Maybe It Is Easy Being Green

A few weeks ago, I wrote a post about how a task as simple as trying to maintain a beautiful neighborhood can become political.  Since that time, we have had two straight weeks of rainy weekdays and sunny weekends. 

This change in the weather has led to a boom in GDP (Green, Dense Plantlife) growth in our neighborhood.  With the exception of the 99%'ers and the Freemarket Proponents, who are still sporting spotty lawns, everyones lawn is dense and green.  This has led me to form another conclusion based on this experience.  It is:

"What you do matters very little, so long as you do something.  What matters the most is the cyclical nature of the environment that you are in."



Authors Note: I still don't understand why the couple I refer to as "the Crazies" are mad at me.  I simply offered to fertilize their lawn for them with 100%, all-natural fertilizer that is manufactured by the Schmidtberg household.  Seemed like a win-win to me since I was offering them a huge discount to support a local entrepreneur. 

It's Not Easy Being Green

A few weeks ago, I was having dinner with my father and he started to pontificate about his views on the world.  One of the things that he said that really struck me is paraphrased below.

“When you get enough people involved in working towards a common goal, things inevitably become political.”

At the time, I was very skeptical of this claim.  Since then, I have witnessed an example of how even the most trivial or innocent of endeavors can become political.  This example proves the wisdom in my father’s statement and is described below.

The Example:

Three years ago, my wife and I moved into a new neighborhood.  This neighborhood is full of new construction houses and, at the time, we were the first house on our street.  The street has since been fully populated with younger, middle-class couples like us. 

Also like us, they are first time home buyers who are eager to tackle the challenge of taking care of their house, lawn, and the overall appearance of the street.  This is the common goal: for each family to individually have a beautiful, green lawn and for the street to be something we are all proud of.

Year # 1:

During the first summer, there were three families on our street.  Times were simple back then.  The lawns had all been freshly planted and we received more than our fair share of rain during the spring.  This led to the lawns growing thick and green very quickly. 

There was also a landscaping company that was employed by the neighborhood developer who was making weekly trips to our street as new houses were built.  He offered us all a huge discount for a fertilization and irrigation package, which we all took.

That summer, the grass was green and the landscaping bills cheap.  Life was simple and that was a good thing.

Year #2:

Things started to change during year #2.  First of all, the number of occupied houses on the street doubled to six.  Many of the new occupants decided to go with different landscaping companies or to fertilize their own lawns.  In addition, the landscaping company used in year #1 had been fired by the developer and was no longer in the area.  These two factors combined to drive up the cost for fertilization treatments for the original three families.

Year #2 was also one of the hottest and driest summers in recent memory.  A water ban was put into effect by the town and many people’s lawns dried out by the end of the summer.  This led to even more discontent and people started developing their own theories on how to maintain a healthy lawn.

By the end of the year, lawns were brown, landscaping and water bills were heavy, and everyone was frustrated.  Life was no longer quite so good or simple.

Year #3:

It is now year #3 and the street is fully developed and occupied.  This has doubled the amount of stakeholders yet again to twelve.  Year #3 has also started off with terrible weather for lawns: drought like conditions for three weeks followed by a full week of rain but no sun.

Like the US economy, the GDP (Green, Dense Plantlife) growth for our street is stagnant.  Everyone is starting to panic and, once again just like the US economy, political factions have formed based on their proposed solution to the group’s failure to achieve its collective goal.  They are as follows:

On the Left:

·         The Greens, who champion going all organic with their fertilizer.
·         The Crazies, who are a sub-set of the Greens.  They have started buying certified 100% all-natural fertilizer that is “manufactured” by the Milwaukee Metropolitian Sewerage District.  
·         The 99%’ers, who blame the greedy developer for taking advantage of us and installing sub-par grass and are demanding that he pay to have it fixed.
·         The Stimulus Packagers, who are throwing money at every potential solution offered.

On the Right:

·         The Free Market Proponents, who point out that green grass grows just fine on its own, so why should they waste good money watering or fertilizing it?
·         The 1%’ers, who have the greenest lawn on the street.  They hire their own high end landscaping company to water, fertilize, and cut their lawn every week but refuse to share the name of the company or its pricing with anyone else.
·         The Spending Cutters, who swear that landscaping companies are horribly inefficient and that they can do everything cheaper by themselves.

Conclusion:

As you can see, the simple challenge of creating a street of beautiful, green lawns has become as fragmented as the US political system.  Turns out my father was right after all, get enough people involved in something and it is bound to become messy.

 

When I Walk On By....

