obesity, gambling represents a gigantic waste of both time and money, while our refusal to use public transit (to the frustration of countless liberal social planners) only increases consumption of petroleum and raises the prices for everyone.

Nevertheless, the fact that Americans feel free to make even frivolous or self-destructive spending decisions contradicts the portrait of a helpless, choiceless middle class in the grip of powerful, exploitative elites, perversely bent on destroying the very public that makes possible corporate prosperity.

CONTRARY TO BOGUS CLAIMS, ECONOMIC MOBILITY IS ALIVE AND WELL

The press indulges a destructive and dishonest instinct to portray America’s poor, working class and minority citizens as locked into hopeless and permanent misery—despite abundant and undeniable evidence to the contrary.

On November 13, 2007, a Washington Post story by Michael A. Fletcher offered an especially baleful example. When the report appeared in the Seattle Times it bore the alarming headline, “Many Blacks Earn Less Than Parents, Study Finds.” Meanwhile, anyone who took time to read the article (based on three different reports from the Pew Charitable Trusts) encountered the following revelation in paragraph seven: “Over all, four out of five children born into families at the bottom 20% of wage earners surpassed their parents income. Broken down by race, nine in 10 whites are better paid than their parents were, compared with three out of four blacks.”

If 75% of low income blacks are better paid than their parents (and another 15% earn the same as their parents), then how could any responsible news outlet utilize the headline “Many Blacks Earn Less Than Parents, Study Finds.”? The answer involves an anomaly in the original study. Only a tiny percentage of black families counted as “solidly middle class” (in the language of the study) in 1968, with inflation-adjusted median income of $55,000. Among children of this small group, a surprising number (45%) did indeed fall to the lowest fifth of the nation’s earners, with a median family income of $23,100. But the disappointing performance of a handful of offspring in a major study did nothing to invalidate the most important conclusion: that 75% of African-American children (and 80% of the overall sample) who began life in poverty ended up with higher incomes (and often dramatically higher incomes) than their parents.

A similar distortion occurred in yet another misleading story featured on the front page of USA TODAY on November 17, 2007. The headline and subhead manipulatively twisted the results of a Pew Research Poll to emphasize despair and discouragement, with the announcement “POLL: BLACKS GROW MORE PESSIMISTIC” and then the bold-faced explanation, “Fewer Than Half Expect Their Lives to Improve.” Actually, by a ratio of two-to-one the African American respondents did expect their lives to improve: with 44% saying “life for blacks will be better in the future” and only 21% guessing it would be worse. With 31% saying life would remain the same, that means 75% who are convinced that circumstances for American blacks will either remain unchanged or improve.

Similarly, the lead sentence in the article (by Marisol Bello) emphasized the negative: “Black Americans are more dissatisfied with their progress than at any time in the past twenty years....” In response to the question, “Are blacks better off than five years ago?” a total of 69% agreed that they were doing either “the same” (49%) or “better” (20%). Meanwhile, the article quoted experts who talked about a “great deal of anxiety, cynicism and pessimism today” while barely noting that the majority of those surveyed in the study say “that blacks who don’t get ahead are mainly responsible for their own situation.”

A much more extensive, revealing and encouraging study by the U.S. Department of the Treasury (of 96,700 tax returns from 1996 and 2005) received vastly less media attention – precisely because it failed to fit the preconceived notion of a stratified, static, unjust economic order. In fact, the Treasury report (dated November 12, 2007) discovered that 58% of filers who found themselves in the poorest income group (the bottom 20%) in 1996, had moved into a higher income category in just 10 years. In fact, after inflation median income of all tax filers increased by a solid 24% in the decade. Two out of three workers had a real income gain since 1996— contradicting the common charge that the working class has steadily, inevitably lost ground.

In terms of the American dream of steady, reliable advancement, there’s been no nightmarish transformation. The Treasury Department explains: “The basic finding of this analysis is that relative income mobility is approximately the same in the last ten years as it was in the previous decade.” In other words, despite terrorist attacks and war expenditures, and hysterical denunciations of the Bush administration’s alleged devastation of the working class, ordinary Americans retained the same ability to climb the economic ladder that they enjoyed between 1986 and 1995—the last years of the Reagan boom and the opening years of the Clinton expansion.

A report by the non-partisan Congressional Budget Office reached similar conclusions in May, 2007. Covering a fifteen year period, CBO found that low wage households with children had incomes after inflation that were more than one third higher in 2005 than in 1991. Among all families with children, in fact, the poorest fifth had the fastest overall earnings growth—with increases even higher than the richest 20%. The median family with children saw an inflation adjusted 18% rise in earnings from the early 1990’s through 2005 – representing $8,500 in additional purchasing power.

THE MIDDLE CLASS DOESN’T PAY AN UNFAIR SHARE OF TAXES

According to the most recent Congressional Budget Office figures (from tax year 2004), the poorest fifth of the population (with average annual income of $15,400) pays only 4.5% of their income in federal taxes. The middle fifth, with income of $56,200, pays 13.9%. The highest fifth (with reported income of $207,200) coughs up 25.1% — some 600% of the rate paid by those at the bottom. The richest one percent of taxpayers (earning lavish salaries of $1,259,700) pay even more: 31.1% of overall income to the federal government.

With these higher tax rates, high income tax payers shoulder a hugely disproportionate share of the overall tax burden. The CBO figures indicated that the top 10% of all taxpayers (those earning more than $87,300) paid 70.8% of all income taxes. A quarter century ago, before the Reagan and Bush tax cuts that allegedly favored the rich, this top 10% paid much less of the overall burden— only 48.1%.

In other words, conspiracists who rail against the “War on the Middle Class” are flat-out wrong when they suggest that part of that assault involves a bigger share of the tax burden. “While corporations are paying lower taxes than ever before, and tax breaks for the wealthy are expanded,” Lou Dobbs falsely fulminates, “the middle class if forced to shoulder ever more of the tax burden…”

Actually, the middle fifth of the income scale paid 10.7% of the nation’s income tax in 1979 (under Jimmy Carter) but only 4.7% in 2004 (after two rounds of Bush tax cuts). This contrasts with the nation’s top 1% of wage earners: whose share of the overall tax bill more than doubled (from 18.3% in 1979 to a startling 36.7% in 2004).

TRUTH, HAPPINESS AND THE CHANCES FOR SUCCESS

Rejecting the self-pitying lies about middle class oppression and powerlessness isn’t just a matter of defeating demagoguery for the sake of the political health of the country; grasping the essential truths about today’s American economy also represents a prerequisite for personal contentment and future advancement.

Professor Arthur Brooks of Syracuse University cites a fascinating question asked by the General Social Survey, with respondents given the chance to agree or disagree with the following statement: “The way things are in America, people like me and my family have a good chance of improving our standard of living.” An encouraging two-thirds of the population agreed with that statement, and this group was “44% more likely than the others to say they were ‘very happy,’ 40% less likely to say that they felt ‘no good at all’ at times, and 20% less likely to say that they felt like failures. In other words, those who don’t believe in economic mobility – for themselves or for others –are not as happy as those who do.”

This happiness matters not only in a personal and familial sense (greatly increasing the chances, for instance, of marital stability) but also brings economic consequences. As Jim Holt argued in the New York Times Magazine (January 21, 2007), a wealth of psychological data suggests that pessimism produces poor commercial outcomes, whereas optimism helps to insure success. He writes: “In a recently published study, researchers in the Netherlands, found that optimistic people – those who assented to statements like ‘I often feel that life is full of promises’ – tend to live longer than pessimists. Perhaps, it has been speculated, optimism confers a survival advantage by helping people cope with adversity.”

In other words, politicians and pundits who rail endlessly (and dishonestly) about “The Two Americas” or “The War on the Middle Class” may end up doing serious damage to the prospects of precisely those hard-working folks they claim to want to help. Misleading whining about falling living standards and the end of economic mobility may serve as a self-fulfilling prophecy for those who embrace the underlying message of powerlessness and self-pity. If you buy the idea that corporate exploiters and corrupt politicians have poisoned your life and stolen your ability to create a better life for your family, you’ve obviously damaged your own ability to get ahead.

Meanwhile, the demagogues and deceivers try to advance their own well-paid careers with increasingly shrill expressions of their gloomy and desperate messages. Fortunately, hard-working Americans in the real middle class are too smart, and too busy counting their blessings and opportunities, to make the mistake of believing them.

==============================

>>It’s not just inflation — it’s hyperinflation! (National Post, 080417)

As if the appearance of newly-minted $50,000,000 bank notes worth all of about US$1.20, or the equivalent of three loaves of bread, wasn’t enough of an indication that Zimbabwe is experiencing extreme economic turmoil, that country’s Central Statistical Office revealed today that the inflation rate — already by far the highest in the world — has soared to an astronomical 164,900% year-on-year in February.

According to the CSO, that annual percentage change marks a 64,320.1% gain on the January rate of 100,590.2% for a February month-to-month inflation rate of 125.9%, gaining 5.1% on the January rate of 120.8%. If those strike you as alarmingly big numbers, rest assured that they are (compare, for example, Canada’s measly year-on-year inflation rate of 1.8% for February). The inflation gripping Zimbabwe is so out-of-control, in fact, that economists have a special word for it: hyperinflation.

So what is hyperinflation? According to a 2007 paper prepared for the International Monetary Fund on Zimbabwe’s economic crisis, hyperinflation is a largely modern phenomenon associated with the printing of money to finance large fiscal deficits due to wars, revolutions, the end of empires and the establishment of new states. In 1956, economist Phillip Cagan defined hyperinflation as beginning the month that inflation first exceeds 50% per month and ends when the inflation rate drops below 50% for at least one year.

Zimbabwe fell into a state of hyperinflation in 2000, when the Mugabe government began seizing commercial farms, forcing foreign investors to flee the country and causing manufacturing to grind to a halt and prices to shoot up. Inflation passed 600% in January, 2006, but really began to take off after the government revealed it had printed at least $21-trillion in Zimbabwe currency to pay the IMF US$221-million in arrears that endangered the country’s membership in the organization. Zimbabwe’s annual inflation passed 1,000% in April, 2006. Explains Reuters, Zimbabwe was then in its eighth year of recession at this time and had the dubious distinction of have the world’s fastest shrinking economy outside a war zone, not to mention the highest inflation rate on the globe. Things, as we know, have only gotten worse from there.

Still, as staggering as Zimbabwe’s inflation rate may be, it doesn’t even come close to matching one of the worst cases of hyperinflation in history — that dishonour goes to Yugoslavia, where between Oct. 1, 1993, and Jan, 24, 1995, consumer prices increased by a literally inconceivable five quadrillion percent. If you’re a big fan of zeroes, that’s 5,000,000,000,000,000%. To offer some context, in 1988, the highest denomination of currency issued in Yugoslavia was 50,000 dinars. By the end of 1993, the highest denomination was 500,000,000,000 dinars.

Hungary also experienced one of history’s worst bouts of hyperinflation in 1945-46, where at its peak the rate of inflation was 4.19 quintillion percent. Before 1945, the highest denomination of of currency was 1,000 pengo. In 1946, the Hungarian National Bank issued what is still today the largest denomination banknote ever officially issued for circulation, for the amount of 100 quintillion pengo (or 100,000,000,000,000,000,000). According to Wikipedia, when the pengo was replaced in August, 1946, by the forint, the total value of all Hungarian banknotes in circulation was 1/1000th of one U.S. cent.

Of course, Zimbabwe isn’t the only country in the world today using money that is barely worth the paper it’s printed on. For these, check out Portfolio magazine’s slideshow last month of the World’s Most Worthless Money. Foreign Policy magazine also ran a list last year of The World’s Worst Currencies.

==============================

>>The Link Between Freedom and Prosperity (townhall.com, 080117)

By Rebecca Hagelin

If there’s one thing the American experiment proves, it’s the power of freedom to transform lives. If you let people control their own destinies, there’s no limit to what they can achieve. But if you bind them with the straitjacket of central planning, smother their creativity with over-regulation, fence them in with high tariffs and take their hard-earned money with high taxes, you kill their dreams even as you wreck an economy.

That’s the central lesson of the “2008 Index of Economic Freedom,” just released by The Heritage Foundation and The Wall Street Journal. A country-by-country survey of how free people are worldwide to direct their own economic fortunes, the Index repeatedly demonstrates the vital link between freedom and prosperity. Simply put, the freer people are, the more an economy grows — and the more everyone benefits.

Take something as basic as income. In the world’s most restricted economies, rated as “repressed” and “mostly unfree” by the Index editors, average income hovers around $4,000 a year. But in a “moderately free” economy, it’s three times as much: $12,830. If you’re in a “mostly free” one, you can double even that amount: $26,630 annually. And in a “free” economy? $33,579 — more than eight times the money you’d earn in an unfree economy. Turns out you can put a price on economic liberty.