There has been a lot of literature released on the differences between men and women.  “Men are From Mars, Women are From Venus” is the most famous, but my favorite is titled “Men are Like Waffles, Women are Like Spaghetti”. 

Last week ago, I entered into my own case study on the differences between the two sexes.  Although it has only been a few days, I thought that I would share my preliminary findings since they are fascinating.

Case Description:

This past month, my wife and I embarked on the annual ritual for middle class couples: I booked us a summer trip to the beach and she began freaking out about having to wear a swimsuit.  My wife has been worrying at this for a few weeks now and last week she finally came up with a solution.  After much thought and fretting, she decided that we both need to go on a diet.  *Side Note* It never ceases to amaze me how her concerns turned into an “us” action. 

We have been on this diet for exactly 6 days as of this writing and have reacted very differently to the challenges that dieting presents.  I have found these differences very interesting.

Her Response:

In hindsight, my wife’s response to “our diet” was predictable.  The first thing that she did was discuss it with her girlfriends to find out if any of them are embarking on similar adventures.  Sure enough, our neighbor was having a similar experience.  After discussing their concerns with each other, they quickly setup a support system where they go to the gym together and share the results of their “Lose It!” food tracking app.  This essentially gives my wife a buddy system for tackling her challenge. 

The other aspect to my wife’s reaction to the challenge of getting in shape for beach season was an emotional one.  From my insensitive male perspective, she seemed to be playing hopscotch with emotions:  optimism that she was going to reach her goal; pessimism that she wasn’t going to reach her goal; frustration that she didn’t start losing weight immediately; and most of all, an intense, vocal desire for all the foods she could no longer eat. 

My hypothesis is that both of the above responses are typical for females and, frankly, are probably healthier than my masucline response.

My Responses:

Before reading my response, keep in mind that we have been on “our diet” for 6 days and no weight has been lost by either of us.

I believe that the first part of my reaction to the challenge of getting in better shape was typical of a male engineer.  I immediately downloaded an app to my iPad to determine to amount of calories that I would need to ingest to reach my target weight by our vacation.  When that number was startlingly low, I then used the same app to determine the how I would need to alter my workout schedule to be able to eat more food.  Once a satisfactory balance was reached, I then quietly began going about my business working out and eating healthier food with little fanfare or discussion (OK, full disclosure - I did my fair share of trash talking).

The second part of my reaction is the one that I found my interesting.  From the minute “we” decided that we were going to get in better shape, I have been overflowing with one feeling: self-confidence.  The very first day of the diet, my pants fit better than they have in years, every girl seemed to be checking me out, and I flexed every time I encountered a mirror.  It was one of the best days I have had in a while and I am pretty sure I did some pretty ridiculous strutting.

I will say it again because it bears repeating.  All of this was done before I had lost a single pound.

Funny thing is, I think that this is a pretty normal reaction for men.  Don’t believe me, just go to the local gym around 5PM and watch all the guys peacocking in the free weight section.

Conclusion:

It’s still way too early to come to any definitive conclusions on this experiment, but I believe that its preliminary results are interesting and entertaining.  I will keep monitoring as we proceed and may provide additional updates in the form of future blog posts.  

Until then, it’s back to rocking out to my internal DJ.  He's been playing a continuous loop of “I’m Sexy and I Know It” and "I Bring the Sexy Back" for 6 days now.

My Take on Change Management

“The only person who truly enjoys change is the baby with the dirty diaper”

I don’t know who said that, but for the longest time, it has been one of my favorite quotes.  I’ve used it to remind myself of the need to embrace change and roll with the punches when work goes through its seemingly annual re-organizations and process changes.  It has served me quite well and until recently, allowed me to avoid most of the stress and anxiety that goes with change in the workplace.

This changed a few months ago when fundamental changes were made within my group at work.  These changes drastically altered the way that we manage our business and made little sense to me.  Ever the opinionated one, I’ve made my opposition to these changes known and have caused quite a bit of stress for myself by resisting them.

It wasn’t until a recent conversation with a coworker that I realized I may have fallen victim to the trap that I had always been so careful to avoid.  I’d forgotten the above quote and tried to fight change rather than embrace it. 

To solve this problem, I’ve turned to a more powerful change management experience that I had at the gym last year.  At that time, the gym leadership had just finished renovating its locker rooms.  As a part of the renovations, they completely redid the men’s showers to go from a gang shower with multiple faucets to individual stalls.  I took this change in stride since, like I assumed most people would, I viewed this added privacy as an improvement. 

Much to my surprise, this caused an uproar with the group of older, often excessively naked, men who frequent the locker room in the morning.   For the rest of the summer their topic of conversation, often spoken as loudly as possible, was that it was “an absolute travesty” that the gym had given in to the “young prudes” who also worked out at the gym and preferred stalls to gang showers.