So which country has the freest economy? It may surprise you to learn that it’s not the United States. In fact, the U.S. isn’t even in the top three. We come in at No. 5 — a bit disappointing, perhaps, but not bad when you notice that the Index editors graded more than 150 nations. Hong Kong took the top spot for the 14th year in a row, followed by Singapore, Ireland and Australia. New Zealand (6th) and Canada (7th) are the only other countries rated “free,” which means they average 80% or better on the Index scale of 0-100.

Now, what exactly do we mean when we say that an economy is “free”? Every country is different, of course, with various strengths and weaknesses, but it generally means several things. It means that taxes and inflation are low. It means that the government doesn’t spend too much or control the banks. It means property rights are protected, businesses are easy to start, and the court system — which is largely free from corruption — enforces contracts. It means tariffs are low, foreign investment is welcomed, and regulations are kept to a minimum.

The Index editors carefully study the data for each of these areas to assign a grade to each country. Small wonder that only seven make the cut as “free.” Most of the world’s economies fall in the “moderately free” (51) or “mostly unfree” (52) categories. The rest are divided up pretty evenly between “mostly free” (23) and “repressed” (24). Which means that most of the world’s population isn’t very free, economically speaking.

But don’t despair. For one thing, although the level of overall economic freedom held fairly steady over the last year, the overall trend since the inaugural Index in 1995 has been up. Plus — and here’s the most hopeful part of the whole enterprise — countries can, and many do, improve. The history of the Index is filled with success stories. Ireland is a prime example, as is Chile. Both nations have made clear-cut changes over the years — changes that have given people more economic freedom and therefore helped their economies grow.

This connection between freedom and wealth is by no means new. In fact, the Index can be viewed as a new tool to prove an old truth. As the editors note in the introduction to the 2008 Index: “Economic theory dating back to the publication of Adam Smith’s The Wealth of Nations in 1776 emphasizes the lesson that basic institutions that protect the liberty of individuals to pursue their own economic interests result in greater prosperity for the larger society.”

Economic freedom is about more than just the bottom line. When you give people the liberty they crave, you do more than boost an economy — you make it possible for men and women to improve their lives. In the words of the Declaration of Independence, they’re free to engage in “the pursuit of happiness.” And as the Index proves, it’s a virtuous cycle that leaves everyone better off than they were before.

==============================

>>Curing poverty or using poverty? (townhall.com, 060110)

by Thomas Sowell

“China is lifting a million people a month out of poverty.” It is just one statement in an interesting new book titled “The Undercover Economist” by Tim Harford. But it has huge implications. I haven’t checked out the statistics but they sound reasonable. If so, this is something worth everyone’s attention.

People on the political left make a lot of noise about poverty and advocate all sorts of programs and policies to reduce it but they show incredibly little interest in how poverty has actually been reduced, whether in China or anywhere else. You can bet the rent money that the left will show little or no interest in how Chinese by the millions are rising out of poverty every year. The left showed far more interest in China back when it was run by Mao in far left fashion — and when millions of Chinese were starving. Those of us who are not on the left ought to take a closer look at today’s Chinese rising out of poverty.

First of all, what does it even mean to say that “China is lifting a million people a month out of poverty”? Where would the Chinese government get the money to do that? The only people the Chinese government can tax are mainly the people in China. A country can’t lift itself up by its own bootstraps that way. Nor has there ever been enough foreign aid to lift a million people a month out of poverty. If the Chinese government hasn’t done it, then who has? The Chinese people. They did not rise out of poverty by receiving largess from anybody. The only thing that can cure poverty is wealth.

The Chinese acquired wealth the old-fashioned way: They created it. After the death of Mao, government controls over the market began to be relaxed — first tentatively, in selected places and for selected industries. Then, as those places and those industries began to prosper dramatically, similar relaxations of government control took place elsewhere, with similar results. Even foreigners were allowed to come in and invest in China and sell their goods in China. But this was not just a transfer of wealth. Foreigners did not come in to help the Chinese but to help themselves. The only way they could benefit, and the Chinese benefit at the same time, was if more total wealth was created. That is what happened but the political left has virtually no interest in the creation of wealth, in China or anywhere else, despite all of their proclaimed concern for “the poor.”

Since wealth is the only thing that can cure poverty, you might think that the left would be as obsessed with the creation of wealth as they are with the redistribution of wealth. But you would be wrong. When it comes to lifting people out of poverty, redistribution of income and wealth has a much poorer and more spotty track record than the creation of wealth. In some places, such as Zimbabwe today, attempts at a redistribution of wealth have turned out to be a redistribution of poverty.

While the creation of wealth may be more effective for enabling millions of people to rise out of poverty, it provides no special role for the political left, no puffed up importance, no moral superiority, no power for them to wield over others. Redistribution is clearly better for the left. Leftist emphasis on “the poor” proceeds as if the poor were some separate group.

But, in most Western countries, at least, millions of people who are “poor” at one period of their lives are “rich” at another period of their lives — as these terms are conventionally defined. How can that be? People tend to become more productive — create more wealth — over time, with more experience and an accumulation of skills and training. That is reflected in incomes that are two or three times higher in later years than at the beginning of a career. But that too is of little or no interest to the political left. Things that work for millions of people offer little to the left, and ultimately the left is about the left, not about the people they claim to want to lift out of poverty.

==============================

**China may be bigger economy than US within two years (Daily Telegraph, 101110)

Here’s a finding that will have any red-blooded American spluttering into his cornflakes. According to the Conference Board, a highly respected economic research association, China will overtake the US as the world’s biggest economy by 2012, or within two years.

OK, so in dollar terms, that’s obviously not going to be the case. It will be a lot longer than two years before China overtakes the US on that measure. But in terms of purchasing power parity, according to the Conference Board’s latest world economic outlook, China is already nearly there, and by 2020 will have reached a size of output which is nearly half as big again as the US.

Here’s the Wkipedia link explaining what PPP is, but broadly speaking the idea is to measure output according to the volume, not the price of goods and services produced. The assumption made is that identical goods will have the same price in different markets. In practice, this is obviously not the case. A taxi ride in Beijing, for instance, will cost you approximately a tenth of what it costs in London. But it is essentially the same service.

In any case, in PPP terms, the Conference Board’s projections show China as 24.1 per cent of world output by 2020, and the US at just 14.8 per cent.

We all knew that the weight of economic growth had skewed dramatically since the crisis from advanced to emerging market economies, but many in the West don’t yet seem fully to appreciate the speed with which economic and geo-political power is shifting. This is a truly seismic change. How these once irrelevant economies choose to use their new found power is the overarching question of our times.

==============================

**Currency Rift With China Exposes Shifting Clout (Paris International Herald, 101010)

WASHINGTON — At a private dinner on Friday at the Canadian Embassy, finance officials from seven world economic powers focused on the most vexing international economic problem facing the Obama administration.

Over seared scallops and beef tenderloin, Treasury Secretary Timothy F. Geithner urged his counterparts from Europe, Canada and Japan to help persuade China to let its currency, the renminbi, rise in value — a crucial element in redressing the trade imbalances that are threatening recovery around the world.

But the next afternoon, the annual meetings of the International Monetary Fund ended with a tepid statement that made only fleeting and indirect references to the simmering currency tensions.

The divergence between the mounting anxieties over Chinese policy and the cautious official response was a striking display of the difficulty of securing international economic cooperation, two years after the financial crisis began.

Above all, officials say, the crisis has shifted influence from the richest powers toward Asia and Latin America, whose economies have weathered the recession much better than those of the United States, Europe and Japan.

“We have come to the end of a model where seven advanced economies can make decisions for the world without the emerging countries,” said one European official involved in the weekend talks. “Like it or not, we simply have to accept it.”

The debate over currency valuation is pivotal. World leaders broadly agree that for the global economy to be more stable, imbalances between creditor countries like China and Germany and debtor countries like the United States and Britain have to be fixed. Correcting those imbalances, some economists say, will help create jobs in the United States and reduce the threat of inflation and asset bubbles in China.

The shifting dynamics have most noticeably affected the United States, which pushed more forcefully than its counterparts for stronger pressure on China but has been unable to persuade them to stand with it at the forefront of the debate.

In general, the Europeans have taken a far more conciliatory line toward China. The French finance minister, Christine Lagarde, said on Saturday, “It’s not helpful to use bellicose statements when it comes to currency or to trade.”

In interviews, American and European officials involved in discussions over the Chinese currency last week outlined several reasons a unified position has been so hard to forge.

For one thing, China has moved adroitly to deflect criticism of its currency policies, by pledging to move at a gradual pace and by pointing to other sources of global imbalances. This leaves Western diplomats struggling to strike the right balance between forceful rhetoric and patient cajoling in pressuring China to act.

Another factor is that the most dire part of the crisis has passed, and many countries are now more concerned with their own national economies and no longer feel the urgency act in concert.

“We are moving from a consensual to a more confrontational period in global economic governance,” said Thomas Kleine-Brockhoff, senior director of policy programs at the German Marshall Fund of the United States, which promotes trans-Atlantic cooperation.

Complicating the effort is a dispute between the United States and Europe over how to change board representation within the I.M.F. to give greater voice to the fast-growing economies that are propelling global growth. The Americans want emerging countries, especially China, to have more representation, and thus take on more responsibility. But Europe is reluctant to give up some of its positions on the board.

And significantly, in the eyes of many countries, the United States has lost some of the standing it needs to shape global policy. Not only is Wall Street viewed by many as having initiated the world financial crisis, but also, a number of countries fear that policies by the Federal Reserve are pushing down the dollar’s value — the same kind of currency weakening for which the Obama administration has criticized China.

“Other countries are no longer willing to buy into the idea that the U.S. knows best on economic policy, while at the same time the emerging markets have become increasingly influential and independent,” said Kenneth S. Rogoff of Harvard, a former chief economist at the I.M.F.

The inconclusive I.M.F. outcome means that the renminbi’s exchange rate will again be a focus when President Obama and other leaders of the Group of 20 economic powers gather next month in Seoul, South Korea. Officials said the United States would keep up pressure on China in the weeks leading up to that meeting.

Despite the bland language of the I.M.F. statement on Saturday, American and European officials said the weekend meetings were not a failure.

After all, the 187-member I.M.F. is not a customary forum for decisive collective action, and changes in national economic policies typically occur in a gradual, incremental fashion. A Treasury official pointed out that the gatherings focused high-level attention on the currency problem, and ended with an agreement for the I.M.F. to play a greater role in monitoring its members’ exchange-rate practices and the “spillover effects” of each country’s economic policies on the rest of the world.

Even so, economic and political forces have made it difficult for the United States to address what Mr. Geithner has called the “central existential challenge of cooperation.”

“Even though this is inherently a collective problem, there is no specific mechanism in the I.M.F. or G-20 that looks up to the challenge,” he said Sunday. “Our aim is to change that by encouraging countries to buy into a stronger set of norms and behaviors on these issues.”

In a speech on Wednesday, Mr. Geithner in essence accused China of setting off a cycle of “competitive nonappreciation,” in which countries block their currencies from rising in value to support their exporters — as Japan, Brazil and South Korea have recently tried. Economists have warned that this type of policy could lead to a destructive currency war.

Other officials have quietly expressed worry that the United States is itself contributing to the currency imbalance: the Federal Reserve has adopted an expansionary monetary policy intended to stimulate the economy, has contributed to the weakening of the dollar against other currencies.

Edwin M. Truman, a former top official at the Fed and the Treasury Department, said that while Europe and Japan want the renminbi to appreciate, “they don’t want the dollar to depreciate along with it.”

Allowing the renminbi to rise would make Chinese exports more expensive and American exports cheaper. That would assist with rebalancing: getting China to spend more and save less and the United States to spend less and save more.

A vital part of the American strategy has been to argue that China would also benefit from letting the renminbi rise.

Doing so, many economists say, would reduce the risk of inflation and asset bubbles, and help reorient growth away from exports and coastal manufacturing areas and toward domestic consumer demand and poor rural regions in need of development. China signed on last year to a G-20 platform for “strong, sustainable and balanced growth,” which has become a sort of motto for global the recovery.

But there is little agreement on how to make the motto a reality.

James D. Wolfensohn, a former president of the World Bank, said each side had a point. “The Chinese have a legitimate case that they have to keep their economy going and that they’re not going to let us run their economy for them,” he said. “On the other hand, we have a legitimate case that China ought to bear its share of the burden and show some leadership.”

==============================

**Recession Elsewhere, but It’s Booming in China (Paris International Herald, 091209)

GUANGZHOU, China — For the first time, Chinese will buy more cars this year than Americans. Demand is so high that drivers put their names on long waiting lists for the most popular models.

“I’m disappointed, but what can I do?” asked Zhang Ge Lu, a 28-year-old interior designer. He came recently with two friends to a row of dealerships here in southeastern China to buy a black Toyota RAV4, only to be told that he would have to wait two months for delivery.