Coming back to the present time, I now realize how ridiculous my vocal protestations against change have been and I’d like to share my lesson learned with you all.

“When it comes to change, don’t be the naked, old man in the locker room.”    

Look Dad, I Do Listen

A funny thing happened to me when I was doing my research for yesterday’s post. 

It occurred when I was watching the 60 Minutes piece on the EU.  At about the 10:50 mark, they interview a Greek economist who states emphatically that “you cannot tell a sovereign people when to hold elections.  You cannot tell a sovereign parliament when to dissolve itself.”  He is referring to efforts by the German politicians and EU leaders to influence Greek politics.

The funny part came when I found myself unconsciously, and quite audibly, responding to the economist with one of the great Dad-isms from my childhood.  “I believe in the golden rule.  I have all the gold, so I make all the rules.”

I can’t decide if my father was consciously training me for a career in the German Finance Ministry or if I have simply inherited more than just a “distinguished” nose and funny last name from the German side of family. 

Either way, this whole episode proves that I at least listened to some of what my parents were saying all those years.

Sechzig Minuten

Last night, 60 Minutes did a quick piece on the European Union (EU) and its financial woes.  The piece, which can be seen here, focused on the intra-EU tensions that are beginning to rise as a result of debt crisis in many of the EU’s southern member states.  It also argues that the richer EU nations are bailing out their southern neighbors in order to maintain the flawed union because they are afraid of the uncharted territory that is an EU break up. 

While this may be partially true, I disagree that it is their primary motivation.  Instead, I argue that the northern countries are fighting so hard to maintain the EU because they are benefitting greatly from its free trade zone and currency union.  A perfect example is of this concept is the country that is being painted as the villain by the southern countries: Germany.

Modern day Germany has grown into an economic power house.  It is the world’s fourth largest economy and its per capita GDP is on par with the United States and other modern, wealthy nations.  In Europe, it is the dominant economic force.  It has the largest economy in any way that can be measured: total GDP or per capita GDP.  It also routinely runs a nearly balanced national budget, which is quite an achievement in Europe these days.  Most important of all, it is the world’s second largest exporter of goods after China and ahead of the USA.

It is this last statistic that is the most important.  Like China, Germany has a huge industrial base that far outstrips its own consumer market.  It therefore needs to export huge amounts of goods to maintain a healthy unemployment rate (Germany is between 6% and 7% now) and avoid political turmoil.  This is where Europe and the EU come into play.

The EU is essentially a threefold union.  These aspects of the union are:

1.       It is a free trade zone

2.       It is a common currency zone

3.       It is moving towards political union

I could write in length about my doubts regarding the feasibility of #3, but it doesn’t matter to this post.  The first two do.  They matter because both are currently being exploited by Germany to create a captive market for its export goods. 

Germany is the EU’s most efficient economy.  Its workers are among the most efficient and industrious in the world.  Doubt me?  Google “German engineering” and see what you find.  This efficiency drives the cost of production way down for German goods.  In a perfect world, countries around Germany would respond to this efficiency by protecting their domestic firms.  This would be done through either tariffs to artificially raise the cost of importing German goods or a favorable currency exchange rate to make domestic goods appear cheaper.  

Unfortunately for Europe, the EU has taken away this option from its member nations.  Instead, they are placed in direct competition with the German economic machine.  This has resulted in a scenario where many of the EU nations run trade deficits (see my post on Greece) while Germany runs a sizeable trade surplus.  It is also why Germany is willing to bail out its European customers to keep them as captive customers for its goods and economic growth.

When Hollywood Saves the Day

A few weeks ago, I wrote about my frustrations with books that get made into movies.  I now find myself in the strange position of relying on Hollywood to solve another of my literary problems.

In this case, my problem is that one of my favorite authors is writing a seven book series.  To be more specific, one of my favorite authors is taking forever to write a seven book series.  This series is the “Song of Ice and Fire” by George RR Martin and it has been in the works for over fifteen years.  It started with "A Game of Thrones" in 1996 and since that time, Martin has published another four books in the series.  These are:

·         "A Clash of Kings" in 1999

·         "A Storm of Swords" in 2000

·         "A Feast for Crows" in 2005

·         "A Dance with Dragons" in 2011

As you can see, the time between books has been growing substantially and, given Martin’s penchant for cliff hangers, it is slowly driving me nuts.