And it is not just cars. For more and more consumer goods, China is surpassing the United States as the world’s biggest market — from cars to refrigerators to washing machines, even desktop computers.

The Chinese market is “on full tilt — booming is an understatement these days,” said John Bonnell, the director of Asia vehicle forecasting at J.D. Power & Associates.

China is pulling ahead at this particular moment partly because Americans, debt-laden and worried about their jobs, are pulling back. After decades of gorging on consumption, Americans are saving. And the Chinese, whom economists thought were addicted to saving, are spending more.

Among China’s 1.3 billion people, rising incomes are finally making large numbers of Chinese prosperous enough to make big-ticket purchases.

The question is: will they keep spending? The Beijing government is increasing consumption with rebates, subsidies and heavy bank lending. Whether China can turn the spending spree into the seeds of a true consumer society matters not just to China, but to the world.

For years, the West has pushed China to increase domestic consumption and reduce its dependence on exports — that’s because its overdependence on exports has distorted global trade.

To keep its export machine humming, China kept its currency undervalued to make its goods more competitive in foreign markets. The county beggared its own citizens, keeping salaries and bank deposit interest rates artificially low to support exporters.

China’s trade surpluses and extensive intervention in currency markets have led it to amass $2.27 trillion in reserves, mainly in United States Treasuries, mortgage-backed securities and other dollar-denominated investments, helping to keep interest rates low and finance Americans’ borrowing. Chinese parsimony enabled American profligacy.

If the Chinese buy more and Americans save more, a more stable global economic exchange can take shape. That does not mean crises will disappear, but Americans will have to spend less, rather than borrowing so much, and China will be able to buy more of its own goods, building up less lopsided foreign reserves. In the meantime, China’s rapid consumption growth is good news for the whole world. For the first time, China, not the United States, is the locomotive helping to pull the global economy out of recession. But China’s tiny appetite for American exports means that the main benefit has gone to commodity exporters and to businesses in China.

Automakers are on track to sell 12.8 million cars and light trucks in China this year, virtually all of them made in China (although many are foreign brands), compared with 10.3 million in the United States. Appliance manufacturers expect to sell 185 million refrigerators, washing machines and other kitchen and laundry equipment in China this year, compared with 137 million in the American market.

In desktop computers, China moved solidly ahead of the United States in the third quarter, buying 7.2 million compared with 6.6 million in the United States.

Retail sales are growing 17% a year in China after adjusting for inflation, almost twice as fast as the overall economy.

Americans have been cutting back on purchases of everything from shoes to furniture to jewelry. But Chinese households are crossing a series of income thresholds at which cars and other big-ticket purchases become affordable.

At the same time, Chinese banks are stepping up consumer lending. The proportion of car sales financed with loans has doubled this year, to nearly 25%, although most Chinese still head for dealerships with bricks of 100-renminbi notes, each note worth about $14.62. Credit card spending rose 40% in the first nine months of the year compared with the same period last year, yet China still has just one credit card for every eight people, compared to two credit cards for each American man, woman and child.

While it is spreading creature comforts, China’s lending-based prosperity may also be sowing the seeds of future economic problems. China’s Banking Regulatory Commission recently told banks to show restraint in lending for the rest of the year, fearful that some of this year’s loans could become bad debts in the next several years, as happened with the mortgage lending spree in the United States.

The regulator threatened to block banks’ overseas investments and branch openings unless they can demonstrate adequate capital to cover risks.

The size of China’s consumer market, notwithstanding its growth, will make it hard for China to rescue the world economy by itself. Total consumer spending in China is still less than a sixth of American consumer spending at current prices and exchange rates. That is mainly because China has relatively few restaurants, hotels and other service businesses, even as sales of manufactured goods have risen.

The average price tags on most Chinese products are much lower than in Western markets. For many products, including some in which China leads in the sheer number of goods, the total dollar value of sales in China is still smaller than in the United States.

The average new car sells for $17,000 in China compared with almost $30,000 in the United States, according to J.D. Power. This is because Chinese consumers buy more subcompacts and fewer sport utility vehicles. While the Chinese market is one-quarter larger in the number of cars sold, the American market is still about two-thirds larger in dollar terms.

Similarly, the United States market for household appliances is a third larger in dollars, even though the Chinese market is a third larger in the number of appliances. Cooking ranges in China are sold for countertop installation without a lot of other equipment, for example.

“You don’t have the cook-a-turkey-in-the-oven type of product in China, because we don’t have that kind of cooking,” said Philip S. Carmichael, the president of Asian operations at Haier, China’s biggest appliance manufacturer.

But in some sectors, Chinese buyers are already proving more lavish than Americans. The average flat-panel television sold in China is bigger than in the United States, according to AU Optronics of Taiwan, the world’s third-largest manufacturer of flat-panel televisions.

When car sales began surging early this year, many auto executives attributed the boom to government incentives. To stimulate the economy, the government has offered rebates for rural families to buy cars and household appliances, and has cut sales taxes on cars with small engines.

But the boom has broadened to categories that barely qualify for incentives.

S.U.V. sales rose 72% in October from a year earlier. At Nissan, sales of cars with larger engines that do not qualify for the sales tax reduction are growing even faster than sales of small-engine cars.

Auto sales jumped 42% in the first 11 months of this year compared with sales in the same period last year. And sales are still accelerating, soaring 96% in November compared with the same month a year ago. Auto sales in the United States plunged 37% last month on the same basis.

China’s consumers have the potential to buy even more in the years ahead. The savings rate is close to 40% — and will remain high unless and until Beijing creates a social safety net for things like health care or retirement, which would encourage Chinese to spend more today.

And though annual incomes still average just $2,775 a person in cities and $840 in rural areas, Western economists predict the economy will grow almost 12% in each of the next two years and the renminbi is widely expected to appreciate someday, further increasing consumers’ buying power.

==============================

**G7 presses for stronger yuan, breaks no new ground (National Post, 091003)

ISTANBUL — The Group of Seven rich nations urged China on Saturday to strengthen the yuan, but gave no sign of how it might overcome Chinese resistance to that suggestion or resolve other tensions over global currency rates.

The G7 dominated economic policymaking for two decades, but Saturday’s meeting underlined that it could no longer solve global problems without the cooperation of fast-growing economies in the developing world such as China.

G7 finance ministers and central bankers, in a statement after they met in Istanbul, said Beijing should boost its tightly controlled currency to help correct imbalances in global trade, which have been blamed for fuelling the financial crisis.

“We welcome China’s continued commitment to move to a more flexible exchange rate, which should lead to continued appreciation of the Renminbi in effective terms and help promote more balanced growth in China and in the world economy,” the G7 said.

But China, while insisting it intends eventually to free up the yuan, has kept the currency essentially flat against the dollar since the global financial crisis began worsening in July 2008. The G7 statement’s wording on currency rates was identical to language used when the group last met six months ago.

China showed no sign on Saturday of heeding the G7’s pressure.

“Our exchange rate policy is very clear,” Yi Gang, a Chinese central bank vice governor who was in Istanbul for meetings of the International Monetary Fund, told Reuters. He said the policy would continue to emphasise stability.

Asked whether China had been facing more pressure from other countries to let the yuan appreciate, he said: “We will continue our policy setting.”

The G7 also gave no sign of breaking new ground in resolving tensions among its members over weakness of the dollar, which has depreciated about 12% against a trade-weighted basket since March.

France and Canada have expressed concern in recent weeks that a weak dollar could hurt their exports. A G7 official, who declined to be named, said there was heated discussion of this issue in Istanbul.

But Saturday’s G7 statement offered nothing new to allay concern over dollar weakness, merely repeating language used six months ago, that too much volatility in exchange rates tended to threaten economic stability.

The G7, comprising Britain, Canada, France, Germany, Italy, Japan and the United States, has been eclipsed during the financial crisis by the larger Group of 20, which includes rising powers such as China and India.

Meeting in Pittsburgh last month, leaders of the G20 agreed in principle to work towards cutting global imbalances and to tighten financial regulation.

“The G7 is not quite dead, but it is losing its relevance,” the IMF’s managing director, Dominique Strauss-Kahn, was quoted as saying by Emerging Markets magazine. “It’s on its way to extinction.”

Canadian Finance Minister Jim Flaherty said the G7 would keep playing a “pivotal role” in global economic cooperation, and that Canada would host a meeting of top G7 finance officials next February.

But many officials, while saying the group still had a purpose, conceded that its role would have to change as the G20 took the lead in managing the global recovery.

“We have agreed to work on a more informal basis, that we step back to the way it was some years ago, and that we want to try to cut back the schedules for (numbers of) meetings,” German deputy finance minister Joerg Asmussen said.

The G7 stressed that the world’s economic recovery remained vulnerable to setbacks, despite the IMF’s forecasts of growth across much of the G7 and elsewhere in the second half of this year and in 2010.

Poor U.S. economic data earlier in the week cast doubt on the strength of the recovery. The Labor Department announced on Friday that the U.S. unemployment rate rose to a 26-year high of 9.8% in September from 9.7% in August.

“In recent months we have started to see signs of a global economic recovery and continued improvement in financial market conditions,” the G7 statement said.

“However, there is no room for complacency since the prospects for growth remain fragile and labor market conditions are not yet improving. We will keep in place our support measures until recovery is assured.”

German Bundesbank President Axel Weber said Europe’s biggest economy would take years to recoup the growth lost since gross domestic product started to contract there and in most of Europe in the second quarter of last year.

“We will return around 2013 to the economic level we had 2008,” he told reporters. “Because of the finance crisis, the German growth potential seems to have decreased to around 1% compared to around 1.5% before.”

British finance minister Alistair Darling said that to avoid future crises, the G20 needed to ensure countries around the world met minimum standards in their financial regulation, so that weakness in one nation could not cause problems for others.

In an interview with Emerging Markets magazine, Darling said the G20 might blacklist countries that had lax regulation and impose sanctions on them, mirroring its crackdown on tax havens, which was launched earlier this year and has already prompted some countries to roll back banking secrecy laws.

==============================

**Economic Crisis Raises Fears Extremism in Western Countries (Paris, International Herald, 090506)

PARIS - A solid majority of people in the major Western democracies expect a rise in political extremism in their countries as a result of the economic crisis, according to a new poll.

Even in the United States and Italy, the two countries whose citizens are least likely to hold that view, fully 53% of those surveyed say more extremism is “certain to happen” or “probable” in the next three years, according to the poll, conducted by Harris Interactive for the International Herald Tribune and France 24. The number rises to 65% in Britain and Germany, with about 60% expressing that view in the other two countries surveyed, France and Spain.

“I believe there will be a rise in political extremism in the United States, particularly from the right, between now and the next presidential election,” said Robert J. Kepka of Addison, Illinois, one of the people surveyed who agreed to a follow-up interview by e-mail. He said he expected such a result, however, “not as a result of the current economic crisis, but rather the perceived erosion of conservative Christian values.”

The survey found a widespread expectation of unrest, with strikes and demonstrations forecast by 86% of those in the six countries. Half of those surveyed expected riots in their own countries.

Other changes forecast were “greatly increased immigration into your country” (60%), a “rise of religious fanaticism in your country” (45%) and a drop in human rights or individual freedoms (41%).

The one political figure that people consistently pin their hopes to is President Barack Obama. About half of all people surveyed expressed the most confidence in his ability to solve the crisis, with Chancellor Angela Merkel of Germany coming in second, with 22%. Only in Britain did a minority back Obama - one in three - but even there he handily outdistanced the runner-up, Prime Minister Gordon Brown.

Another person surveyed, Amanda King of Newport, Wales, said it was more important to focus on systemic change rather than looking to personalities.

“It is almost impossible for one single leader to resolve such a crisis,” she said. “Especially in today’s globalization, bringing a recession to a close requires international co-operation.”

Speaking of Obama, she added: “Every measure he might make in response to this financial crisis will be limited and on its own will have very little effect. Confidence and stability will only increase over a period of time.”

The survey exposed pockets of optimism amid the gloom. For instance, two in three people thought the crisis could result in reform of the worldwide economic systems. And half thought it could strengthen solidarity among people, though again half thought it would not.

Looking to neighboring nations, most people found less cause for alarm. Given four possible pessimistic outcomes (bankruptcy, coup, civil war, international war), only a minority found such a result probable or certain in their region.

The story on the home front, however, was quite different. Around half of all respondents said they worried at least somewhat about losing their job or their pension, being unable to afford medical care, or being able to afford basic utilities like electricity, water or the telephone.

And fully one in three respondents even worried about becoming homeless. Only the Germans, at 19%, were relatively worry-free on this score. Nearly half of those in Italy and Spain had such a nightmare, but the Italians, for one, thought it would not become a reality. When asked whether they thought such a thing could happen to them in the next three years, only 12% of Italians said yes - the lowest percentage of any country. The highest number, at 32%, was in the United States.

This poll was conducted online from March 25 to 31 by Harris Interactive, in partnership with France 24 and the International Herald Tribune, among 6,449 adults, ages 16 to 64, in Britain, France, Germany, Spain and the United States and adults, ages 18 to 64, in Italy. The data for age, gender, education, region and Internet propensity were weighted when necessary to bring them into line with the current proportions in the population. Propensity score weighting was applied to adjust for respondents’ propensity to be online.

Harris Interactive relied on the Harris Poll Online panel as the primary sample source for the survey.

The panel consists of potential respondents who have been recruited through online, telephone, mail and in-person approaches. Because the sample is not random but is based on those who agreed to participate, no statistical estimate of sampling error can be calculated.

==============================

**Asian Data Shows Severity of Slump (Paris, International Herald, 090331)

HONG KONG - As world leaders assembled in London for the Group of 20 summit meeting this week, the latest evidence of the severity of the economic crisis emerged from Asia on Wednesday, with business confidence in Japan plummeting to a record low, South Korean exports falling for a fifth consecutive month and a manufacturing index deteriorating in China.

The data from three of the largest Asian economies underscored a picture of slumping exports and production, and hammered home that despite some recent signs that the situation may have stopped deteriorating in parts of the world, the global economy remained in the middle of the worst downturn in decades.

The so-called Tankan survey in Japan - a closely watched quarterly poll by the Bank of Japan measuring sentiment among big manufacturers - plummeted to -58 in March from -24 in December, the lowest level since the survey began in 1974.

The reading, which was worse than economists had projected, came as the Japanese economy continued to shrink at a time of tumbling exports and weak domestic demand. Japanese exports, which make up about one-third of the overall economy, fell by nearly half in January and February, in part because the yen’s strength has made Japanese goods more expensive for consumers abroad.

South Korea has also had to grapple with falling exports, though the pace of decline there has been much less severe than in Japan. Fresh data Wednesday showed overseas shipments in March had fallen 21.2% from a year earlier. Imports slumped 36%.

In China, a purchasing managers index compiled by the brokerage C.L.S.A. slipped back in March, to 44.8, down from 45.1 in February, snapping a three-month streak of tentative improvement. It was the eighth month in a row that the reading had come in below 50, which is the dividing line between expansion and contraction.

The discouraging data follows downward revisions at several leading institutions’ growth forecasts for the year. On Tuesday, the Organization for Economic Cooperation and Development said it expected the economies of its 30 member states to contract 4.3% this year, rather than by the 0.4% it forecast last November.

“The global recession will worsen this year before a policy-induced recovery gradually builds momentum through 2010,” the O.E.C.D. said in its report.

The Asia-Pacific region was relatively well insulated from the financial turmoil that began in the United States in 2007. It began to be caught by the global downdraft only toward the end of last year - months after the United States and Europe - and many of the economies in the region, notably China’s and India’s, will still see significant, though slower, growth this year.

Still, the data Wednesday indicate that the global slump has months to run. Moreover, economists say that the labor market, already bad, is set to deteriorate as companies face intense pressure to scale back costs and output.

This, in turn, will put added pressure on government finances already strained by the stimulus and bailout packages that countries around the world have put in place.

Japan, in particular, is in severe straits, with economists projecting that the first quarter of the business year, which started Wednesday, showed yet another deep contraction. Prime Minister Taro Aso has pledged to compile an added stimulus package by mid-April, adding to two previous plans totaling ¥10 trillion, or $101 billion.

The Tankan survey results, Credit Suisse economists said in a note Wednesday, “confirm that the Japanese economy is facing an extremely difficult predicament, with many indicators hitting their worst levels on record.”

They also said forecasts for the quarter ahead suggested that corporate sentiment might not worsen, but it would be “quite some time” before any significant upturn came in the real economy, because corporate earnings kept deteriorating and production capacity and employment levels were considered “highly excessive.”

By contrast, recent data from South Korea has had a silver lining. Its export data showed Wednesday that the pace of decline had slowed from previous months. And factory output data for February, released Tuesday, showed an increase from a month earlier.

Stock markets in Asia took the bleak economic picture in stride. The Nikkei 225 index in Japan rallied nearly 3% and the Kospi in South Korea rose 2.25%. Stocks in mainland China rose 1.47% in Shanghai, and 1.87% in Shenzhen.

But the performance was mixed across the region, with the Hang Seng index in Hong Kong falling 0.42%. The Straits Times index in Singapore inched 0.33% higher, while the S&P/ASX 200 in Australia both edged 0.07% lower.

==============================

**China and U.S. bound themselves with linked addictions (Paris, International Herald, 081226)

WASHINGTON: “Usually it’s the rich country lending to the poor. This time, it’s the poor country lending to the rich.” — Niall Ferguson

In March 2005, a low-key Princeton economist who had become a Federal Reserve governor coined a novel theory to explain the growing tendency of Americans to borrow from foreigners, particularly the Chinese, to finance their heavy spending.

The problem, he said, was not that Americans spend too much, but that foreigners save too much. The Chinese have piled up so much excess savings that they lend money to the United States at low rates, underwriting American consumption.

This colossal credit cycle could not last forever, he said. But in a global economy, the transfer of Chinese money to America was a market phenomenon that would take years, even a decade, to work itself out. For now, he said, “we probably have little choice except to be patient.”

Today, the dependence of the United States on Chinese money looks less benign. And the economist who proposed the theory, Ben Bernanke, is dealing with the consequences, having been promoted to chairman of the Fed in 2006, as these cross-border money flows were reaching stratospheric levels.

In the past decade, China has invested upward of $1 trillion, mostly earnings from manufacturing exports, into American government bonds and government-backed mortgage debt. That has lowered interest rates and helped fuel a historic consumption binge and housing bubble in the United States.

China, some economists say, lulled American consumers, and their leaders, into complacency about their spendthrift ways.

“This was a blinking red light,” said Kenneth Rogoff, a professor of economics at Harvard and a former chief economist at the International Monetary Fund. “We should have reacted to it.”

In hindsight, many economists say, the United States should have recognized that borrowing from abroad for consumption and deficit spending at home was not a formula for economic success. Even as that weakness is becoming more widely recognized, however, the United States is likely to be more addicted than ever to foreign creditors to finance record government spending to revive the broken economy.

To be sure, there were few ready remedies. Some critics argue that the United States could have pushed Beijing harder to abandon its policy of keeping the value of its currency weak — a policy that made its exports less expensive and helped turn it into the world’s leading manufacturing power. If China had allowed its currency to float according to market demand in the past decade, its export growth probably would have moderated. And it would not have acquired the same vast hoard of dollars to invest abroad.

Others say the Federal Reserve and the Treasury Department should have seen the Chinese lending for what it was: a giant stimulus to the American economy, not unlike interest rate cuts by the Fed. These critics say the Fed under Alan Greenspan contributed to the creation of the housing bubble by leaving interest rates too low for too long, even as Chinese investment further stoked an easy-money economy. The Fed should have cut interest rates less in the middle of this decade, they say, and started raising them sooner, to help reduce speculation in real estate.

Today, with the wreckage around him, Bernanke said he regretted that more was not done to regulate financial institutions and mortgage providers, which might have prevented the flood of investment, including that from China, from being so badly used. But the Fed’s role in regulation is limited to banks. And stricter regulation by itself would not have been enough, he insisted.

“Achieving a better balance of international capital flows early on could have significantly reduced the risks to the financial system,” Bernanke said in an interview in his office overlooking the Washington Mall.

“However,” he continued, “this could only have been done through international cooperation, not by the United States alone. The problem was recognized, but sufficient international cooperation was not forthcoming.”

The inaction was due to a range of factors, political and economic. By the yardsticks that appeared to matter most — prosperity and growth — the relationship between China and the United States also seemed to be paying off for both countries. Neither had a strong incentive to break an addiction: China to strong export growth and financial stability; the United States to cheap imports and low-cost foreign loans.

In Washington, China was treated as a threat by some people, but mostly because it lured away manufacturing jobs. Others argued that China’s heavy lending to this country was risky because Chinese leaders could decide to withdraw money at a moment’s notice, creating a panicky run on the dollar.

Bernanke viewed such international investment flows through a different lens. He argued that Chinese invested savings abroad because consumers there did not have enough confidence to spend. Changing that situation would take years, and did not amount to a pressing problem for the Americans.

“The global savings glut story did us a collective disservice,” said Edwin Truman, a former Fed and Treasury official. “It created the idea that the world was doing it to us and we couldn’t do anything about it.”

But Bernanke’s theory fit the prevailing hands-off, pro-market ideology of recent years. Greenspan and the Bush administration treated the record American trade deficit and heavy foreign borrowing as an abstract threat, not an urgent problem.

Bernanke, after he took charge of the Fed, warned that the imbalances between the countries were growing more serious. By then, however, it was too late to do much about them. And the White House still regarded imbalances as an arcane subject best left to economists.

By itself, money from China is not a bad thing. As American officials like to note, it speaks to the attractiveness of the United States as a destination for foreign investment. In the 19th century, the United States built its railroads with capital borrowed from the British.

In the past decade, China arguably enabled an American boom. Low-cost Chinese goods helped keep a lid on inflation, while the flood of Chinese investment helped the government finance mortgages and a public debt of close to $11 trillion.

But Americans did not use the lower-cost money afforded by Chinese investment to build a 21st-century equivalent of the railroads. Instead, the government engaged in a costly war in Iraq, and consumers used loose credit to buy sport utility vehicles and larger homes. Banks and investors, eagerly seeking higher interest rates in this easy-money environment, created risky new securities like collateralized debt obligations.

“Nobody wanted to get off this drug,” said Senator Lindsey Graham, the South Carolina Republican who pushed legislation to punish China by imposing stiff tariffs. “Their drug was an endless line of customers for made-in-China products. Our drug was the Chinese products and cash.”

A new economic dance

The United States has been here before. In the 1980s, it ran heavy trade deficits with Japan, which recycled some of its trading profits into American government bonds.

At that time, the deficits were viewed as a grave threat to America’s economic might. Action took the form of a 1985 agreement known as the Plaza Accord. The world’s major economies intervened in currency markets to drive down the value of the dollar and drive up the Japanese yen.

The arrangement did slow the growth of the trade deficit for a time. But economists blamed the sharp revaluation of the Japanese yen for halting Japan’s rapid growth. The lesson of the Plaza Accord was not lost on China, which at that time was just emerging as an export power.

China tied itself even more tightly to the United States than did Japan. In 1995, it devalued its currency and set a firm exchange rate of roughly 8.3 to the dollar, a level that remained fixed for a decade.

During the Asian financial crisis of 1997-98, China clung firmly to its currency policy, earning praise from the Clinton administration for helping check the spiral of devaluation sweeping Asia. Its low wages attracted hundreds of billions of dollars in foreign investment.

By the early part of this decade, the United States was importing huge amounts of Chinese-made goods — toys, shoes, flat-screen televisions and auto parts — while selling much less to China in return.

“For consumers, this was a net benefit because of the availability of cheaper goods,” said Lawrence Meyer, a former Fed governor. “There’s no question that China put downward pressure on inflation rates.”

But in classical economics, that trade gap could not have persisted for long without bankrupting the American economy. Except that China recycled its trade profits right back into the United States.

It did so to protect its own interests. China kept its banks under tight state control and its currency on a short leash to ensure financial stability. It required companies and individuals to save in the state-run banking system most foreign currency — primarily dollars — that they earned from foreign trade and investment.

As foreign trade surged, this hoard of dollars became enormous. In 2000, the reserves were less than $200 billion; today they are about $2 trillion.

Chinese leaders chose to park the bulk of that in safe securities backed by the American government, including Treasury bonds and the debt of Fannie Mae and Freddie Mac, which had implicit government backing.

This not only allowed the United States to continue to finance its trade deficit, but, by creating greater demand for United States securities, it also helped push interest rates below where they would otherwise be. For years, China’s government was eager to buy American debt at yields many in the private sector felt were too low.

This financial and trade embrace between the United States and China grew so tight that Ferguson, the financial historian, has dubbed the two countries Chimerica.

‘Tiptoeing’ around a partner

Being attached at the hip was not entirely comfortable for either side, though for widely differing reasons.

In the United States, more people worried about cheap Chinese goods than cheap Chinese loans. By 2003, China’s trade surplus with the United States was ballooning, and lawmakers in Congress were restive. Senator Graham and Senator Charles Schumer, Democrat of New York, introduced a bill threatening to impose a 27% duty on Chinese goods.

“We had a moment where we caught everyone’s attention: the White House and China,” Graham recalled.

At the People’s Bank of China, the central bank, a consensus was also emerging in late 2004: China should break its tight link to the dollar, which would make Chinese exports more expensive.