It is into this situation that Hollywood enters to save the day.  HBO has licensed the series and turned the first book into a ten part mini-series of the same name, “A Game of Thrones”.  This series was a wild success and much to my brother’s delight, HBO debuted the second season this past Sunday.  This season is based on the second book in the series, so it appears that HBO is taking the approach of one book per season.

Sad as it is to say, this fact excites me almost as much as seeing the series premier itself.  I did some quick research and found that Martin is currently outlooking the completion of book six, “The Winds of Winter” for 2015.  I also did some quick math and found that if HBO keeps at its current pace that it will only last until 2015 before it runs out of books to turn into mini-series. 

This means that Martin will have to start cranking on the sixth and seventh books if he wants to keep cashing those sweet HBO checks on an annual basis.  Hopefully this is the swift kick in the posterior that he needs to get to work writing.  Otherwise I may have to wait another five years for the next installment in both my favorite book and TV series.

    

The Occasional Blogger is Right Again

Yesterday, “The Occasional CEO” posted a new blog article entitled “So THIS is What an Invasion Looks Like”.  In the post, author Eric Schultz cleverly debunks the myth that China is in the midst of an economic invasion of the United States.  I thoroughly enjoyed the article and would recommend that you read it.  I also would like to complement its conclusion, with which I heartily agree, with my own take on the topic.

Schultz’s main argument is that innovation is the primary difference between the American and Chinese economic rises.  The United States rose to power based on its ability to out innovate all competitors.  It produced technological solutions that the world needed and used the British free trade system to export them to the world.  This is vastly different than the Chinese model, which is to use low wages and shaky intellectual property enforcement to manufacture already invented products more efficiently than any other country. 

While China’s efficiency cannot be ignored, its economy is flawed and unsustainable because it is dependent on the poverty of its workers and on other countries to drive the global economy through innovation.  In this way, China will always be a follower instead of a true global economic leader.

Like Schultz, I fully expect the United States to continue to lead in global innovation and high technology exports while China continues to be a low cost, high volume exporter (at best).  This is because the United States is operating in a global system that is uniquely suited to its political, military, and economic systems while China will have to modify its historical inclinations to succeed.

For better or worse, we are living in the world that the United Kingdom built.  This is a world of international free trade and democratic governments.  It is a world where naval power matters more than land-based military power.  It is also a world where English is the international language of business. 

This is the world that was built by the United Kingdom during the Pax Britannica in the nineteenth century.  Using its navy and merchant marine, the United Kingdom drastically expanded the scope of the global economy by founding and trading with its colonies in North America, Australia, India, and Africa.  Many of the trade routes that were used by the British are still in use today.  These include the trans-Atlantic route between the US/Canada and Britain and the route from the Indian Ocean to the Mediterranean and North Seas via the Suez Canal.  This naval power and trading system made the United Kingdom and its European neighbors fabulously wealthy when compared to the rest of the world.

Then, as Darth Vader famously told Obi-Wan Kenobi, the student became the master.  The United States, which had begun its existence as a British colony, overtook the British in the early twentieth century and became the leading global power.  This happened because the United States is essentially the United Kingdoms on steroids. 

It was and is a maritime power with a large navy, democratic government, and free market economic philosophy.  Even better, Americans speak English, which the British had established as the international language of trade.  With all these similarities to the United Kingdom and a larger population, greater natural resources, and a safer neighborhood (far from Europe circa WW1), America was a natural to overtake the United Kingdom as the center of the world economy.

The same cannot be said for modern day China.  Like Britain, the United States has expanded international trade to levels never seen in history.  It has utilized its access to the Pacific Ocean and East Asia to open up new trade routes and international markets for its goods.  It also used WW2 and the Cold War to export its democratic and free market systems to key partners in Europe and Asia.

This has created an international system that is dependent on having a liberal, free trading country at its center.  For all of exporting prowess and economic might, China is not this type of country.  It is an authoritarian land power with little naval strength and no history of democratic rule.  It has adopted some free market principles over the past three decades, but those changes have been treated like experiment instead of as doctrine, as they are in the US or the UK.  I find a perfect metaphor for China in its most famous landmark: a Great Wall meant to keep foreigners out.

In order to overtake the United States as the linchpin for the global economy, China would have to fundamentally change the system to suit its own strengths.  While not impossible, this is far more difficult than succeeding as the United States did: by combining superior geography and resources with the same social and economic policies as the current world leader.  Changing the current system will affect all of the countries that are benefitting it and will cause far more resistance (just ask 1930’s Germany and Japan). 

This is the reason that I agree with the Mr. Schultz.  China could overtake the US and become the center of the global economy, but I just don't see it.