Yu Yongding, a leading economic adviser, pressed the case. The American trade and budget deficits were not sustainable, he warned. China was wrong to keep its currency artificially depressed and depend too much on selling cheap goods.

Proponents of revaluation in China argued that the country’s currency policies denied the fruits of prosperity to Chinese consumers. Beijing was investing their savings in low-yielding American government securities. And with a weak currency, they said, Chinese could not afford many imported goods.

The central bank’s English-speaking governor, Zhou Xiaochuan, was among those who favored a sizable revaluation.

But when Beijing finally acted to amend its currency policy in 2005, under heavy pressure from Congress and the White House, it moved cautiously. The renminbi was allowed to climb only 2%. The Communist Party opted for only incremental adjustments to its economic model after a decade of fast growth.

Little changed: China’s exports kept soaring and investment poured into steel mills and garment factories.

But American officials eased the pressure. They decided to put more emphasis on encouraging Chinese consumers to spend more of their savings, which they hoped would eventually bring the two economies into better balance. On a tour of China, John Snow, the Treasury secretary at the time, even urged the Chinese to start using credit cards.

China kicked off its own campaign to encourage domestic consumption, which it hoped would provide a new source. But Chinese save with the same zeal that, until recently, Americans spent.

Shorn of the social safety net of the old Communist state, they squirrel away money to pay for hospital visits, housing or retirement. This accounts for the savings glut identified by Bernanke.

Privately, Chinese officials confided to visiting Americans that the effort was not achieving much.

“It is sometimes hard to change successful models,” said Robert Zoellick, who negotiated with the Chinese as a deputy secretary of state. “It is prototypically American to say, ‘This worked well but now you’ve got to change it.’ “

In Washington, some critics say too little was done. A former Treasury official, Timothy Adams, tried to get the IMF to act as a watchdog for currency manipulation by China, which would have subjected Beijing to more global pressure.

Yet when Snow was succeeded as Treasury secretary by Henry M. Paulson Jr. in 2006, the IMF was sidelined, according to several officials, and Paulson took command of China policy.

He was not shy about his credentials. As an investment banker with Goldman Sachs, Paulson made 70 trips to China. In his office hangs a watercolor depicting the hometown of Zhu Rongji, a forceful former prime minister.

“I pushed very hard on currency because I believed it was important for China to get to a market-determined currency,” Paulson said in an interview. But he conceded he did not get what he wanted.

In late 2006, Paulson invited Bernanke to accompany him to Beijing. Bernanke used the occasion to deliver a blunt speech to the Chinese Academy of Social Sciences, in which he advised the Chinese to reorient their economy and revalue their currency.

At the last minute, however, Bernanke deleted a reference to the exchange rate being an “effective subsidy” for Chinese exports, out of fear that it could be used as a pretext for a trade lawsuit against China.

Critics detected a pattern. They noted that in its twice-yearly reports to Congress about trading partners, the Treasury Department had never branded China a currency manipulator.

“We’re tiptoeing around, desperately trying not to irritate or offend the Chinese,” said Thea Lee, public policy director of the AFL-CIO “But to get concrete results, you have to be confrontational.”

An embrace that won’t let go

For China, too, this crisis has been a time of reckoning. Americans are buying fewer Chinese DVD players and microwave ovens. Trade is collapsing, and thousands of workers are losing their jobs. Chinese leaders are terrified of social unrest.

Having allowed the renminbi to rise a little after 2005, the Chinese government is now under intense pressure domestically to reverse course and depreciate it. China’s fortunes remain tethered to those of the United States. And the reverse is equally true.

In a glassed-in room in a nondescript office building in Washington, the Treasury conducts nearly daily auctions of billions of dollars’ worth of government bonds. An old army helmet sits on a shelf: as a lark, Treasury officials have been known to strap it on while they monitor incoming bids.

For the past five years, China has been one of the most prolific bidders. It holds $652 billion in Treasury debt, up from $459 billion a year ago. Add in its Fannie Mae bonds and other holdings, and analysts figure China owns $1 of every $10 of America’s public debt.

The Treasury is conducting more auctions than ever to finance its $700 billion bailout of the banks. Still more will be needed to pay for the incoming Obama administration’s stimulus package. The United States, economists say, will depend on the Chinese to keep buying that debt, perpetuating the American habit.

Even so, Paulson said he viewed the debate over global imbalances as hopelessly academic. He expressed doubt that Bernanke or anyone else could have solved the problem as it was germinating.

“One lesson that I have clearly learned,” said Paulson, sitting beneath his Chinese watercolor. “You don’t get dramatic change, or reform, or action unless there is a crisis.”

==============================

**China’s newest export: Inflation (Paris, International Herald, 080201)

Posted by Daniel Altman

This might be the most important story we’ve seen in weeks. Forget about the French banking scandal and the Federal Reserve’s rate cuts. Export prices are rising in China, and the repercussions are bound to be profound.

As David Barboza writes, prices of popular Chinese products like clothing and toys could rise as much as 10% this year, because of higher costs for energy and raw materials. Labor costs are rising, too, after more than a decade of stagnation caused by wave after wave of rural-to-urban migrants.

Because China supplies consumer products to so many countries, its rising export prices will increase inflation around the world… with particularly poor timing. The Fed is cutting rates, which puts it in a tougher inflation-fighting position, and inflation is already hitting record levels in the euro zone. If China allows its currency to gain value, these effects will be magnified in the short term. This could help its competitors in other countries, but it will hit consumers with a double-whammy at a time when the global economy is stuck in a slow patch: higher prices, and static or lower incomes. Brace yourselves….

==============================

**Charitable Giving Hits Record Despite Slowing Growth (Foxnews, 080624)

Mounting economic worries haven’t stopped Americans from donating to charities. Charitable giving hit a record in 2007, topping $300 billion for the first time, the Wall Street Journal reports.

Giving to charities increased steadily in the past decade, though lately the pace of growth has slowed. The latest figures show an increase of only 3.9% over 2006, compared to spikes of roughly 10% and 13% in 2004 and 2005, respectively.

Americans donated $306 billion last year, according to preliminary figures contained in the closely watched annual report from the nonprofit Giving USA Foundation. After adjusting for inflation, donations rose only 1% from the roughly $295 billion donated in 2006.

The relative slowdown in giving is attributable to increasing economic uncertainty in the second half of 2007. Economic woes intensified last summer amid high gasoline prices, real-estate market turmoil and a burgeoning credit crunch, according to the Wall Street Journal.

Less-robust giving could continue throughout 2008, as the economy has worsened.

Still, on an absolute basis, charitable giving set another record. Researchers cited a healthy stock market in the first half of 2007, measured economic growth and increases in corporate and personal income as factors that kept giving up.

==============================

**International Food crisis (Paris, International Herald, 080414)

Oxford Analytica

Since 2005, the rise (in real terms) in the price of almost every food item has revived fears of a return to global food insecurity. Some government policy responses to the food crisis have been unhelpful, and will aggravate the problem in the longer term. Food security is a particularly sensitive issue in poorer countries, and demands for it can easily manifest themselves on the streets, causing political instability. Some causes of the present food price rise are likely to continue in the longer term, so the international community will have to find ways of adjusting to a new era of dearer food.

Food security is not a precise concept but is an extremely powerful one. It can be defined as ‘access by all people at all times to enough food for an active, healthy life’. On this definition, large parts of the developing world are, and long have been, suffering from food insecurity, as shown by the existence of chronic malnutrition.

Until the late eighteenth century, Western countries were in a similar situation. This led economist Thomas Malthus to argue that population growth pressure would hold down food consumption per person to the level of bare subsistence. Three factors allowed Western countries to escape this Malthusian trap while they industrialised, namely:

· the availability of huge areas of good uncultivated land in the Americas and Antipodes;

· mass emigration of surplus European population to these areas; and

· falling transport costs that made international trade in food profitable.

In the 20th century, episodes of mass hunger have been mainly related to disruptions of war, or follies of authoritarian leaders (for example, China’s Mao Zedong, North Korea’s Kim Jong Il and Zimbabwe’s Robert Mugabe). The main systemic threat to world food security emerged in the 1960s, but was staved off by the intensification of wheat and rice cultivation in Asia — the ‘green revolution’.

Recent price rises. Since 1974, the real price of food has been drifting gradually downwards, and by 2005, had declined by a remarkable 75%. During these three decades the world became accustomed to cheap food, even if it was still too expensive for many of the poor in developing countries. Since 2005, food prices have gone dramatically into reverse, and are now nearly back to the 1974 level. This change has affected virtually all food commodities, and is not being driven by the specifics of one particular market. For example, since 2000:

· prices of wheat, butter and milk have tripled;

· prices of rice, maize and poultry have almost doubled; and

· prices of meat, palm oil and cassava have also risen sharply, but not as much.

Driving factors. A combination of factors caused this sudden price turnaround:

Oil’s upward trend. The oil price has risen faster than food prices since 2005, and is driving them upwards. Modern commercial agriculture is extremely energy-intensive, using chemical fertilisers and tractor power, as is the food distribution industry. Fuel costs of both are soaring. Poor weather conditions. Food prices have been driven by increased volatility of supply, due to changing and increasingly drastic global weather conditions, which have rendered unstable not only tropical commodities — particularly those exposed to hurricanes, such as oranges — but also drought-bearing ones, such as the grains that biofuels now demand:

· Earlier this year, world wheat inventories dropped to their lowest level in 30 years, after hot, dry spells in 2007 hurt yields in India, Canada, Argentina and Australia, while a freeze, and excessive rainfall, curbed harvests in the United States.

· Australia, a major food-growing region, has been subject to severe drought since 2002, reducing agricultural production.

· Starting last December, heavy rains and flooding in Southern Africa raised the prospect of serious regional food shortages. Zambia and Mozambique saw significant destruction of crops and flooding of arable land.

Diversion of maize and other crops to biofuel production. The rising oil price encourages biofuel production from maize and other crops. US government subsidies for biofuel production are a further incentive. This reduces the amount available for consumption as food. Speculation. Rising prices have fuelled speculation on future commodity prices, exacerbating current price increases. Institutional investors who aim to maintain long positions in soft markets thus are reinforcing agricultural prices:

· For example, wheat this year became a hot staple for investors and financial analysts. The futures market reinforced the consumption trend: with food inflation expected to continue, wheat appeared the safest bet for investors in the years to come — prior to its dramatic surge, wheat had shown less volatility than maize and soybeans.

· Some governments have responded negatively to the perceived role of speculation in boosting food prices. For example, Peruvian Premier Jorge del Castillo on March 18 stated that the government “declared war” on food price speculation.

China’s new prosperity. As real incomes rise in China, demand increases for luxury dietary items, like meat and dairy products:

· Per capita meat consumption more than doubled in China between 1980 (20 kilograms, kg) and 2005 (50 kg). Increased production of these products has a large multiplier effect on demand for feed grains and water resources (eg 10,000-13.000 litres of water is required to produce one kg of beef, versus 1,000-2,000 litres to produce one kg of wheat).

==============================

**World food prices soar as a wealthier Asia consumes more (Paris, International Herald, 080331)

WASHINGTON: Food prices are soaring, a wealthier Asia is demanding better food and farmers cannot keep up. In short, the world faces a food crisis and in some places it is already boiling over.

Around the globe, people are protesting and governments are responding with often counterproductive controls on prices and exports - a new politics of scarcity in which ensuring food supplies is becoming a major challenge for the 21st century.

Damaged by severe weather in producing countries and plundered by a boom in demand from fast-developing nations, global wheat stocks are at 30-year lows. Grain prices have been on the rise for five years, ending decades of inexpensive food.

Drought, a declining dollar, a shift of investment money into commodities and use of farm land to grow biofuel crops have all contributed to food woes. But population growth and the growing wealth of China and other emerging countries are likely to be more enduring factors.

World population is set to hit 9 billion by 2050, and most of the extra 2.5 billion people will live in the developing world. It is in these countries that the population is demanding dairy and meat, which require more land to produce.

“This is an additional setback for the world economy, at a time when we are already going through major turbulence, but the biggest drama is the impact of higher food prices on the poor,” Angel Gurría, head of the Organization for Economic Cooperation and Development, said.

In Gurría’s native Mexico, tens of thousands took to the streets last year over the cost of tortillas, a national staple whose price rocketed in tandem with the price of corn.

Global food prices, based on United Nations records, rose 35% in the year to the end of January, markedly accelerating an upturn that began, gently at first, in 2002. Since then, prices have risen 65%.

In 2007 alone, according to the UN Food and Agriculture Organization’s world food index, dairy prices rose nearly 80% and grain 42%.

“The recent rise in global food commodity prices is more than just a short-term blip,” the British research group Chatham House said in January.

“Society will have to decide the value to be placed on food,” it added, and how “market forces can be reconciled with domestic policy objectives.”

Many countries are already facing these choices.

After long opposition, Mexico’s government is considering lifting a ban on genetically modified crops to allow its farmers to compete with the United States, where high-yield, genetically modified corn is the norm.

The European Union and parts of Africa have similar bans that could also be reconsidered.

A number of governments, including Egypt, Argentina, Kazakhstan and China, have imposed restrictions to limit grain exports and keep more of their food at home.

This knee-jerk response to food emergencies can result in farmers producing less food, and it threatens to undermine years of effort to open up international trade.

“If one country after the other adopts a ‘starve-your-neighbor’ policy, then eventually you trade smaller shares of total world production of agricultural products, and that in turn makes the prices more volatile,” said Joachim von Braun, director general of the International Food Policy Research Institute in Washington.

In Argentina, a government tax on grain led to a strike by farmers that disrupted grain exports.

Vietnam and India, both major rice exporters, announced further curbs on overseas sales Friday, sending rice higher on U.S. futures markets.

Other food commodities retreated from record highs in recent days, but analysts attributed that less to fundamentals and more to profit-taking by investors.

In the next decade, the price of corn could rise 27%, oilseeds like soybeans by 23% and rice by 9%, according to tentative UN and OECD forecasts in February.

Waves of discontent are already starting to be felt. Violent protests hit Cameroon and Burkina Faso in February. Protesters rallied in Indonesia recently and media reported deaths by starvation. In the Philippines, fast-food chains were urged to cut rice portions to counter a surge in prices.

Trade Minister Kamal Nath of India said Monday that the government was looking to cut duties on food items to rein in rising prices.

“We are looking to cutting our duties on many products on the food front,” he said, ahead of a cabinet committee meeting to consider ways to contain prices. Earlier this month, the government cut the import duty on crude palm oil to 20% from 45%, and on refined palm oil to 27.5% from 52.5%.

Last year, the central bank of Australia - where minds were focused by a two-year drought - asked whether the surge in commodity prices could be one of the few really big ones in world history, like those of the mid-1930s or the 1970s.

Real commodity prices remained flat or even fell during the rapid industrialization of the United States and Germany in the early 20th century. But the industrialization of China, with 1.3 billion people, is on a totally different scale, the Reserve Bank of Australia noted.

“China’s population is proportionately much larger than the countries that industrialized in earlier periods and is almost double that of the current G-7 nations combined,” the central bank said.

The emergence of China’s middle class is adding hugely to demand not just for basic commodities like corn, soybeans and wheat, but also for meat, milk and other high-protein foods.

The Chinese, whose rise began in earnest in 2001, ate just 20 kilograms, or 44 pounds, of meat per capita in 1985. They now eat 50 kilograms a year.

Each pound of beef takes about seven pounds of grain to produce, which means land that could be used to grow food for humans is being diverted to growing animal feed.

As the West seeks to tackle the risk of global warming, a drive toward greener fuels is compounding global food problems. It is estimated that one in four bushels of corn from the U.S. corn crop this year will be diverted to make fuel ethanol.

“Turning food into fuel for cars is a major mistake on many fronts,” said Janet Larsen, director of research at the Earth Policy Institute, an environmental group based in Washington. “One, we’re already seeing higher food prices in the American supermarket. Two, perhaps more serious from a global perspective, we’re seeing higher food prices in developing countries where it’s escalated as far as people rioting in the streets.”

Similarly, prices for palm oil are at records because of demand to use it for biofuel, causing pain for low-income families in Indonesia and Malaysia, where it is a staple.

But despite the rising criticism of biofuels, the U.S. corn-fed ethanol industry enjoys wide political support because it helps farmers, who suffered years of low prices, and that support is likely to continue.

John Bruton, the European Union’s ambassador to the United States, predicts that the world faces 10 to 15 years of steep rises in food costs. And it is the poor in Africa and, increasingly, Southeast Asia, who will be most vulnerable.

The director of the UN World Food Program, Josette Sheeran, is on a global tour in search of donations to fill a $500 million funding gap caused by the rising prices. The largest U.S. aid program, Food for Peace, has seen its commodity prices jump 40% and may have to curtail donations.

But aid and many policy options available to governments for helping the hungry distort markets and cause pain elsewhere in their economies, according to proponents of free markets.

“I was involved in a government that introduced food subsidies in Ireland and we had the devil’s own job to get rid of them,” said Bruton, who was prime minister of Ireland from 1994 to 1997.

Others trust that better fertilizers and higher-yielding crops - some of them genetically modified - will keep production in line with demand.

Bruce Babcock, an economist at Iowa State University, said the rising markets were a signal to farmers that they needed to raise production.

“It’s actually the greatest time in the world to be a farmer around the world,” Babcock said. “We are going to see fairly substantial increases in production because farmers have never had such a large incentive to increase production.”

But others note that expensive seeds and fertilizers are out of reach of farmers in poor countries.

Around the beginning of the 19th century, the British political economist Thomas Malthus said population had the potential to grow much faster than food supply, a prediction that efficient farming consistently proved wrong. Now, at the beginning of the 21st century, some are revisiting his predictions.

==============================

**Chinese goods transform life in Southeast Asia (Paris, International Herald, 071227)

LONG LAO GAO, Laos: The pineapple that grows here on the steep hills above the Mekong River is especially sweet, the red and orange chilies unusually spicy, and the spring onions and watercress retain the freshness of the mountain dew.

For years, getting this prized produce to market meant carrying a giant basket on a back-breaking, daylong trek down narrow mountain trails that cut through the jungle.

That is now changing, thanks in large part to China.

Villagers ride their cheap Chinese motorcycles, which sell for as little as $440, down a badly rutted dirt road to the markets of Luang Prabang, the charming city of Buddhist temples along the Mekong that draws flocks of foreign tourists. The trip takes just one and half hours.

“No one had a motorcycle before,” said Khamphao Janphasid, 43, a teacher in the local school whose extended family now has three of them. “The only motorcycles that used to be available were Japanese and poor people couldn’t afford them.”

Cheap Chinese products are flooding China’s southern neighbors and consumers in Myanmar, Laos, Vietnam and Cambodia are laying out the welcome mat.

The products are transforming the lives of some of the poorest people in Asia, whose worldly possessions only a few years ago typically consisted of not much more than a set or two of clothes, cooking utensils and a thatch-roofed house built by hand.

The concerns in the West about the safety of Chinese toys and pet food are largely moot for the people living in the remote villages here, although some residents complain about quality. As the first introduction to global capitalism, Chinese products are met with deep appreciation.

“Life is better because prices are cheaper,” Khamphao said.

Chinese television sets and satellite dishes connect villagers to the world, stereos fill their houses with music and the Chinese motor scooters often serve as transport for entire families.

The motor scooters, which typically have small but adequate 110cc engines, literally save lives, says Saidoa Wu, the 43-year-old village headman of Long Lao Mai, a village nestled in a valley at the end of the dirt road, adjacent to Long Lao Gao.

“Now when we have a sick person we can get to the hospital in time,” Wu said.

The improvised bamboo stretchers that villagers here used as recently as a decade ago to carry gravely ill family members and neighbors down the mountain on foot are history. In a village of 150 families, Wu counts a total of 44 Chinese motorcycles, up from zero five years ago.

Chinese motorbikes fill the streets of Hanoi, Vientiane, Mandalay and other major cities in Indochina. Thirty-nine percent of the two million motorcycles sold annually in Vietnam are Chinese brands, according to Honda, which has a 34% market share.

Chinese exports to Vietnam, Myanmar and Laos amounted to $8.3 billion in the first eight months of the year, an increase of about 50% from the same period in 2006.

About seven years ago, residents here say they, Chinese salesmen began arriving with suitcases filled with smuggled watches, tools and small radios, closing up and moving on when the police arrived. More recently Chinese merchants, who speak only passable Lao, received permission to open permanent stalls in the towns and small cities across Indochina. In Laos, these are known as “talad jin,” or Chinese markets.

Khamphao and his neighbors all have $100 Chinese-made television sets connected to Chinese-made satellite dishes and decoders, causing both joy and occasional tension among family members sitting on the bare concrete or dirt floors of their living rooms.

“I like watching the news,” Khamphao said. “My children love to watch movies.”

A two-hour interview with Khamphao was interrupted twice: once when his buffalo in the adjoining field gave birth to a healthy calf and a second time when a movie channel was showing “Lost in Translation,” and the actor Bill Murray sang an off-key rendition of Brian Ferry’s “More Than This.”

Khamphao’s children, whose daily lives are almost exclusively confined to the mountain village, have picked up the Thai language from television and sing along to commercials broadcast from neighboring Thailand.

The enthusiasm for Chinese goods here is tempered by one commonly heard complaint: maintenance problems.

“The quality of the Japanese brands is much better,” said Gu Silibapaan, a 31-year-old motorcycle mechanic in Luang Prabang.

People with money, he said, buy Honda, Yamaha and Suzuki motorcycles.

(People with lots of money buy cars.)

Gu claims he can tell a Japanese brand, manufactured in Thailand, just by listening to the engine.

“It sounds more firm and the engine noise is softer,” he said. Some Thai-made Japanese motorcycles can go 10 years without an engine overhaul. Chinese bikes, he said, usually need major repairs within 3 to 4 years.

“I want a motorcycle from Thailand but I don’t have the money,” said Kon Panlachit, a police officer who brought his Jinlong 110cc motorcycle to Gu’s shop for repairs on a recent weekend.

“When I ride it, it makes a noise - dap, dap dap,” Kon complained. “It’s the second time I’ve brought it here for this problem.”

The cheapest Thai-made Honda goes for 55,000 baht, about $1,670 - four times the price of the cheapest Chinese bikes, which are sold under many brand names, including Yinxiang, Dashan, Yincin, Zongshen and Honshun.

The influx of Chinese motorcycles is keeping mechanics busy in Luang Prabang. A decade ago there were only two or three repair shops in the city, says Gu. Now he counts 20.

Gu does not worry about maintenance for his own motorcycle.

“I have a Honda,” the mechanic said.

==============================

**Raising the minimum wage is still a bad idea (townhall.com, 070104)

By George Will

WASHINGTON — A federal minimum wage is an idea whose time came in 1938, when public confidence in markets was at a nadir and the federal government’s confidence in itself was at an apogee. This, in spite of the fact that, with the 19% unemployment and the economy contracting by 6.2% in 1938, the New Deal’s frenetic attempts had failed to end, and perhaps had prolonged, the Depression.

Today, raising the federal minimum wage is a bad idea whose time has come, for two reasons, the first of which is that some Democrats have a chronic and evidently incurable disease — New Deal Nostalgia. Witness Nancy Pelosi’s “100 hours” agenda, a genuflection to FDR’s 100 Days. Perhaps this nostalgia resonates with the 5% of Americans who remember the 1930s.

Second, the president has endorsed raising the hourly minimum from $5.15 to $7.25 by the spring of 2009. The Democratic Congress will favor that, and he may reason that vetoing this minor episode of moral grandstanding would not be worth the predictable uproar — Washington uproar often is inversely proportional to the importance of occasion for it. Besides, there would be something disproportionate about the president vetoing this feel-good bit of legislative fluff after not vetoing the absurdly expensive 2002 farm bill, or the 2005 highway bill larded with 6,371 earmarks, or the anti-constitutional McCain-Feingold speech-rationing bill.

Democrats consider the minimum wage increase a signature issue. So, consider what it says about them:

Most of the working poor earn more than the minimum wage, and most of the 0.6% (479,000 in 2005) of America’s wage workers earning the minimum wage are not poor. Only one in five workers earning the federal minimum live in families with household earnings below the poverty line. 60% work part-time and their average household income is well over $40,000. (The average and median household incomes are $63,344 and $46,326 respectively.)

Forty percent of American workers are salaried. Of the 75.6 million paid by the hour, 1.9 million earn the federal minimum or less, and of these, more than half are under 25 and more than a quarter are between 16 and 19. Many are students or other part-time workers. Sixty percent of those earning the federal minimum or less work in restaurants and bars and are earning tips — often untaxed, perhaps — in addition to their wages. Two-thirds of those earning the federal minimum today will, a year from now, have been promoted and be earning 10% more. Raising the minimum wage predictably makes work more attractive relative to school for some teenagers, and raises the dropout rate. Two scholars report that in states that allow persons to leave school before 18, a 10% increase in the state minimum wage caused teenage school enrollment to drop 2%.

The federal minimum wage has not been raised since 1997, so 29 states with 70% of the nation’s work force have set minimum wages of between $6.15 and $7.93 an hour. Because aging liberals, clinging to the moral clarities of their youth, also have Sixties Nostalgia, they are suspicious of states’ rights. But regarding minimum wages, many have become Brandeisians, invoking Justice Louis Brandeis’ thought about states being laboratories of democracy.