Don't Fix What Isn't Broken

The “Hunger Games” movie opens this week and I have to admit that I am terrified to go see it.  I’m not terrified because it looks bad or because it was a bad book.  On the contrary, the trailers all make the film look great and the book was very entertaining.  I am terrified because I have been down this road before with good books that have been made into movies and am usually left disappointed.

A perfect example of this experience is the new movie “John Carter”.  I read “A Princess of Mars”, which is the basis for the film, a few weeks ago and thoroughly enjoyed it.  While not in the same class as “Dune”, its character development and the author’s ability to create an alien world reminded me of Frank Herbert’s classic.

Then I saw the trailers for the Disney film and was crushed.  The characters and environment all looked drastically different from how they were described in the book.  A quick check of Wikipedia then confirmed what I had dreaded.  The plot had been drastically altered to down play the story and play up the action.  Needless to say, I no longer want to go anywhere near this film.

It has been said before and will probably be said again, but why can’t movie producers just leave well enough alone?  Great books naturally lend themselves to becoming great feature films as long as the producers, writers, and directors just tell the story as it was written by the author.  The "Lord of the Rings" trilogy, which is my all-time favorite set of books, is a perfect example of this.  The director stayed true to the books and produced three of my favorite movies of all time.

I cannot avoid seeing the film since my sister would disown me if I didn’t go see it with her to see it.  I can only hope that the creators of the Hunger Games film follow the path set out by the Lord of the Rings.  If they didn’t then it will just become another addition to the already long list of books that became movies I wish I had never seen.   

Oil, Natural Gas, and Giant Hamsters

Before I start in on this post, I want you to answer a few questions:

1.       Do you know where the electricity that powers your home or apartment comes from?

2.       Do you know what kind of energy was used to produce that electricity?

Got your answers?

Good.  Here are my answers:

1.       National Grid.

2.       Not sure.  Giant hamsters running inside a Ferris Wheel?

I just finished reading “The Quest: Energy, Security, and the Remaking of the Modern World” by Daniel Yergin.  In this behemoth of a book, Yergin discusses everything energy from the history oil to the development of Tesla’s all-electric sports car.  After completing “The Quest”, I was left wishing that Yergin had focused more on his most profound point.  This argument, which is buried in the section on nuclear power in the middle of the book, is that the modern free market capitalist system is not suited to promoting competition in the energy sector.

The most powerful part of the free market system is that is essentially democratic.  Consumers vote for their favorite products by investing money in purchasing them.  Products with the most votes make money while products with the least votes go bankrupt.  The crux of this system is that it requires open competition to function properly.  Consumers must be informed of the existence of all the potential candidates in an industry and have the ability to vote for their favorite.

This is where the problem lies with the energy sector.  In the energy sector, you cannot vote for your preferred energy type.  Don’t believe me?  Try calling the electric company and asking them to switch your electricity to all renewable, non-carbon sources. 

The automobile industry is also a monopoly.  There are plenty of brands to choose from but the vast majority of the cars sold in the US are still petroleum powered.  Even the much hyped Tesla Roadster, which runs entirely on electricity, still needs to be charged by an electric grid.  This is just fossil fuel consumption by outlet rather than gas tank.

For better or worse, the US economy drives innovation through competition.  This competition has been conspicuously missing in energy and automotive markets for the past century.  The result has is an energy sector and automobiles that have become significantly more efficient, but woefully lacking in true disruptive innovations.  Until this lack of competition is rectified, we can expect more of same in our energy industry: rising gas prices, slow increases in fuel efficiency, and giant hamsters.

Those Who Don't Learn from History

The first thing that I learned in business school is how to perform a case study analysis. For those who have never read a case study, it is an example of a real life company that has been a smashing success or a colossal failure. The student is then expected to analyze the case and document the best practices of the successful companies or look for lessons learned from the unsuccessful ones. Harvard Business School has become famous for teaching via the case study analysis and it is now a staple of the business school and corporate worlds.

One place where this methodology is not applied is politics. With elections coming up this year and politicians on both sides dusting off their ideology and rhetoric, I can’t help but wonder why no one is mentioning policies that have or have not worked in other countries. More specifically, I wonder why no one is looking at Greece, which is in the midst of imploding economically, for lessons learned.

Since no one seems to be doing this, this post will serve as my own brief case study analysis of Greece’s current economic crisis.

Overview of Greece’s Economic Situation:

Greece just received its second bailout from the European Union (EU). This bailout was required because Greece did not have enough funds to make the payments on its debt. As of the writing of this post, Greece’s total public debt is approaching 175% of the size of its economy. Long story short, Greece owes its creditors almost twice as much as its economy is worth. This is an untenable situation and it is only a matter of time until the country goes bankrupt.