But wait. Ronald Blackwell, the AFL-CIO’s chief economist, tells The New York Times that state minimum wage differences entice companies to shift jobs to lower-wage states. So: states’ rights are bad, after all, at least concerning — let’s use liberalism’s highest encomium — diversity of economic policies.

The problem is that demand for almost everything is elastic: When the price of something goes up, demand for it goes down. Obviously were the minimum wage to jump to, say, $15 an hour, that would cause significant unemployment among persons just reaching for the bottom rung of the ladder of upward mobility. But suppose those scholars are correct who say that when the minimum wage is low and is increased slowly — proposed legislation would take it to $7.25 in three steps — the negative impact on employment is negligible. Still, because there are large differences among states’ costs of living, and the nature of their economies, Sen. Jim DeMint, R-S.C., sensibly suggests that each state should be allowed to set a lower minimum.

But the minimum wage should be the same everywhere: $0. Labor is a commodity; governments make messes when they decree commodities’ prices. Washington, which has its hands full delivering the mail and defending the shores, should let the market do well what Washington does poorly. But that is a good idea whose time will never come again.

==============================

**Oily politics (townhall.com, 060308)

by Thomas Sowell

The Supreme Court’s recent 8 to 0 decision (Justice Alito not yet participating) shot down a claim that oil companies were colluding in setting prices. That claim was upheld by the far-left 9th Circuit Court of Appeals but neither liberals nor conservatives on the Supreme Court were buying it.

This unanimous vote should also tell us something about those politicians who are forever blaming rising gasoline prices on oil company collusion and “greed.” There is no point exposing a lie unless we learn to be skeptical the next time the liars come out with the same story.

After hurricane Katrina destroyed a lot of oil processing capacity around the Gulf of Mexico, there was — surprise! — less oil being processed. With less oil being supplied — surprise again! — gasoline prices rose.

However much economists rely on supply and demand to explain price movements, politicians need villains, so that the pols can play hero. Big Oil is a favorite villain and has been for decades.

There is nothing like the political melodrama of summoning oil company executives to televised hearings before some Congressional committee, where politicians can wax indignant at Big Oil’s profits.

It so happens that Big Government takes more money in taxes out of a gallon of gas than Big Oil takes out in profits. But apparently somehow taxes don’t raise prices. They certainly don’t raise indignation from the politicians who voted for those taxes.

After the oil processing facilities were repaired and put back in operation — yet another surprise! — prices came back down. Supply and demand has been doing this for centuries but apparently the word has not yet reached some politicians.

There is another aspect to supply and demand. As countries like China and India have in recent years begun allowing more market transactions to replace government controls, their economies have begun growing much more rapidly.

Growing economies mean rising demand for food, for shelter, for more of the amenities of life. That in turn means a rising demand for oil, leading to rising oil prices around the world.

Those who think in terms of supply and demand suggest — do surprises never end? — we ought to supply more oil to meet the rising demand. But the very politicians who are noisiest about the high price of oil are the most bitterly opposed to increasing the supply.

Drilling for more oil might disturb some animals or birds or fish. Worse yet, on a clear day people with beachfront homes might be able to see an offshore oil rig out on the horizon.

Even those who can’t see oil being drilled in some isolated hinterland in Alaska would know that the drilling was going on, and that would upset their sensitive natures.

So we are left with nothing we can do about the rising demand for oil around the world, nothing we are willing to do about increasing the supply of oil, and angry denunciations of rising oil prices.

The politically correct answer is that we must have “alternative energy sources” and “conservation.” At what cost — in money, in jobs, in constraints on people’s lives — is too crass a question for those delicate souls who are dead set against producing more oil.

These souls are apparently not so delicate, however, that they are bothered by the deaths of coal miners who get killed producing one of those “alternative energy sources” that sound so nice when you don’t count the costs.

Many of the same delicate sensitivities have kept nuclear power plants or hydroelectric dams from being built in the United States for decades. Some in liberal political or media circles talk ominously about the Three Mile Island nuclear power plant “disaster” — in which no one was killed, as compared to coal mines, in which lives continue to be lost, year after year.

Meanwhile, the fetishes of a self-congratulatory few, who demonize others as selfish, impose staggering costs on the country as a whole. Facts get nowhere against these fetishes because the fetishes are what provide a badge of identity as wonderful and special people.

==============================

**Swiss return stolen money (Washington Times, 050303)

In a landmark decision, the Swiss Supreme Court has decided to free the bulk of the assets of the late Nigerian President Sani Abacha that were secured and blocked in Switzerland. This decision opens the way for the Swiss government to immediately return more than $450 million to Nigeria. Finding that these funds are of obvious criminal origin, they can now be handed back against the will of Mr. Abacha’s family and even without a Nigerian court decision. The Swiss ruling facilitates the rapid repatriation of the assets to an aggrieved country and its people, and is to be regarded as progressive by international comparison.

Switzerland is the first country to return Abacha funds to their rightful owners. Indeed, the Abacha ruling by the Supreme Court is bound to be a leading case beyond Switzerland in showing the way to other countries how to be even faster and more effective in returning assets of criminal origin to their rightful owners. It is my hope that the repatriation of the stolen assets will be understood as a clear sign that crime does not pay.

Switzerland’s policy of prompt and effective repatriation is meant to be an active support to foreign governments in their efforts to fight crime and in improving good governance. In more general terms, politically exposed persons (PEPs) who illegally enrich themselves at the expense of the state, most notably in poor regions and developing countries, and invest such assets abroad do not only perpetrate criminal acts; they also undermine the efforts of their own country and the international community to combat poverty and create the necessary environment for sustainable development. Moreover, the presence of illicit assets of PEPs poses a serious threat to the integrity of many of the world’s major financial centers. Like other big financial centers, Switzerland has not been immune to this threat, and has been misused for criminal purposes in the past. As a result, in recent years, my country put an even more comprehensive range of legal instruments and measures in place for turning away assets of criminal origin and for identifying, blocking and returning them.

The latest Supreme Court ruling confirms that Switzerland’s financial center does not provide a safe haven for illegal money. On the contrary. It proves that Swiss banking secrecy law does not apply to assets of criminal origin. It is not an obstacle to the investigation of criminal acts and to international efforts to combat crime.

The Abacha ruling and other cases further show that Swiss measures take effect in all stages involving illicit assets, i.e., prevention, identifying, freezing and returning of such assets. Swiss legislation and policy are aimed at handing back illicit assets to their rightful owners. Where monies have been stolen from the public purse, they will be returned to the country from which they have been withheld.

Switzerland believes that the issue of asset repatriation is of concern for international financial centers and developing countries alike. Cooperation among the financial centers — and between them and the developing countries — must be strengthened. There is also an urgent need to combat the causes of illegal capital flows, in particular corruption in the countries of origin. Combating corruption and the principle of the return of the proceeds of corruption are high priorities of Swiss foreign policy. Switzerland played an important role in the development of the 2003 U.N. Anti-Corruption Convention, which enshrined the principle of the obligation to return the proceeds of corruption to the lawful owners. The recent decision of the Swiss Supreme Court contributes to strengthening the practice of restitution — a practice, which, regrettably, has not yet become internationally established.

If progress is to be achieved in combating the phenomenon of illicit assets, more international co-operation at a variety of levels will be required. My country is open and committed to conducting an international dialogue at different levels, to developing relevant recommendations and best practices to deal with the question of the illegal assets of politically exposed persons and to making the return of these funds established international practice.

Micheline Calmy-Rey is Switzerland’s foreign minister.

==============================

**Wealth & Virtue: The moral case for capitalism (National Review Online, 040218)

EDITOR’S NOTE: This is the text of a speech delivered by Michael Novak before the Mont Pelerin Society in Sri Lanka on January 11, 2004.

It is a special privilege for an American theologian-philosopher to come to this beautiful country. My family is literally married to Asia. My nephew lives and works in Sri Lanka, and is married to a beautiful Bangladeshi woman. My brother was a missionary in Bangladesh, where he lost his life, and another brother spent most of his professional life in Asia, and died from a disease he picked up in Afghanistan. Millions of Asians have taken up residence in the United States during the past five generations, and these days their numbers grow faster than ever. That is why over the years there has been in the United States much concern for the peoples of this region. The bonds between us are familial.

But there has recently been formed yet another bond between us. A deep longing has formed in Asia to build a free society — a society designed for personal responsibility, for initiative and innovation, and for freely given cooperation with others; in short, a society that calls forth and nourishes the three great liberties for which the human spirit has been made.

The first liberty is liberty from tyranny and torture, provided by a democratic republic. The second is liberty of economic initiative, invention, and enterprise, provided by a free and dynamic economy. The third is liberty of conscience and information and ideas, provided by an open and free civic society. These are the three great liberties — political, economic, and moral. Correspondingly, three steps are required to move from the third world into the first world. A nation must create these three systems one by one. Each nation may do this in its own particular way. No two free nations are exactly alike.

Through exercising all three of these liberties, each diverse people utters its own distinctive voice in history. Through these three liberties, humans everywhere answer the two great questions of human life. The first of these questions, the personal one, is: “Who am I, under these stars, with the wind on my face, and so brief a number of years in which to live?” The second, the social question, is: “Who are we? We the people of Sri Lanka? Or we the people of each of the other nations on earth? Who am I? Who are we?” Through answering these two questions, we work out our destiny, personal and communitarian.

l. THE PRACTICAL CASE FOR CAPITALISM

From a long distance away, it seems that at least one of these liberties is easy for the citizens of Asia to understand: economic liberty. In practical terms, neither the traditional economy of centuries past nor the failed socialist experiments of the 20th century came close to matching the productivity, wealth, and rising standards of living generated by the free and inventive economy. But am I wrong to think that the moral case for a free economy — for the market economy, for the enterprise society, for the regime of private property, for capitalism — is more difficult to grasp, and is greeted by some with a traditional hostility?

It is easy to understand who the practical case for capitalism is easy to grasp. No other system so rapidly raises up the living standards of the poor, so thoroughly improves the conditions of life, or generates greater social wealth and distributes it more broadly. In the long competition of the last 100 years, neither socialist nor third-world experiments have performed as well in improving the lot of common people, paid higher wages, and more broadly multiplied liberties and opportunities.

This point needs elaboration since, in Marxist analysis, the only beneficiaries of capitalism are said to be the rich. In actual fact, it is the poor who gain most from capitalism. That is why the poor have always gravitated toward capitalist countries. That is why my own grandparents (and scores of millions of others) left Europe for America. They sought opportunity, and they found it. Desperately poor on their arrival (just before 1900), they lived to own their own homes, watching their children and grandchildren advancing in income and education. “Give me your tired, your poor. . .” the Statue of Liberty beckoned to the world; and nearly 100% of Americans did come to America poor. Today barely over 12% of Americans are poor (which is defined as having an income below $18,000 per year for a family of four). That means that 88% are not poor, and we still have about 12% to help. In 1990, 38% of the American poor owned their own homes; 95% of the poor had their own television sets; and a poor American was more likely to own an automobile than the average Western European. Today, the percentage of the American poor who own their own homes has climbed from 38 to 46%; more than half own two or more color televisions; almost two-thirds have cable or “dish” TV; three-quarters have a VCR or DVD player. Nearly three quarters of poor households own a car; 30% own two or more. Beyond the poor, half of all families have incomes above $50,000 per year. About 20% have incomes above $91,000 per year.

It is sometimes suggested that American blacks are poor. But in the year 2002, 24% were poor; over 75% were not poor. Half of all black married couple households had incomes over $52,000 per year. The total income of America’s 26 million blacks over the age of 15 came to $650 billion in 2002. This is larger than the Gross Domestic Product of all but 15 nations.

This is not to say that the task of eliminating poverty in America (or other capitalist countries) is finished. It isn’t. But it is crucial to grasp that the task of capitalism is measured by how well it enriches the poor. To an amazing extent, it does do this. I would bet you that the great majority of Americans can remember when their families were poor, two or three generations ago; but they are not poor today. In the nations of Western Europe and in Japan, the case is similar. So also in South Korea, Hong Kong, Taiwan, and other newly capitalist countries. Measure capitalism by how well it raises up the poor. That is the test it is designed to meet. Look around the world and see.

A second practical argument is also widely accepted. Every democracy on earth that really does protect the human rights of its individual citizens is based, in fact, upon a free capitalist economy. Empirically speaking, there is not a single contrary case. Capitalism is a necessary condition for democracy. A free polity requires a free economy. It certainly needs a dynamic, growing economy if it hopes to meet the restless aspirations of its citizens.

These two practical arguments in favor of a capitalist economy are powerful. But they do not go to the heart of the matter. One could admit that, yes, capitalism does work better for improving the living standards of ordinary people, stocking the shops with goods in abundance, and imparting broad upward mobility and economic opportunity from the bottom of society. And one could admit further that, yes, capitalism is a necessary condition for the success of democracy, since without economic progress in their own daily lives ordinary citizens will not love democracy. No one will be satisfied merely with the right to vote for political leaders every two years or so, if living standards decline. One could agree with all this. And still one could say: “But capitalism is not a moral system. It does not have high moral ideals. It is an amoral, even immoral, system.”

The moral case for capitalism is, therefore, the most important case. In addition to being political animals seeking liberty and economic animals seeking prosperity, human beings are also moral animals, thirsting for fairness, justice, truth, kindness, and love. What has capitalism to do with these?

In the lands of Marx and Lenin, the moral case for capitalism has been understated. To capitalism only evil was imputed. For that reason especially, I thought it useful to articulate for you, briefly and only in outline, the moral case for the goal you have already decided to pursue.

It was precisely through a moral argument that capitalism first commended itself to human consciousness in America, Britain, and France. This is the case that Marx and Lenin overlooked. Indeed, even many in Western lands have also overlooked it, or accepted it only inarticulately and in fragments. Practical people often skip past moral arguments. They thereby run the risk of undermining their own accomplishments. For no historical movement can long outlive the conviction of its protagonists that what they are doing is morally admirable. Moral conviction is one of the greatest forces in history, not even armies can hold it back.

2. THE MORAL CASE FOR CAPITALISM

As it happens, the early rise of capitalist ideas and practices in America, Great Britain, France, and Italy since the l8th century was greeted with hostility from aristocratic, scholarly, artistic, and religious circles. In the ancient and medieval world, commerce was much despised. The desire for money was described as “the root of all evils.” Activities that were merely “useful” or even “pleasant” were held to be morally inferior to those that were “noble.” An aristocratic bias dominated thinking about wealth. The work of agriculture was honored, along with such arts as architecture, sculpture, and painting. These were identified with “civilization.” Grimy industry and sweaty commerce were held to be inferior, servile, and mean occupations, of low moral and social standing. (The disdain in which Communism held merchants, entrepreneurs, and “profiteers,” formed on other grounds, nonetheless parallels these ancient aristocratic prejudices.)

Beginning in the mid-18th century, certain thinkers in Scotland (David Hume and Adam Smith, for example) began to unmask the moral pretenses of the landowning aristocracy and the learned clerisy. The latter spoke of “nobility” and praised “leisure,” but their allegedly “higher” form of life depended on the servile toil of laborers, their subjects. Roads were poor, markets were few, and the great agricultural abundance produced by the great landed estates had few outlets. With their vast produce, the aristocracy fed legions of retainers and raised substantial armies. When they coveted goods not available to them, they turned these armies loose for war and plunder. That is why the lords lived in castle fortresses, and why cities throughout most of history were walled. In the precapitalist world, wars were frequent, and marauding bands often swept the countryside in search of plunder and booty. The earlier philosophers close to the courts of kings and princes (Machiavelli, for example) wrote of the arts of war and power. For them, power, not plenty, was the social object.

This was the context in which Hume, Smith, and others launched one of the great transvaluations of values of all time. They urged the world to turn from the pursuit of power to the pursuit of plenty. They urged human beings to turn from plunder, brigandage, rapine and warfare to the creative arts of commercial and industrial innovation. Smith, in particular, saw that the cause of the wealth of nations is not war, which impoverishes, but wit — the human capacity to invent, to innovate, to discover, and to organize in new cooperative ways. The cause of the wealth of nations is caput (Latin, head).

To put this in Jewish and Christian terms, God created humans in his own image, to be co-creators. Each woman and man is born with the inalienable right to personal economic initiative, the right to invent and to create. Each human being is an Imago Dei, an image of God, born to be creative and inventive. One sees this in the very opening of Smith’s Inquiry into the Nature and Cause of the Wealth of Nations (l776), in his example of the invention of the machine for mass-producing pins. Such invention is the chief cause of new wealth.

This emphasis upon invention and creativity is the distinctive characteristic of the capitalist economy. The capitalist economy is not characterized, as Marx thought, by private ownership of the means of production, market exchange, and profit. All these were present in the precapitalist aristocratic age. Rather, the distinctive, defining difference of the capitalist economy is enterprise: the habit of employing human wit to invent new goods and services, and to discover new and better ways to bring them to the broadest possible public.

The history of capitalism is very closely tied to the development of institutions supporting human practical intelligence, wit, and enterprise. Capitalism is, first of all, the stimulation of caput. Its main resource is human capital: knowledge, know-how, skill, the knack of insight into new possibilities for making life easier and better for as many others as possible. Its primary dynamic force is human wit. (That is why I prefer to call the new system foreshadowed by Hume and Smith “capitalism,” rooted in caput, even though they never used that name, and even though Marx used it as a name of infamy, quite mistaking its unique and novel character.)

3. TEN MORAL ADVANTAGES OF CAPITALISM

In another place, I have counted ten different moral advantages that Hume and Smith foresaw in the new system they were commending to the practical energies of humankind. Time is too short to do more than mention these moral predictions briefly; I ask you to reflect on which of them still apply in Asia:

l. The rise of capitalism would break the habit of servile dependency, and awaken the longing for personal independence and freedom.

2. It would awaken the poor from isolation and indolence, by connecting them with the whole wide world of commerce and information.

3. It would diminish warlikeness, by turning human attention away from war and towards commerce and industry. It would, as Adam Smith writes, introduce “order and good government, and with them, the liberty and security of individuals, among the inhabitants of the country, who had before lived almost in a continual state of war with their neighbors, and of a servile dependency on their superiors.” (The Wealth of Nations, III, iv.4).

4. It would bring the peoples of each country and of the whole world into closer, more frequent, and complex interaction, and stimulate them to learn of new goods and new methods through international exchange.

5. It would mix the social classes together, break down class barriers, stimulate upward mobility, encourage literacy and civil discourse, and promote the impulse to form voluntary associations of many sorts.

6. It would mightily augment “human capital” by inciting the emulation of new specialties, skills, and techniques. In addition, it would impart new tastes, and encourage the pursuit of new information and new ways of doing things.

7. It would teach the necessity of civility, since under the pressures of competition in free markets, dominated by civil discourse and free choice, sellers would learn the necessity of patient explanation, civil manners, a willingness to be of service, and long-term reliability.

8. It would soften manners and instruct more and more of its participants to develop the high moral art of sympathy. For a commercial society depends on voluntary consent. Citizens must learn, therefore, a virtue even higher than empathy (which remains ego-centered, as when a person imagines how he would feel in another’s shoes). True sympathy depends on getting out of oneself imaginatively and seeing and feeling the world, not exactly as the other person may see it, but as an ideal observer might see it. This capacity leads to the invention of new goods and services that might well be of use to others, even though they themselves have not yet imagined them.

9. It would instruct citizens in the arts of being farsighted, objective, and future-oriented, so as to try to shape the world of the future in a way helpful to as large a public as possible. Such public-spiritedness is a virtue that is good, not merely because it is useful, but because it seeks to be in line, in however humble a way, with the future common good.

10. Finally, it is one of the main functions of a capitalist economy to defeat envy. Envy is the most destructive of social evils, more so even than hatred. Hatred is highly visible; everyone knows that hatred is destructive. But envy is invisible, like a colorless gas, and it usually masquerades under some other name, such as equality. Nonetheless, a rage for material equality is a wicked project. Human beings are each so different from every other in talent, character, desire, energy, and luck, that material equality can never be imposed on human beings except through a thorough use of force. (Even then, those who impose equality on others would be likely to live in a way “more equal than others.”) Envy is the most characteristic vice of all the long centuries of zero-sum economies, in which no one can win unless others lose. A capitalist system defeats envy, and promotes in its place the personal pursuit of happiness. It does this by generating invention, discovery, and economic growth. Its ideal is win-win, a situation in which everyone wins. In a dynamic world, with open horizons for all, life itself encourages people to attend to their own self-discovery and to pursue their own personal form of happiness, rather than to live a false life envying others.

In brief, a system rooted in the creative capacities of human persons takes as its horizon the whole, interdependent planet; seeks to liberate the poor of the world from the prison of poverty; focuses on the creation of plenty, rather than the pursuit of power; needs, and therefore encourages, a world under the rule of law, a world pacific, lawlike, and alive with voluntary cooperation. Failure at any of these points would indicate a breakdown in the system.

This moral vision, it is important to note, is highly social; its horizon includes every nation on the planet, and it relies throughout on an unprecedented degree of voluntary cooperation and association. You will have noticed that in free economies employees live within a world of incentives and new possibilities and that they are encouraged to smile and to be helpful.

In a certain sense, such a system is designed to get the best out of people, to inspire their creativity and cooperative impulses. You may object, rightly, that I am describing an ideal. But that is the point. A capitalist system does have high ideals. That these ideals are not always met in practice is also true. It is to capitalism’s moral advantage, however, that it is driven by internal and necessary reasons to align its incentive structures with its ideals.

The moral genius of capitalism, then, lies in its institutional support for the inalienable capacity of human beings to use their own wits creatively. To this genius it adds, as Abraham Lincoln once put it, the fire of interest. Capitalism attends closely to self-interest, both in a lowly and in a large-minded way. Lincoln, for example, was speaking of the Copyright and Patent Clause of the U.S. Constitution, which allows to inventors, for a limited time, the right to royalties from their own creations. This, it has turned out, is a magnificent and dynamic way of serving the common good, through stimulating heroic exertions on the part of inventors and discoverers.

In this respect, capitalism has taken man’s measure more exactly than any other social system. It has found a better way than any other system to link self-interest to the advancement of the common good. Capitalism is by no means the Kingdom of God. It is a poor and clumsy human system. Although one can claim for it that it is better than any of its rivals, there is no need to give such a system three cheers. My friend Irving Kristol calls his book Two Cheers for Capitalism. One cheer is quite enough. It is not the paradise of humankind, but it is a highly moral system, nourishing the best that is in us and checking the worst.

4. CHECKS AND BALANCES

A capitalist system is only one of three systems composing the free society. The economic system is checked and regulated by both of the other two systems: by the institutions of the political system and by the institutions of the moral/cultural system. Capitalism does not operate in a moral vacuum. Those who fail to live up to the moral standards implicit in its own structure are corrected by forces from outside it. Thus, capitalism supplies only some of the moral energy present in the free society as a whole. There are moral energies in the democratic polity to call it to account. And there are moral energies in families, in the churches, in journalism, in the cinema, in the arts, and throughout civic society to unmask its failings and to call it to account.

This is as it should be. For the free society is not constructed for saints. There are not enough saints on earth to people a free society. A free society must make do with the only moral majority there is — all those citizens called to a noble destiny, indeed, but often weak, tempted, egocentric and quite imperfect. In imagining the free society of the future, it is important not to be utopian. This century has built too many graveyards in its so-called utopias. The citizens of the 2lst century will warn one another against the mistakes of the 20th.

In addition to systemic checks and balances, there must also be internal checks. James Madison wrote that it is chimerical to imagine that a free republic can survive without the daily practice of the virtues of liberty. A free society depends upon habits of responsibility, initiative, enterprise, foresight, and public spiritedness. It depends upon plain, ordinary, kitchen virtues. Citizens who are dependent, passive, irresponsible, and narrowly self-interested will badly govern their own conduct, and their project of self-government is bound to fail.

It is, therefore, a crucial act of statesmanship to identify and nourish the cultural habits indispensable to the practice and survival of liberty. The free society cannot be made to thrive on the basis of any set of moral habits at all. Where citizens are corrupt, dishonest, halfhearted in their work, inert, indifferent to high standards, willing to cheat and to steal and to defraud, eager to take from the public purse but unwilling to contribute to the commonweal, and entirely self-aggrandizing, self-government must fail. Many peoples of the world, in fact, have shown themselves incapable of making the institutions of liberty work. The road to liberty, Tocqueville warned, is a long one, precisely because it entails learning the habits of liberty. Not any habits at all will do. The road is narrow and the gate is strait.

5. THREE PARTING WISHES

As you build a free society here in Sri Lanka, let me voice three wishes:

First, that this new society will be rooted in the realism that underlies democracy — in limited government, under the rule of law, protecting the rights of individuals and minorities, and internally guarded by well-designed checks and balances against every form of power. We call this form of democracy the “democratic republic.”

Second, that your new economy will be rooted in the realism of the free, competitive economy, in which rights to personal economic creativity will not be repressed but, on the contrary, will flourish for the common good of all.

And, finally, my third wish is that the ancient spirit of envy will be decisively defeated, by the attractiveness of a dynamic society of liberty and opportunity for all.

Your struggles toward these noble goals are our struggles. Our families in America share them with your families here, and with the whole human family everywhere on earth.

— Michael Novak is the winner of the 1994 Templeton Prize for progress in religion and the George Frederick Jewett Scholar in Religion, Philosophy, and Public Policy at the American Enterprise Institute. Novak’s own website is www.michaelnovak.net.

==============================

Supplemental Articles in a separate file (click here to read)