These economic problems are a direct result of two factors. First, Greece’s debt load is growing. This is happening because Greece routinely runs a budget deficit. A budget deficit means that its government spends more than it earns. Like any individual, household, or organization that spends more than it earns, Greece has had to offset its deficit with debt. Over time this debt has grown into the monster that faces Greece today.

The second issue is that Greece’s economy is shrinking. This is because Greece adds very little to the world economy in terms of value. Its economic growth was dependent on increased government spending and consumption of imported goods, products, and services by its citizens. Much of this consumption was financed with debt and, as the availability of debt dries up, the country is left with no more money to spend. The key economic indicator of this issue is the massive trade deficit that Greece has.

Budget Deficit:
Budget deficits occur when a country spends more than it earns. Greece’s budget deficit in 2011 was roughly $30B or 11% of the value of its economy. There are two reasons for this budget deficit.

· Greek citizens don’t pay their taxes: It was estimated in 2005 that tax evasion amongst Greek citizens was close to 50%. This statistic has improved slightly since then to about 40%, but the current Greek Finance Minister still estimates that the Greek citizens and companies owe the country close to $50B (€37B) in unpaid taxes.

· Greece has one of the most elaborate welfare systems in the world: Greece’s social welfare expenses accounted for close to 32% of its total expenditures in 2011. This number doesn’t sound like much, most EU countries have about the same ratio, until you factor in that Greece only reports universal healthcare and pension costs. Educational subsidies and other social program costs are not reported. Also, the Greek retirement age of 57-58 is tied with Italy for the lowest in the world, so the government is providing those benefits for a higher proportion of its citizens’ lives.

When you combine the two points above, it is easy to see why Greece continually runs a budget deficit. Its citizens have grown to expect the state to pay for a large amount of benefits without increasing (or even collecting) taxes to pay for them.

Trade Deficit:

Similarly, Greece’s trade deficit issues stem from three main problems within the country. These problems are:

· Greece joined the EU: By joining the EU, Greece joined a free trade zone. This eliminated all trade barriers between the various European countries. It also placed the Greek workforce in direct competition with work forces in other countries. This became a problem for Greece and other EU countries because one of the world’s most efficient work forces is based in the EU: Germany.

· Greece joined the euro common currency: By joining the euro, Greece became tied to a currency that was among the highest valued in the world. This meant that it could no longer compete with other countries based on paying low wages like China does. It had to either be more efficient than its competitors or go bust.

· Peculiar Greek economic policies and regulations: Greece has some very usual policies that are aimed at protecting its industries and workforce. Instead, they stifle growth and produce inefficiencies. An example is: annual wage increases in Greece are not determined by the companies who pay them. Instead, they are determined by negotiations between the state and trade unions. The result is that Greek citizens have enjoyed close to a 10% raise every year for the past decade.

When combined, these three factors have made Greece incredibly uncompetitive from an economic perspective. The result is that it is cheaper to buy goods produced in other countries than it is to buy domestic goods in Greece. This means fewer jobs for the Greek citizens and has produced an unemployment rate over 20%. It also means that the Greek economic decline will continue to mirror cuts in government spending since there is very little else in the country to drive growth.

Lessons Learned:

My big takeaway from this exercise is that all of the root causes of Greece’s economic meltdown are side-effects of running a modern democratic system. This is because Greece politicians did all of the things that are politically popular in a democratic society. They cut taxes, reduced the retirement age, increased government spending on social programs and pensions, and put in place numerous policies to protect the interest of trade unions and Greek workers. Despite the popularity of these programs, Greece is failing.

The lesson learned from Greece is therefore that politicians in democratic governments have a responsibility to their citizens that is similar to the responsibility that parents have to their children. They need to be the ones who tell the citizens "No", despite how unpopular that may make them.

You Might as Well Face It, You're Addicted to...

….war. Well, maybe not you personally, but the modern day United States certainly is.

Don’t believe me, surf the web for an hour or so. You’re bound to come across articles calling for the US to intervene in Syria or forecasting a coming conflict with Iran. You can also find stories about the recently completed war in Iraq or the ongoing war in Afghanistan. Lastly, if you look hard enough, you can find a statistic like the following: the US accounts for 43% of total world military expenditure. This is larger than the next 14 countries combined.

Prussian military strategist Carl von Clausewitz once stated that "War is the continuation of policy by other means" and no country in history has embraced this theory like the modern day United States. This has naturally led to series of literature to be generated for and against the US’s aggressive foreign policy.

The “Against” Perspective:

The “Against” perspective can be represented by author and former US soldier Andrew Bacevich. In his book “Washington Rules”, Bacevich argues that the US leadership in both parties has come to view war as its solution to every problem. His chief point is that since the start of World War 2, the US has constantly been engaged in a global struggle against some sort of –ism: first Fascism, then Communism, and now Terrorism. Bacevich presents multiple examples of how US leadership has used covert operations, threat of nuclear war, direct military intervention, and even trading policies to directly support ongoing wars against global enemies.

Bacevich’s conclusion is that this policy has led to the US being universally feared and resented. He also calls for the US to renounce its claims on bases like Ramstein in Germany and Okinawa in Japan and to return its troops home to protect sovereign US territory. Doing this, he argues, will free up billions of dollars in government funds to address domestic issues, as well as improve the US’s standing in the global community.

The “For” Perspective:

The alternate view to Bacevich is championed by George Friedman of Stratfor and the books “The Next 100 Years” and “The Next Decade”. This view is that the US, as the dominant global power, has a great incentive to use war as a tool to disrupt potential competitors.

From this perspective, the US goes to war because it can. It doesn’t have to win every war. Instead, it just has to “mess up” the other side enough that they are no longer a challenge to the US. In this light, the wars in Afghanistan and Iraq make perfect sense.

The Taliban was responsible for the 9/11 attacks on the US and was seeking to use its attack to recreate the Islamic Caliphate. A reborn Caliphate would have united the Middle East and presented a severe threat to the US’s oil interests in that part of the world. The US intervened and, despite the war dragging on 10 years later with no end in sight, has prevented the creation of the Caliphate. It has also disrupted the Taliban by eliminating most of its leadership.

The same story applies to Iraq. Many of the operatives who participated in the 9/11 attacks came from Saudi Arabia and Iraq. The US therefore invaded Iraq because it is the central hub of the Middle East. From there, the US could attack Saudi Arabia, Jordan, Syria, Iran, or Kuwait. This served a reminder to these countries of the consequences of crossing the US. It also prevented them openly supporting the Taliban and its goal of creating a Caliphate.

My Take:

I hate to admit it, but I am torn on this issue. My heart lies with Bacevich’s perspective while my head sides with Friedman.

I agree with Bacevich because war requires the sacrifice of US soldiers and can often result in their death. It bothers me that US leadership can sacrifice their lives so easily. I also dislike the fact that these wars syphon off billions of dollars that could be used to address problems on the domestic front. Lastly, I dislike the fact that this warmongering has created a negative view of Americans abroad.

I agree with Friedman because his view is logical and appeals to the engineer in me. The current global system works for the US. These small wars are therefore a form of preventative maintenance on the global system. They are aimed at isolating and correcting potential problems before they become too large and disrupt the overall system. While painful and sometimes expensive, they are nothing compared to the pain and expense of a significant system failure.

Conflicted, with my heart fighting my head, I therefore turn to the creators of South Park for their wisdom. Paraphrasing the message of the “I’m a Little Bit Country” episode, I believe that both sides are needed. The Friedman’s of the world are needed to keep the global system working for the US and to prevent catastrophes like WW1’s and 2 from happening again. The Bacevich’s of the world are needed to act as the country’s public conscience and prevent the country from abusing its power. They also prevent the rest of the world from hating the US for being openly bloodthirsty and ruthless.

As South Park states, this allows the US to be ruthless in pursuing its goals while not seeming bloodthirsty. This is called “having your cake and eating it too” and it’s the beauty of the American democratic system.

The United Kingdom Goes Back in Time

Last week, I had lunch with a couple of European friends. One friend is German and the other Greek, so they argued vociferously about the European Union’s (EU) current debt issues throughout most of the lunch. The only topic that they seemed to agree on was the recent announcement from the EU leadership regarding changes in the Eurozone’s structure.

A quick summary of this recent announcement is as follows: 25 of the 27 EU countries recently voted to ratify changes to the EU charter to allow for closer economic and national integration. The two nations that did not vote to approve the changes were the Czech Republic and the United Kingdom (UK). The Czech Republic is expected to eventually approve of the changes, while the UK flatly rejected the changes.

This news is important for two reasons:

1. The United Kingdom has a history of disrupting mainland European attempts at integration.

2. The attitude that the UK’s actions engender from the mainland. As my two friends put it, “Damn Brits! They’d rather be little Americans than real Europeans.” (I paraphrased because their adjectives were slightly more colorful than mine.)

Traditional Perspective:

Traditional historical literature places the UK in the role of the reluctant hero. Since the start of the 19^th century time, the UK has played the role of protector of freedom in Europe. It has entered numerous European wars to oppose aggressor nations seeking to dominate the continent and subdue smaller nations. These wars in include the Napoleonic Wars against France, World Wars 1 and 2 against Germany, and the Cold War against the Soviet Union. In each case, the British Isles remained unconquered and the UK acted as the lead partner in a coalition that eventually triumphed and liberated the European mainland.

Alternate Perspective:

“The Pity of War: Explaining World War 1” by Niall Ferguson offers up an alternative view on the UK’s role in World War 1. I think this perspective applies just as easily to all of the wars mentioned above. Viewed from Ferguson’s alternative, the UK is not the reluctant hero but the meddling outsider who continually prevents European integration and causes the cycle of conflict on the mainland to keep resetting.

From this perspective, 19^th century France, 20^th century Germany, and Soviet Russia were not aggressor nations that were led by megalomaniac emperors or dictators. Instead, they were all mainland powers that were seeking to use military force to create a version of the current EU under French, German, or Russian leadership.

Modern Day:

This alternate perspective is important because Europe is attempting to integrate again. This time, the mainland powers have changed their strategy. France and Germany are cooperating rather than battling each other and Merkozy, German Chancellor Angela Merkel and French President Nicolas Sarkozy, are the unofficial leaders of the EU. Russia, while not an EU member, is also cooperating with the Franco-German dominated EU. It is participating in the EU economy by playing the role as energy and raw material provider, much like Canada does with NAFTA.

This cooperation between the three mainland powers is a new twist in Europe and has led to the greatest level of integration that the continent has ever seen. It will be interesting to see if this integration can continue. It will also be interesting to see if the European cycle of war gets reset and a new struggle breaks out for control of the continent. After all, the UK just drew the first battle line by declaring itself not a part of Europe after all.

Too Much of a Good Thing

In my last post, "Tonight We're Going to Party Like Its 1989", I argued that current American economic stagnation and high unemployment rates are a direct result of the trade policy that the US developed during the Cold War. While I still stand behind this argument, I have begun to feel that it is incomplete. In my mind, it does not answer the key question of "Why now?"

The Cold War has been over for 20 years. There had to be another event that took place between the end of the Cold War and now to explain why our economy has descended into economic stagnation and unemployment so quickly. I found this event this week when I finished "23 Things They Don't Tell You About Capitalism" by Ha-Joon Change.

“23 Things They Don’t Tell You About Capitalism”:
Chang’s book is a collection of 23 distinct case studies that serve as counterarguments to the ideology of free market capitalism. My favorite is #22, in which he counters the argument that we need a free financial market to increase economic efficiency and kick start growth.

In this case, Chang argues that the global financial systems have become too efficient. His argument is that financial markets have been deregulated to the point where they are almost perfectly efficient. In such an efficient market, investment capital can be instantly transferred from one side of the globe to another in search of a quick profit. This puts pressure on publicly traded companies to make decisions that prioritize profit today over investment in tomorrow's success.

His examples are General Electric (GE) and General Motors (GM). Both have been traditional American industrial powerhouses. Starting in the late 1990's, each adopted a seperate strategy to deal with the increased demands of the financial markets.

GE responded to the financial pressures by outsourcing its manufacturing jobs to Asia in the early 2000's to lower production costs and increase margins. It also acquired GE Capital as a separate business due to the financial markets' higher margins. It is currently one of the world's most successful companies and, with offices in over 100 countries, a perfect example of a global conglomerate.

GM responded to the financial markets' demands by cutting back on product development. It kept its manufacturing operations in the US, but funneled more and more funds directly to the bottom line and away from product development and strategy. This led to GM producing inferior cars when compared to its German, Japanese, and Korean competitors and it had to be bailed out by the US government to prevent bankruptcy.

My Take:

First of all, Chang's examples of GM and GE prove my original point that globalization has contributed strongly to our current unemployment rates and trade imbalance. GE responded perfectly to the demands from the financial markets and did so in a way that hurt America's industrial base. GM refused to do this and almost went bankrupt went pitted against foreign competition.

Next, Chang’s arguments can be taken one step further to identify the specific act that sent globalization and the global pursuit of short-term profit into overdrive. This act is the Gramm-Leach-Bliley Act of 1999, which effectively removed all financial regulation. It also combines with the US’s foreign policy strategy of trading to access to the US’s consumer markets for military alliances to explain the US’s current economic woes.

Don’t believe me? Check out the history of the US’s trade balance below. It can’t be coincidence that the graphs severe downward trend starts the year that Gramm-Leach-Bliley was passed and does not begin to recover until after the 2008 financial crisis and subsequent government bailout and market re-regulation.